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

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 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 August 2, 2004, there were 494,510,854 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.

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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. Preferred Securities of Subsidiary

In June 2004, a nonaffiliated entity invested an additional $125 million in the Corporation’s Luxembourg-based financing subsidiary, increasing the aggregate par value of the voting-preferred securities held by the nonaffiliated entity (the “Securities”). In conjunction with this transaction, the fixed annual rate of return on the Securities was increased from 4.47 percent to 4.56 percent. The subsidiary loaned these funds to the Corporation which used them to reduce its outstanding commercial paper.

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 provisions of Statement of Financial Accounting Standards (“SFAS”) 123, Accounting for Stock-Based Compensation, to all employee stock options granted is presented below.

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

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Note 4. Inventories

The following schedule presents inventories by major class as of June 30, 2004 and December 31, 2003.

FIFO cost of total inventories on the LIFO method was $758.1 million and $663.8 million at June 30, 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 variable interest entity, the Corporation is not the primary beneficiary and the entity has not been consolidated. The Corporation’s exposure to economic loss from this investment is minimal.

The production of synthetic fuel results in pretax losses. In the second quarter of 2004, these pretax losses totaled $38.7 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 second quarter of 2004, the Corporation’s participation in the synthetic fuel partnership resulted in $35.3 million of tax credits, and the nonoperating losses generated an additional $13.5 million of tax benefits, which combined to reduce the Corporation’s income tax provision by $48.8 million.

Note 6. Components of Net Periodic Benefit Cost

In December 2003, the Financial Accounting Standards Board (“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.

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Note 6.  (Continued)

During the first and second quarters of 2004, the Corporation made approximately $62 million and $13 million of cash contributions, respectively, to its pension trusts. As previously disclosed, the Corporation expects to make cash contributions to its pension trusts of approximately $100 million in 2004.

Effective April 1, 2004, the Corporation adopted FASB Staff Position 106-2 (“FSP 106-2”), Accounting and Disclosure Requirements Related to Medicare Prescription Drug, Improvement and Modernization Act of 2003. Adoption of FSP 106-2 reduced the Corporation’s accumulated postretirement benefit obligation by approximately $72 million and resulted in an unrecognized actuarial gain of a similar amount. Adoption resulted in a $1.9 million reduction in postretirement benefits cost for the three months ended June 30, 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 three and six month periods ended June 30, 2004 to purchase 5.4 million and 5.5 million shares of common stock, respectively, 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.

Options outstanding during the three and six month periods ended June 30, 2003 to purchase 20.5 million and 26.8 million shares of common stock, respectively, 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)

The number of common shares outstanding as of June 30, 2004 and 2003 was 496.6 million and 507.0 million, respectively.

Note 8. Comprehensive Income

The following schedule presents the components of comprehensive income.

Note 9. Description of Business Segments

The Corporation is organized into operating segments based on product groupings. These operating segments have been aggregated into three reportable global business segments: Personal Care; Consumer Tissue; and Business-to-Business. Each reportable segment is headed by an executive officer who reports to the Chief Executive Officer and is responsible for the development and execution of global strategies to drive growth and profitability of the Corporation’s worldwide personal care, consumer tissue and business-to-business operations. These strategies include global plans for branding and product positioning, technology and research and development programs, cost reductions including supply chain management, and capacity and capital investments for each of these businesses.

The principal sources of revenue in each of the global business segments are described below.

The Personal Care segment manufactures and markets disposable diapers, training and youth pants and swimpants; baby wipes; feminine and incontinence care products; and related products. Products in this segment are primarily for household use and are sold under a variety of brand names, including Huggies, Pull-Ups, Little Swimmers, GoodNites, Kotex, Lightdays, Depend, Poise and other brand names.

The Consumer Tissue segment manufactures and markets facial and bathroom tissue, paper towels and napkins for household use; and related products. Products in this segment are sold under the Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Page and other brand names.

The Business-to-Business segment manufactures and markets facial and bathroom tissue, paper towels, wipers and napkins for away-from-home use; health care products such as surgical gowns, drapes, infection control products, sterilization wraps, disposable face masks and exam gloves, respiratory products, and other disposable medical products; printing, premium business and correspondence papers; specialty and technical papers; and other products. Products in this segment are sold under the Kimberly-Clark, Kleenex, Scott, Kimwipes, WypAll, Surpass, Safeskin, Tecnol, Ballard and other brand names.

