kc_10q-2q08.htm




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

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


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

Commission file number 1-225

KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
39-0394230
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

P. O. Box 619100
Dallas, Texas
75261-9100
(Address of principal executive offices)
(Zip Code)

(972) 281-1200
(Registrant’s telephone number, including area code)

No change
(Former name, former address and former fiscal year, if changed since last report)

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.

Yes  x   No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x                                                                                                        Accelerated filer  ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)                                        Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨   No  x

As of July 31, 2008, there were 415,216,107 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)

   
Three Months Ended
  
Six Months Ended
  
   
June 30
  
June 30
  
(Millions of dollars, except per share amounts)
  
2008
  
2007
  
2008
  
2007
  
                           
Net Sales
  
$
5,006.2
  
$
4,502.0
  
$
9,818.9
  
$
8,887.3
  
Cost of products sold
    
3,521.7
    
3,056.0
    
6,878.7
    
6,089.0
  
                           
Gross Profit
    
1,484.5
    
1,446.0
    
2,940.2
    
2,798.3
  
Marketing, research and general expenses
    
827.3
    
797.6
    
1,625.7
    
1,530.2
  
Other (income) and expense, net
    
7.1
    
(.3
)
  
.3
    
3.3
  
                           
Operating Profit
    
650.1
    
648.7
    
1,314.2
    
1,264.8
  
Nonoperating expense
    
-
    
(47.5
)
  
-
    
(75.1
)
Interest income
    
7.4
    
7.4
    
15.7
    
14.0
  
Interest expense
    
(72.8
)
  
(51.9
)
  
(147.5
)
  
(102.8
)
                           
Income Before Income Taxes,
                          
Equity Interests and Extraordinary Loss
    
584.7
    
556.7
    
1,182.4
    
1,100.9
  
Provision for income taxes
    
(174.6
)
  
(111.5
)
  
(339.2
)
  
(223.6
)
                           
Income Before Equity Interests
                          
and Extraordinary Loss
    
410.1
    
445.2
    
843.2
    
877.3
  
Share of net income of equity companies
    
48.4
    
42.8
    
91.8
    
87.8
  
Minority owners’ share of subsidiaries’ net
                          
income
    
(34.1
)
  
(26.2
)
  
(69.7
)
  
(51.3
)
Extraordinary loss, net of income taxes
    
(7.7
)
  
-
    
(7.7
)
  
-
  
                           
Net Income
  
$
416.7
  
$
461.8
  
$
857.6
  
$
913.8
  
                           
Per Share Basis:
                          
                           
Net Income
                          
Basic
                          
Before extraordinary loss
  
$
1.02
  
$
1.01
  
$
2.07
  
$
2.01
  
Extraordinary loss
    
(.02
)
  
-
    
(.02
)
  
-
  
Net Income
  
$
1.00
  
$
1.01
  
$
2.05
  
$
2.01
  
                           
Diluted
                          
Before extraordinary loss
  
$
1.01
  
$
1.00
  
$
2.06
  
$
1.99
  
Extraordinary loss
    
(.02
)
  
-
    
(.02
)
  
-
  
Net Income
  
$
.99
  
$
1.00
  
$
2.04
  
$
1.99
  
                           
Cash Dividends Declared
  
$
.58
  
$
.53
  
$
1.16
  
$
1.06
  

See Notes to Consolidated Financial Statements.

 
2
 

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)

   
June 30,
  
December 31,
(Millions of dollars)
  
2008
  
2007
               
ASSETS
              
               
Current Assets
              
Cash and cash equivalents
  
$
545.8
  
$
472.7
  
Accounts receivable, net
    
2,599.0
    
2,560.6
  
Inventories
    
2,629.8
    
2,443.8
  
Other current assets
    
536.4
    
619.5
  
Total Current Assets
    
6,311.0
    
6,096.6
  
               
Property
    
16,718.8
    
16,243.0
  
Less accumulated depreciation
    
8,490.7
    
8,149.0
  
Net Property
    
8,228.1
    
8,094.0
  
               
Investments in Equity Companies
    
422.8
    
390.0
  
               
Goodwill
    
3,097.1
    
2,942.4
  
               
Long-Term Notes Receivable
    
599.7
    
-
  
               
Other Assets
    
966.8
    
916.7
  
   
$
19,625.5
  
$
18,439.7
  
               
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
               
Current Liabilities
              
Debt payable within one year
  
$
1,348.4
  
$
1,097.9
  
Accounts payable
    
1,751.6
    
1,768.3
  
Accrued expenses
    
1,763.9
    
1,782.8
  
Other current liabilities
    
350.6
    
279.6
  
Total Current Liabilities
    
5,214.5
    
4,928.6
  
               
Long-Term Debt
    
4,995.5
    
4,393.9
  
Noncurrent Employee Benefits
    
1,534.7
    
1,558.5
  
Long-Term Income Taxes Payable
    
170.7
    
288.3
  
Deferred Income Taxes
    
463.6
    
369.7
  
Other Liabilities
    
205.1
    
188.3
  
Minority Owners’ Interests in Subsidiaries
    
427.0
    
484.1
  
Redeemable Preferred Securities of Subsidiary
    
1,011.0
    
1,004.6
  
Stockholders’ Equity
    
5,603.4
    
5,223.7
  
   
$
19,625.5
  
$
18,439.7
  

See Notes to Consolidated Financial Statements.

