Mike Masseth - VP of IR Mark Buthman - SVP and CFO Tom Falk - Chairman and CEO

Ali Dibadj - Sanford Bernstein Chris Ferrara - Bank of America/Merrill Lynch Wendy Nicholson - Citi Investment Research Alice Longley - Buckingham Research Linda Bolton Weiser - Caris & Company Bill Schmitz - Deutsche Bank Securities Lauren Lieberman - Barclays Capital Connie Maneaty - BMO Capital Markets Chip Dillon - Credit Suisse Andrew Sawyer - Goldman Sachs Scott Scher - Clovis Capital Jason Gere - RBC Capital Markets

(Operator Instructions) I would now like to turn the conference over to Mr. Mike Masseth. Mr. Masseth, you may begin, sir.

We appreciate your interest in Kimberly-Clark. With us today are Tom Falk, CEO; Mark Buthman; Senior VP and CFO; and Randy Vest, Vice President and Controller. Here is the agenda for today's call. Mark will start with a review of our second quarter results. Then, Tom will provide his perspective on the results for the quarter, and then discuss our 2009 outlook. That will leave us plenty of time for Q&A. For those wishing to follow along, we have a presentation of today's materials in the Investor section of our website, which is www.kimberly-clark.com. 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 our future results to differ materially from those expressed in any forward-looking statements. I'd also like to point out that when discussing 2009 results, we will be comparing to adjusted results in 2008, which exclude charges for the strategic cost reduction plan that we completed last year and an extraordinary loss. 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 made these adjustments and reconciliations to comparable financial measures determined in accordance with GAAP, see today's news release and additional information on our website. Now I'll turn it over to Mark.

I hope you had a chance to review our news release this morning with all the details of our results. I'm going to briefly review the quarter and I'll start with a few headlines. First, organic sales growth was nearly 3% in the quarter. That was more than offset by the impact of the stronger US dollar. Second, we delivered 350 basis points of gross margin improvement, driven by our focus on revenue realization, lower input costs and strong cost savings. Meanwhile, operating profit and earnings per share both declined somewhat, primarily due to significant currency effects and severance costs to streamline the organization, which we took on the quarter. Third, cash provided by operations was up 32% to an all-time record of nearly $1 billion. Now, let me get into the details of the quarter, starting with sales. Overall sales decreased about 6% to $4.7 billion, including a currency drag of more than 8%. Organic growth of nearly 3% was driven by our focus on improving net realized revenue, which led to an approximate five-point gain in net selling prices. Total sales volumes were down about 2%, reflecting the challenging economic environment, as well as our continued emphasis on price realization. Turning to the top-line for each of our segments, I'll start with Personal Care. Sales were down 2%, including a nine-point currency headwind. Organic growth of approximately 7% was driven by higher net selling prices of about 6% and one-point of improved product mix. North American organic sells fell about 3%. Volumes were down more than 4%, but were partially offset by higher net selling prices of approximately 2%. The volume decrease came mostly in Huggies diapers and our child care brands. Huggies volumes were off versus double-digit growth last year and child care reflected continuing softness in the category. That said, volumes in both businesses were in line with our expectations and market shares improved one to two points sequentially compared to the first quarter. Moving to Europe, Personal Care organic sales increased about 6%. Volumes were up about 10%, with improved performance of Huggies diapers in Poland and in our core markets in Western Europe, as selling prices were down about 4% as the promotional environment continues to be very competitive in Europe. In developing and emerging markets, Personal Care organic sales rose 17%. Net selling prices increased over 14% and product mix contributed one-point of growth. In addition, volumes increased about 2%, as despite lower diaper volumes in Australia. Volume highlights included double-digit growth in China, Russia, Turkey and in Vietnam. Now, turning to Consumer Tissue, sales were down 8%, including a nine-point drag from currency. Net selling prices were up approximately 4%, while volumes fell about 3% and were broadly impacted by our continued focus on revenue realization, some category weakness and consumer trade-down. In North America, net sales were even with the year ago period. Higher net selling prices of nearly 5% and slightly improved product mix were offset by lower volumes across all categories. Net selling prices reflect the increases we took last year, partially offset by somewhat higher promotional spending. Switching to Europe, Consumer Tissue organic sales fell about 1%. Net selling prices and product mix were each nearly 1% lower, while sales volumes increased almost 1%. In the developing and emerging markets, Consumer Tissue organic sales increased nearly 6%. Net selling prices rose more than 8%, as we've aggressively focused on improving our profitability. Mix was up by about a point in the quarter with volumes off almost 4%. Now, moving to K-C Professional and Other, sales decreased about 12%, including seven points from currency. We generated three points of growth from higher net selling prices and two points of growth came from improved mix. However, sales volumes were down by nearly 10%, reflecting the challenging economic environment. Lastly, Healthcare segment sales were up approximately 9%. Organic growth of 13% was driven by higher volumes of 14%, while net selling prices were lower by 1%. Healthcare volumes were up in most product categories, including double-digit growth in exam gloves for the fifth consecutive quarter. In addition to strong underlying performance in the business, nearly half of the total volume growth in the quarter came from increased global demand for face masks as a result of the H1N1 flu virus. Now, moving to profit margin and cost savings, gross margins improved nicely from 29.8% a year ago to 33.3% as we benefited from price realization, great cost savings performance and lower input costs of about $180 million. That's the third consecutive quarter of year-on-year gross margin improvement. Second quarter operating profit fell approximately 8% to $609 million with an operating margin of 12.9%. Results included negative currency effects of about $125 million and severance charges to streamline the organization of $110 million. In addition, pension expense increased almost $50 million and we incurred production curtailment that reduced operating profit by about $45 million as we took further actions to improve inventory levels. Meanwhile, we continue to invest behind our brands, with strategic marketing up by nearly $40 million in local currency terms in the quarter. All-in-all, even though margins were down, I'm encouraged by our performance, considering the 230 basis point drag from the severance costs we incurred in the quarter. Now, turning to cost savings, we had a strong quarter with total savings of $83 million. That brings our cost savings for the first half of the year to $128 million. In terms of the strategic cost reduction plan, we realized $16 million of benefit from activities that were completed in 2008. Our ongoing FORCE program generated savings of $67 million in the quarter, including strong benefits from sourcing and supply chain activities and a generally lower level of spending at some of our facilities compared to last year. We're now expecting to deliver at least $200 million in total savings this year. That's $50 million higher than our original target for the year. I'm really pleased with the overall cost savings focus in the organization. It's helping to drive our gross margin and it's a key reason we've raised our earnings outlook for 2009. Now, let's look briefly at second quarter segment operating margins. Underlying performance was really strong, with margins up year-on-year in Consumer Tissue, K-C Professional and Healthcare despite the severance costs that we incurred. Personal Care margins were also healthy at nearly 19% even with 190 basis point drag from severance charges. Now, turning to cash flow, cash provided by operations was outstanding. We increased cash flow by 32% to $997 million. That's an all-time record even with defined benefit plan contributions of more than $400 million. The growth was driven by significant working capital reductions and higher cash earnings. In terms of working capital, we improved our cash conversion cycle by 10 days compared to the first quarter, including considerable progress with inventory levels. I have to say that both Tom and I are very proud of the entire organization's efforts to deliver cost savings and improve our working capital position and the results are clearly evident in our cash flow this quarter. So that wraps up the financial review. To recap the quarter, we delivered 3% organic sales growth, gross margin and cost savings performance was very strong, and we delivered excellent cash flow. I'll turn it over to Tom.

