Edgar Filing: KIMBERLY CLARK CORP

kc_10q-3q09.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 September 30, 2009

¨ 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)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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 October 30, 2009, there were 415,379,458 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						Nine Months Ended
	September 30						September 30
(Millions of dollars, except per share amounts)	2009			2008			2009			2008

Net Sales	$	4,913		$	4,998		$	14,133		$	14,817
Cost of products sold		3,186			3,535			9,379			10,414

Gross Profit		1,727			1,463			4,754			4,403
Marketing, research and general expenses		852			848			2,524			2,474
Other (income) and expense, net		4			5			122			5

Operating Profit		871			610			2,108			1,924
Interest income		7			15			21			31
Interest expense		(67	)		(76	)		(211	)		(224	)

Income Before Income Taxes, Equity Interests and Extraordinary Loss		811			549			1,918			1,731
Provision for income taxes		(240	)		(154	)		(562	)		(493	)

Income Before Equity Interests and Extraordinary Loss		571			395			1,356			1,238
Share of net income of equity companies		40			53			116			145
Extraordinary loss, net of income taxes, attributable to Kimberly-Clark Corporation		-			-			-			(8	)

Net Income		611			448			1,472			1,375
Net income attributable to noncontrolling interests		(29	)		(35	)		(80	)		(104	)

Net Income Attributable to Kimberly-Clark Corporation	$	582		$	413		$	1,392		$	1,271

Per Share Basis:

Basic
Before extraordinary loss	$	1.40		$	.99		$	3.35		$	3.05
Extraordinary loss		-			-			-			(.02	)
Net Income Attributable to Kimberly-Clark Corporation	$	1.40		$	.99		$	3.35		$	3.03

Diluted
Before extraordinary loss	$	1.40		$	.99		$	3.35		$	3.04
Extraordinary loss		-			-			-			(.02	)
Net Income Attributable to Kimberly-Clark Corporation	$	1.40		$	.99		$	3.35		$	3.02

Cash Dividends Declared	$	.60		$	.58		$	1.80		$	1.74

See Notes to Consolidated Financial Statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

	September 30,		December 31,
(Millions of dollars)	2009		2008

ASSETS

Current Assets
Cash and cash equivalents	$	750	$	364
Accounts receivable, net		2,449		2,492
Inventories		2,014		2,493
Other current assets		571		464
Total Current Assets		5,784		5,813

Property		16,658		15,723
Less accumulated depreciation		8,732		8,056
Net Property		7,926		7,667

Investments in Equity Companies		368		324

Goodwill		3,073		2,743

Long-Term Notes Receivable		606		603

Other Assets		831		939
	$	18,588	$	18,089

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Debt payable within one year	$	1,210	$	1,083
Accounts payable		1,668		1,603
Accrued expenses		1,974		1,723
Other current liabilities		460		343
Total Current Liabilities		5,312		4,752

Long-Term Debt		4,442		4,882
Noncurrent Employee Benefits		1,758		2,593
Long-Term Income Taxes Payable		122		189
Deferred Income Taxes		218		193
Other Liabilities		191		187
Redeemable Preferred and Common Securities of Subsidiaries		1,046		1,032

Stockholders’ Equity
Kimberly-Clark Corporation		5,191		3,878
Noncontrolling Interests		308		383
Total Stockholders’ Equity		5,499		4,261

	$	18,588	$	18,089

See Notes to Consolidated Financial Statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

(Unaudited)

	Nine Months
	Ended September 30
(Millions of dollars)	2009			2008

Operating Activities
Net income	$	1,472		$	1,375
Extraordinary loss, net of income taxes		-			8
Depreciation and amortization		563			596
Stock-based compensation		63			38
Decrease (increase) in operating working capital		988			(180	)
Deferred income taxes		(18	)		16
Net losses on asset dispositions		33			35
Equity companies’ earnings in excess of dividends paid		(61	)		(71	)
Postretirement benefits		(535	)		4
Other		(25	)		17

Cash Provided by Operations		2,480			1,838

Investing Activities
Capital spending		(563	)		(653	)
Acquisition of businesses, net of cash acquired		(165	)		(98	)
Proceeds from sales of investments		31			41
Proceeds from dispositions of property		9			3
Net (increase) decrease in time deposits		(71	)		76
Investments in marketable securities		-			(9	)
Other		11			4

Cash Used for Investing		(748	)		(636	)