 
3
 

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(Unaudited)

   
Six Months
  
   
Ended June 30
  
(Millions of dollars)
  
2008
  
2007
  
               
Operating Activities
              
Net income
  
$
857.6
  
$
913.8
  
Extraordinary loss, net of income taxes
    
7.7
    
-
  
Depreciation and amortization
    
400.2
    
412.9
  
Stock-based compensation
    
24.7
    
37.6
  
Increase in operating working capital
    
(192.5
)
  
(100.5
)
Deferred income tax provision
    
50.2
    
(90.2
)
Net losses on asset dispositions
    
16.6
    
14.7
  
Equity companies’ earnings in excess of dividends paid
    
(52.7
)
  
(55.5
)
Minority owners’ share of subsidiaries’ net income
    
69.7
    
51.3
  
Postretirement benefits
    
(3.6
)
  
.5
  
Other
    
19.0
    
(8.6
)
               
Cash Provided by Operations
    
1,196.9
    
1,176.0
  
               
Investing Activities
              
Capital spending
    
(433.6
)
  
(544.0
)
Acquisition of businesses, net of cash acquired
    
(76.4
)
  
(15.7
)
Proceeds from sales of investments
    
38.8
    
12.4
  
Proceeds from dispositions of property
    
1.0
    
60.0
  
Net decrease in time deposits
    
43.8
    
17.9
  
Investments in marketable securities
    
(8.6
)
  
(4.1
)
Other
    
(1.1
)
  
(24.9
)
               
Cash Used for Investing
    
(436.1
)
  
(498.4
)
               
Financing Activities
              
Cash dividends paid
    
(467.5
)
  
(465.8
)
Net increase in short-term debt
    
213.1
    
8.2
  
Proceeds from issuance of long-term debt
    
34.3
    
27.4
  
Repayments of long-term debt
    
(34.7
)
  
(35.7
)
Cash paid on redeemable preferred securities of subsidiary
    
(20.1
)
  
-
  
Proceeds from exercise of stock options
    
67.0
    
213.5
  
Acquisitions of common stock for the treasury
    
(437.0
)
  
(315.5
)
Other
    
(34.4
)
  
(16.7
)
               
Cash Used for Financing
    
(679.3
)
  
(584.6
)
               
Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
(8.4
)
  
3.2
  
Increase in Cash and Cash Equivalents
    
73.1
    
96.2
  
Cash and Cash Equivalents, beginning of year
    
472.7
    
360.8
  
               
Cash and Cash Equivalents, end of period
  
$
545.8
  
$
457.0
  

See Notes to Consolidated Financial Statements.

 
4
 

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.  Accounting Policies

Basis of Presentation

The accompanying unaudited condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included.

For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.

New Accounting Standards

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”).  SFAS 159 allows entities to choose, at specified election dates, to measure financial instruments (financial assets and liabilities) at fair value (the “Fair Value Option”).  The election is made on an instrument-by-instrument basis and is irrevocable.  If the Fair Value Option is elected for an instrument, SFAS 159 specifies that all subsequent changes in fair value for that instrument be reported in earnings.  SFAS 159 was effective as of the beginning of the first fiscal year that began after November 15, 2007.  The Corporation has not applied the Fair Value Option to any of its existing financial assets or liabilities.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141(R)”).  SFAS 141(R) requires the acquirer in a business combination to:

 
·
recognize 100 percent of the fair values of acquired assets, including goodwill, and assumed liabilities, with only limited exceptions, even if the acquirer has not acquired 100 percent of the target entity,
 
·
fair value contingent consideration arrangements at the acquisition date,
 
·
expense transaction costs as incurred rather than being considered part of the fair value of an acquirer’s interest,
 
·
fair value certain preacquisition contingencies, such as environmental or legal issues,
 
·
limit accrual of the costs for a restructuring plan to pre-acquisition date restructuring obligations, and
 
·
capitalize the value of acquired research and development as an indefinite-lived intangible asset, subject to impairment accounting, rather than being expensed at the acquisition date.

SFAS 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  Adoption is prospective, and early adoption is not permitted.  Adoption of SFAS 141(R) is not expected to have a material effect on the Corporation’s financial statements.

 
5
 

Note 1.  (Continued)

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”).  SFAS 160 clarifies the classification of noncontrolling interests (i.e., minority owners’ interests in subsidiaries) in consolidated balance sheets and the accounting for and reporting of transactions between the reporting entity and holders of such noncontrolling interests.

Under SFAS 160:

 
·
Noncontrolling interests are reported as an element of consolidated equity, thereby eliminating the current practice of classifying minority owners’ interests within a mezzanine section of the balance sheet.
 
·
The current practice of reporting minority owners’ share of subsidiaries’ net income will change.  Reported net income will include the total income of all consolidated subsidiaries, with separate disclosure on the face of the income statement of the split of net income between the controlling and noncontrolling interests.
 
·
Increases and decreases in the noncontrolling ownership interest amount will be accounted for as equity transactions.  If the controlling interest loses control and deconsolidates a subsidiary, full gain or loss on the transition will be recognized.

SFAS 160 is effective for fiscal years, and interim periods within fiscal years, beginning on or after December 15, 2008.  Early adoption is not permitted.  Adoption is prospective, except for the following provisions, which are required to be adopted retrospectively:

 
·
Noncontrolling interests are required to be reclassified from the mezzanine to equity, separate from the parent’s shareholders’ equity, in the consolidated balance sheet.
 
·
Consolidated net income must be recast to include net income attributable to both controlling and noncontrolling interests.

Except for the reclassification of minority owners’ interests into equity and the inclusion of all of the income of less than 100 percent owned subsidiaries in reported net income, adoption of SFAS 160 is not expected to have a material effect on the Corporation’s financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”).  SFAS 161 applies to all derivative instruments and related hedged items accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”).  SFAS 161 requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows.

SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  Adoption of SFAS 161 is not expected to have a material effect on the Corporation’s financial statements.

In June 2008, the FASB issued Staff Position (FSP) EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.  The FSP specifies that certain share-based payment awards are participating securities, which must be included in the computation of basic and diluted earnings per share under the two-class method prescribed in SFAS 128, Earnings per Share.  Under the two-class method, earnings per share is computed by allocating net income of an entity to both common shareholders and participating securities.