I'll give you my perspective on our second quarter results, and then I'll review the outlook for the rest of the year. Then we'll move on and get to your questions. In short, we're executing well in a difficult environment and we're making excellent progress in managing the factors that we control. That's leading to an improved earnings outlook for 2009, while we continue to do what's right for the long-term health of Kimberly-Clark. So, let me begin with our second quarter results. As you heard from Mark, business conditions remain challenging in the quarter. The recession has impacted demand in our business, most notably in K-C Professional and Consumer Tissue, and the weak foreign currencies continue to depress our results. In this environment, our market positions have held up pretty well overall, especially if you compare the latter part of 2008. Looking at our US market shares in the second quarter, our shares improved sequentially compared to the first quarter in nearly all of our major categories, with particularly good progress in Personal Care. On that same basis, private label shares were flat or down again in nearly all of our categories, continuing the trend from last quarter. On the bottom-line, while our results were down somewhat in the second quarter, our underlying performance was very encouraging when you consider the offsets from currency, pension expense and the 18% drag from the charges for our organization optimization initiative. In addition, we also made significant progress in the quarter with our 2009 priorities. First, we continued to pursue our targeted growth initiatives. In developing and emerging markets, organic sales rose 12% in the quarter as we've aggressively raised prices over the last year to recover inflationary cost increases. While sales volumes have moderated a little in the near term, we continue to deliver strong volume growth in several high-potential markets like China and Russia. So I remain very optimistic about our growth prospects in the developing and emerging markets overall. In addition, our Healthcare team delivered very good results in the quarter, both in the top and bottom-line, and that bodes well for our future in that business. Second, we continue to strengthen our brands. We launched several innovations in the quarter and we supported our brands with a sizable increase in strategic marketing spending. Third, our focus on improving profitability is starting to pay off. I'm pleased to see the strong gross margin improvement we delivered in the second quarter, although in some cases our sales volumes have been impacted by our focus on revenue realization. That's a good short-term trade-off to improve our profitability. Moreover, our cost savings performance was excellent, as our teams have responded very well to the call to deliver incremental savings in a tough economic environment. Fourth, cash provided by operations was outstanding in the quarter, as Mark has already highlighted for you. We are reaping the benefits from our actions to improve working capital, particularly with our inventory levels. So, all-in-all, I'm encouraged by our achievements in a number of areas. Now let me turn to the outlook. Based on what we've experienced so far, we expect business conditions to remain challenging for the rest of the year. In this environment, we remain focused on improving margins, maximizing our cash flow, pursuing targeted growth initiatives, and further building brands and key capabilities that support our sustainable growth. Moreover, we're accelerating cost reductions and driving our organization efficiency. Last month's organization announcement is further evidence of our commitment to improve our competitive position. Although this initiative will be a net drag on earnings this year, it has a quick payback and it will improve our underlying profitability and cash flow, and put us in a better position to take advantage of future growth opportunities. This morning's news release includes several updated planning assumptions for the year, so I won't repeat all the details here. The bottom line is that we're ahead of our plan for the year and we're raising our earnings guidance accordingly. We now expect earnings per share in 2009 will be in a range of $4.10 to $4.25 per share. That's up from our previous estimate of $4 to $4.20, even though our new guidance includes the net drag of about $0.15 per share from our organization optimization initiative. So we are more than overcoming that impact, primarily as a result of our strong focus on generating additional cost savings and improving net selling prices. A partial recovery in currency rates is also expected to provide a modest boost to our earnings compared to our previous guidance. Our updated outlook means that earnings in the back half of the year should be up nicely compared to both the first half of this year and the second half of 2008. To summarize, although the current environment continues to be difficult, I am encouraged by the progress that we're making. Our K-C teams around the world are taking aggressive steps to improve near-term results while also continuing to deploy our global business plan strategies for long-term success. We're building a leaner, stronger and faster company, and we have the right strategies in place to drive sustainable growth and deliver improved shareholder returns. So that wraps up our prepared remarks. Now we'll be happy to take your questions.

