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

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2004

OR

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

Commission file number 1-225

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

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

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

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT

Unaudited

See Notes to Consolidated Financial Statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET

Unaudited

See Notes to Consolidated Financial Statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Unaudited

See Notes to Consolidated Financial Statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

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

Note 2. Accounting Standards Change

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

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

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

Note 3. Stock-Based Employee Compensation

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

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Note 3. (Continued)

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

Note 4. Inventories

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

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

Note 5. Synthetic Fuel Partnership

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

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Note 5. (Continued)

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

Note 6. Components of Net Periodic Benefit Cost

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

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

Note 7. Earnings Per Share

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

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

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Note 7. (Continued)

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

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

Note 8. Comprehensive Income

The following schedule presents the components of comprehensive income:

Note 9. Description of Business Segments

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

On January 19, 2004, the Corporation announced organizational changes affecting the composition of the Personal Care and Consumer Tissue segments. As part of the reorganization, the baby wipes business was moved from Consumer Tissue to Personal Care.

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

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

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

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Note 9. (Continued)

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

The following schedule presents information concerning consolidated operations by business segment including the effects of the reorganization. The 2003 Net Sales and Operating Profit reflect reclassification of the baby wipes business.

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

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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. We will discuss and provide our analysis of the following:

o     Overview of First Quarter 2004 Results

o     Business Segments

o     Results of Operations and Related Information

o     Liquidity and Capital Resources

o     Environmental Matters

o     Business Outlook

Overview of First Quarter 2004 Results

During the first quarter of 2004, despite continued intense competitive pressures, the Corporation achieved record net sales, and, continued to make progress under its strategic plan which focuses on brand building, sustainable cost reduction and capital effectiveness.

o     Net sales grew nearly 10 percent.

o     Operating profit advanced almost 12 percent and net income increased over 15 percent.

o     We continued to generate strong cash flow.

Business Segments

On January 19, 2004, the Corporation announced organizational changes that, while maintaining its three global business segments – Personal Care, Consumer Tissue and Business-to-Business – for financial reporting purposes, changed the composition of the segments. The baby wipes business was moved to the Personal Care segment from the Consumer Tissue segment. Financial information related to the baby wipes business for prior periods was reclassified to reflect this organizational change.

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Results of Operations and Related Information

This section presents a discussion and analysis of our first quarter 2004 net sales, operating profit and other information relevant to an understanding of our results of operations.

First Quarter of 2004 Compared With First Quarter of 2003

Analysis of Net Sales

By Business Segment
(Millions of dollars)

Commentary:

2004 versus 2003

Consolidated net sales for the first quarter of 2004 were 9.8 percent higher than in 2003. Overall sales volumes increased more than 6 percent, including more than 1 percent from the consolidation of Klabin-Kimberly S.A. (“Klabin”), the Corporation’s former equity affiliate in Brazil and the acquisition of Klucze, Poland’s leading consumer tissue company, which occurred in August 2003 and February 2003, respectively. Favorable currency effects contributed slightly more than 5 percent to the growth in net sales. Net selling prices were nearly 2 percent lower than last year due to competitive promotional activity.

Market Shares

U.S. market shares are tracked on a sales dollar basis with information provided by A.C. Nielson for distribution through the food, drug and mass merchandising channels, excluding Wal-Mart, warehouse clubs, dollar stores and certain other small outlets. These customers do not report market share by brand.

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Shown below are our U.S. market shares for key categories for the first quarter of 2004 and 2003:

Highlighting the first quarter 2004 sales volume gains were a third consecutive quarter of double-digit growth for child care products in North America, driven by record shipments of Pull-Ups training pants, and mid single-digit growth for Huggies diapers in North America. Other areas of volume strength included Health Care products globally, K-C Professional in North America, Consumer Tissue in North America and Europe and operations in Eastern Europe and the Middle East.

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Analysis of Results by Geography
(Millions of dollars)

Commentary:

Analysis of Operating Profit

By Business Segment
(Millions of dollars)

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

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Commentary:

2004 versus 2003

(a)     Includes cost savings achieved.

Consolidated operating profit in the first quarter of 2004 increased 11.9 percent from the prior year. The combined benefits of sales volume growth, favorable currency effects, about $40 million of cost savings and lower other expense, net more than offset $65 million of reduced net selling prices and more than $15 million of higher fiber costs.

