Outlook

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Commenting on the outlook, Falk said, “Since we introduced our Global Business Plan, we have been carefully putting the pieces in place to drive sustainable revenue and earnings growth, and we expect more progress in 2007. We will continue to execute the Plan, with a particular focus on our targeted growth initiatives, and will maintain its strong financial discipline. And based on the improvement in our operating trends in the second half of 2006, we have reason to be optimistic about our top- and bottom-line prospects for the year ahead. We are also confident that we will generate additional cost savings on an ongoing basis. In 2007, we plan to reinvest a significant amount of savings in customer development and strategic marketing to support top-line growth and further improve brand equity. Finally, we will remain focused on improving ROIC, increasing cash flow from operations and deploying our cash in shareholder-friendly ways.

“All things considered, we expect adjusted earnings per share in 2007 will be in a range of $4.10 to $4.20 per share. Compared with adjusted earnings of $3.90 per share in 2006, this will enable us to deliver growth of 5 to 8 percent, in line with our long-term objective.

“As for the first quarter, we anticipate adjusted earnings per share will be in a range of 99 cents to $1.01 per share, in line with external expectations. This should give us a solid start in 2007, with bottom-line growth at least consistent with or, perhaps, better than the rate we’ve targeted for the full year.”

Outlook

Commenting on the outlook, Falk said, “The positive trends in our ongoing results in both the second and third quarters give us confidence that we can achieve further improvement in the fourth quarter. We expect solid top-line growth, driven by continued strength in developing and emerging markets, along with higher net selling prices and product mix improvements. At current exchange rates, foreign currency should also contribute positively. We also expect cost reductions will continue to ramp up and K-C de Mexico will sustain its excellent performance. On the other hand, inflation will continue to significantly impact our costs. As oil costs have come down, we are seeing some benefit in distribution costs; however, we have yet to see any meaningful reduction in the cost of polymer resins or packaging. Meanwhile, pulp costs have moved somewhat higher. In total, we anticipate adjusted earnings per share in the fourth quarter will be somewhat better than the third quarter, in a range of $1.00 to $1.02 per share.

“Our improved fourth quarter results should enable us to deliver adjusted earnings per share for the full year of 2006 in a range of $3.87 to $3.89, which is consistent with both our previous guidance and external expectations.”

Outlook

Commenting on the outlook, Falk said, “Under our Global Business Plan, we’re focused on the right strategies to deliver sustainable top- and bottom-line growth and improve returns to shareholders. Building on the sequential improvement in results in the second quarter, our plan calls for further improvement in the second half of the year in spite of the inflationary environment we are currently facing. There’s more innovation on the way and our businesses in developing and emerging markets should continue to grow rapidly. We believe that continued solid top-line growth, aggressive cost reductions and sustained strong performance at K-C de Mexico should enable us to fully offset these additional cost pressures.

“All things considered, we remain comfortable with our previous guidance that earnings per share before unusual items in 2006 will be in a range of $3.85 to $3.95.

“As for the third quarter, price increases should continue to benefit the top line and, based on our product initiatives, volume comparisons should improve versus the second quarter. Although we expect input costs to rise sequentially, we also expect cost savings will ramp up substantially from first half levels. In total, we expect earnings per share before unusual items will be somewhat better than the second quarter, in a range of 96 to 99 cents per share.”

Outlook

Commenting on the outlook, Falk said, “Under our Global Business Plan, we’re focused on the right strategies to deliver sustainable top- and bottom-line growth and improve returns to shareholders. Over the balance of this year and beyond, we will continue to bring insight-driven innovation to market across all our businesses and drive strong growth in developing and emerging markets. We will also continue to relentlessly take costs out of the system. Meanwhile, we now believe that inflation in 2006 will be greater than our original planning assumptions, primarily due to recent increases in fiber and oil costs. As a

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result of our aggressive actions to reduce costs, we also expect to generate a higher level of savings than originally planned, which should enable us to fully offset the additional inflationary pressures.

“Taking these factors into consideration, we remain comfortable with our previous guidance that earnings per share before unusual items in 2006 will be in a range of $3.85 to $3.95.

“As for the second quarter, the top line should benefit from our product plans as well as recently implemented price increases. Although we expect costs to rise somewhat sequentially, we plan to support our growth initiatives with an increased level of strategic marketing spending. In total, we expect earnings per share before unusual items will be similar to or slightly better than the first quarter, in a range of 93 to 95 cents per share.”

2006 Outlook

Anticipated revenue growth of 3 to 5 percent, in line with its long-term objective. Volume gains are expected to drive this performance with modestly higher prices mostly offset by foreign currency effects.

Operating profit (before unusual items) growth of 3 to 6 percent despite projected cost inflation of approximately $200 million and stock option expense of $45 to $50 million. The company noted that it plans to begin expensing stock options in the first quarter of 2006 using the prospective method under the provisions of Statement of Financial Accounting Standards 123R.

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Cost savings from the company’s FORCE (Focused on Reducing Costs Everywhere) program are expected to total at least $150 million. In addition, the company is targeting $80 to $100 million of savings from the new strategic cost reduction initiatives announced in July 2005, including benefits from a plan to reduce selling, general and administrative expenses in Europe.

Strategic marketing and R&D spending is anticipated to continue to increase at a faster rate than sales to support new and improved products.

The effective tax rate (before unusual items) for the year is expected to be in a range of 28 to 29.5 percent, which reflects the company’s current expectation that it will receive no benefit from synthetic fuel partnership activities in 2006.

Share repurchases of about $750 million are anticipated, subject to market conditions. This equates to approximately 3 percent of outstanding shares and is consistent with the Global Business Plan target of 2 to 3 percent.