(Operator Instructions). Our first question comes from Ali Dibadj with Sanford Bernstein. Ali Dibadj - Sanford Bernstein: I was a little surprised about how well pricing held in. I'm trying to understand how you expect that going forward. First, maybe help us out trying to differentiate pricing in the US versus non-US, and second of all, I'm trying to get a sense of competitive promotional activity you are expecting going forward or that maybe you have not seen so far.

If you look in the US in particular, starting in the Personal Care categories, particularly in diapers, which is where most of the pricing action typically happens, it looks like the price increases that we've taken that others have followed are mostly holding. We did some work in the first part of the year getting our strategic price points reset. We have our big box typically on sale for just under $20 and our jumbo pack is just under $10, and those are the right price points that we think make sense in the category. It now looks like there's actually going to be some very modest private label increases via count reduction, which would be a sign that they are actually going to narrow the gap versus branded. We talked about on the last call how we're going to be watching private label shares as a sign as to how healthy the category was from a pricing standpoint and private label shares have continued to trend down modestly and branded shares have generally trended up. So I'd say in Personal Care, I feel pretty good about where we're at from a pricing standpoint. In the first quarter call, when oil was more in the $40 range, there was a lot more noise about it than there has been lately when oil has been bouncing off $60 and $70 a barrel type ranges. On the tissue front, probably a little bit more of a mixed bag. You are seeing some more hot feature prices there, probably more trade spend happening there. Generally the price increases have been implemented, but there's a fair amount of those categories that are done on deal, and so you're seeing still some fairly hot promotional price points. So, I'd say partial implementation in tissue, and pulp starting to tick up a little bit, so you'd like to think that that's going to stabilize in the back half of the year. So that's kind of the major US categories, Ali. K-C Professional, which is our other big area where we took a fair amount of price, again, there most of the price increases have been holding. We haven't seen really any significant price dealt back in that market. Ali Dibadj - Sanford Bernstein: Non-US?

Non-US, there has been more of a currency play where you've had high currency deflation relative to the dollar. You've seen pretty aggressive pricing. So in some Latin America markets, we've seen pretty aggressive price taken, some of the Asian markets as well. That's been pretty well played out by everybody. I think you'll just have to watch and see what the dollar does in the second half to tell what might happen to pricing in those markets. Ali Dibadj - Sanford Bernstein: I feel like you are a little surprised by the way pricing has held in, for example, lowering a little bit of your volume guidance going forward. My sense was maybe last time we chatted on a conference call, you felt like pricing may come down a little bit more. Now you don't feel like that's an issue anymore. Is that the right feeling? Is that based on commodity costs or is that based on branded private label competitors, how has your mindset changed?

Certainly watching private label shares perform in the last couple of quarters gives us more confidence we're on the right track. As we've adjusted price points and categories together on strategic price points, we've seen that play out as we would have indicated. That was probably a little bit more uncertain. Obviously the strength of some of the commodity costs, you are starting to see things turn back up has told us that you're not really looking to roll things back in that kind of an environment either. So it's been a combination of all of those factors. You had to pick the biggest one of those, that who are really watching the market position and what's happening with the consumer most closely. Ali Dibadj - Sanford Bernstein: Switching gears a little bit to cost savings, can you talk a little bit about your cost savings trajectory, certainly as you get to the backend of this year and beyond? You are cutting more this year than anticipated. You have done a big restructuring. Is that acceleration of future cost cutting or is that incremental to what it would have been? I know it's a tough question, but trying to get a better sense of that.

I think that we certainly saw the difficult economic environment coming and said we've got to be more aggressive than we've ever been. So there's an element of it that is certainly probably beyond where we may have gone on a normal cost reduction trajectory. Our challenge is to make sure we sustain it now. So as we go through this as the economy starts to get better, whenever that happens later this year, early next year that we hang on to the supply chain savings, that we hang on to our sourcing savings, that we keep our organization lean and don't let ourselves add unnecessary headcount. So as we get through the implementation of this and we've still got some work to do to implement in the back half of this year, then our efforts are going to focus on how do we sustain it and even take it beyond where we're at today? Ali Dibadj - Sanford Bernstein: I guess that's kind of my question. Is there still the same level of sustainable cost cutting going forward before you are doing these bigger cost cuttings currently?

We still think we've got opportunities to get more efficient in our businesses around the world. So we've still got lots of work to do to take costs out of our supply chain and eliminate unnecessary work wherever we can.

Our next question comes from Chris Ferrara with Bank of America. Chris Ferrara - Bank of America/Merrill Lynch: I don't think we've seen inventory days as low as 59 at least by my calculation in years, if ever. What does that speak to the opportunity to do more curtailment absent volumes falling off a cliff from here? Will we see more curtailment? Do you want to go even further than where you are now?

I think for our current level of capability, we've taken inventory down about as far as we can. So I think as we go forward, the things we are going to be focusing on is how do we make sure that we continue to get our SKU line-up to be even more efficient, how do we get even better at our sales forecasting and demand planning processes? How do we build our capability to grade change faster and cycle our manufacturing facilities across our product lineup so that we can sustain excellent customer service at very low levels of inventory? So we've done the heavy lifting to get the inventory down, but we've got some more work to do to build the capability to really sustain it and maybe even take it beyond that level at some point. Chris Ferrara - Bank of America/Merrill Lynch: Just a question on restructuring. Obviously, you guys have made a decision to not give guidance or report a pro forma type number. You are running all the charges straight through to the bottom line. Can you talk about what your view is of charges going forward? We've seen big restructuring charges in one year and then none for a few years after that. Do you think that the amount of charges you are taking this year could end up being somewhat of a run rate just in the interest of continuous improvement in the business? Will we see charges ongoing every year, just maybe not as big as what we saw in the major restructuring program?