Financing Activities
Cash dividends paid		(737	)		(709	)
Net (decrease) increase in short-term debt		(303	)		162
Proceeds from issuance of long-term debt		2			47
Repayments of long-term debt		(39	)		(70	)
Cash paid on redeemable preferred securities of subsidiary		(40	)		(34	)
Shares purchased from noncontrolling interests		(278	)		-
Proceeds from exercise of stock options		40			104
Acquisitions of common stock for the treasury		(6	)		(573	)
Other		(8	)		(49	)

Cash Used for Financing		(1,369	)		(1,122	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		23			(29	)
Increase in Cash and Cash Equivalents		386			51
Cash and Cash Equivalents, beginning of year		364			473

Cash and Cash Equivalents, end of period	$	750		$	524

See Notes to Consolidated Financial Statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30						Nine Months Ended September 30
(Millions of dollars)	2009			2008			2009			2008

Net Income	$	611		$	448		$	1,472		$	1,375

Other Comprehensive Income, Net of Tax:
Unrealized currency translation adjustments		313			(773	)		598			(443	)
Employee postretirement benefits		1			33			178			33
Other		(4	)		3			(19	)		(9	)
Total Other Comprehensive Income, Net of Tax		310			(737	)		757			(419	)

Comprehensive Income		921			(289	)		2,229			956
Comprehensive income attributable to noncontrolling interests		29			(1	)		82			39

Comprehensive Income Attributable to Kimberly-Clark Corporation	$	892		$	(288	)	$	2,147		$	917

See Notes to Consolidated Financial Statements.

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 (“GAAP”) 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 GAAP 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, 2008.

Management has evaluated events occurring subsequent to September 30, 2009 through November 6, 2009, the date of filing the Form 10-Q with the Securities and Exchange Commission (“SEC”), to determine if any such events should either be recognized or disclosed in the condensed Consolidated Financial Statements.

New Accounting Standards

Effective January 1, 2009, the Corporation adopted new Financial Accounting Standards Board (“FASB”) guidance with respect to the classification of noncontrolling interests (formerly minority interests) in its Consolidated Financial Statements. See Note 7 for additional detail.

Effective January 1, 2009, the Corporation adopted new accounting requirements whereby certain share-based payment awards entitled to nonforfeitable dividends or dividend equivalents are considered participating securities, and must be included in the computation of basic and diluted earnings per share under the two-class method. Under the two-class method earnings per share are computed by allocating net income between common stockholders and participating securities.

The Corporation’s basic and diluted earnings per share amounts have been recast from amounts previously reported as follows:

	As Previously Reported				As Recast
	Basic		Diluted		Basic		Diluted

2008:
First Quarter	$	1.05	$	1.04	$	1.05	$	1.04
Second Quarter		1.00		0.99		0.99		0.99
Third Quarter		1.00		0.99		0.99		0.99
Nine Months		3.04		3.03		3.03		3.02
Fourth Quarter		1.01		1.01		1.01		1.01
Full Year		4.06		4.04		4.04		4.03

2007		4.13		4.09		4.11		4.08

2006		3.27		3.25		3.26		3.24

Note 1. (Continued)

In June 2009, the Corporation adopted new FASB requirements to evaluate events or transactions that occur after the balance sheet date but before financial statements are issued. Subsequent events that provide additional evidence about conditions that existed at the balance sheet date, including estimates inherent in the process of preparing financial statements, must be recognized in the financial statements. Subsequent events that provide evidence about conditions that did not exist at the balance sheet date but arose after the balance sheet date but before financial statements are issued are not permitted to be recognized, but may require disclosure.

In June 2009, the FASB adopted a codification of accounting standards and the hierarchy of GAAP. The codification became effective for financial statements issued for interim or annual periods ending after September 15, 2009 and is the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. All nongrandfathered non-SEC accounting literature not included in the codification is superseded and deemed non-authoritative. Adoption of the codification did not have a financial effect on the Corporation’s financial statements.

Effective June 30, 2009, as required, the Corporation:

·	expanded disclosures due to new FASB guidance about the fair value of financial instruments in its quarterly financial statements.

adopted new FASB guidance for determining other-than-temporary impairment of debt securities and improving the presentation and disclosure of other-than-temporary impairments of debt and equity securities in the financial statements. Adoption of this guidance did not have a material effect on the Corporation’s financial statements.

adopted new FASB guidance for estimating fair values of financial assets and liabilities in circumstances when there is no active market or where the price inputs being used represent distressed sales and identifying circumstances that indicate a transaction is not orderly. Adoption of this guidance did not have a material effect on the Corporation’s financial statements.

In December 2008, the FASB issued new disclosure guidance about the fair values of plan assets held in an employer’s defined benefit pension or other postretirement plan. This guidance includes disclosure of:

·	how investment allocation decisions are made,

·	the major categories of plan assets,

·	the inputs and valuation techniques used to measure fair value,

·	the effect of fair value measurements using significant unobservable inputs on year-to-year changes in plan assets, and

·	significant concentrations of risk within plan assets.