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Note 9.  (Continued)

The following schedule presents information concerning consolidated operations by business segment.

Note:  Unallocated items – net, consists of expenses not associated with the business segments.

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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This management’s discussion and analysis of financial condition and results of operations is intended to provide investors with an understanding of the Corporation’s recent performance, its financial condition and its prospects. The following will be discussed and analyzed:

Overview of Second Quarter 2004 Results

During the second quarter of 2004, the Corporation continued to make progress under its strategic plan which focuses on brand building, achieving sustainable cost reductions and capital effectiveness:

Results of Operations and Related Information

This section presents a discussion and analysis of the Corporation’s second quarter 2004 net sales, operating profit and other information relevant to an understanding of the results of operations.

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Second Quarter of 2004 Compared With Second Quarter of 2003

Analysis of Net Sales

By Business Segment
(Millions of dollars)

Commentary:

2004 versus 2003

Consolidated net sales for the second quarter of 2004 increased 6.5 percent compared with 2003. Overall sales volumes increased 5 percent, including about 1 percent from the consolidation of Klabin-Kimberly S.A. (“Klabin”), the Corporation’s former equity affiliate in Brazil, which occurred in August 2003. Favorable currency effects of about 3 percent and a higher-value product mix of 1 percent also contributed to the higher net sales. Net selling prices declined approximately 2 percent below last year as the business environment remained competitive across all segments.

Market Shares

U.S. market shares are tracked on a sales dollar basis with information provided by A.C. Nielson for distribution through the food, drug and mass merchandising channels, excluding Wal-Mart, warehouse clubs, dollar stores and certain other outlets. These customers do not report market share information. The A.C. Nielsen data provides coverage ranging from approximately 50 percent to 65 percent, depending upon the product category, of the retail value of products sold.

Shown below are the Corporation’s U.S. market shares for key categories for the second quarter of 2004 and 2003.

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Contributors to the second quarter 2004 sales volume growth included Pull-Ups training pants, Little Swimmers swimpants, Scott bathroom tissue and Poise and Depend incontinence care brands in North America, which posted double-digit growth, with unit sales for the child care sector setting a new quarterly record. Other key areas of volume strength included Health Care products globally, Andrex bathroom tissue in Europe, and operations in Australia, Brazil, Eastern Europe and the Middle East.

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By Geography
(Millions of dollars)

Commentary:

Analysis of Operating Profit

By Business Segment
(Millions of dollars)

Note:  Unallocated items - net, consists of expenses not associated with the business segments.

Commentary:

2004 versus 2003

(a)     Includes cost savings achieved.

Consolidated operating profit in the second quarter of 2004 increased 6.2 percent from the prior year. The combined benefits of sales volume growth, favorable currency effects, more than $50 million of cost savings and lower other expense, net more than offset about $80 million of lower net selling prices and costs of approximately $16 million related to changes to the Corporation’s diaper operations.

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Results by Geography
(Millions of dollars)

Note:  Unallocated items - net, consists of expenses not associated with the geographic areas.

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Additional Income Statement Commentary

First Six Months of 2004 Compared With First Six Months of 2003

Analysis of Net Sales

By Business Segment
(Millions of dollars)

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Commentary:

2004 versus 2003

Consolidated net sales for the first six months of 2004 increased 8.1 percent from last year. Sales volume growth of nearly 6 percent, including about 1 percent for Klabin, and favorable currency effects of almost 4 percent were tempered by lower net selling prices of about 2 percent.

By Geography
(Millions of dollars)

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Analysis of Operating Profit

By Business Segment
(Millions of dollars)

Note:  Unallocated items - net, consists of expenses not associated with the business segments.

Commentary:

2004 versus 2003

(a)     Includes cost savings achieved.

Consolidated operating profit increased 9.0 percent compared with the prior year. The combined benefits of sales volume growth, favorable currency effects, about $95 million of cost savings and lower other expense, net more than offset about $145 million of lower net selling prices, around $23 million of higher fiber costs and costs of approximately $16 million related to changes to the Corporation’s diaper operations.