If you look back over time, we've taken periodic charges through the P&L that weren't treated as an unusual item as well. So I think this one is a little bigger than normal, but it's got a quick payback and we can implement it very quickly were we've had multiyear programs involving lots of facilities and lots of asset write-offs. We've tended to do those as unusual items. This is a little bit bigger than normal to go through operations, but it's an unusual time. Again, we're being transparent with you either way on what the amount is and what the benefits are, and so we've laid it all out there and decided to take this one through regular earnings. Chris Ferrara - Bank of America/Merrill Lynch: Hypothetically speaking, if you go into next year, into calendar 2010, and you have charges that maybe aren't $0.25, maybe they are $0.10 or $0.15, I mean do you even call them out as a separate item and give them much airtime, or is that just in the magnitude of what you've done in the past where we've never really looked too closely at it?

I think in a quarter, if we had an individual charge that was $0.10 or $0.15, we'd probably talk to you about it. Whether it was unusual or in regular operations, that's a reasonably large number for us. Chris Ferrara - Bank of America/Merrill Lynch: Finally, on the $45 million, I think you called out in the release, for importing finished products into Venezuela, we obviously had a Venezuelan related currency issue that went through other income expense, but that was going through COGS. Was there any reason it went through COGS last quarter? I guess this is more currency transaction drag. Is that right and is that something that you'll see going forward and is it something you saw in past quarters, at least as far as the classification goes, the fact that it went through COGS and not through other?

In the first quarter, what you saw was more of our excess cash balances being converted to dollars, and then the exchange loss on that ran through other expense as it would in the future if we had similar situations. In the second quarter, you saw more buying imported product at the parallel exchange rate, and the exchange loss there going through cost of sales. In the first quarter, more of our imports were bought at the official exchange rate. So that generated more cash and we wound up taking the exchange loss in other expense. I would think going forward we're going to wind up having more of the imports done at the parallel rate, which would drive more of that exchange loss through cost of goods sold.

Our next question comes from Wendy Nicholson with Citi Investment Research. Wendy Nicholson - Citi Investment Research: My first question is just to do with the K-C Professional and then the Healthcare businesses, just a little bit of color on the outlook for volume growth in those businesses. On the Professional side, I know that's kind of the most economically sensitive business. Are you seeing any kind of light at the end of the tunnel there or should we still expect the volume declines to kind of be that high single digit level? On Healthcare, with the great growth you saw on the masks, is it your sense that those masks are sitting in the drug stores and have yet to be consumed, if you will, or have those been used up, and so we should see sort of normal growth going forward as opposed to some inventory drawdown?

ON the K-C Professional front, we would say that the volume drag has been pretty consistent. In other words, we are not expecting that it's going to get dramatically better in the back half. It may get slightly better and I suppose like everybody else, we are seeing green shoots out there of potential growth, but there are still lots of industries that are depressed and not buying a whole lot. So any kind of heavy industry has been pretty slow. Anything that's travel related has been pretty slow. Healthcare has been pretty decent from a KCP standpoint. So we've got pockets of things that are doing reasonably well there. I'm encouraged that we are able to improve our margins in KCP, even though you've seen the volume decline that we've had. It's really a testimony to the team that's running that business. On the Healthcare front, there's not a lot of transparency in terms of how much of the mask purchase that went through in the second quarter has actually been consumed. A lot of it isn't at retail, it's actually in the healthcare system. I'd say Mexico used a lot of masks in the second quarter most likely with the swine flu. We don't really have a good read on how much stock piling there is, but we also are beginning to think about and prepare for the fall flu season where we expect that the swine flu hasn't gone away and could even accelerate a bit more and we could see some additional demand there, and we want to be able to help take care of and protect as many people as we can. Wendy Nicholson - Citi Investment Research: It's not like orders have fallen off a cliff in the last month or something like that?

No. We still have a pretty big unshipped order book. What you are finding is a lot of people wanting to put more aggressive crisis management plans in place and that usually involves stocking up on things like face masks. So that hasn't completely played out yet. Wendy Nicholson - Citi Investment Research: My last question is on the cash flow, obviously fantastic, does it change your view about share buybacks and the timing of when you might get back in the market?

At this point we are probably very pleased to have the flexibility that that kind of cash flow provides, but we've got lots of things to do, the pension plan and other things.

I think we've been able to accelerate some of our pension contributions this year and we're almost to the point where we expected to be for the full year heading into 2009. So that's probably the first call on excess cash. We've got some minimal options to pay down some debt. At least from what we know now, I would not expect to be back in the market buying shares for 2009. We have some other calls on cash in the near term. It's possible we're taking a pretty conservative look to the balance sheet. It's possible we carry a little more cash than we've typically done in the past, given the environment we're in.

Our next question comes from Alice Longley with Buckingham Research. Alice Longley - Buckingham Research: My question is about the volume trends in North America in Personal Care. You are saying your market shares are improved sequentially from the first quarter to the second quarter, but of course volumes worse. Can you tell us about trends in the category of child care, for instance, in the first quarter to the second quarter? Has the category worsened, including all retailers, including the untracked retailers?

I think what you would see in the child care category is that moms are putting off toilet training a little bit or holding children in diapers a little bit longer or maybe in some cases training them out of diapers and not making the leap to training pants just because of the tougher economic situation and training pants are a little bit higher price per unit than diapers are. Usually there's a little bit of a summer spike in toilet training, so we would expect to see that get a little bit better sequentially. It's early days yet, so we'll see how that plays out. The diaper category overall has been relatively flat so far this year in unit volume. So you are not seeing big shifts there. In terms of volume comparisons, we had a very strong second quarter last year, so it's a little tougher comp than maybe you are used to seeing. I think we were close to double-digit growth in diapers last year in the second quarter. Alice Longley - Buckingham Research: Would it be fair to expect the second half of the year volume trends to be similar or are we seeing a little improvement into the second half do you think?