These disclosures are required for fiscal years ending after December 15, 2009. Since the requirements consist only of additional disclosures, there will not be a financial effect on the Corporation’s financial statements.

In June 2009, the FASB revised the requirements for when a company must consolidate a variable interest entity (”VIE”) in which that company has an interest. Under the new requirements, a company must perform a qualitative analysis when determining whether it must consolidate a VIE. If the company has an interest in a VIE that provides it with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or the right to receive benefits of the VIE that potentially could be significant to the VIE, the company must consolidate the VIE. A company will be required to perform ongoing reassessments to determine if it

Note 1. (Continued)

must consolidate a VIE. This differs from current guidance, which prescribes a quantitative analysis to determine whether to consolidate a VIE and requires this analysis be performed only when specific events occur. The new requirement is effective for fiscal years, and interim periods within fiscal years, beginning after December 15, 2009, and early adoption is prohibited. The Corporation is evaluating whether it must change its accounting for its monetization financing entities and its Luxembourg-based financing subsidiary. These entities are currently consolidated in the Corporation’s financial statements. Deconsolidation, if required, will not have a significant effect on the Corporation’s earnings and will have no effect on cash flow. The Corporation is also assessing the effects of the new guidance on certain of its real estate entities, but does not expect any change in accounting to have a significant impact on its earnings.

Note 2. Fair Value Measurements

The following fair value information is based on 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.

Set forth below are the assets and liabilities that are measured on a recurring basis at fair value as of September 30, 2009, together with the inputs used to develop those fair value measurements. The Corporation has no assets or liabilities for which fair value was measured on a recurring basis using Level 3 inputs.

		Fair Value Measurements
(Millions of dollars)	September 30, 2009	Level 1	Level 2

Assets
Company-owned life insurance (“COLI”)	$ 43	$ -	$ 43
Available-for-sale securities	13	13	-
Derivatives	58	-	58

Total	$ 114	$ 13	$ 101

Liabilities
Derivatives	$ 101	$ -	$ 101

Note 2. (Continued)

The COLI policies are a source of funding primarily for the Corporation’s nonqualified employee benefits 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. Unrealized losses on these securities aggregating $5 million have been recorded in other comprehensive income until realized. The unrealized losses have not been recognized in earnings because the Corporation has both the intent and ability to hold the securities for a period of time sufficient to allow for an anticipated recovery of fair value to the cost of such securities.

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 interest rate swap curves and NYMEX price quotations, respectively. The fair value of hedging instruments used to manage foreign currency risk is based on quotations of spot currency rates and forward points, which are converted into implied forward currency rates. Additional information on the Corporation’s use of derivative instruments is contained in Note 8.

Fair Value Disclosures

As of September 30, 2009, the consolidated balance sheet contains the following financial instruments, for which disclosure of fair value is required.


	Carrying		Estimated
(Millions of dollars)	Amount		Fair Value
Assets
Cash and cash equivalents(a)	$	750	$	750
Time deposits(b)		210		210
Long-term notes receivable(c)		606		588

Liabilities and redeemable preferred and common securities of subsidiaries
Short-term debt(d)		119		119
Monetization loans - current(c)		617		616
Long-term debt(e)		4,916		5,461
Redeemable preferred and common securities of subsidiaries(f)		1,046		1,128

(a)

Cash equivalents are comprised of certificates of deposit, time deposits and other interest-bearing investments with original maturity dates of 90 days or less, all of which are recorded at cost, which approximates fair value.

(b)

Time deposits are comprised of deposits with original maturities of more than 90 days but less than one year, all of which are recorded at cost, which approximates fair value.

Note 2. (Continued)

(c)

Long-term notes receivable represent held-to-maturity securities, which arose from the sale of nonstrategic timberlands and related assets. The notes, which are backed by irrevocable standby letters of credit issued by money center banks, are held by two consolidated financing entities. The financing entities have outstanding long-term monetization loans secured by the notes. The following summarizes the terms of the notes and the monetization loans as of September 30, 2009 (millions of dollars):

Description	Face Value	Carrying Amount	Maturity	Interest Rate(1)(2)
Note 1	$ 397	$ 391	09/30/2014	LIBOR minus 15 bps
Note 2	220	215	07/07/2011	LIBOR minus 12.5 bps
Loan 1	397	397	09/30/2010	LIBOR plus 127 bps
Loan 2	220	220	07/01/2010	LIBOR plus 110 bps

(1) Payable quarterly

(2) 3-month LIBOR

The difference between the carrying amount of the notes and their fair value represents an unrealized loss position for which an other-than-temporary impairment has not been recognized in earnings because the Corporation does not have the intent to sell and has both the intent and ability to hold the notes for a period of time sufficient to allow for an anticipated recovery of fair value to the carrying amount of the notes. Neither the notes nor the monetization loans are traded in active markets. Accordingly, their fair values were calculated using a floating rate pricing model that compared the stated spread to the fair value spread to determine the price at which each of the financial instruments should trade. The model used the following inputs to calculate fair values: face value, current LIBOR rate, fair value credit spread, stated spread, maturity date and interest payment dates.

(d)

Short-term debt issued by non-U.S. subsidiaries has been recorded at cost, which approximates fair value.

(e)

Includes long-term debt instruments and the portion payable within the next twelve months ($474 million). Fair values were estimated based on quoted prices for financial instruments for which all significant inputs were observable, either directly or indirectly.

(f)

The redeemable preferred securities are not traded in active markets. Accordingly, their fair values were calculated using a 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: face value, current benchmark rate, fair value spread, stated spread, maturity date and interest payment dates. The fair values of the redeemable common securities were based on an independent third-party appraisal.

Note 3. Organization Optimization Initiative

In June 2009, the Corporation announced actions to reduce its worldwide salaried workforce by approximately 1,600 positions by the end of 2009. These actions are estimated to result in cumulative pretax charges of approximately $130 to $140 million by the end of 2009, down from the previous estimate of $140 to $150 million. A pretax charge of $12 million ($9 million after-tax) was recorded in the quarter ended September 30, 2009. Total pretax charges for the nine months ended September 30, 2009 are $122 million ($87 million after-tax).

Note 3. (Continued)

Costs of these actions are recorded at the business segment and corporate levels as follows:

		Three Months		Nine Months
		Ended September 30,		Ended September 30,
(Millions of dollars)		2009		2009

Personal Care	$	3	$	44
Consumer Tissue		5		47
K-C Professional & Other		2		16
Health Care		-		6
Corporate & Other		2		9

Total	$	12	$	122

On a geographic basis, charges were recorded in the following areas:

		Three Months			Nine Months
		Ended September 30,			Ended September 30,
(Millions of dollars)		2009			2009

North America	$	5		$	81
Europe		(3	)		31
Other		10			10

Total	$	12		$	122

The charges are included in the following income statement captions:

		Three Months			Nine Months
		Ended September 30,			Ended September 30,
(Millions of dollars)		2009			2009

Cost of products sold	$	14		$	41
Marketing, research and general expenses		(2	)		81
Provision for income taxes		(3	)		(35	)

Net Charges	$	9		$	87

Note 3. (Continued)

The following reconciles the charges to accrued expenses:

(Millions of dollars)		September 30, 2009

Accrued expenses – beginning of year	$	-
Charges		122
Cash payments		(82	)
Currency		1
Accrued expenses – end of period	$	41

Note 4. Inventories

The following schedule presents inventories by major class:


	September 30, 2009								December 31, 2008
(Millions of dollars)	LIFO			Non- LIFO		Total			LIFO			Non- LIFO		Total

At the lower of cost determined on the
FIFO or weighted-average cost methods
or market:
Raw materials	$	119		$	256	$	375		$	150		$	367	$	517
Work in process		166			114		280			246			133		379
Finished goods		560			711		1,271			758			832		1,590
Supplies and other		-			279		279			-			262		262
		845			1,360		2,205			1,154			1,594		2,748

Excess of FIFO or weighted-average
cost over LIFO cost		(191	)		-		(191	)		(255	)		-		(255	)

Total	$	654		$	1,360	$	2,014		$	899		$	1,594	$	2,493

The Corporation uses the LIFO method of valuing inventory for financial reporting purposes for most U.S. inventories. Interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs. 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.

Note 5. Employee Postretirement Benefits

The table below presents benefit cost information for defined benefit plans and other postretirement benefit plans:

	Defined						Other Postretirement
	Benefit Plans						Benefit Plans
	Three Months Ended September 30
(Millions of dollars)	2009			2008			2009		2008

Service cost	$	19		$	18		$	3	$	3
Interest cost		78			82			13		14
Expected return on plan assets		(69	)		(93	)		-		-
Recognized net actuarial loss		20			14			-		-
Other		3			2			1		-
Net periodic benefit cost	$	51		$	23		$	17	$	17

	Defined						Other Postretirement
	Benefit Plans						Benefit Plans
	Nine Months Ended September 30
(Millions of dollars)	2009			2008			2009		2008

Service cost	$	52		$	57		$	9	$	10
Interest cost		232			247			37		39
Expected return on plan assets		(201	)		(282	)		-		-
Recognized net actuarial loss		88			43			-		1
Curtailment		21			-			-		-
Other		4			9			3		1
Net periodic benefit cost	$	196		$	74		$	49	$	51

The Corporation made cash contributions to its pension trusts as follows:

(Millions of dollars)	2009		2008

First Quarter	$	90	$	36
Second Quarter		405		17
Third Quarter		223		14
Nine months ended September 30	$	718	$	67

The Corporation currently anticipates contributing about $730 million for the full year 2009 to its pension trusts.

In April 2009, the Corporation took action with respect to its U.S. defined benefit pension plan (other than for certain employees subject to collective bargaining agreements) and supplemental benefit plans, to provide that no future compensation and benefit service will be accrued under these plans for plan years after December 31, 2009 (“U.S. DB Pension Freeze”). In addition, the Corporation took action with respect to its Incentive Investment Plan (a 401(k) plan) and Retirement Contribution Plan (other than for certain employees subject to collective bargaining agreements) and Retirement Contribution Excess Benefit Program to discontinue all contributions to these plans for future plan years. These changes will not affect benefits earned by participants prior to January 1, 2010.

Note 5. (Continued)

Also in April, the Corporation announced that it intends to adopt, effective January 1, 2010, a new 401(k) profit sharing plan, and amend its Retirement Contribution Excess Benefit Program, to provide for a matching contribution of 100 percent of a U.S. employee’s contributions to the plans, to a yearly maximum of four percent of eligible compensation, as well as a discretionary profit sharing contribution, in which contributions will be based on the Corporation’s profit performance. Except for certain employees subject to collective bargaining agreements, U.S. participants’ investment balances in the Corporation’s existing 401(k) plan and Retirement Contribution Plan will be transferred to the new 401(k) plan.

The U.S. DB Pension Freeze resulted in a pension curtailment charge aggregating $21 million in the second quarter of 2009 due to the write-off of applicable unamortized prior service costs. As a result of the curtailment, plan assets and projected benefit obligations were required to be remeasured as of the curtailment date. The remeasurement decreased the projected benefit obligations by approximately $320 million. In addition, the average remaining life expectancy of inactive participants rather than the average remaining service lives of active employees must be used in the amortization of actuarial gains and losses as a result of the freeze.

Note 6. 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 is reconciled to those used in the basic and diluted EPS computations as follows:

	Average Common Shares Outstanding
	Three Months		Nine Months
	Ended September 30		Ended September 30
(Millions of shares)	2009	2008	2009	2008

Average shares outstanding	414.5	415.1	414.1	417.7
Participating securities	1.4	1.9	1.6	1.7
Basic	415.9	417.0	415.7	419.4
Dilutive effect of stock options	.6	.9	.2	1.3
Dilutive effect of restricted share and restricted share unit awards	.3	.2	.2	.2
Diluted	416.8	418.1	416.1	420.9

Options outstanding during the three- and nine-month periods ended September 30, 2009, to purchase 21.7 million and 22.1 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 nine-month periods ended September 30, 2008, to purchase 16.5 million and 12.0 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 September 30, 2009 and 2008 was 414.7 million.

Note 7. Stockholders’ Equity

Effective January 1, 2009, as required, the following changes were made with respect to the classification of noncontrolling interests (formerly minority owners’ interest in subsidiaries). In addition, prior year amounts in the Consolidated Financial Statements have been recast to conform to the new requirements.

Noncontrolling interests, which are not redeemable at the option of the noncontrolling interests, were reclassified from the mezzanine to equity, separate from the parent’s stockholders’ equity, in the Consolidated Balance Sheet. Common securities, redeemable at the option of the noncontrolling interest, carried at redemption value of approximately $35 million are classified in a line item combined with redeemable preferred securities of subsidiary in the Consolidated Balance Sheet.

Consolidated net income was recast to include net income attributable to both the Corporation and noncontrolling interests.

Set forth below is a reconciliation of comprehensive income and stockholders’ equity attributable to Kimberly-Clark Corporation and noncontrolling interests for the nine-months ended September 30, 2009 and 2008. Also reconciled for the same periods are the redeemable preferred and common securities of subsidiaries, which are required to be classified outside of stockholders’ equity.

				Stockholders’ Equity Attributable to
(Millions of dollars)	Comprehensive Income			The Corporation			Noncontrolling Interests			Redeemable Securities of Subsidiaries
Balance at December 31, 2008				$	3,878		$	383		$	1,032

Comprehensive Income:
Net income	$	1,472			1,392			38			42

Other comprehensive income, net of tax:
Unrealized translation		598			596			3			(1	)
Employee postretirement benefits		178			178			-			-
Other		(19	)		(19	)		-			-
Total Comprehensive Income	$	2,229

Stock-based awards					36			-			-
Shares repurchased					(6	)		-			-
Recognition of stock-based compensation					63			-			-
Dividends declared					(746	)		(22	)		-
Additional investment in subsidiary and other					(181	)		(93	)		13
Return on redeemable preferred securities and noncontrolling interests					-			(1	)		(40	)

Balance at September 30, 2009				$	5,191		$	308		$	1,046

The net unrealized currency translation adjustments for the nine-months ended September 30, 2009 are primarily due to a weakening of the U.S. dollar versus the Australian dollar, Brazilian real and British pound.

Note 7. (Continued)

				Stockholders’ Equity Attributable to
(Millions of dollars)	Comprehensive Income			The Corporation			Noncontrolling Interests			Redeemable Securities of Subsidiaries
Balance at December 31, 2007				$	5,224		$	463		$	1,026

Comprehensive Income:
Net income	$	1,375			1,271			62			42

Other comprehensive income, net of tax:
Unrealized translation		(443	)		(382	)		(60	)		(1	)
Employee postretirement benefits		33			37			(4	)		-
Other		(9	)		(9	)		-			-
Total Comprehensive Income	$	956

Stock-based awards					100			-			-
Shares repurchased					(561	)		-			-
Recognition of stock-based compensation					38			-			-
Dividends declared					(726	)		(51	)		(1	)
Additional investment in subsidiary and other					3			(27	)		(1	)
Return on redeemable preferred securities and noncontrolling interests					-			(2	)		(34	)

Balance at September 30, 2008				$	4,995		$	381		$	1,031

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 purchase of additional ownership in an already controlled subsidiary is required to be treated as an equity transaction with no gain or loss recognized in consolidated net income or comprehensive income. However, GAAP also requires the presentation of the following schedule displaying the effect of a change in ownership interest between the Corporation and a noncontrolling interest.

Note 7. (Continued)

		Nine Months
		Ended September 30
(Millions of dollars)		2009			2008

Net Income attributable to Kimberly-Clark Corporation	$	1,392		$	1,271

Decrease in Kimberly-Clark Corporation’s additional paid-in capital for purchase of remaining shares in its Andean region subsidiary(a)		(133	)		-

Change from net income attributable to Kimberly-Clark Corporation and transfers to noncontrolling interests	$	1,259		$	1,271

(a)

During the first quarter of 2009, the Corporation acquired the remaining approximate 31 percent interest in its Andean region subsidiary, Colombiana Kimberly Colpapel S.A., for $289 million. The acquisition was recorded as an equity transaction that reduced noncontrolling interests, accumulated other comprehensive income and additional paid-in capital classified in stockholders’ equity by approximately $278 million and increased investments in equity companies by approximately $11 million.

Note 8. Objectives and Strategies for Using Derivatives

As a multinational enterprise, the Corporation is exposed to risks, such as changes in foreign currency exchange rates, interest rates, commodity prices and certain investments of its defined benefit pension plans. A variety of practices are employed to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. The Corporation’s policies allow the use of derivatives for risk management purposes and prohibit their use for speculation. The Corporation’s policies also prohibit the use of any leveraged derivative instrument. Foreign currency derivative instruments, interest rate swaps and commodity hedging contracts are entered into with major financial institutions.

On the date the derivative contract is entered into, the Corporation formally designates certain derivatives either as cash flow, fair value or net investment hedges (each discussed below), including how the effectiveness of these hedges will be assessed and measured. This process links the derivatives to the transactions or financial balances they are hedging. Changes in the fair value of derivatives not designated as hedging instruments are recorded to earnings when they occur.

Note 8. (Continued)

Foreign Currency Exchange Risk Management

The Corporation has a centralized U.S. dollar functional currency international treasury operation (“In-House Bank”) that manages foreign currency exchange risks by netting, on a daily basis, exposures to recorded non-U.S. dollar assets and liabilities and entering into derivative instruments with third parties whenever the net exposure in any single currency exceeds predetermined limits. These derivative instruments are not designated as hedging instruments. Changes in the fair value of these instruments are recorded in earnings when they occur. The In-House Bank also records the gain or loss on the translation of its non-U.S. dollar denominated monetary assets and liabilities in earnings. Consequently, the effect on earnings from the use of these non-designated derivatives is substantially neutralized by the recorded transactional gains and losses. The In-House Bank’s daily notional derivative positions with third parties averaged approximately $1.3 billion in the first nine months of 2009 and its average net exposure for the period was $1.0 billion. The In-House Bank used eight counterparties for its foreign exchange derivative contracts.

The Corporation enters into derivative instruments to hedge a portion of the foreign currency exposures of its non-U.S. operations principally for their forecasted purchases of pulp, which are priced in U.S. dollars. The derivative instruments used to manage these exposures are designated and qualify as cash flow hedges. The Corporation also hedges a portion of the foreign currency exposures of its non-U.S. operations for imported intercompany finished goods priced in U.S. dollars and euros through the use of derivative instruments that are designated and qualify as cash flow hedges. Gains and losses on these cash flow hedges, to the extent effective, are recorded in other comprehensive income net of related income taxes and released to earnings as the related finished goods inventory containing the pulp and imported intercompany finished goods are sold to unaffiliated customers. As of September 30, 2009, approximately $463 million of outstanding derivative contracts were designated as cash flow hedges for the forecasted purchases of pulp and forecasted purchases of intercompany finished goods and work-in-process.

The foreign currency exposure on intercompany loans is hedged with derivative instruments with third parties. At September 30, 2009, none of these derivatives were designated as hedging instruments; the notional amount of these derivative positions was $341 million.

Foreign Currency Translation Risk Management

Translation adjustments result from translating foreign entities’ financial statements into U.S. dollars from their functional currencies. Translation exposure, which results from changes in translation rates between functional currencies and the U.S. dollar, generally is not hedged. However, consistent with prior years, a portion of the Corporation’s net investment in its Mexican affiliate has been hedged. At September 30, 2009, the Corporation had in place net investment hedges of approximately $45 million for a portion of its investment in its Mexican affiliate. There was no significant ineffectiveness on these hedges as of September 30, 2009.

Interest Rate Risk Management

Interest rate risk is managed using a portfolio of variable- and fixed-rate debt composed of short- and long-term instruments and interest rate swaps. The objective is to maintain a cost-effective mix that management deems appropriate. From time to time, interest rate swap contracts, which are derivative instruments, are entered into to facilitate the maintenance of the desired ratio of variable- and fixed-rate debt. These derivative instruments are designated and qualify as fair value hedges. At September 30, 2009, the Corporation had interest rate swap contracts in place with an aggregate notional value of $300 million.

Note 8. (Continued)

From time to time, derivatives are used to hedge the anticipated issuance of fixed-rate debt. These derivative instruments are designated and qualify as cash flow hedges. These exposures are hedged with forward-starting swaps or “treasury locks” (e.g., a 10-year “treasury lock” hedging the anticipated underlying U.S. Treasury interest rate related to issuance of 10-year debt). At September 30, 2009, several outstanding forward-starting swaps with an aggregate notional value of $250 million were in place.

Commodity Price Risk Management

The Corporation uses derivative instruments to offset a portion of its exposure to market risk arising from changes in the price of natural gas. Hedging of this risk is accomplished by entering into forward swap contracts, which are designated as cash flow hedges of specific quantities of natural gas expected to be purchased in future months.

As of September 30, 2009, outstanding commodity forward contracts were in place to hedge forecasted purchases of about 35 percent of the Corporation’s estimated natural gas requirements for the balance of the current year and a lesser percentage for future periods.

Management of Certain Equity Investments of the Corporation’s Defined Benefit Pension Plans

When deemed appropriate, certain of the Corporation’s defined benefit pension trusts execute hedging strategies to manage the price risk applicable to equity investments. These strategies are designed to limit the downside exposure of equity investments by trading off upside potential above an acceptable level. In June 2009, zero-cost equity collars were established to protect potential losses up to a certain level and to allow realization of potential gains up to a certain level on $1.0 billion of U.S. equity exposure in the Corporation’s U.S. pension trust from June 2 to December 30, 2009.

Effect of Derivative Instruments on Results of Operations and Other Comprehensive Income

Fair Value Hedges

Derivative instruments that are designated and qualify as fair value hedges are used to manage interest rate risk and certain U.S. dollar denominated intercompany debt of non-U.S. affiliates. The realized gain or loss on the derivatives that hedge interest rate risk is amortized to interest expense over the life of the related debt. The fair values of these instruments are recorded as an asset or liability, as appropriate, with the offset recorded in current earnings. The offset to the change in fair values of the hedged debt instruments also is recorded in current earnings. Changes in the fair value of derivative instruments that hedge the U.S. dollar denominated intercompany debt are recorded in current earnings as well as the change in fair value of the hedged intercompany debt.

Fair value hedges resulted in no significant ineffectiveness in the nine-month period ended September 30, 2009. For the nine-month periods ended September 30, 2009 and 2008, no gain or loss was recognized in earnings as a result of a hedged firm commitment no longer qualifying as a fair value hedge.

Note 8. (Continued)

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges (e.g., hedging a portion of the currency exposure on the forecasted U.S. dollar denominated purchases of pulp by the Corporation’s non-U.S. subsidiaries), the effective portion of the gain or loss on the derivative instrument is initially recorded in other comprehensive income, net of related income taxes and reclassified to income in the same period that the hedged exposure affects income. Changes in the fair values of derivative instruments used to hedge the price of natural gas, to the extent effective, are recorded in other comprehensive income, net of related income taxes, and recognized in income at the time the cost of the natural gas is recognized in income.

Cash flow hedges resulted in no significant ineffectiveness in the nine-month period ended September 30, 2009. For the nine-month periods ended September 30, 2009 and 2008, no gains or losses were reclassified into earnings as a result of the discontinuance of cash flow hedges due to the original forecasted transaction no longer being probable of occurring. At September 30, 2009, $21 million of after-tax losses are expected to be reclassified from accumulated other comprehensive income primarily to cost of sales during the next twelve months, consistent with the timing of the underlying hedged transactions. The maximum maturity of cash flow hedges in place at September 30, 2009, is December 2011.

Quantitative Information about the Corporation’s Use of Derivative Instruments

The following tables display the location and fair values of derivative instruments presented in the Corporation’s Consolidated Balance Sheet and the location and amount of gains and losses reported in the Corporation’s Consolidated Income Statement and Statement of Other Comprehensive Income (“OCI”).

The Effect of Derivative Instruments on the Consolidated Income Statement for the Three Months Ended September 30, 2009 and 2008 – (Millions of dollars)
Foreign Exchange Contracts	Income Statement Classification	Gain or (Loss) Recognized in Income
		2009			2008
Fair Value Hedges	Other income and (expense), net	$	(34	)	$	3

Undesignated Hedging Instruments	Other income and (expense), net(a)	$	50		$	(19	)

Note 8. (Continued)

	Amount of Gain or (Loss) Recognized In OCI						Income Statement Classification of Gain or (Loss) Reclassified from OCI	Gain or (Loss) Reclassified from OCI into Income
	2009			2008				2009			2008
Cash Flow Hedges

Interest rate contracts	$	(7	)	$	(7	)	Interest expense	$	1		$	2
Foreign exchange contracts		(16	)		28		Cost of products sold		(10	)		(2	)
Commodity contracts		(4	)		(21	)	Cost of products sold		(11	)		2

Total	$	(27	)	$	-			$	(20	)	$	2

Net Investment Hedges
Foreign exchange contracts	$	-		$	2			$	-		$	-

The Effect of Derivative Instruments on the Consolidated Income Statement for the Nine Months Ended September 30, 2009 and 2008 – (Millions of dollars)
Foreign Exchange Contracts	Income Statement Classification	Gain or (Loss) Recognized in Income
		2009			2008
Fair Value Hedges	Other income and (expense), net	$	(48	)	$	-

Undesignated Hedging Instruments	Other income and (expense), net(a)	$	(29	)	$	(14	)

	Amount of Gain or (Loss) Recognized In OCI						Income Statement Classification of Gain or (Loss) Reclassified from OCI	Gain or (Loss) Reclassified from OCI into Income
	2009			2008				2009			2008
Cash Flow Hedges

Interest rate contracts	$	19		$	(4	)	Interest expense	$	2		$	3
Foreign exchange contracts		(33	)		(1	)	Cost of products sold		11			(25	)
Commodity contracts		(24	)		(13	)	Cost of products sold		(34	)		2

Total	$	(38	)	$	(18	)		$	(21	)	$	(20	)

Net Investment Hedges
Foreign exchange contracts	$	(13	)	$	(3	)		$	-		$	-

(a)

The majority of the gains and (losses) on these instruments arise from derivatives entered into with third parties by the In-House Bank. As previously noted, the In-House Bank also records gains and (losses) on the translation of its non-U.S. dollar denominated monetary assets and liabilities in earnings. Consequently, the effect on earnings from the use of these undesignated derivatives is substantially neutralized by the recorded transactional gains and losses.

Note 8. (Continued)

Fair Values of Derivative Instruments
	Asset Derivatives
(Millions of dollars)	September 30, 2009			September 30, 2008
	Balance			Balance
	Sheet	Fair		Sheet	Fair
	Location	Value		Location	Value

Derivatives designated as hedging instruments:

Interest rate contracts	Other current assets	$	22	Other current assets	$	-
Interest rate contracts	Other assets		6	Other assets