 
6
 

Note 1.  (Continued)

The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  Early adoption is not permitted.  The FSP requires that earnings per share presented for prior periods be retrospectively restated.  Adoption of the FSP is not expected to have a material effect on the Corporation’s financial statements.  

Note 2. Variable Interest Entities
 
The Corporation has minority voting interests in two financing entities (the “Financing Entities”) used to monetize long-term notes (the “Notes”) received from the sale of certain nonstrategic timberlands and related assets to nonaffiliated buyers.  The Notes have an aggregate face value of $617 million and are backed by irrevocable standby letters of credit issued by money center banks.  The Notes and certain other assets were transferred to the Financing Entities in 1999 and 2000.  A nonaffiliated financial institution (the “Third Party”) has made substantive capital investments in each of the Financing Entities and has majority voting control over them. The Third Party also made monetization loans aggregating $617 million to the Corporation, which were assumed by the Financing Entities at the time they acquired the Notes.  These monetization loans are secured by the Notes.  The Corporation also contributed to the Financing Entities intercompany notes receivable aggregating $662 million and intercompany preferred stock of $50 million, which serve as secondary collateral for the monetization loans.

In 2003 upon adoption of FIN 46(R), Consolidation of Variable Interest Entities, (“FIN 46(R)”), the Corporation determined that the Third Party was the primary beneficiary of the Financing Entities as a result of the interest rate variability allocated to it in accordance with FIN 46(R).

On June 30, 2008, the maturity dates of the lending arrangements with the Third Party were extended.  FASB Staff Position FIN 46(R)-6, Determining the Variability to be Considered in Applying FASB Interpretation No. 46(R), (“FSP 46(R)”), which was issued in 2006, requires that certain interest rate variability no longer be considered in determining the primary beneficiary of variable interest entities.  As required by FIN 46(R) in connection with the extensions, the Corporation reconsidered the primary beneficiary determination and concluded, after excluding the interest rate variability as required by FSP 46(R), that it was now the primary beneficiary.

Because the Corporation became the primary beneficiary of the Financing Entities on June 30, 2008, it began consolidating them.  In accordance with FIN 46(R), the assets and liabilities of the Financing Entities were recorded at fair value as of June 30, 2008.  As a result of the consolidation, the Notes held by the Financing Entities with an aggregate fair value of $599.7 million and the fair value of the monetization loans aggregating $611.8 million have been included in long-term notes receivable and long-term debt, respectively, on the consolidated balance sheet.

Fair values have been classified within level 3 of the fair value hierarchy contained in SFAS No. 157, Fair Value Measurements (“SFAS 157”).  These financial assets and liabilities are not traded in active markets.  Accordingly, their fair values were calculated using a floating rate pricing model that compares the stated spread to the fair value spread to determine the price at which each of the financial instruments should trade.  The model uses the following inputs to calculate fair values: current LIBOR rate, fair value spread, stated spread, maturity date and interest payment dates.

 
7
 

Note 2.  (Continued)

The following summarizes the terms of the Notes and the monetization loans.

Description
Face Value
Fair Value
Maturity
Interest Rate (a) (b)
Note 1
$397 million
$388.4 million
September 30, 2009
LIBOR minus 15 bps
Note 2
  220 million
  211.3 million
July 7, 2011
LIBOR minus 12.5 bps
Loan 1
  397 million
  392.0 million
September 30, 2009
LIBOR plus 75 bps
Loan 2
  220 million
  219.8 million
July 1, 2009
LIBOR plus 75 bps

(a) Payable quarterly
(b) 3 month LIBOR

Because the fair value of the monetization loans exceeded the fair value of the Notes, the Corporation recorded an after-tax extraordinary charge of  $7.7 million on its Consolidated Income Statement for the period ended June 30, 2008, as required by FIN 46(R).  In accordance with FIN 46(R), prior period financial statements have not been adjusted to reflect the consolidation of the Financing Entities.

Interest income on the Notes and interest expense on the monetization loans will be reported on the Consolidated Income Statement.  In addition, the Notes and monetization loans will be adjusted from their June 30, 2008 fair values to their face values through their respective maturity dates with the adjustment recorded as interest income and interest expense, respectively.


Note 3.  Fair Value Measurements

Effective January 1, 2008, the Corporation adopted SFAS 157, for its financial assets and liabilities, as required.  In February 2008, the FASB issued FASB Staff Position No. 157-2 which deferred the effective date of SFAS 157 for nonfinancial assets and liabilities except for those recognized or disclosed on a recurring basis.  SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The three levels in the hierarchy used to measure fair value are:

Level 1 – Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.

Level 2 – Quoted prices for similar assets or liabilities in active markets.  Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 – Prices or valuations that require inputs that are significant to the valuation and are unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 
8
 

Note 3.  (Continued)

Set forth below, are the financial assets and liabilities measured at fair value as of June 30, 2008, together with the inputs used to develop those fair value measurements.  The Corporation has no financial assets or liabilities for which fair value was measured on a recurring basis using Level 3 inputs.

       
Fair Value Measurements
  
(Millions of dollars)
June 30, 2008
Level 1
  
Level 2
  
                   
Assets
                  
Company-owned life insurance (“COLI”)
$  47.7
    
$      -
    
$  47.7
    
Available-for-sale securities
15.3
    
15.3
    
-
    
Derivatives
39.8
    
-
    
39.8
    
                   
   Total
$102.8
    
$15.3
    
$  87.5
    
                   
Liabilities
                  
Derivatives
$  31.6
    
$      -
    
$  31.6
    

The COLI policies are a source of funding primarily for the Corporation’s nonqualified employee benefit plans and are included in other assets.  Available-for-sale securities are included in other assets.  The derivative assets and liabilities are included in other current assets, other assets, accrued expenses and other liabilities, as appropriate.
 
