KMB_2012_2Q10Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
OR
¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________  
Commission file number 1-225
 

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

 
Delaware
 
39-0394230
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
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 July 27, 2012, there were 394,891,086 shares of the Corporation’s common stock outstanding.
 



Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(Unaudited)

 
 
Three Months Ended
June 30
 
Six Months Ended
June 30
(Millions of dollars, except per share amounts)
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
Net Sales
 
$
5,269

 
$
5,259

 
$
10,510

 
$
10,288

Cost of products sold
 
3,514

 
3,702

 
7,051

 
7,268

Gross Profit
 
1,755

 
1,557

 
3,459

 
3,020

Marketing, research and general expenses
 
1,019

 
940

 
2,015

 
1,861

Other (income) and expense, net
 
(18
)
 
(8
)
 
(10
)
 
(10
)
Operating Profit
 
754

 
625

 
1,454

 
1,169

Interest income
 
5

 
4

 
9

 
8

Interest expense
 
(71
)
 
(71
)
 
(142
)
 
(135
)
Income Before Income Taxes and Equity Interests
 
688

 
558

 
1,321

 
1,042

Provision for income taxes
 
(213
)
 
(173
)
 
(398
)
 
(325
)
Income Before Equity Interests
 
475

 
385

 
923

 
717

Share of net income of equity companies
 
43

 
47

 
82

 
87

Net Income
 
518

 
432

 
1,005

 
804

Net income attributable to noncontrolling interests
 
(20
)
 
(24
)
 
(39
)
 
(46
)
Net Income Attributable to Kimberly-Clark Corporation
 
$
498

 
$
408

 
$
966

 
$
758

 
 
 
 
 
 
 
 
 
Per Share Basis:
 
 
 
 
 
 
 
 
Net Income Attributable to Kimberly-Clark Corporation
 
 
 
 
 
 
 
 
Basic
 
$
1.27

 
$
1.04

 
$
2.45

 
$
1.90

Diluted
 
$
1.26

 
$
1.03

 
$
2.43

 
$
1.89

Cash Dividends Declared
 
$
0.74

 
$
0.70

 
$
1.48

 
$
1.40

See Notes to Consolidated Financial Statements.

3

Table of Contents



KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Three Months Ended
June 30
 
Six Months Ended
June 30
(Millions of dollars)
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
Net Income
 
$
518

 
$
432

 
$
1,005

 
$
804

Other Comprehensive Income, Net of Tax:
 
 
 
 
 
 
 
 
Unrealized currency translation adjustments
 
(269
)
 
218

 
(8
)
 
440

Employee postretirement benefits
 
(8
)
 
(1
)
 
8

 

Other
 
12

 
(8
)
 

 
(28
)
Total Other Comprehensive Income, Net of Tax
 
(265
)
 
209

 

 
412

Comprehensive Income
 
253

 
641

 
1,005

 
1,216

Comprehensive income attributable to noncontrolling interests
 
(19
)
 
(29
)
 
(43
)
 
(56
)
Comprehensive Income Attributable to Kimberly-Clark Corporation
 
$
234

 
$
612

 
$
962

 
$
1,160

See Notes to Consolidated Financial Statements.

4

Table of Contents



KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
 
(Millions of dollars)
 
June 30
2012
 
December 31
2011
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
994

 
$
764

Accounts receivable, net
 
2,681

 
2,602

Inventories
 
2,368

 
2,356

Other current assets
 
549

 
561

Total Current Assets
 
6,592

 
6,283

 
 
 
 
 
Property
 
17,786

 
18,240

Less accumulated depreciation
 
9,809

 
10,191

Net Property
 
7,977

 
8,049

Investments in Equity Companies
 
390

 
338

Goodwill
 
3,313

 
3,340

Other Intangible Assets
 
250

 
265

Long-Term Notes Receivable
 
394

 
394

Other Assets
 
680

 
704

 
 
$
19,596

 
$
19,373

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current Liabilities
 
 
 
 
Debt payable within one year
 
$
572

 
$
706

Trade accounts payable
 
2,371

 
2,388

Accrued expenses
 
1,898

 
2,026

Other current liabilities
 
292

 
277

Total Current Liabilities
 
5,133

 
5,397

Long-Term Debt
 
5,695

 
5,426

Noncurrent Employee Benefits
 
1,465

 
1,460

Other Liabilities
 
1,032

 
1,014

Redeemable Preferred and Common Securities of Subsidiaries
 
547

 
547

Stockholders’ Equity
 
 
 
 
Kimberly-Clark Corporation
 
5,437

 
5,249

Noncontrolling interests
 
287

 
280

Total Stockholders’ Equity
 
5,724

 
5,529

 
 
$
19,596

 
$
19,373

See Notes to Consolidated Financial Statements.

5

Table of Contents



KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(Unaudited)
 
 
 
Six Months Ended
June 30
(Millions of dollars)
 
2012
 
2011
 
 
 
 
 
Operating Activities
 
 
 
 
Net income
 
$
1,005

 
$
804

Depreciation and amortization
 
432

 
530

Stock-based compensation
 
43

 
31

Increase in operating working capital
 
(309
)
 
(62
)
Deferred income taxes
 
174

 
136

Net losses on asset dispositions
 
17

 
10

Equity companies’ earnings in excess of dividends paid
 
(45
)
 
(49
)
Postretirement benefits
 
22

 
(361
)
Other
 
(14
)
 
(18
)
Cash Provided by Operations
 
1,325

 
1,021

Investing Activities
 
 
 
 
Capital spending
 
(486
)
 
(435
)
Proceeds from sales of investments
 
7

 
9

Investments in time deposits
 
(37
)
 
