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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2004

OR

For the transition period from.............to.....................

Commission file number 1-225

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

As of May 3, 2004, there were 501,325,408 shares of the Corporation’s common stock outstanding.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT

Unaudited

See Notes to Consolidated Financial Statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET

Unaudited

See Notes to Consolidated Financial Statements.

3

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Unaudited

See Notes to Consolidated Financial Statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The unaudited consolidated financial statements have been prepared on a basis consistent with that used in the Annual Report on Form 10-K for the year ended December 31, 2003, and include all normal recurring adjustments necessary to present fairly the condensed consolidated balance sheet, consolidated income statement and condensed consolidated cash flow statement for the periods indicated.

Note 2. Accounting Standards Change

In December 2003, the Financial Accounting Standards Board (“FASB”) issued FIN 46 (Revised December 2003), Consolidation of Variable Interest Entities, an Interpretation of ARB 51, (“FIN 46R”). FIN 46R requires consolidation of variable interest entities (“VIEs”) in which the Corporation is the primary beneficiary, despite not having voting control. Likewise, it does not permit consolidation of VIEs in which the Corporation has voting control but is not the primary beneficiary. Effective March 31, 2004, the Corporation adopted FIN 46R for its real estate entities described below and a synthetic fuel partnership, described in Note 5.

The Corporation is the primary beneficiary of certain real estate entities described in the balance of this paragraph. In 1994, the Corporation began participating in the U.S. affordable and historic renovation real estate markets. These investments generate income tax credits and tax losses that are used to reduce the Corporation’s income tax liabilities. The Corporation has invested in these markets through (i) partnership arrangements in which it is a limited partner, (ii) limited liability companies (“LLCs”) in which it is a nonmanaging member and (iii) investments in various funds in which the Corporation is one of many noncontrolling investors. These entities borrow money from third parties generally on a nonrecourse basis and invest in and own various real estate projects.

Because the Corporation is the primary beneficiary of certain of the previously described real estate entities, it is required to consolidate these entities. In accordance with the transition provisions of FIN 46R, the assets, liabilities and noncontrolling interest of these newly consolidated real estate entities have been recorded at the amounts at which they would have been carried in the consolidated financial statements as if FIN 46R had been effective when the Corporation first met the conditions to be the primary beneficiary of the VIE. The adoption of FIN 46R did not have a material effect on the Corporation’s financial statements.

Note 3. Stock-Based Employee Compensation

The Corporation continues to account for stock-based compensation using the intrinsic-value method permitted by Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees. No employee compensation for stock options has been charged to earnings because the exercise prices of all stock options granted have been equal to the market value of the Corporation’s common stock at the date of grant. Information about net income and earnings per share as if the Corporation had applied the fair value expense recognition requirements of Statement of Financial Accounting Standards (“SFAS”) 123, Accounting for Stock-Based Compensation, to all employee stock options granted is presented below:

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Note 3. (Continued)

The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience.

Note 4. Inventories

The following schedule presents inventories by major class as of March 31, 2004 and December 31, 2003:

FIFO cost of total inventories on the LIFO method was $729.0 million and $663.8 million at March 31, 2004 and December 31, 2003, respectively.

Note 5. Synthetic Fuel Partnership

In 2003, the Corporation entered into an agreement whereby it acquired a 49.5 percent minority interest in a synthetic fuel partnership. Although the partnership is a VIE, the Corporation is not the primary beneficiary and the entity has not been consolidated. The Corporation’s exposure to loss from this investment is minimal.

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Note 5. (Continued)

The production of synthetic fuel results in pretax losses. In the first quarter of 2004, these pretax losses totaled $51.5 million and are reported as nonoperating expense on the Corporation’s income statement. The production of synthetic fuel results in tax credits as well as tax deductions for the nonoperating losses, which reduce the Corporation’s income tax expense. In the first quarter of 2004, the Corporation’s participation in the synthetic fuel partnership resulted in $46.7 million of tax credits, and the nonoperating losses generated an additional $18.0 million of tax benefits, which combined to reduce the Corporation’s income tax provision by $64.7 million.

Note 6. Components of Net Periodic Benefit Cost

In December 2003, the FASB issued SFAS 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, (“SFAS 132R”). The Corporation has adopted the interim period disclosure requirements of SFAS 132R as shown below.

During the first quarter of 2004, the Corporation made approximately $62 million of cash contributions to its pension trusts. As previously disclosed, the Corporation expects to make cash contributions to its pension trusts of approximately $100 million in 2004.

Note 7. Earnings Per Share

There are no adjustments required to be made to net income for purposes of computing basic and diluted earnings per share (“EPS”). The average number of common shares outstanding used in the basic EPS computations is reconciled to those used in the diluted EPS computation as follows:

Options outstanding during the first quarter ended March 31, 2004 to purchase 11.1 million shares of common stock were not included in the computation of diluted EPS because the exercise prices of the options were greater than the average market price of the common shares.

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Note 7. (Continued)

Options outstanding during the first quarter ended March 31, 2003 to purchase 26.8 million shares of common stock were not included in the computation of diluted EPS because the exercise prices of the options were greater than the average market price of the common shares.

The number of common shares outstanding as of March 31, 2004 and 2003 was 501.3 million and 509.0 million, respectively.

Note 8. Comprehensive Income

The following schedule presents the components of comprehensive income: