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

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2004

OR

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

Commission file number 1-225

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

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

As of  November 2, 2004, there were 487,725,748 shares of the Corporation’s common stock outstanding.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT

Unaudited

See Notes to Consolidated Financial Statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET

Unaudited

See Notes to Consolidated Financial Statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Unaudited

See Notes to Consolidated Financial Statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

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

Note 2. Preferred Securities of Subsidiary

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

Note 3. Stock-Based Employee Compensation

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

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

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Note 4. Inventories

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

FIFO cost of total inventories on the LIFO method was $771.8 million and $663.8 million at September 30, 2004 and December 31, 2003, respectively.

Note 5. Synthetic Fuel Partnership

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

The production of synthetic fuel results in pretax losses. These pretax losses, which totaled $26.4 million in the third quarter of 2004 and $116.6 million for the nine months ended September 30, 2004, 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 third quarter of 2004, the Corporation’s participation in the synthetic fuel partnership resulted in $23.6 million of tax credits, and the nonoperating losses generated an additional $9.3 million of tax benefits, which combined to reduce the Corporation’s income tax provision by $32.9 million. For the first nine months of 2004, the synthetic fuel partnership resulted in $105.6 million of tax credits, and the nonoperating losses generated $40.8 million of tax benefits, which combined to reduce the Corporation’s income tax provision by $146.4 million.

Note 6. Components of Net Periodic Benefit Cost

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

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Note 6.  (Continued)

During the first, second and third quarters of 2004, the Corporation made cash contributions to its pension trusts of approximately $62 million, $13 million and $12 million, respectively. As previously disclosed, the Corporation expects to make total cash contributions to its pension trusts of approximately $100 million in 2004.

Effective April 1, 2004, the Corporation adopted FASB Staff Position 106-2 (“FSP 106-2”), Accounting and Disclosure Requirements Related to Medicare Prescription Drug, Improvement and Modernization Act of 2003. Adoption of FSP 106-2 reduced the Corporation’s accumulated postretirement benefit obligation by approximately $72 million and resulted in an unrecognized actuarial gain of a similar amount. Adoption resulted in reductions in postretirement benefits cost of $1.9 million and $3.8 million for the three months and nine months ended September 30, 2004, respectively.

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:

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Note 7.  (Continued)

Options outstanding during the three- and nine-month periods ended September 30, 2004 to purchase 5.4 million and 5.5 million shares of common stock, respectively, were not included in the computation of diluted EPS because the exercise prices of the options were greater than the average market price of the common shares.

Options outstanding during the three- and nine-month periods ended September 30, 2003 to purchase 20.4 million and 22.5 million shares of common stock, respectively, were not included in the computation of diluted EPS because the exercise prices of the options were greater than the average market price of the common shares.

The number of common shares outstanding as of September 30, 2004 and 2003 was 489.0 million and 504.8 million, respectively.

Note 8. Comprehensive Income

The following schedule presents the components of comprehensive income.

Note 9. Description of Business Segments

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

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

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

The Consumer Tissue segment manufactures and markets facial and bathroom tissue, paper towels, napkins and related products for household use. 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 wrap, 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.

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

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

Introduction

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

Overview of Third Quarter 2004 Results

During the third quarter of 2004, the Corporation continued to deliver on the commitments of its strategic plan which focuses on brand building, achieving sustainable cost savings and capital effectiveness:

Results of Operations and Related Information

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

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Third Quarter of  2004 Compared With Third Quarter of  2003

Analysis of Net Sales

By Business Segment
(Millions of dollars)

Commentary:

2004 versus 2003

Consolidated net sales for the third quarter of 2004 increased 6.2 percent compared with 2003. Overall sales volumes rose nearly 3 percent and a higher-value product sales mix added about 1 percent to the increase. Favorable currency effects contributed about 2 percent, while net selling prices were unchanged.

Market Shares

U.S. market shares are tracked on a sales dollar basis with information provided by A.C. Nielsen for distribution through the food, drug and mass merchandising channels, excluding Wal-Mart, warehouse clubs, dollar stores and certain other outlets. These customers do not report market share information. The A.C. Nielsen data provides coverage ranging from approximately 45 percent to 65 percent of the retail value of products sold, depending upon the product category.

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

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Key contributors to the quarter’s sales volume gains were all-time record sales of GoodNites youth pants, highlighting a fifth consecutive quarter of double-digit growth for the child care sector in North America, continued double-digit growth for incontinence care in North America, driven by the Corporation’s market-leading Poise and Depend brands, and an 8 percent improvement in Health Care volumes globally. Other areas of volume strength included Huggies diapers and baby wipes and Kleenex facial tissue in North America, K-C Professional’s brands in North America and Europe, Andrex bathroom tissue in Europe, as well as operations throughout most of Latin America and in Australia.

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By Geography
(Millions of dollars)

Commentary:

Analysis of Operating Profit

By Business Segment
(Millions of dollars)

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

Commentary:

2004 versus 2003

(a)     Includes cost savings achieved.