(78
)
Maturities of time deposits
 
43

 
71

Other
 
1

 
1

Cash Used for Investing
 
(472
)
 
(432
)
Financing Activities
 
 
 
 
Cash dividends paid
 
(567
)
 
(549
)
Net increase in short-term debt
 
268

 
287

Proceeds from issuance of long-term debt
 
309

 
700

Repayments of long-term debt
 
(421
)
 
(13
)
Cash paid on redeemable preferred securities of subsidiary
 
(14
)
 
(27
)
Proceeds from exercise of stock options
 
424

 
202

Acquisitions of common stock for the treasury
 
(651
)
 
(1,206
)
Other
 
14

 
13

Cash Used for Financing
 
(638
)
 
(593
)
Effect of exchange rate changes on Cash and Cash Equivalents
 
15

 
36

Increase in Cash and Cash Equivalents
 
230

 
32

Cash and Cash Equivalents, beginning of year
 
764

 
876

Cash and Cash Equivalents, end of period
 
$
994

 
$
908

See Notes to Consolidated Financial Statements.

6

Table of Contents

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 material adjustments which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented have been reflected.
For further information, refer to the Consolidated Financial Statements and footnotes included in our Annual Report on Form  10-K for the year ended December 31, 2011. The terms "Corporation," "Kimberly-Clark," "K-C," "we," "our" and "us" refer to Kimberly-Clark Corporation and its consolidated subsidiaries.
Highly Inflationary Accounting for Venezuelan Operations
Our Venezuelan subsidiary ("K-C Venezuela") accounts for its operations as highly inflationary, as required by GAAP.  Under highly inflationary accounting, K-C Venezuela's functional currency became the U.S. dollar, and its income statement and balance sheet are measured into U.S. dollars using both current and historical rates of exchange.  The effect of changes in exchange rates on bolivar-denominated monetary assets and liabilities is reflected in earnings in Other (income) and expense, net.  We determined that the Central Bank of Venezuela regulated currency exchange system rate of 5.4 bolivars per U.S. dollar was the appropriate exchange rate to measure K-C Venezuela's bolivar-denominated transactions into U.S. dollars during 2011 and through June 30, 2012.

Note 2. Fair Value Information
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.
During the six months ended June 30, 2012 and for full year 2011, there were no significant transfers among level 1, 2, or 3 fair value determinations.
Set forth below are the assets and liabilities that are measured on a recurring basis at fair value and the inputs used to develop those fair value measurements.
 
June 30
2012
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
(Millions of dollars)
Assets
 
 
 
 
 
 
 
Company-owned life insurance (“COLI”)
$
47

 
$

 
$
47

 
$

Available-for-sale securities
16

 
16

 

 

Derivatives
56

 

 
56

 

Total
$
119

 
$
16

 
$
103

 
$

Liabilities
 
 
 
 
 
 
 
Derivatives
$
74

 
$

 
$
74

 
$


7

Table of Contents

 
December 31
2011
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
 
 
(Millions of dollars)
 
 
Assets
 
 
 
 
 
 
 
COLI
$
45

 
$

 
$
45

 
$

Available-for-sale securities
15

 
15

 

 

Derivatives
61

 

 
61

 

Total
$
121

 
$
15

 
$
106

 
$

Liabilities
 
 
 
 
 
 
 
Derivatives
$
120

 
$

 
$
120

 
$

The COLI policies are a source of funding primarily for our nonqualified employee benefits and are included in other assets. Available-for-sale securities are included in other assets. See Note 8 for information on the classification of derivatives in the Condensed Consolidated Balance Sheet.
Level 1 Fair Values - The fair values of certain available-for-sale securities are based on quoted market prices in active markets for identical assets. Unrealized losses on these securities were not significant at June 30, 2012 and December 31, 2011 and have been recorded in other comprehensive income until realized. The unrealized losses have not been recognized in earnings because we have 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 these 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 published quotations of spot currency rates and forward points, which are converted into implied forward currency rates. Additional information on our use of derivative instruments is contained in Note 8.
Fair Value Disclosures
The following table includes the fair value of our financial instruments for which disclosure of fair value is required:
 
Fair Value
Hierarchy Level
 
Carrying
Amount
 
Estimated
Fair  Value
 
Carrying
Amount
 
Estimated
Fair  Value
 
 
June 30, 2012
 
December 31, 2011
 
 
 
(Millions of dollars)
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents(a)
1
 
$
994

 
$
994

 
$
764

 
$
764

Time deposits(b)
1
 
88

 
88

 
95

 
95

Note receivable(c)
3
 
394

 
382

 
394

 
373

Liabilities and redeemable preferred and common securities of subsidiaries
 
 
 
 
 
 
 
 
 
Short-term debt(d)
2
 
354

 
354

 
87

 
87

Monetization loan(c)
3
 
397

 
391

 
397

 
386

Long-term debt(e)
2
 
5,516

 
6,616

 
5,648

 
6,671

Redeemable preferred securities of subsidiary(c)
3
 
506

 
557

 
506

 
568

Redeemable common securities of subsidiary(f)
3
 
41

 
41

 
41

 
41

(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. Cash equivalents are recorded at cost, which approximates fair value.
(b) 
Time deposits, included in Other current assets on the Condensed Consolidated Balance Sheet, are comprised of deposits with original maturities of more than 90 days but less than one year. Time deposits are recorded at cost, which approximates fair value.
(c) 
The note, monetization loan and redeemable preferred securities of subsidiary are not 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