Well, we'll have easier comparisons in the second half than we did in the first half. So you should start to see some year-over-year positive share momentum and volumes should track that over time. Alice Longley - Buckingham Research: What are you seeing in the untracked channels in terms of any changes that might be being made in Personal Care and Tissue/Towel? Do you see any move to give greater shelf space or marketing by those retailers to value brands during the summer months?

I think every retailer is trying to talk about value out there and they are trying to understand the consumer squeeze and they are trying to find different ways to do that. So, I wouldn't say anything that's unusual or that you wouldn't see in the track channel, so you haven't seen as much channel migration. There was some, but it hasn't accelerated at this point in time. Alice Longley - Buckingham Research: The gap in the growth between the tracked and untracked channels is now widening?

I don't believe so, at least not in our categories. Alice Longley - Buckingham Research: My other question is about developing markets. It looks like if you put all of your categories together, there was an acceleration mainly on pricing, but that volume actually decelerated some. Is that accurate? Overall, you were up 12%, I guess, you said.

That's fair. I'd say our volume was actually down slightly in emerging markets for the first time in quite a while. There were some pockets that were a bigger impact on that. Australia was one that is in our developing and emerging markets bucket, but it's a pretty well developed market and there's some things happening in the retail environment, and with our promotional schedule in Australia that caused our volumes to be off a fair amount there. Latin America, we were pretty aggressively focused on price, and so we were flat in Personal Care volumes in Latin America and down about 5% in Tissue volumes. If you look at markets like China, Russia, Turkey, other markets in the Middle East, we saw continued healthy volume growth, maybe not quite as fast as it had been, but still very positive volume growth overall. Alice Longley - Buckingham Research: As the year goes on as currency becomes less of a hit, should we expect the pricing to decelerate and then volume to reaccelerate?

Certainly you'll starts to get some year-over-year lapping of the pricing where you'll get less incremental price realization. If you see some more dramatic change in the dollar, you could see some potential price deceleration in some of these markets. We'll have to wait and see. Obviously, it's our goal to get all of those markets back growing again and we've got aggressive plans to go do that. Alice Longley - Buckingham Research: The last part of that is, what was the emerging market growth overall in the first quarter? Was it like 10?

Double-digits. Alice Longley - Buckingham Research: This quarter it was 12%. Was it 10% in the first quarter, so it's a little stronger?

It was 12% in the first quarter as well, Alice. Alice Longley - Buckingham Research: So it was even.

A little bit more price, a little bit less volume this time.

Our next question comes from Linda Bolton Weiser with Caris & Company. Linda Bolton Weiser - Caris & Company: Just on North American diapers, our stores have seem to indicate that possibly in the down counting, in the price increases that maybe the premium over private label is bigger for Pampers rather than Huggies. Is our data right or could that be possibly true at this point?

Our goal is generally to line up pretty closely with Pampers. In an individual store, you could see something, you might Pampers has a little bit more of their share in the super premium segment. So you could see the impact the impact of their mix affecting the private label comparison potentially. Those are the only two factors I could think about. Generally, we tend to line up pretty much head-to-head with Pampers.

Our next question comes from Bill Schmitz with Deutsche Bank Securities. Bill Schmitz - Deutsche Bank Securities: Is this a new gross margin base to grow off of, assuming commodity costs where they are.

It feels pretty good. We're expecting to sustain this in the back half of the year. Obviously, we see a little bit of commodity up tick in the back half, but we should have some more cost savings coming through. So, our goal is to sustain these kinds of margins in the back half, and then as we move forward understand how we grow on it. That's getting back to kind of where our gross margins were several years ago before a lot of this cost inflation hit us. Bill Schmitz - Deutsche Bank Securities: Is it fair to assume that the production downtime has pretty much ceased?

Yes. Bill Schmitz - Deutsche Bank Securities: Okay. So that should be at the back off so may be there is a little bit more upside. Okay. And then just in terms of strategic direction, do you think you'll ever be able to return back to kind of those margins you saw in the earlier part of the decade, or are you going to have to dramatically increase your advertising spending?

Bill, we're really happy to have a positive inflection point here in the first half of the year. We're starting to see our margins move up and we're going to do everything we can to keep them moving in that direction. So, obviously long-term, you would like to get back to margins, in the upper teens. And as you saw, some of the progress on our businesses if you adjust for the impact of severance, you would see margins that are up, you know pretty close to that anyway. Bill Schmitz - Deutsche Bank Securities: Okay.

I would also add, Bill that, we've been steadily increasing our investment and strategic marketing, which we did again this quarter. So I'm not sure those two are mutually exclusive. Bill Schmitz - Deutsche Bank Securities: Got you. Will there be a point in time when you migrate from revenue realization to share and volume growth?

Yes. I think that if you look category by category, we're watching share and we're watching revenue. So you've got to balance those things. You don't want to give up too much share. It's too expensive to get it back. If you think it was encouraging, sequentially we saw share improvements in most of our major brands in North America. Bill Schmitz - Deutsche Bank Securities: Okay, great. And then just lastly. I mean, have you thought about entering new categories, either organically or through acquisitions?

Yes, absolutely. Continuing to think about how do we grow from our core and then where some areas that we could expand and what opportunities might be available to us, are areas that we've taken a look at. If it was a new category, it had to be something that we felt we knew something about or could bring some value to. Bill Schmitz - Deutsche Bank Securities: Okay. It also seems like you're stock piling a lot of cash and maybe be sort of being prepared for another downturn. But these cash levels should start to build precipitously in the next two or three quarters?