Level 1 Fair Values - The fair values of available-for-sale securities are based on quoted market prices in active markets for identical assets.

Level 2 Fair Values - The fair value of the COLI policies is derived from investments in a mix of money market, fixed income and equity funds managed by unrelated fund managers.  The fair values of derivatives used to manage interest rate risk and commodity price risk are based on LIBOR rates and the interest rate swap curves and NYMEX price quotations, respectively.  The  fair value of hedging instruments used to manage foreign currency risk is based on published quotations of spot currency rates and forward points, which are converted into implied forward currency rates.


Note 4.  Strategic Cost Reduction Plan

In July 2005, the Corporation authorized a multi-year plan to further improve its competitive position by accelerating investments in targeted growth opportunities and strategic cost reductions aimed at streamlining manufacturing and administrative operations, primarily in North America and Europe.

The strategic cost reductions commenced in the third quarter of 2005 and are expected to be substantially completed by December 31, 2008.  Based on current estimates, the strategic cost  reductions are expected to result in cumulative charges of approximately $880 to $900 million before tax ($610 - $620 million after tax) over that three and one-half year period.

By the end of 2008, it is anticipated there will be a net workforce reduction of about 10 percent, or approximately 6,000 employees.  Since the inception of the strategic cost reductions, a net workforce reduction of approximately 5,200 has occurred.  As of June 30, 2008, charges have been recorded related to strategic cost reduction initiatives for all affected facilities.  To date, 14 facilities have been

 
9
 

Note 4.  (Continued)

disposed of and three additional facilities have been closed and are being marketed for sale.  Two other facilities will be closed prior to December 31, 2008.  In addition, streamlining at four facilities has been completed.

The following pretax charges were incurred in connection with the strategic cost reductions:

     
Three Months
    
Six Months
  
     
Ended June 30
    
Ended June 30
  
(Millions of dollars)
    
2008
    
2007
    
2008
    
2007
  
                           
Noncash charges
  
$
5.4
  
$
20.7
  
$
11.7
  
$
44.6
  
Charges (credits) for workforce reductions
    
3.3
    
(10.6
)
  
12.7
    
(6.0
)
Other cash charges
    
5.7
    
6.9
    
10.5
    
15.3
  
Charges for special pension and other benefits
    
.1
    
.8
    
3.4
    
4.5
  
                           
Total pretax charges
  
$
14.5
  
$
17.8
  
$
38.3
  
$
58.4
  

The following table summarizes the noncash charges:

     
Three Months
    
Six Months
  
     
Ended June 30
    
Ended June 30
  
(Millions of dollars)
    
2008
    
2007
    
2008
    
2007
  
                           
Incremental depreciation
  
$
4.3
  
$
19.3
  
$
8.0
  
$
49.7
  
Asset write-offs
    
.1
    
1.4
    
2.0
    
4.7
  
Net loss (gain) on asset dispositions
    
1.0
    
-
    
1.7
    
(9.8
)
                           
Total noncash charges
  
$
5.4
  
$
20.7
  
$
11.7
  
$
44.6
  

The following table summarizes the cash charges recorded and reconciles such charges to accrued expenses at June 30:

(Millions of dollars)
  
2008
  
2007
  
               
Accrued expenses – beginning of the year
  
$
53.8
  
$
111.2
  
Charges (credits) for workforce reductions
    
12.7
    
(6.0
)
Other cash charges
    
10.5
    
15.3
  
Cash payments
    
(43.4
)
  
(63.0
)
Currency
    
1.4
    
2.3
  
               
Accrued expenses at June 30
  
$
35.0
  
$
59.8
  

Termination benefits related to workforce reductions were accrued in accordance with the requirements of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”), SFAS No. 112, Employers’ Accounting for Postemployment Benefits, and SFAS No. 88, Employers’ Accounting for Settlements & Curtailments of Defined Benefit Pension Plans and for Termination

 
10
 

Note 4.  (Continued)

Benefits, as appropriate.  Retention bonuses related to workforce reductions were accrued in accordance with SFAS 146.  The majority of the termination benefits and retention bonuses will be paid within 12 months of accrual.  The termination benefits were provided under: a special-benefit arrangement for affected employees in the U.S.; standard benefit practices in the U.K.; applicable union agreements; or local statutory requirements, as appropriate.  Incremental depreciation was based on changes in useful lives and estimated residual values of assets that are continuing to be used, but will be removed from service before the end of their originally assumed service period.

Costs of the initiatives have not been recorded at the business segment level, as the strategic cost reductions are corporate decisions.  These charges are included in the following income statement captions:

   
Three Months
  
Six Months
  
   
Ended June 30
  
Ended June 30
  
(Millions of dollars)
  
2008
  
2007
  
2008
  
2007
  
                           
Cost of products sold
  
$
8.7
  
$
10.7
  
$
20.5
  
$
52.5
  
Marketing, research and general expenses
    
4.9
    
7.1
    
16.2
    
15.2
  
Other (income) and expense, net
    
.9
    
-
    
1.6
    
(9.3
)
                           
Pretax charges
    
14.5
    
17.8
    
38.3
    
58.4
  
Provision for income taxes
    
(5.5
)
  
(7.9
)
  
(13.2
)
  
(33.5
)
Minority owners’ share of subsidiaries’
                          
net income
    
-
    
(.1
)
  
-
    
(.1
)
                           
Total after tax charges
  
$
9.0
  
$
9.8
  
$
25.1
  
$
24.8
  

See Note 10 for additional information on the strategic cost reductions by business segment.