8

Table of Contents

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, unobservable fair value credit spread, stated spread, maturity date and interest payment dates. The difference between the carrying amount of the note and its fair value represents an unrealized loss position for which an other-than-temporary impairment has not been recognized in earnings because we have both the intent and ability to hold the note for a period of time sufficient to allow for an anticipated recovery of fair value to the carrying amount of the note.
(d) 
Short-term debt is comprised of U.S. commercial paper and other similar short-term debt issued by non-U.S. subsidiaries, all of which are recorded at cost, which approximates fair value.
(e) 
Long-term debt excludes the monetization loan and includes the current portion ($218 million and $619 million at June 30, 2012 and December 31, 2011, respectively) of these debt instruments. Fair values were estimated based on quoted prices for financial instruments for which all significant inputs were observable, either directly or indirectly.
(f) 
The fair value of the redeemable common securities of subsidiary was based on various inputs, including an independent third-party appraisal, adjusted for current market conditions.

Note 3. Pulp and Tissue Restructuring Actions
On January 21, 2011, we initiated a pulp and tissue restructuring plan ("The Restructuring") in order to exit our remaining integrated pulp manufacturing operations and improve the underlying profitability and return on invested capital of our consumer tissue and K-C Professional ("KCP") businesses. The Restructuring involves the streamlining, sale or closure of six of our manufacturing facilities around the world. In conjunction with these actions, we are exiting certain non-strategic products, primarily non-branded offerings, and transferring some production to lower-cost facilities in order to improve overall profitability and returns.
In addition, on January 24, 2012, we announced our decision to streamline an additional manufacturing facility in North America ("Additional Streamlining") to further enhance the profitability of our consumer tissue business.
Both restructuring actions are anticipated to be substantially completed by the end of 2012. The restructuring actions are expected to result in cumulative pre-tax charges of approximately $550 million to $600 million ($385 million to $420 million after tax) over 2011 and 2012. Cash costs related to the streamlining of operations, sale or closure, relocation of equipment, severance and other expenses are expected to account for approximately 30 to 40 percent of the charges. Noncash charges will consist primarily of incremental depreciation.
Through June 30, 2012, cumulative pre-tax charges for the restructuring actions were $469 million ($329 million after tax), including cumulative pre-tax cash charges of $110 million.  On a geographic basis, these cumulative pre-tax charges were incurred as follows: North America - $252 million; Australia - $138 million and Other - $79 million.  On a business segment basis, these cumulative pre-tax charges were incurred as follows: Consumer Tissue - $406 million; K-C Professional & Other - $61 million and Other (income) and expense, net - $2 million.
The following charges were incurred in connection with the restructuring actions:
 
Three Months Ended June 30
 
2012
 
2011
 
The
Restructuring
 
Additional
Streamlining
 
Total
 
The
Restructuring
 
(Millions of dollars)
Incremental depreciation
$
1

 
$
6

 
$
7

 
$
76

Charges for workforce reductions
(1
)
 

 
(1
)
 
1

Asset write-offs
3

 

 
3

 
8

Other exit costs
9

 

 
9

 

Cost of products sold
12

 
6

 
18

 
85

Charges for workforce reductions included in Marketing, research and general expenses
1

 

 
1

 
5

Provision for income taxes

 
(3
)
 
(3
)
 
(31
)
Net charges
$
13

 
$
3

 
$
16

 
$
59


9

Table of Contents

 
Six Months Ended June 30
 
2012
 
2011
 
The
Restructuring
 
Additional
Streamlining
 
Total
 
The
Restructuring
 
(Millions of dollars)
Incremental depreciation
$
7

 
$
12

 
$
19

 
$
116

Charges for workforce reductions

 
3

 
3

 
43

Asset write-offs
11

 

 
11

 
8

Other exit costs
20

 

 
20

 

Cost of products sold
38

 
15

 
53

 
167

Charges for workforce reductions included in Marketing, research and general expenses
1

 

 
1

 
5

Provision for income taxes
(8
)
 
(6
)
 
(14
)
 
(56
)
Net charges
$
31

 
$
9

 
$
40

 
$
116

See Note 9 for additional information on the pulp and tissue restructuring charges by segment.
Pre-tax charges for the restructuring actions relate to activities in the following geographic areas:
 
Three Months Ended June 30, 2012
 
North
America
 
Australia
 
Other
 
Total
 
(Millions of dollars)
Incremental depreciation
$
6

 
$
1

 
$

 
$
7

Asset write-offs
3

 

 

 
3

Other exit costs
6

 
2

 
1

 
9

Total charges
$
15

 
$
3

 
$
1

 
$
19


 
Six Months Ended June 30, 2012
 
North
America
 
Australia
 
Other
 
Total
 
(Millions of dollars)
Incremental depreciation
$
18

 
$
1

 
$

 
$
19

Charges for workforce reductions
4

 

 

 
4

Asset write-offs
11

 

 

 
11

Other exit costs
15

 
4

 
1

 
20

Total charges
$
48

 
$
5

 
$
1

 
$
54


 
Three Months Ended June 30, 2011
 
North
America
 
Australia
 
Other
 
Total
 
(Millions of dollars)
Incremental depreciation
$
52

 
$
21

 
$
3

 
$
76

Charges for workforce reductions

 
6

 

 
6

Asset write-offs
6

 
2

 

 
8

Total charges
$
58

 
$
29

 
$
3

 
$
90



10

Table of Contents

 
Six Months Ended June 30, 2011
 
North
America
 
Australia
 
Other
 
Total
 
(Millions of dollars)
Incremental depreciation
$
70

 
$
40

 
$
6

 
$
116

Charges for workforce reductions

 
46

 
2

 
48

Asset write-offs
6

 
2

 

 
8

Total charges
$
76

 
$
88

 
$
8

 
$
172

The following summarizes the cash charges recorded and reconciles these charges to accrued expenses for the restructuring actions at June 30:
(Millions of dollars)
 
2012
 
2011
 
 
 
 
 
Accrued expenses - beginning of year
 
$
37

 
$

Charges for workforce reductions and other exit costs
 
24

 
48

Cash payments
 
(53
)
 
(18
)
Currency and other
 

 
17

Accrued expenses - June 30
 
$
8

 
$
47


Note 4. Inventories
The following schedule presents a summary of inventories by major class:
 
 
June 30, 2012
 
December 31, 2011
(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
 
$
169

 
$
366

 
$
535

 
$
163

 
$
334

 
$
497

Work in process
 
206

 
121

 
327

 
245

 
126

 
371

Finished goods
 
676

 
767

 
1,443

 
708

 
760

 
1,468

Supplies and other
 

 
310

 
310

 

 
300

 
300

 
 
1,051

 
1,564


2,615


1,116


1,520

 
2,636

Excess of FIFO or weighted-average cost over LIFO cost
 
(247
)
 

 
(247
)
 
(280
)
 

 
(280
)
Total
 
$
804

 
$
1,564

 
$
2,368

 
$
836

 
$
1,520

 
$
2,356

We use 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.


11

Table of Contents

Note 5. Employee Postretirement Benefits
The table below presents net periodic benefit cost information for defined benefit plans and other postretirement benefit plans:
 
 
Defined
Benefit Plans
 
Other Postretirement
Benefit Plans
 
 
Three Months Ended June 30
(Millions of dollars)
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
Service cost
 
$
12

 
$
14

 
$
4

 
$
3

Interest cost
 
70

 
78

 
10

 
11

Expected return on plan assets
 
(82
)
 
(87
)
 

 

Recognized net actuarial loss
 
28

 
23

 

 

Other
 
6

 
2

 
(1
)
 
1

Net periodic benefit cost
 
$
34

 
$
30

 
$
13

 
$
15

 
 
Defined
Benefit Plans
 
Other Postretirement
Benefit Plans
 
 
Six Months Ended June 30
(Millions of dollars)
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
Service cost
 
$
24

 
$
28

 
$
8

 
$
7

Interest cost
 
140

 
154

 
19

 
22

Expected return on plan assets
 
(165
)
 
(173
)
 

 

Recognized net actuarial loss
 
55

 
47

 

 

Other
 
17

 
2

 
(1
)
 
2

Net periodic benefit cost
 
$
71

 
$
58

 
$
26

 
$
31

For the six months ended June 30, 2012 and 2011, we made cash contributions of $45 million and $415 million, respectively, to our pension trusts. We currently anticipate contributing between $50 and $100 million for the full year 2012 to our pension trusts.

Note 6. Earnings Per Share ("EPS")
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:
 
 
Three Months Ended
June 30
 
Six Months Ended
June 30
(Millions of shares)
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
Average shares outstanding
 
393.6

 
393.1

 
393.7

 
397.5

Participating securities
 

 
0.2

 

 
0.6

Basic
 
393.6

 
393.3

 
393.7

 
398.1

Dilutive effect of stock options
 
1.8

 
1.6

 
1.9

 
1.5

Dilutive effect of restricted share and restricted share unit awards
 
1.1

 
1.1

 
1.2

 
1.1

Diluted
 
396.5

 
396.0

 
396.8

 
400.7

Outstanding options during the three and six month periods ended June 30, 2012 of 0.9 million and 0.4 million, respectively, and during the three and six month periods ended June 30, 2011 of 4.3 million and 4.5 million, respectively, were not included in the computation of diluted EPS mainly because the exercise prices of the options were greater than the average market price of the common shares during the periods.
The number of common shares outstanding as of June 30, 2012 and 2011 was 394.6 million and 392.2 million, respectively.


12

Table of Contents

Note 7. Stockholders’ Equity
Set forth below are reconciliations for the six months ended June 30, 2012 and 2011 of the carrying amount of total stockholders’ equity from the beginning of the period to the end of the period. In addition, each of the reconciliations displays the amount of net income allocable to redeemable securities of subsidiaries.
 
 
 
 
Stockholders’  Equity
Attributable to
 
 
(Millions of dollars)
 
Comprehensive
Income
 
The
Corporation
 
Noncontrolling
Interests
 
Redeemable
Securities
 of
Subsidiaries
 
 
 
 
 
 
 
 
 
Balance at December 31, 2011
 
 
 
$
5,249

 
$
280

 
$
547

Comprehensive Income:
 
 
 
 
 
 
 
 
Net income
 
$
1,005

 
966

 
23

 
16

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Unrealized translation
 
(8
)
 
(11
)
 
3

 

Employee postretirement benefits
 
8

 
7

 
1

 

Total Comprehensive Income
 
$
1,005

 
 
 
 
 
 
Stock-based awards
 
 
 
423

 

 

Income tax benefits on stock-based compensation
 
 
 
27

 

 

Shares repurchased
 
 
 
(686
)
 

 

Recognition of stock-based compensation
 
 
 
43

 

 

Dividends declared
 
 
 
(583
)
 
(20
)
 

Other
 
 
 
2

 

 
(2
)
Return on redeemable securities of subsidiaries
 
 
 

 

 
(14
)
Balance at June 30, 2012
 
 
 
$
5,437

 
$
287

 
$
547

In the six months ended June 30, 2012, we repurchased 8.9 million shares at a total cost of $660 million.
 
 
 
 
Stockholders’ Equity
Attributable to
 
 
(Millions of dollars)
 
Comprehensive
Income
 
The
Corporation
 
Noncontrolling
Interests
 
Redeemable
Securities
of
Subsidiaries
 
 
 
 
 
 
 
 
 
Balance at December 31, 2010
 
 
 
$
5,917

 
$
285

 
$
1,047

Comprehensive Income:
 
 
 
 
 
 
 
 
Net income
 
$
804

 
758

 
18

 
28

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Unrealized translation
 
440

 
430

 
10

 

Other
 
(28
)
 
(28
)
 

 

Total Comprehensive Income
 
$
1,216

 
 
 
 
 
 
Stock-based awards
 
 
 
202

 

 

Income tax benefits on stock-based compensation
 
 
 
6

 

 

Shares repurchased
 
 
 
(1,205
)
 

 

Recognition of stock-based compensation
 
 
 
31

 

 

Dividends declared
 
 
 
(555
)
 
(12
)
 

Other
 
 
 

 

 
(2
)
Return on redeemable securities of subsidiaries
 
 
 

 

 
(27
)
Balance at June 30, 2011
 
 
 
$
5,556

 
$
301

 
$
1,046


13

Table of Contents

Net unrealized currency gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries, except those in highly inflationary economies, are recorded in Accumulated Other Comprehensive Income ("AOCI"). For these operations, changes in exchange rates generally do not affect cash flows; therefore, unrealized translation adjustments are recorded in AOCI rather than net income. Upon sale or substantially complete liquidation of any of these subsidiaries, the applicable unrealized translation adjustment would be removed from AOCI and reported as part of the gain or loss on the sale or liquidation.
Also included in unrealized translation amounts 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.

Note 8. Objectives and Strategies for Using Derivatives
As a multinational enterprise, we are exposed to financial risks, such as changes in foreign currency exchange rates, interest rates, commodity prices and the value of investments of our defined benefit pension plans. We employ a number of practices to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. Our policies allow the use of derivatives for risk management purposes and prohibit their use for speculation. Our policies also prohibit the use of any leveraged derivative instrument. Consistent with our policies, foreign currency derivative instruments, interest rate swaps and locks and the majority of commodity hedging contracts are entered into with major financial institutions.
On the date a derivative contract is entered into, we formally designate certain derivatives as cash flow, fair value or net investment hedges and establish 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 in earnings as they occur.
Set forth below is a summary of the fair values of our derivative instruments classified by the risks they are used to manage:
 
Assets
 
Liabilities
 
June 30
2012
 
December 31
2011
 
June 30
2012
 
December 31
2011
 
(Millions of dollars)
Foreign currency exchange risk
$
46

 
$
45

 
$
23

 
$
33

Interest rate risk
9

 
16

 
41

 
75

Commodity price risk
1

 

 
10

 
12

Total
$
56

 
$
61

 
$
74

 
$
120

The derivative assets are presented in the Condensed Consolidated Balance Sheet in Other current assets and Other assets, as appropriate. The derivative liabilities are presented in the Condensed Consolidated Balance Sheet in Accrued expenses and Other liabilities, as appropriate.
Foreign Currency Exchange Risk Management
We have 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, our exposures to recorded non-U.S. dollar assets and liabilities and entering into derivative instruments with third parties whenever our 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 remeasurement of its non-U.S. dollar-denominated monetary assets and liabilities in earnings. Consequently, the net effect on earnings from the use of these non-designated derivatives is substantially neutralized by transactional gains and losses recorded on the underlying assets and liabilities. The In-House Bank’s daily notional derivative positions with third parties averaged $1.4 billion in the first six months of 2012 and its average net exposure for the same period was $1.3 billion. The In-House Bank used ten counterparties for its foreign exchange derivative contracts.
We enter into derivative instruments to hedge a portion of the net foreign currency exposures of our non-U.S. operations, principally for their forecasted purchases of pulp, which are priced in U.S. dollars, and imports of intercompany finished goods and work-in-process priced predominately in U.S. dollars and euros. The derivative instruments used to manage these exposures are designated and qualify as cash flow hedges. As of June 30, 2012, outstanding derivative contracts of $830 million notional value were designated as cash flow hedges for the forecasted purchases of pulp and intercompany finished goods and work-in-process.
The foreign currency exposure on non-functional currency denominated monetary assets and liabilities managed outside the In-House Bank, primarily intercompany loans and accounts payable, is hedged with derivative instruments with third parties. At June 30, 2012, the notional amount of these predominantly undesignated derivative instruments was $585 million.
Foreign Currency Translation Risk Management
Translation adjustments result from translating foreign entities’ financial statements to U.S. dollars from their functional currencies. The risk to any particular entity's net assets is reduced to the extent that the entity is financed with local currency borrowing. Translation exposure, which results from changes in translation rates between functional currencies and the U.S. dollar, generally is not hedged. However, consistent with other years, a portion of our net investment in our Mexican affiliate has been hedged. At June 30, 2012, we had in place net investment hedges of $98 million for a portion of our investment in our Mexican affiliate. Changes in the fair value of net investment hedges are recognized in other comprehensive income to offset the change in value of the net investment being hedged. There was no significant ineffectiveness related to net investment hedges as of June 30, 2012 and 2011.
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. 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 or, to a lesser extent, cash flow hedges.
From time to time, we hedge the anticipated issuance of fixed-rate debt, using 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 a future date). These contracts are designated as cash flow hedges.
At June 30, 2012, the aggregate notional values of outstanding interest rate contracts designated as fair value hedges and cash flow hedges were $300 million and $280 million, respectively.
Commodity Price Risk Management
We use derivative instruments to hedge a portion of our 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 June 30, 2012, outstanding commodity forward contracts were in place to hedge forecasted purchases of about 30 percent of our estimated natural gas requirements for the next twelve months and a lesser percentage for future periods.
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 predominantly used to manage interest rate risk. 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 related hedged items also is recorded in current earnings. Any realized gain or loss on the derivatives that hedge interest rate risk is amortized to interest expense over the life of the related debt.
Fair value hedges resulted in no significant ineffectiveness in the six months ended June 30, 2012 and 2011. For the six months ended June 30, 2012 and 2011, no gain or loss was recognized in earnings as a result of a hedged firm commitment no longer qualifying as a fair value hedge.
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is initially recorded in AOCI, net of related income taxes, and recognized in earnings in the same period that the hedged exposure affects earnings.
Cash flow hedges resulted in no significant ineffectiveness in the six months ended June 30, 2012 and 2011. For the six months ended June 30, 2012 and 2011, 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 June 30, 2012, $13 million of after-tax gains are expected to be reclassified from AOCI 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 June 30, 2012 is July 2014.
Quantitative Information about Our Use of Derivative Instruments
The following tables display the location and amount of pre-tax gains and losses reported in the Consolidated Income Statement and Consolidated Statement of Other Comprehensive Income.
For the three months ended June 30 (Millions of dollars):
 