Consolidated operating profit in the third quarter of 2004 increased 4.4 percent from the prior year. Key factors responsible for the increase included sales volume growth, improved product mix, cost savings of approximately $40 million and favorable changes in currency exchange rates. These items more

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than offset higher fiber costs of about $15 million, other inflationary cost increases driven primarily by higher oil prices, as well as $20 million in costs related to previously announced changes to the Corporation’s diaper operations and higher costs at the Corporation’s Canadian pulp operations. The operating profit comparison was also positively affected by a lower level of other expense, net, mainly due to $18.4 million of bond call costs included in the third quarter of 2003.

Results by Geography
(Millions of dollars)

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

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Additional Income Statement Commentary

First Nine Months of 2004 Compared With First Nine Months of 2003

Analysis of Net Sales

By Business Segment
(Millions of dollars)

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Commentary:

2004 versus 2003

Consolidated net sales for the first nine months of 2004 increased 7.5 percent from last year. Sales volume growth of nearly 5 percent, including about 1 percent for Klabin, and favorable currency effects of about 3 percent were tempered by lower net selling prices of about 2 percent.

By Geography
(Millions of dollars)

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Analysis of Operating Profit

By Business Segment
(Millions of dollars)

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

Commentary:

2004 versus 2003

(a)    Includes cost savings achieved.

Consolidated operating profit increased 7.5 percent compared with the prior year. The combined benefits of sales volume growth, favorable currency effects, about $135 million of cost savings and lower other expense, net, more than offset about $155 million of lower net selling prices, nearly $40 million of higher fiber costs and costs of approximately $36 million related to changes to the Corporation’s diaper operations.

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Analysis of Results by Geography
(Millions of dollars)

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

Additional Income Statement Commentary

Liquidity and Capital Resources

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Environmental Matters

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

Business Outlook

Given current business trends and the Corporation’s plans for the balance of the year, it expects to continue delivering on its commitments. The Corporation believes earnings in the fourth quarter will be in a range of 89 to 91 cents per share. In delivering these results, the Corporation expects continued volume growth in line with its long-term targeted range of 3 to 5 percent and further cost reductions that will help offset higher raw materials and energy costs. Results should also benefit from a full quarter’s worth of consumer tissue price increases in North America, but the Corporation expects price competition in diapers and training pants will remain intense.

This guidance also reflects a negative impact of approximately 4 to 5 cents per share in the quarter for exiting noncore pulp and paper operations. This includes an estimated 2 to 3 cents per share of dilution and other costs related to the spin-off of Neenah Paper as well as anticipated costs of about 2 cents per share to exit certain paper-related operations in Asia. The Corporation currently expects the spin-off of Neenah Paper to occur on November 30, 2004.

The Corporation expects its effective tax rate for the fourth quarter will be between 22.5 and 23 percent. The effective tax rate should decline sequentially because the Corporation entered into a second synthetic fuel partnership in early October 2004. This second partnership, taking into account the related nonoperating expenses, is expected to benefit fourth quarter earnings by about $.01 per share.

The Corporation’s fourth quarter performance will enable it to deliver bottom-line results for the year solidly in line with its targeted range of $3.55 to $3.65 per share despite the 4 to 5 cents per share impact of exiting noncore operations and the approximately $40 million in pretax costs, equivalent to nearly 6 cents per share, to improve the competitive position of its global diaper business.

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The Corporation also expects cash flow will continue to be strong over the balance of the year. The Corporation’s success in generating cash from operations, combined with its capital efficiency, has enabled it to raise its commitment for share repurchases several times this year. As a result, by year’s end, the Corporation will have returned a total of $2.4 billion to its shareholders through dividends and share repurchases.

On November 4, 2004, the Corporation announced a record date, distribution date and distribution ratio for the spin-off of Neenah Paper. The Corporation’s shareholders will receive one share of Neenah Paper common stock for every 33 shares of Kimberly-Clark common stock held as of November 19, 2004. The spin-off is expected to be completed on November 30, 2004, with 100 percent of the shares of Neenah Paper to be distributed to Kimberly-Clark shareholders.

The Corporation has received a ruling from the Internal Revenue Service confirming that the distribution will be tax-free to Kimberly-Clark and its shareholders.

At the time of the distribution, Neenah Paper expects to incur new debt of $225 million and provide Kimberly-Clark with cash proceeds of approximately $215 million.

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

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PART II – OTHER INFORMATION

Item 2. Stock Repurchases.

The Corporation regularly repurchases shares of Kimberly-Clark common stock pursuant to publicly announced share repurchase programs. All share repurchases by the Corporation were made through brokers on the New York Stock Exchange. During 2004, the Corporation anticipates purchasing $1.6 billion worth of its common stock. The following table contains information for shares repurchased during the third quarter of 2004. None of the shares in this table were repurchased directly from any officer or director of the Corporation.

In addition, during July, August and September, 432 shares at a cost of $28,400; 44,094 shares at a cost of $2,907,734; and 18,767 shares at a cost of $1,267,936, respectively, were purchased from current or former employees in connection with the exercise of employee stock options and other awards.

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

(a) Exhibits

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SIGNATURES

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

November 9, 2004

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EXHIBIT INDEX