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Analysis of Results by Geography
(Millions of dollars)

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

Additional Income Statement Commentary

Liquidity and Capital Resources

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Environmental Matters

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

Business Outlook

The Corporation’s priorities for the balance of the year and beyond center on delivering results in line with the long-term objectives set forth in its Global Business Plan announced in July 2003. The Corporation remains focused on driving top- and bottom-line growth, generating strong cash flow and improving capital efficiency. Given our first quarter performance and plans in place for the year, we continue to believe that our targets of 3 to 5 percent volume growth and $150 million of cost reductions in 2004 are reasonable. All in all, we believe that earnings per share this year will be toward the high end of our targeted range of $3.55 to $3.65.

As for the second quarter, we expect to overcome recent increases in fiber, polymer and oil costs to deliver earnings in a range of 87 to 89 cents per share, an improvement of 6 to 9 percent compared with earnings of 82 cents per share in 2003. This is in line with external expectations and consistent with our bottom-line growth targets both for 2004 and longer-term.

The Corporation’s Consumer Tissue business plans to raise prices in the U.S. during the third quarter of 2004 to offset inflation in key raw material inputs, particularly fiber, as well as higher energy costs.

The Corporation expects that, based on additional synthetic fuel tax benefits, its effective income tax rate for the year will be approximately 24 percent versus the previous forecast of 25 to 26 percent. The additional tax benefits, net of related nonoperating expenses, should total approximately $10 million.

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A majority of this net benefit was recognized in the first quarter and the balance will be recorded in the second quarter. As a result, the effective tax rate is anticipated to be 22 to 23 percent in the second quarter, before increasing to 25 to 26 percent in the second half of the year.

The Corporation is continuing with the evaluation of the previously announced potential tax-free spin-off later this year of its Neenah Paper and Technical Paper businesses along with its Canadian pulp operations. It is anticipated that the Board of Directors will review the potential transaction in late second quarter 2004.

Information Concerning Forward-Looking Statements

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

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

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

Item 4. Controls and Procedures.

As of March 31, 2004, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation’s disclosure controls and procedures were effective as of March 31, 2004. There have been no significant changes during the quarter covered by this report in the Corporation’s internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 2. Stock Repurchases.

The Corporation regularly repurchases shares of Kimberly-Clark common stock pursuant to publicly announced share repurchase programs. All share repurchases by the Corporation were made through brokers on the New York Stock Exchange. During 2004, the Corporation anticipates purchasing up to $1 billion worth of its common stock. The following table contains information for shares repurchased during the first quarter of 2004. None of the shares in this table were repurchased directly from any officer or director of the Corporation.

In addition, during January, February and March 2004, 158 shares at a cost of $9,267; 101,980 shares at a cost of $6,393,991; and 7,443 shares at a cost of $470,213, respectively, were purchased from current or former employees in connection with the exercise of employee stock options and other awards.

Item 4. Submission of Matters to a Vote of Security Holders.

The 2004 Annual Meeting of Stockholders was held on Thursday, April 29, 2004, at the Corporation’s World Headquarters, 351 Phelps Drive, Irving, Texas. Represented at the meeting in person or by proxy were 440,993,152 shares of common stock, or more than 87.7 percent of all shares of common stock outstanding.

Following is a list of directors elected to three-year terms expiring in 2007 and the corresponding vote tabulation for the shares represented at the meeting. Of the shares represented at the meeting, at least 66.9 percent voted for each nominee. There were no broker non-votes with respect to this matter.

The Corporation's other directors are John F. Bergstrom, Dennis R. Beresford, Robert W. Decherd, Thomas J. Falk, and Mae C. Jemison, M.D. Paul J. Collins retired from the Board effective April 29, 2004.

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The stockholders also voted on three proposals at the Annual Meeting. The following table shows the vote tabulation for the shares represented at the meeting:

Approval of the stockholder proposal relating to the Corporation’s amended and restated rights agreement is not binding on the Corporation. The Board of Directors will consider this matter at a future Board meeting.

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

(a)    Exhibits

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(b)     Reports on Form 8-K

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SIGNATURES

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

May 7, 2004

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EXHIBIT INDEX