Income Statement Classifications
 
(Gain) or Loss
Recognized in Income
 
 
 
2012
 
2011
Undesignated foreign exchange hedging instruments
Other (income) and expense, net(a)
 
$
41

 
$
(59
)
 
 
 
 
 
 
Fair Value Hedges
 
 
 
 
 
Interest rate swap contracts
Interest expense
 
$
(1
)
 
$

Hedged debt instruments
Interest expense
 
$
1

 
$

 
Amount of (Gain) or
Loss Recognized In
AOCI
 
Income Statement
Classification of (Gain) or Loss
Reclassified from AOCI
 
(Gain) or Loss Reclassified
from AOCI into Income
 
2012
 
2011
 
 
 
2012
 
2011
Cash Flow Hedges
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
16

 
$
9

 
Interest expense
 
$
1

 
$
(1
)
Foreign exchange contracts
(28
)
 
11

 
Cost of products sold
 
(1
)
 
15

Foreign exchange contracts
(5
)
 

 
Other (income) and expense, net
 
(5
)
 
(1
)
Commodity contracts
(1
)
 
1

 
Cost of products sold
 
6

 
3

Total
$
(18
)
 
$
21

 
 
 
$
1

 
$
16

Net Investment Hedges
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
(2
)
 
$
2

 
 
 
$

 
$


For the six months ended June 30 (Millions of dollars):
 
Income Statement Classifications
 
(Gain) or Loss
Recognized in Income
 
 
 
2012
 
2011
Undesignated foreign exchange hedging instruments
Other (income) and expense, net(a)
 
$
(1
)
 
$
(99
)
 
 
 
 
 
 
Fair Value Hedges
 
 
 
 
 
Interest rate swap contracts
Interest expense
 
$
5

 
$
(5
)
Hedged debt instruments
Interest expense
 
$
(5
)
 
$
5

 
Amount of (Gain) or
Loss Recognized In
AOCI
 
Income Statement
Classification of (Gain) or Loss
Reclassified from AOCI
 
(Gain) or Loss Reclassified
from AOCI into Income
 
2012
 
2011
 
 
 
2012
 
2011
Cash Flow Hedges
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
13

 
$
8

 
Interest expense
 
$
1

 
$
(2
)
Foreign exchange contracts
(15
)
 
45

 
Cost of products sold
 
(4
)
 
21

Foreign exchange contracts
(3
)
 
5

 
Other (income) and expense, net
 
(3
)
 
5

Commodity contracts
7

 
1

 
Cost of products sold
 
10

 
5

Total
$
2

 
$
59

 
 
 
$
4

 
$
29

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

 
 
 
$

 
$

(a) 
(Gains) and losses on these instruments primarily relate to derivatives entered into with third parties to manage foreign currency exchange exposure on the remeasurement of non-functional currency denominated monetary assets and liabilities. Consequently, the effect on earnings from the use of these undesignated derivatives is substantially neutralized by the recorded transactional gains and losses on the underlying assets and liabilities.

14

Table of Contents

Note 9. Description of Business Segments
We are organized into operating segments based on product groupings. These operating segments have been aggregated into four reportable global business segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. The reportable segments were determined in accordance with how our executive managers develop and execute global strategies to drive growth and profitability. These strategies include global plans for branding and product positioning, technology, research and development programs, cost reductions including supply chain management, and capacity and capital investments for each of these businesses. Segment management is evaluated on several factors, including operating profit. Segment operating profit excludes other (income) and expense, net and income and expense not associated with the business segments, including the charges related to the pulp and tissue restructuring actions described in Note 3.
The principal sources of revenue in each global business segment are described below:
Personal Care brands offer parents a trusted partner in caring for their families and deliver confidence, protection and discretion to adults, through a wide variety of innovative solutions and products such as disposable diapers, training and youth pants, swimpants, baby wipes, feminine and incontinence care products, and other related products. Products in this segment are sold under the Huggies, Pull-Ups, Little Swimmers, GoodNites, Kotex, Lightdays, Depend, Poise and other brand names.
Consumer Tissue offers a wide variety of innovative solutions and trusted brands that touch and improve people's lives every day. Products in this segment include facial and bathroom tissue, paper towels, napkins and related products, and are sold under the Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Hakle, Page and other brand names.
K-C Professional & Other helps transform workplaces for employees and patrons, making them healthier, safer, and more productive, through a range of solutions and supporting products such as apparel, wipers, soaps, sanitizers, tissues, and towels. Key brands in this segment include: Kleenex, Scott, WypAll, Kimtech, and Jackson Safety.
Health Care provides the essentials that help restore patients to better health and improve the quality of patients' lives. Health Care offers a portfolio of innovative medical devices focused on pain management, respiratory and digestive health, and surgical and infection prevention products for the operating room. This business is a global leader in education to prevent healthcare-associated infections. Products are sold primarily under the Kimberly‑Clark and ON‑Q brand names.