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Analysis of Results by Geography
(Millions of dollars)

Note:  Unallocated items - net, consists of expenses not associated with the geographic areas.

Additional Income Statement Commentary

Liquidity and Capital Resources

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Environmental Matters

The Corporation has been named a potentially responsible party under the provisions of the federal Comprehensive Environmental Response, Compensation and Liability Act, or analogous state statutes, at a number of waste disposal sites, none of which, individually or in the aggregate, in management’s opinion, is likely to have a material adverse effect on the Corporation’s business, financial condition or results of operations.

Business Outlook

The Corporation remains focused on its objectives of driving top- and bottom-line growth, generating strong cash flow and improving capital efficiency. Based upon its results in the first half of 2004 and plans for the balance of the year, the Corporation has reiterated its previous guidance that earnings in 2004 are expected to be toward the high-end of the targeted range of $3.55 to $3.65 per share. Following the spin-off of its paper and Canadian pulp operations, the Corporation will provide updated guidance based on continuing operations.

In addition, the Corporation has raised the target for several of its other objectives for 2004. Since it has achieved cost savings of about $95 million in the first half of the year, the Corporation is increasing its savings goal for the full year from $150 million to a range of $175 million to $200 million. At the same time, the Corporation is adjusting its target for capital spending for 2004 from $750 million to a range of $600 million to $650 million. The targeted lower capital spending, along with other factors, including expected cash proceeds related to the pulp and paper operations spin-off, will provide additional cash availability above the Corporation’s previous expectations. As a result, the Corporation is raising its target for repurchases of its common shares by an additional $400 million to $1.4 billion.

For the third quarter of 2004, the Corporation expects to achieve earnings in a range of $.88 to $.90 per share. In particular, the Corporation expects continued solid top-line growth in a highly competitive marketplace and continued success in reducing costs. The Corporation anticipates consumer tissue selling prices will improve as it implements increases in North America during the course of the third quarter. These factors are expected to help achieve the anticipated earnings growth, overcoming higher fiber, oil and energy costs as well as the remaining $25 million in costs related to changes in diaper operations.

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Information Concerning Forward-Looking Statements

Certain matters discussed in this report concerning, among other things, the business outlook, including new product introductions, cost savings, anticipated financial and operating results, strategies, contingencies and contemplated transactions of the Corporation, constitute forward-looking statements and are based upon management’s expectations and beliefs concerning future events impacting the Corporation. There can be no assurance that these events will occur or that the Corporation’s results will be as estimated.

The assumptions used as a basis for the forward-looking statements include many estimates that, among other things, depend on the achievement of future cost savings and projected volume increases. In addition, many factors outside the control of the Corporation, including the prices of the Corporation’s raw materials, potential competitive pressures on selling prices or advertising and promotion expenses for the Corporation’s products, and fluctuations in foreign currency exchange rates, as well as general economic conditions in the markets in which the Corporation does business, also could impact the realization of such estimates.

For a description of these and other factors that could cause the Corporation’s future results to differ materially from those expressed in any such forward-looking statements, see the section Part 1 of Item I of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003 entitled “Factors That May Affect Future Results.”

Item 4. Controls and Procedures.

As of June 30, 2004, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation’s disclosure controls and procedures were effective as of June 30, 2004. There have been no significant changes during the quarter covered by this report in the Corporation’s internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 2.  Stock Repurchases.

The Corporation regularly repurchases shares of Kimberly-Clark common stock pursuant to publicly announced share repurchase programs. All share repurchases by the Corporation were made through brokers on the New York Stock Exchange. During 2004, the Corporation anticipates purchasing $1.4 billion worth of its common stock. The following table contains information for shares repurchased during the second quarter of 2004. None of the shares in this table were repurchased directly from any officer or director of the Corporation.

In addition, during April, May and June 2004, 9,845 shares at a cost of $638,484; 8,671 shares at a cost of $561,764; and 43,095 shares at a cost of $2,840,102, respectively, were purchased from current or former employees in connection with the exercise of employee stock options and other awards.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

August 6, 2004

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EXHIBIT INDEX