I think that's the way to think about it. The more cash we generate, the more options we have.

Our next question comes from Lauren Lieberman with Barclays. Lauren Lieberman - Barclays Capital: Good, thank you. One question I had was actually just similar in terms of volume versus revenue realization. Consumer Tissue is one area in particular where, it's now seven quarters or something of volume declines in that business. So what is the threshold for where it gets a little bit uncomfortable or given all the margin flexibility you have. You know, it's worth spending it back in some way, shape or form to kind of recover some of that share. Where is that going I should say?

Yes. Now if you look at our shares in bath and towels, they are relatively flat year-on-year, so that's really what we're kind of watching, is you know are we losing significant share in categories that are important to us. So I would say in bath and towels, overall we feel like we're holding share. We're trying to drive innovation behind Cottonelle, we've got a lot of activity to drive the more premium segments of the tissue category and that's a focal point for us. Facial tissue is probably the one area where we're not satisfied. We've lost some share. We've got some product improvements that are rolling across the line and we'll continue to look at that what we need to do to get facial tissue back where we want it to be. If you look more broadly, internationally, our margins on tissue internationally haven't been acceptable. And so there we'd be probably taking more volume risk to get our revenue and our margins up to a level where it's an investable business. Lauren Lieberman - Barclays Capital: Okay.

And it's a very positive mix shift that's going on in Consumer Tissue in our international markets as well. Lauren Lieberman - Barclays Capital: Okay, and is it a little bit of the opposite right now in Personal Care with the really strong volume performance in Europe versus slightly weaker in the US, if that was negative for margins in the quarter?

Yes. Well, I think in Europe, the way I would think about that is, it's sort of a year-over-year comparison issue. Last year in the first quarter, we had big promotions in Europe and we didn't have as much in the second quarter. This year was the reverse. So we had a little lighter schedule in the first quarter and much heavier promotional schedule in the second quarter. So if you look at the first half overall in Europe, we're up overall on volume, but the whole European market has become more promotional. So there's a lot more money being spent in the key categories over there as a lot of retailers using the diaper category to drive foot traffic into their stores and some of that is being funded by the manufacturers. Lauren Lieberman - Barclays Capital: Okay, great. And the final thing was just the big step up in marketing spending. Can you comment on sort of where and how that's allocated, whether its by geography or product category was it just fairly evenly broad based?

No. I think, obviously we're spending where we got innovation. So we were a little lighter on our first quarter spend in adult care, because we were just launching our Depend for men and Depend for women products. So we increased our marketing spend in the second quarter behind those new products. We have increased some of our coupon values in the diaper category a little bit. So you saw some of that spend happening in the second quarter as well. And wherever we had some product news or innovation, we were heavying up our advertising and promotion activity to drive the innovation. So whether that's Huggies Pure & Natural, Scott Naturals, some of the other new product activity. We focused our incremental strategic investment in some of those areas where we've got strong innovation.

Our next question comes from Connie Maneaty with BMO Capital Markets. Connie Maneaty - BMO Capital Markets: There was a mention of a $16 million non-cash charge related to financing entity. What is that all about?

That was an accounting adjustment that related to one of our, I think it was one of our outstanding debt securities that had to be flowed through other expense. Mark, I don't know if you want to add any other color on that.

We've got a couple of these structured financings as an accounting adjustment non-cash that we would not expect to recur. Connie Maneaty - BMO Capital Markets: Okay, so it won't recur.

Correct.

Right. Connie Maneaty - BMO Capital Markets: Also, on the FORCE and cost reduction, the incremental 50 million. Is there a particular project that are doing well that are setting the stage for higher expectation going forward?

Yes. A big part of that will be some of our organization optimization activity, where we are reducing headcount across the corporation. And so we took the charges for that in the second quarter and we'll start to get the benefits from that in the third and fourth quarter.

I would also say, Connie, we've as we've taken inventory levels down, we're seeing benefits of exiting outside warehousing, reduced inter mill shipping, so we've got some distribution savings that would be a part of that. And I think we stepped up, done a nice job stepping up our global sourcing efforts. We've always done a good job with our major commodities, but if you start getting down to the number, 10, 15 and 20 commodities in terms of dollar purchases, the teams have really stepped up their emphasis there. So I think organization is number one, but I think supply chain and sourcing are also contributing to that up tick in the second half. Connie Maneaty - BMO Capital Markets: The reduction in headcount, do you have a voluntary or an early retirement program going or how is this all being organized? Was there a lot of redundancy and function or description?

We did a very quick organization assessment design process and decided how big the opportunity was and then we offered in the US the opportunity for a voluntary severance program, so employees could raise their hand and receive a severance package, and a little over 600 employees accepted that. And then we have, in the US have had about a couple of hundred additional severances and are just beginning the severance process in Europe and in the emerging markets. So the total will be about 1,600 positions eliminated. Connie Maneaty - BMO Capital Markets: Okay. So you're more than halfway through on the number of positions that will be reduced?

Yes. Most of that really happened very late in the second quarter.

Our next question comes from Chip Dillon with Credit Suisse. Chip Dillon - Credit Suisse: First question is, you did a lot this quarter with a lot of hit with both your hands, it seems like tied behind your back. One of which is Venezuela charge that you talked about. And you said that was mostly under control. But is that completely going to go away in the third and fourth quarter, or about how much of that do you think we'll see linger?