15

Table of Contents

The following schedules present information concerning consolidated operations by business segment:
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
 
2012
 
2011
 
2012
 
2011
 
 
(Millions of dollars)
NET SALES:
 
 
 
 
 
 
 
 
Personal Care
 
$
2,415

 
$
2,341

 
$
4,782

 
$
4,528

Consumer Tissue
 
1,588

 
1,669

 
3,247

 
3,343

K-C Professional & Other
 
839

 
846

 
1,636

 
1,614

Health Care
 
411

 
391

 
816

 
779

Corporate & Other
 
16

 
12

 
29

 
24

Consolidated
 
$
5,269

 
$
5,259

 
$
10,510

 
$
10,288

 
 
 
 
 
 
 
 
 
OPERATING PROFIT (reconciled to Income Before Income Taxes and Equity Interests):
 
 
 
 
 
 
 
 
Personal Care
 
$
406

 
$
400

 
$
805

 
$
789

Consumer Tissue
 
219

 
173

 
436

 
323

K-C Professional & Other
 
138

 
129

 
263

 
233

Health Care
 
56

 
53

 
109

 
103

Other (income) and expense, net
 
(18
)
 
(8
)
 
(10
)
 
(10
)
Corporate & Other(a)
 
(83
)
 
(138
)
 
(169
)
 
(289
)
Total Operating Profit
 
754

 
625

 
1,454

 
1,169

Interest income
 
5

 
4

 
9

 
8

Interest expense
 
(71
)
 
(71
)
 
(142
)
 
(135
)
Income Before Income Taxes and Equity Interests
 
$
688

 
$
558

 
$
1,321

 
$
1,042

(a) 
Corporate & Other includes pulp and tissue restructuring charges as follows:
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2012
 
2011
 
2012
 
2011
 
(Millions of dollars)
Consumer Tissue
$
17

 
$
77

 
$
49

 
$
152

K-C Professional & Other
2

 
13

 
5

 
20

Total
$
19

 
$
90

 
$
54

 
$
172

 

See additional information in Note 3 for the pulp and tissue restructuring actions. The six months ended June 30, 2011 also includes a non-deductible business tax charge of $32 million related to a law change in Colombia.


16

Table of Contents

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 our recent performance, financial condition and prospects.  The following will be discussed and analyzed:
Overview of Second Quarter 2012 Results
Results of Operations and Related Information
Liquidity and Capital Resources
Legal Matters
Business Outlook
Overview of Second Quarter 2012 Results
Net sales increased 0.2 percent primarily due to increases in net selling prices and sales volumes mostly offset by unfavorable currency effects.
Operating profit and net income attributable to Kimberly-Clark Corporation increased 20.6 percent and 22.1 percent, respectively.
Net income includes $16 million in after tax charges ($19 million pre-tax) in 2012 and $59 million in after tax charges ($90 million pre-tax) in 2011 for the pulp and tissue restructuring actions.
Cash provided by operations was $740 million compared to $771 million in the prior year.

17

Table of Contents

Results of Operations and Related Information
This section presents a discussion and analysis of our second quarter of 2012 net sales, operating profit and other information relevant to an understanding of the results of operations.
Second Quarter of 2012 Compared With Second Quarter of 2011
Analysis of Net Sales
By Business Segment
Net Sales
 
2012
 
2011
 
 
(Millions of dollars)
Personal Care
 
$
2,415

 
$
2,341

Consumer Tissue
 
1,588

 
1,669

K-C Professional & Other
 
839

 
846

Health Care
 
411

 
391

Corporate & Other
 
16

 
12

 
 
 
 
 
Consolidated
 
$
5,269

 
$
5,259

By Geography
Net Sales
 
2012
 
2011
 
 
(Millions of dollars)
North America
 
$
2,718

 
$
2,704

Outside North America
 
2,757

 
2,748

Intergeographic sales
 
(206
)
 
(193
)
 
 
 
 
 
Consolidated
 
$
5,269

 
$
5,259

Commentary:
 
Percent Change in Net Sales Versus Prior Year
 
Total
Change
 
Changes Due To
 
Volume
Growth
 
Net
Price
 
Mix/
Other
 
Currency
 
 
 
 
 
 
 
 
 
 
 
Consolidated
0.2
 
1
 
2
 
 
(3)
Personal Care
3.2
 
4
 
3
 
 
(4)
Consumer Tissue
(4.9)
 
(4)
 
3
 
(1)
 
(3)
K-C Professional & Other
(0.8)
 
1
 
1
 
 
(3)
Health Care
5.1
 
6
 
 
 
(1)
Personal care net sales in North America increased 2 percent. Net selling prices rose 4 percent, driven by improved revenue realization for Huggies diapers and baby wipes, while sales volumes decreased 1 percent. Child care and infant care volumes were down mid- and high-single digits, respectively, primarily reflecting category declines and modest consumer trade-down in infant care. Baby wipes volumes fell mid-single digits compared to strong year-ago performance. Adult care volumes rose high-single digits, including benefits from new Depend Real Fit and Silhouette briefs and new Poise Hourglass Shape Pads. Feminine care volumes were up high-single digits, with benefits from new U by Kotex products launched early in the second quarter.
In Europe, personal care net sales increased 1 percent, despite unfavorable currency effects of 9 percent. Sales volumes rose 12 percent, with growth in child care, Huggies baby wipes and non-branded offerings. Overall net selling prices fell 2 percent and product mix decreased net sales by 1 percent.