Actual pretax charges recorded for the strategic cost reductions relate to activities in the following geographic areas for the three months ended June 30:

 
2008
  
 
(Millions of dollars)
North
America
  
Europe
  
Other
  
Total
  
                             
Incremental depreciation
$
1.5
    
$
2.8
    
$
-
  
$
4.3
  
Asset write-offs
  
-
      
.1
      
-
    
.1
  
Charges for workforce reductions and special
                            
pension and other benefits
  
2.3
      
1.1
      
-
    
3.4
  
Loss on asset disposals and other charges
  
4.1
      
2.4
      
.2
    
6.7
  
                             
Total charges
$
7.9
    
$
6.4
    
$
.2
  
$
14.5
  


 
11
 

Note 4.  (Continued)

 
2007
  
 
(Millions of dollars)
North
America
  
Europe
  
Other
  
Total
  
                             
Incremental depreciation
$
13.4
    
$
6.7
    
$
(.8
)
$
19.3
  
Asset write-offs
  
1.2
      
(.2
)
    
.4
    
1.4
  
Charges (credits) for workforce reductions and
                            
special pension and other benefits
  
5.3
      
(18.7
)
    
3.6
    
(9.8
)
Loss on asset disposals and other charges
  
4.8
      
1.2
      
.9
    
6.9
  
                             
Total charges (credits)
$
24.7
    
$
(11.0
)
  
$
4.1
  
$
17.8
  

Actual pretax charges recorded for the strategic cost reductions relate to activities in the following geographic areas for the six months ended June 30:


 
2008
  
 
(Millions of dollars)
North
America
  
Europe
  
Other
  
Total
  
                             
Incremental depreciation
$
3.1
    
$
4.9
    
$
-
  
$
8.0
  
Asset write-offs
  
1.9
      
.1
      
-
    
2.0
  
Charges for workforce reductions and special
                            
pension and other benefits
  
9.2
      
6.5
      
.4
    
16.1
  
Loss on asset disposals and other charges
  
7.9
      
3.8
      
.5
    
12.2
  
                             
Total charges
$
22.1
    
$
15.3
    
$
.9
  
$
38.3
  


 
2007
  
 
(Millions of dollars)
North
America
  
Europe
  
Other
  
Total
  
                             
Incremental depreciation
$
29.3
    
$
19.7
    
$
.7
  
$
49.7
  
Asset write-offs
  
3.0
      
1.2
      
.5
    
4.7
  
Charges (credits) for workforce reductions and
                            
special pension and other benefits
  
11.6
      
(17.0
)
    
3.9
    
(1.5
)
Loss (gain) on asset disposals and other charges
  
8.0
      
(2.2
)
    
(.3
)
  
5.5
  
                             
Total charges
$
51.9
    
$
1.7
    
$
4.8
  
$
58.4
  


 
12
 

Note 5.  Inventories

The following schedule presents inventories by major class:

 
June 30,
  
December 31,
(Millions of dollars)
2008
  
2007
                   
At lower of cost on the First-In, First-Out (FIFO) method or market:
                  
Raw materials
  
$
520.7
      
$
476.3
  
Work in process
    
397.8
        
357.3
  
Finished goods
    
1,671.6
        
1,564.1
  
Supplies and other
    
279.6
        
261.0
  
     
2,869.7
        
2,658.7
  
Excess of FIFO cost over Last-In, First-Out (LIFO) cost
    
(239.9
)
      
(214.9
)
                   
Total
  
$
2,629.8
      
$
2,443.8
  

The Corporation uses the LIFO method of valuing inventory for financial reporting purposes for most U.S. inventories.  An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time.  Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation.

FIFO cost of total inventories on the LIFO method was $1,236.7 million and $1,203.0 million at June 30, 2008 and December 31, 2007, respectively.


Note 6.  Synthetic Fuel Partnerships

The Corporation had minority interests in two synthetic fuel partnerships.  The production of synthetic fuel resulted in pretax losses that were reported as nonoperating expense on the Corporation’s Consolidated Income Statement.  Synthetic fuel produced by the partnerships was eligible for synthetic fuel tax credits through the end of 2007 at which time the law giving rise to the tax benefit expired.  The partnerships will be dissolved during 2008 at no cost to the Corporation.  In addition, in 2007 there were tax deductions for the nonoperating losses, which reduced the Corporation’s income tax expense.  The effects of those losses and benefits for 2007 are shown in the following table:


   
Periods Ended June 30, 2007
  
(Millions of dollars)
  
Three Months
  
Six Months
  
                           
Nonoperating expense
        
$
(47.5
)
      
$
(75.1
)
Tax credits
  
$
43.9
        
$
69.5
        
Tax benefit of nonoperating expense
    
15.6
    
59.5
    
24.7
    
94.2
  
Net synthetic fuel benefit
        
$
12.0
        
$
19.1
  
                           
Per share basis – diluted
        
$
.03
        
$
.04
  


 
13
 

 
Note 7.  Employee Postretirement Benefits

The table below presents the interim period disclosure required by SFAS No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits:

 
Defined
  
Other Postretirement
 
Benefit Plans
  
Benefit Plans
 
Three Months Ended June 30
(Millions of dollars)
2008
  
2007
  
2008
  
2007
  
                         
Service cost
$
18.9
  
$
20.2
  
$
3.3
  
$
3.2
  
Interest cost
  
82.5
    
77.9
    
12.2
    
12.9
  
Expected return on plan assets
  
(94.4
)
  
(92.8
)
  
-
    
-
  
Recognized net actuarial loss
  
14.4
    
18.6
    
(.6
)
  
1.8
  
Other
  
3.1
    
2.8
    
.7
    
.8
  
                         
Net periodic benefit cost
$
24.5
  
$
26.7
  
$
15.6
  
$
18.7
  


 
Defined
  
Other Postretirement
 
Benefit Plans
  
Benefit Plans
 
Six Months Ended June 30
(Millions of dollars)
2008
  
2007
  
2008
  
2007
  
                         
Service cost
$
38.6
  
$
41.6
  
$
6.6
  
$
6.6
  
Interest cost
  
164.8
    
156.6
    
25.4
    
25.0
  
Expected return on plan assets
  
(188.7
)
  