Well, I think we're going to be in Venezuela for a long time. So as long as there's a gap between the official rate and the parallel rate, and we're lined up with some form of currency issue, and there's a lot of other things happening in Venezuela. We were able to increase our selling prices, which was part of the more rapid developing and emerging market selling price increase. So if you looked at Venezuela sequentially first quarter to second quarter, all in, with all the other currency drag and everything else in the Venezuelan P&L, it was about the same as the first quarter. So, I think there will continue to be challenges in Venezuela for a while, but we still think it's a market that we want to be in and over the long-term, we've got a good market position, we're going to defend it and improve it. Chip Dillon - Credit Suisse: And the 45 million, where did that show up on the income statement?

Most of that was in cost of goods sold. Chip Dillon - Credit Suisse: Okay. Then the second question is, when you look at other expense, it was, what, in the 40s. That certainly isn't a number you expect to see on a normal basis going forward, is it, or is it something you can give us some rough guidance for?

Typically if you look over a longer historical period, typically other income and expense has been between plus 15 to minus 15 million. So it has been in that range. Occasionally gets outside of that, but it's typically a much smaller number, or you've seen the kind of currency volatility, et cetera. That number is going to jump around a little bit more because any foreign currency exchange losses go through that line. Chip Dillon - Credit Suisse: Got you. And then the last question is, we hear things in Mexico in general, just economically aren't all that great. And yet at least sequentially you showed a nice improvement in the equity line from 32 I think to 44 million. Are there things that you've seen that have changed as the year has progressed in Mexico that enable you to buck that trend and I guess some of it might be, I don't think much that have would have been currency, I think the peso was pretty flat sequentially?

Yes. We had some currency hit in the first quarter, because of the way their balance sheet structured with some US dollar denominated debt. They hedged more of that in the second quarter, and so they didn't have as much impact from the peso in the second quarter from a balance sheet perspective. Overall, our Mexican business from a top line standpoint, or margin standpoint, Pablo and his team continue to do a very, very good job of running that business. Chip Dillon - Credit Suisse: Then I guess lastly, could you talk a little bit about China and India. At least in terms of how meaningful those businesses are becoming. I would imagine that they were part of what was driving the double-digit volume growth in the D&E area?

Our D&E volume was actually down slightly. D&E overall was up 12%, most of that was price. China would be one of the strong volume growth contributors. Probably China and Russia were two of the bigger volume growth contributors. India's still a relatively small business relative to where China and Russia are today, but we obviously have exciting hopes about the future of our business in India long-term. Chip Dillon - Credit Suisse: Yes, a bit of Revenue. And would you say that China is, you know the revenues, are they double. Would it be fair to say that in '09 they would be double what they were say in '05? Is that too aggressive?

I don't know. Well we could look that up. I guess if you went back and looked at D&E in total as a percent of Kimberly-Clark, if you go back to '04, I think it was about 20% of our sales. Today it's in the low 30s as a percent of sales. Most of that growth has come from markets like China, like Russia, as well as others like Latin America where we continue to do very, very well.

And Chip, that estimate on China would be low. Chip Dillon - Credit Suisse: Would be low. Got you. Thanks very much.

Our next question comes from Andrew Sawyer with Goldman Sachs. Andrew Sawyer - Goldman Sachs: I just had a couple quick ones. First, on the topic of shelf resets. I was wondering if you could talk at all about how the Wal-Mart change with White Cloud has perhaps impacted your business. And then taking that more broadly, as we think about shelf resets into next year. Would you guys be winners in categories like training pants, diapers, toilet tissue, but perhaps have some risk around like feminine care and paper towels?

Yes. I would say overall, as we've seen this play out, we've tended to do better in our personal care categories. We've had some challenges in our tissue categories, but where you've got strong shares and where you have got meaningful innovation, you usually earn your place on the shelf. So overall, I have felt like as we've come through this last round of retail shelf consolidation, you know we've come out with the distribution that we need to get the job done. And so we would expect that to continue going forward. Andrew Sawyer - Goldman Sachs: Then just quickly back on the pricing question, you were starting to see some pulp prices bounce back off of the lows and they are still clearly well off the highs. You know, is there a threshold level where we should think about a need, or where do you feel like your price points are relative to what pulp prices could be, or at what level would you think you would start to need to reconsider pricing again?

Well. I think, as we said, we probably as an industry haven't fully implemented the last price increase. So I think, you would want to see is some of the promoted price points under the current pricing levels pick up a bit before you would see another round of industry list prices. You don't want the everyday shelf price to get so far away from the promoted price that you've got a huge gap or you're just going to drive more and more of your volume into promotional events. So I think that will be the -- we're starting to see pulp tick up modestly, I think what you would maybe see is a little more discipline around promoted price points. Andrew Sawyer - Goldman Sachs: Then just one last one, kind of building on Chris' and Chip's questions. If you look at the first half of the year, you absorb, call it $0.20 of other income and maybe a $0.20 drag from restructuring. And if those things aren't fully recurring going forward, should we think about the earnings base for, as we think about 2010 estimates is coming off of a normalized earnings level north of 450 based on the guidance? Is that an unreasonable way to think about it?

We'll give you more color on 2010 guidance as we get later into this year. And I think what we're trying to do is give you a transparent view of our results and then we'll leave it to you guys to decide what the estimates ought to be.

The next question comes from Scott Scher with Clovis Capital. Scott Scher - Clovis Capital: Can you tell us a little bit about pension expense into next year? Now that you've made sizable pension contributions, what does the pension drag look like next year? So it's $0.08 a quarter right now, it’s a $0.32 drag this year. Is it too early to tell what the drag would be next year? And then I have a follow-up. Thank you.

Yes, I think, I'll let Mark give you a little bit more color. But the key assumptions all get decided on the last day of the calendar year. So depending on how asset returns play out the balance of this year, depending on what happens to the discount rate on December 31. Those will be the key factors that determine our 2010 pension expense. Now, we've also, frozen our US defined benefit plan, so we won't have people earning additional service credit in 2010. So that will help us. And certainly the funding that we've done this year and if we have the opportunity to accelerate a bit more funding, that will help reduce our 2010 pension expense as well. But, Mark, I don't know if there's anything else you want to add to that.