Capital spending should total $900 million to $1 billion, consistent with the long-range objective for annual spending of 5 to 6 percent of sales. This includes spending for a new world-class tissue machine in the U.S. that will start up in 2007.

A dividend increase, effective in April 2006, in the high single, low double-digit percentage range subject to approval by the Board of Directors.

Commenting on the outlook, Falk said, “Over the past two years, we have made many positive changes to our businesses under our Global Business Plan and we expect further progress in 2006. The top-line should continue to benefit from new and improved products and strong growth in developing and emerging markets. We are also confident that we will generate additional cost savings in 2006 and beyond. And while we anticipate continued inflationary pressures, we are intent on delivering sustainable bottom-line growth. We also remain focused on increasing cash flow from operations and further improving ROIC.

“All in all, we expect earnings per share before unusual items in 2006 will be in a range of $3.85 to $3.95. This is consistent with external expectations, adjusted for stock option expense.

“As for the first quarter, we believe earnings per share before unusual items will be in a range of 90 to 93 cents per share, similar to or slightly better than in 2005, taking stock option expense into account. We expect to deliver solid top-line growth. At the same time, however, cost inflation will moderate margin improvement in the early part of the year before announced price increases become fully effective and cost reductions begin to ramp up.”

Outlook

Commenting on the outlook, Falk said, “We are confident that we will continue to execute our Global Business Plan well and generate solid top-line growth and additional cost savings over the balance of the year. Net sales in the fourth quarter should benefit from a full quarter’s worth of the price increases implemented during the third quarter for our diaper, pant and incontinence products in the U.S. as well as recent price

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increases for K-C Professional products in North America. At the same time, we expect business conditions will remain very challenging, as costs for resin and other oil-based materials, energy and distribution have risen following Hurricanes Katrina and Rita. In total, we expect these key cost components to increase more than $30 million versus the third quarter, a drag equivalent to approximately 5 cents per share.

“All in all, we expect earnings before unusual items in the fourth quarter will be in a range of 94 to 96 cents per share, or similar to the third quarter, despite the recent, unanticipated escalation in our costs.

“As for the year, we remain comfortable that earnings per share before unusual items in 2005 will be within the range of our previous guidance of $3.77 to $3.83, although most likely toward the lower end of that range. With this level of earnings, we will deliver improvement of 6 to 8 percent versus earnings from continuing operations of $3.55 per share in 2004, consistent with our long-term objective for growth in the mid to high single-digits.”

OUTLOOK

        Commenting on the outlook, Falk said, “Based on our results through the first six months and our plans for the balance of the year, we are narrowing our guidance for earnings per share before unusual items toward the high end of our previous range for the year. As compared with the prior range of $3.70 to $3.85 per share, we now expect to deliver earnings before unusual items for 2005 of $3.77 to $3.83 per share. This represents growth of 6 to 8 percent compared with earnings from continuing operations of $3.55 per share in 2004, consistent with our long-term objective for growth in the mid- to high- single digits.

        “Our guidance reflects continued solid growth in sales

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volumes as well as benefits from price increases, including the increases that are taking place this quarter for our infant care, child care and incontinence care products in the U.S. These actions, along with continued success in delivering cost reductions in the second half of the year, should help us counteract ongoing inflationary cost pressures.

        “As for the third quarter, we anticipate earnings before unusual items will be in a range of 94 to 96 cents per share. Compared with net income from continuing operations of 87 cents per share in 2004, this would represent growth of approximately 8 to 10 percent, somewhat better than the expected level of improvement for the full year. We are planning to continue a stepped-up level of marketing spending in the quarter compared with the prior year to support our new product innovations. Compared with the third quarter of 2004, we still expect inflation in most of our key cost inputs. That said, recent reductions in the cost of fiber and polymers should provide a modest sequential benefit to our results.”

Outlook

        Commenting on the outlook, Falk said, “Based on our results in the first quarter and our plans for the balance of the year, we remain comfortable with our previous guidance for 2005. Specifically, we are targeting sales growth of 3 to 5 percent, consistent with our long-term objective. We expect the gain to come largely from volume improvements, driven by strong innovation and marketing programs. We expect our top-line growth and continued success in reducing costs will help us achieve operating profit growth of 3 to 6 percent despite inflationary cost pressures.

        “We are taking a number of steps that should help counteract the significant and continuing escalation in our costs. During the second quarter, we will begin to benefit from price increases on Cottonelle bathroom tissue, Viva paper towels and K-C Professional products in North America. We are also making changes to facial tissue package counts in North America that are expected to drive growth for the category and the Kleenex brand, and we are ramping up further cost reductions in Personal Care in North America and Europe. In addition, we recently finalized plans to increase prices for Huggies diapers and Pull-Ups training pants, GoodNites youth pants and Little Swimmers swimpants in the U.S. early in the third quarter.

        “Thanks to our share repurchase program, a lower share count should also contribute to bottom-line growth in 2005. Our targeted

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spending for share repurchases this year remains $1 billion or more.

        “Adding it up, we expect to deliver earnings of $3.70 to $3.85 per share for the year, representing mid- to high single-digit growth compared with net income from continuing operations of $3.55 per share in 2004.

        “As for the second quarter, we anticipate earnings will be in a range of 92 to 94 cents per share. Compared with net income from continuing operations of 88 cents per share in 2004, this would represent growth of approximately 5 to 7 percent, similar to the expected level of improvement for the full year. We are planning to continue a stepped-up level of marketing spending in the quarter compared with the prior year. The spending will support our product launches, including Huggies toiletries, Pull-Ups training pants with Wetness Indicators, Scott Extra Soft bathroom tissue and Kleenex Moist Cloths. We also expect distribution and raw material costs to continue to increase in the second quarter.”