(184.9
)
  
-
    
-
  
Recognized net actuarial loss
  
28.5
    
37.9
    
.3
    
2.6
  
Other
  
7.3
    
7.8
    
1.5
    
1.6
  
                         
Net periodic benefit cost
$
50.5
  
$
59.0
  
$
33.8
  
$
35.8
  

During the first and second quarters of 2008, the Corporation made cash contributions of approximately $36 million and $17 million, respectively, to its pension trusts outside the U.S.  During the first and second quarters of 2007, the Corporation made cash contributions of approximately $42 million and $17 million, respectively, to its pension trusts outside the U.S.  The Corporation currently anticipates contributing about $93 million for the full year 2008 to its pension trusts outside the U.S.

While no 2008 contributions to the U.S. pension trust are currently anticipated, the funded status of the plan is reviewed regularly in light of regulatory requirements, pension asset returns, and interest rates.


 
14
 

Note 8.  Earnings Per Share

There are no adjustments required to be made to net income for purposes of computing basic and diluted 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:

   
Average Common Shares Outstanding
  
   
Three Months
  
Six Months
  
   
Ended June 30
  
Ended June 30
  
(Millions of shares)
  
2008
  
2007
  
2008
  
2007
  
                   
Basic
  
417.7
  
455.6
  
418.9
  
455.7
  
Dilutive effect of stock options
  
1.3
  
2.7
  
1.4
  
2.7
  
Dilutive effect of restricted share and restricted
                  
share unit awards
  
.9
  
1.3
  
1.1
  
1.4
  
Diluted
  
419.9
  
459.6
  
421.4
  
459.8
  

Options outstanding during the three- and six-month periods ended June 30, 2008 to purchase 10.1 million and 8.8 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 during the periods.

Options outstanding during the three- and six-month periods ended June 30, 2007 to purchase 3.3 million and 1.8 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 during the periods.

The number of common shares outstanding as of June 30, 2008 and 2007 was 416.2 million and 455.3 million, respectively.


Note 9.  Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity during the periods except those resulting from investments by and distributions to stockholders.

The following schedule presents the components of comprehensive income:

   
Six Months
  
   
Ended June 30
  
(Millions of dollars)
  
2008
  
2007
  
               
Net income
  
$
857.6
  
$
913.8
  
Unrealized currency translation adjustments
    
354.4
    
182.5
  
Employee postretirement benefits, net of tax
    
4.7
    
55.0
  
Deferred (losses) gains on cash flow hedges, net of tax
    
(10.2
)
  
5.4
  
Unrealized holding losses on available-for-sale securities, net of tax
    
(1.9
)
  
(.1
)
               
Comprehensive income
  
$
1,204.6
  
$
1,156.6
  


 
15
 

Note 9.  (Continued)

Net unrealized currency gains or losses resulting from the translation of assets and liabilities of non-U.S. subsidiaries, except those in highly inflationary economies, are accumulated in a separate section of stockholders’ equity.  For these operations, changes in exchange rates generally do not affect cash flows; therefore, unrealized translation adjustments are recorded in stockholders’ equity rather than income.  Upon sale or substantially complete liquidation of any of these subsidiaries, the applicable unrealized translation adjustment would be removed from stockholders’ equity and reported as part of the gain or loss on the sale or liquidation.

Also included are the effects of foreign exchange rate changes on intercompany balances of a long-term investment nature and transactions designated as hedges of net foreign investments.

The net unrealized currency translation adjustments for the six months ended June 30, 2008 are primarily due to a weakening of the U.S. dollar versus the Australian dollar, euro, Brazilian real, Swiss franc, and Czech Republic koruna, partially offset by the South Korean won.


Note 10.  Description of Business Segments

The Corporation is organized into operating segments based on product groupings.  These operating segments have been aggregated into four reportable global business segments: Personal Care; Consumer Tissue; K-C Professional & Other; and Health Care.  The reportable segments were determined in accordance with how the Corporation’s executive managers develop and execute the Corporation’s global strategies to drive growth and profitability of the Corporation’s worldwide Personal Care, Consumer Tissue, K-C Professional & Other and Health Care operations.  These strategies include global plans for branding and product positioning, technology, research and development programs, cost reductions including supply chain management, and capacity and capital investments for each of these businesses.  Segment management is evaluated on several factors, including operating profit.  Segment operating profit excludes other income and (expense), net; income and expense not associated with the business segments; and the costs of corporate decisions related to the strategic cost reductions described in Note 4.

The principal sources of revenue in each global business segment 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, napkins and related products for household use.  Products in this segment are sold under the Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Hakle, Page and other brand names.

·
The K-C Professional & Other segment manufactures and markets facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products for the away-from-home marketplace.  Products in this segment are sold under the Kimberly-Clark, Kleenex, Scott, WypAll, Kimtech, Kleenguard and Kimcare brand names.

 
16
 

Note 10.  (Continued)

·
The Health Care segment manufactures and markets disposable health care products such as surgical gowns, drapes, infection control products, sterilization wrap, face masks, exam gloves, respiratory products and other disposable medical products.  Products in this segment are sold under the Kimberly-Clark, Ballard and other brand names.