Yes. I think, those are all the variables that are going to move the number. Tom's exactly right. You don't really put the nail in it until the last day of the year. I would say freezing the US defined benefit pension plan has is going to reduce the amplitude of volatility going forward. But, the variables have a little time to play out. If we can predict the equity markets for the balance of the year, we could probably dial it in. But I am …

Yes. Based on what we know today, pension expense will be lower in 2010. I just don't know by how much. Scott Scher - Clovis Capital: I recognize that and I know how sort of a thing pension kind of works. So year-to-date, what's been your contribution?

We put about 400 million in the US plan so far this year. Scott Scher - Clovis Capital: At the beginning of the year, January 1, what was the under funding?

We were roughly, what 60 something percent funded. So… Scott Scher - Clovis Capital: Yes.

As before, we're on track so far this year for what we planned. So we expected little more than 500 million of contributions to our global plans. We're almost to that point year-to-date. Scott Scher - Clovis Capital: And then a follow-up if I could. The severance cost, which cost you $0.19 in the quarter. Can you comment a little bit as to what you think those savings will generate on a one-year out basis? So not this next quarter, but looking out into 2010, if you take a $0.19 hit this quarter, do you have a sense as to what you think those savings might be, how much you're going to reinvest, how much you're not going to reinvest and what I might want to add to, the run rate savings for next year?

Yes, I would say, that plan basically had about a one-year payback, a little better than a one-year payback. So if you look at full implementation, it was going to be slightly more than the total charges. We haven't finished taking the charges yet. So we've got some more to take in the third quarter in the emerging markets. So we took basically the US and Europe charges in the second quarter. And then the benefits will start to ramp into the third quarter and the fourth quarter. And, you know should be pretty much fully in place by the end of this year. Scott Scher - Clovis Capital: So if I understand you sort of, you're kind of at $1.20 sort of earnings run rate right now, which is absorbing $0.08 of pension which is sort of I don’t know $1.30 kind of quarterly run rate if I assume that pension won't repeat itself next year, that's sort of a $1.30 run rate. There isn't much seasonality to the business, and past year it has been almost equivalent quarters at sort of $1.30. And then I think about for next year getting some portion of that $0.20 cents or maybe $0.10 or something like that on an annual basis?

Yes, I mean there's a lot of moving parts. Again, we'll give you full assumptions on our 2010 guidance later this year. So I think, we've given you the details on what the cost savings are going look like, but we'll give you a full update on our cost savings program for 2010 either later this year or early in 2010.

Our next question comes from Jason Gere with RBC Capital Markets. Jason Gere - RBC Capital Markets: Just a follow-up on an earlier question. I guess maybe the inevitable transition from revenue realization to share gains. When should we see that transition. It seems like your gross margins are starting to get some sea legs here. So would you go more from a defensive to an offensive type of approach in order to kind of drive this those organic sales back up to that mid single-digit that you did so well over the last couple of years? Thanks.

Part of it's a category. I looked at our shares sequentially and say, gosh, we are up almost a point in infant care, up almost two points in child care, up about two points in baby wipes, up about a half a point in femme care, up a point and half in adult care, up seven tenths of a point in bath tissue, flat in towels, down a couple almost three points in facial tissue. So I would say we saw a good sequential share growth. The challenge is the categories aren't very healthy. So as the economy starts to recover, that's going to start to drive the category. So, wherever it's a bit more discretionary, we've seen some category softness in this kind of an economy. We would expect, you know as obviously as the economy gets better that those categories will start to perform in a bit more healthy way. Jason Gere - RBC Capital Markets: But can you preempt that a little bit with maybe a little bit more promotional spending here and there. I know you've been really focused more on the revenue realization side of things because of the margin structure. But just when you look out at the back half of this year and into 2010. There seems to be a lot of opportunities coming up to kind of drive the gross margin. So I was just wondering if that's how you kind of preempt it rather than just the full economy.

You're not going trade spend your way to success. So where we've got innovation, we're going to absolutely drive that as hard as we can. That's a healthy way to grow your share organically. But doing it with trade promotion you're really just renting your consumers and your competition is going to respond. So we're going to help drive the category where we can. We're going to do it with innovation and great marketing and if we can do that and build our business that would be an exciting opportunity for us.

At this time, we no further questions. I would like to turn the conference back over to Mr. Mike Masseth.

Thanks, David. Before I hand it back to Tom for a final comment, I would like to share some other news. I'll be retiring at the end of next month. And that's with 40 years under my belt, the last 25 of which have been at Scott and K-C. I'm proud of those milestones. It's been my privilege to represent Kimberly-Clark before all of you and the investment community since 1996. While I'm excited about moving on, I'll really miss the people that I've had the good fortune to work with and to learn from. It's been a fabulous experience. Of course we've been planning for this and the transition will be smooth, with Paul Alexander, who most of you know, taking over as Head of Investor Relations. Now, as I leave, it's nice to see the positive momentum in the underlying business results. I couldn't be more confident about the strategic direction and leadership of this company. I'm very pleased that K-C's IR efforts will be in Paul's extremely capable hands. Thanks, everyone. Now here's Tom.

Thank you, Mike. I would just like to add my thanks and congratulations to Mike on wrapping up a very successful career. As a chief executive, I couldn't have asked for or hoped for a better IR professional to work with and communicating with our investors. So thank you, Mike, for all of your terrific contributions. And Mike has reminded me he is going to be a shareholder and expects a very healthy return on his investment. And so I would like to just close by thanking all of you for your support of Kimberly-Clark and have a good day. Thank you.