The following schedules present information concerning consolidated operations by business segment:

   
Three Months
  
Six Months
  
   
Ended June 30
  
Ended June 30
  
(Millions of dollars)
  
2008
  
2007
  
2008
  
2007
  
                           
NET SALES:
                          
                           
Personal Care
  
$
2,165.0
  
$
1,881.5
  
$
4,211.1
  
$
3,679.1
  
Consumer Tissue
    
1,689.6
    
1,568.6
    
3,396.6
    
3,161.7
  
K-C Professional & Other
    
839.9
    
763.0
    
1,600.8
    
1,460.4
  
Health Care
    
306.3
    
296.7
    
604.2
    
599.4
  
Corporate & Other
    
23.0
    
9.0
    
44.8
    
17.0
  
Intersegment sales
    
(17.6
)
  
(16.8
)
  
(38.6
)
  
(30.3
)
                           
Consolidated
  
$
5,006.2
  
$
4,502.0
  
$
9,818.9
  
$
8,887.3
  


 
17
 

Note 10. (Continued)

   
Three Months
  
Six Months
  
   
Ended June 30
  
Ended June 30
  
(Millions of dollars)
  
2008
  
2007
  
2008
  
2007
  
                           
OPERATING PROFIT (reconciled to income before
                          
income taxes):
                          
                           
Personal Care
  
$
436.4
  
$
393.2
  
$
864.6
  
$
740.4
  
Consumer Tissue
    
130.4
    
168.9
    
285.9
    
376.0
  
K-C Professional & Other
    
110.9
    
119.9
    
207.6
    
228.6
  
Health Care
    
29.8
    
52.0
    
76.0
    
107.6
  
Other income and (expense), net(a)
    
(7.1
)
  
.3
    
(.3
)
  
(3.3
)
Corporate & Other(a) (b)
    
(50.3
)
  
(85.6
)
  
(119.6
)
  
(184.5
)
                           
Total Operating Profit
    
650.1
    
648.7
    
1,314.2
    
1,264.8
  
                           
Nonoperating expense
    
-
    
(47.5
)
  
-
    
(75.1
)
Interest income
    
7.4
    
7.4
    
15.7
    
14.0
  
Interest expense
    
(72.8
)
  
(51.9
)
  
(147.5
)
  
(102.8
)
                           
Income Before Income Taxes
  
$
584.7
  
$
556.7
  
$
1,182.4
  
$
1,100.9
  

 
Notes:

 
(a)  Other income and (expense), net and Corporate & Other include the following amounts of pretax charges for the strategic cost reductions:

   
Three Months
  
Six Months
  
   
Ended June 30
  
Ended June 30
  
(Millions of dollars)
  
2008
  
2007
  
2008
  
2007
  
                           
Other income and (expense), net
  
$
(.9
)
$
-
  
$
(1.6
)
$
9.3
  
                           
Corporate & Other
    
(13.6
)
  
(17.8
)
  
(36.7
)
  
(67.7
)

 
(b)  In 2007, Corporate & Other also includes the related implementation costs of $11.0 million and $23.2 million for the three and six months
      ended June 30, respectively.


 
18
 

Note 10. (Continued)

The following table presents the pretax charges for the strategic cost reductions related to activities in the Corporation’s business segments:

   
Three Months
  
Six Months
  
   
Ended June 30
  
Ended June 30
  
(Millions of dollars)
  
2008
  
2007
  
2008
  
2007
  
                           
Personal Care
  
$
3.8
  
$
22.2
  
$
14.7
  
$
50.2
  
Consumer Tissue
    
2.1
    
(12.9
)
  
7.3
    
3.0
  
K-C Professional & Other
    
1.0
    
4.0
    
2.4
    
6.6
  
Health Care
    
6.7
    
4.5
    
12.3
    
7.9
  
Other (income) and expense, net
    
.9
    
-
    
1.6
    
(9.3
)
                           
Total
  
$
14.5
  
$
17.8
  
$
38.3
  
$
58.4
  

Cumulative pretax charges expected to be incurred for the strategic cost reductions of $880 to $900 million by business segment are: Personal Care - $485 to $495 million; Consumer Tissue - $195 to $200 million; K-C Professional & Other - $70 to $72 million; and Health Care - $130 to $133 million.


 
19
 

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 2008 Results

·
Results of Operations and Related Information

·
Liquidity and Capital Resources

·
New Accounting Standards

·
Environmental Matters

·
Business Outlook

Overview of Second Quarter 2008 Results

·
Net sales increased 11.2 percent.

·
Operating profit increased .2 percent; however, net income decreased by 9.8 percent.

·
Cash provided by operations was $752.8 million, an increase of 15.5 percent over last year.

Results of Operations and Related Information

This section presents a discussion and analysis of the Corporation’s second quarter and first six months of 2008 net sales, operating profit and other information relevant to an understanding of the results of operations.

 
20
 

Second Quarter of 2008 Compared With Second Quarter of 2007

Analysis of Net Sales

By Business Segment
(Millions of dollars)

Net Sales
2008
  
2007
  
             
Personal Care
$
2,165.0
  
$
1,881.5
  
Consumer Tissue
  
1,689.6
    
1,568.6
  
K-C Professional & Other
  
839.9
    
763.0
  
Health Care
  
306.3
    
296.7
  
Corporate & Other
  
23.0
    
9.0
  
Intersegment sales
  
(17.6
)
  
(16.8
)
             
Consolidated
$
5,006.2
  
$
4,502.0
  

Commentary:

 
Percent Change in Net Sales Versus Prior Year
  
     
Changes Due To
  
 
Total
  
Volume
  
Net
          
 
Change
  
Growth
  
Price
  
Currency
  
Other
  
                               
Consolidated
11.2
    
3
    
3
    
4
    
1
    
                               
Personal Care
15.1
    
9
    
2
    
4
    
-
    
Consumer Tissue
7.7
    
(3
)
  
5
    
4
    
2
    
K-C Professional & Other
10.1
    
1
    
3
    
4
    
2
    
Health Care
3.2
    
5
    
(2
)
  
2
    
(2
)
  


·
Personal care net sales in North America increased about 10 percent compared with the second quarter of 2007, driven primarily by sales volume growth of 8 percent.  Higher net selling prices and favorable currency translation both added 1 percent to net sales.  Sales volumes improved across most categories, paced by double-digit growth for Huggies diapers and high single-digit gains for the Corporation’s child care and incontinence care brands.  Selling prices rose primarily as a result of price increases for diaper and child care products implemented during the first quarter in the U.S., partially offset by competitive promotional activities.

In Europe, personal care net sales were up approximately 8 percent in the quarter.  Favorable currency effects boosted sales by about 13 percent; however, sales volumes were lower by 5 percent.  The volume decline reflects lower sales of Huggies diapers, partially offset by increased sales of baby wipes and child care products across the region.  Sales volumes of Huggies diapers in the Corporation’s four core markets – U.K., France, Italy and Spain – were down 8 percent as the Corporation maintained net selling prices generally in line with prior year levels in a continued highly competitive environment.

 
21
 

In developing and emerging markets, personal care net sales increased about 25 percent, representing the fifteenth consecutive quarter of double-digit growth, as the Corporation is benefiting from product and customer programs in rapidly growing markets.  Sales volumes increased more than 14 percent, while net selling prices and the mix of products sold both improved approximately 2 percent.  Stronger foreign currencies benefited sales by more than 6 percent.  The growth in sales volumes was broad-based, with particular strength throughout most of Latin America and in South Korea, China, Russia, Turkey and Vietnam.

·
In North America, net sales of consumer tissue products decreased 1 percent in the second quarter, as an increase in net selling prices of about 5 percent was more than offset by a 6 percent decline in sales volumes.  The improvement in selling prices was due mainly to price increases for bathroom tissue and paper towels implemented during the first quarter in the U.S., while the majority of the decrease in sales volumes was attributable to the paper towel and private label tissue categories.  In towels, sales volumes were down following implementation of price increases during the first quarter in the U.S. and in comparison to strong growth in the year-ago quarter.  The lower level of private label sales reflects the Corporation’s decision in late 2007 to shed certain low-margin business to support growth of more profitable products such as Scott bathroom tissue.  Meanwhile, although Cottonelle sales volumes declined, principally due to package count changes, net sales of both Scott and Cottonelle bathroom tissue registered improvement in the quarter, driven primarily by higher net selling prices.

In Europe, consumer tissue net sales rose about 11 percent versus the second quarter of 2007.  Currency exchange rates strengthened by an average of 10 percent, accounting for virtually all of the increase.  Sales volumes were down approximately 3 percent, due mainly to lower sales of Andrex and Scottex bathroom tissue, as sales softened somewhat following implementation of price increases.  Overall, net selling prices improved nearly 4 percent.

Consumer tissue net sales in developing and emerging markets rose approximately 21 percent.  Sales volumes increased approximately 6 percent, highlighted by strong growth in Latin America and Russia.  Net selling prices and product mix improved 7 percent and 1 percent, respectively, as the Corporation has raised prices in response to higher raw materials costs and shifted mix to more differentiated, value-added products.  Favorable currency effects added 7 percent to sales.

·
Globally, KCP achieved double-digit growth in sales of washroom, workplace and safety products.  In North America and Europe, organic sales rose at a mid-single digit rate, driven primarily by higher net selling prices and better product mix.  Across developing and emerging markets, sales were up 22 percent on sales volume gains of 9 percent, net selling price/mix improvements of 7 percent and currency benefits of 6 percent.

·
The improvement in sales volumes of health care products was broad-based across most categories and geographic regions, paced by double-digit growth of medical devices and exam gloves.  The price and mix declines were mainly attributable to competitive conditions affecting surgical supplies in North America.

 
22
 

By Geography
(Millions of dollars)

Net Sales
2008
  
2007
  
             
North America
$
2,645.5
  
$
2,533.2
  
Outside North America
  
2,516.7
    
2,138.5
  
Intergeographic sales
  
(156.0
)
  
(169.7
)
             
Consolidated
$
5,006.2
  
$
4,502.0
  


Commentary:

·
Net sales in North America increased 4.4 percent due to higher personal care sales volumes and consumer tissue net selling prices, partially offset by lower consumer tissue sales volumes.

·
Net sales outside North America increased 17.7 percent due to higher sales volumes, net selling prices and favorable currency effects for both personal care and consumer tissue in the developing and emerging markets.

Analysis of Operating Profit

By Business Segment
(Millions of dollars)

Operating Profit
2008
  
2007
  
             
Personal Care
$
436.4
  
$
393.2
  
Consumer Tissue
  
130.4
    
168.9
  
K-C Professional & Other
  
110.9
    
119.9
  
Health Care
  
29.8
    
52.0
  
Other income and (expense), net (a)
  
(7.1
)
  
.3
  
Corporate & Other (a) (b)
  
(50.3
)
  
(85.6
)
             
Consolidated
$
650.1
  
$
648.7
  

Notes:

 
(a)  Other income and (expense), net and Corporate & Other include the following pretax amounts for the strategic cost reductions:

 
23
 


   
Three Months
  
   
Ended June 30
  
(Millions of dollars)
  
2008
  
2007
  
               
Other income and (expense), net
  
$
(.9
)
$
-
  
               
Corporate & Other
    
(13.6
)
  
(17.8
)

 
(b)  In 2008, Corporate & Other includes a lower level of accrued variable compensation than in 2007.

 In 2007, Corporate & Other also includes the incremental implementation costs of $11.0 million related to the transfer of certain 
 administrative processes to third-party providers.

Commentary:

 
Percentage Change in Operating Profit Versus Prior Year
     
Changes Due To
             
Raw
  
Energy and
        
 
Total
      
Net
  
Materials
  
Distribution