18

Table of Contents

Personal care net sales increased 5 percent in K-C International, despite a 7 percent decrease from unfavorable currency effects. Sales volumes were up 8 percent, with high-single digit growth in each major region (Asia, Latin America, and the Middle East/Eastern Europe/Africa). Volume performance was strong in a number of markets, including Brazil, China, Russia, South Africa, Venezuela and Vietnam. Overall net selling prices improved 4 percent compared to the year-ago period, driven by increases in Latin America.
Consumer tissue net sales in North America were down 4 percent compared to the prior year, including a 5 percent decrease from lost sales in conjunction with pulp and tissue restructuring actions. Net selling prices rose 5 percent, while organic sales volumes (i.e., sales volume impacts other than the lost sales from restructuring actions) decreased 4 percent. Paper towel net sales were up double digits primarily due to higher volumes and Kleenex facial tissue net sales were up mid-single digits, driven by higher net selling prices. Bathroom tissue net sales fell low-single digits, as lower volumes were partially offset by higher net selling prices. The volume comparison was impacted by sheet count reductions, strong year-ago shipments and competitive promotional activity.
In Europe, consumer tissue net sales decreased 8 percent, including unfavorable currency effects of 7 percent. Changes in product mix reduced net sales 2 percent and net selling prices declined 1 percent, as economic conditions remain difficult. Sales volumes were up 2 percent.
Consumer tissue net sales decreased 3 percent in K-C International. Currency rates were unfavorable by 6 percent and lost sales in conjunction with pulp and tissue restructuring actions reduced sales volumes by 1 percent. On the other hand, net selling prices increased 3 percent and product mix increased net sales by 2 percent, reflecting strategies to improve net realized revenue and profitability.
Net sales of K-C Professional ("KCP") & other products in North America rose 1 percent. Increased sales volumes and changes in product mix each improved net sales by 1 percent, while net selling prices were down 1 percent. The volume increase was mostly attributable to higher washroom product volumes, reflecting modest improvement in market demand and benefits from innovation and selling initiatives.
In Europe, KCP net sales decreased 9 percent. Currency rates were unfavorable by 8 percent and lost sales in conjunction with pulp and tissue restructuring actions reduced sales volumes by 4 percent. On the other hand, net selling prices increased 2 percent and organic sales volumes improved 1 percent.
KCP net sales increased 2 percent in K-C International, despite a 6 percent decrease from changes in currency rates. Sales volumes were up 5 percent, driven by double-digit growth in Latin America. In addition, overall net selling prices rose 3 percent and product mix improved slightly.
Net sales of health care products increased 5 percent as sales volumes rose 6 percent while unfavorable currency effects reduced net sales by 1 percent. Surgical and infection prevention (medical supply) volumes rose at a mid-single digit rate, with solid gains in exam gloves and surgical products. Medical device volumes increased double digits, led by strong growth in digestive health and airway management products.
Analysis of Operating Profit
By Business Segment
Operating Profit
 
2012
 
2011
 
 
(Millions of dollars)
Personal Care
 
$
406

 
$
400

Consumer Tissue
 
219

 
173

K-C Professional & Other
 
138

 
129

Health Care
 
56

 
53

Corporate & Other(a)
 
(83
)
 
(138
)
Other (income) and expense, net
 
(18
)
 
(8
)
 
 
 
 
 
Consolidated
 
$
754

 
$
625


19

Table of Contents

By Geography
Operating Profit
 
2012
 
2011
 
 
(Millions of dollars)
North America
 
$
498

 
$
487

Outside North America
 
321

 
268

Corporate & Other(a)
 
(83
)
 
(138
)
Other (income) and expense, net
 
(18
)
 
(8
)
 
 
 
 
 
Consolidated
 
$
754

 
$
625

(a) 
For the three months ended June 30, 2012 and 2011, Corporate & Other includes pulp and tissue restructuring charges of $19 million and $90 million, respectively.
Commentary: 
 
Percentage Change in Operating Profit Versus Prior Year
 
 
 
Change Due To
 
Total
Change
 
Volume
 
Net
Price
 
Input
Costs(a)
 
Cost
Savings
 
Currency
Translation
 
Other(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
20.6
 
1
 
21
 
5
 
11
 
(3)
 
(14)
Personal Care
1.5
 
4
 
19
 
(1)
 
12
 
(3)
 
(29)
Consumer Tissue
26.6
 
(13)
 
29
 
15
 
11
 
(2)
 
(13)
K-C Professional & Other
7.0
 
3
 
5
 
10
 
2
 
(5)
 
(8)
Health Care
5.7
 
16
 
1
 
(4)
 
(1)
 
 
(6)
(a) 
Includes inflation/deflation in raw materials, energy and distribution costs.
(b) 
Consolidated includes the impact of the charges in 2012 and 2011 related to the pulp and tissue restructuring actions.
Consolidated operating profit increased compared to the prior year due to higher net selling prices, $85 million in cost savings, and $30 million in deflation in key input costs from lower fiber costs of $55 million that were partially offset by increases of $15 million for raw materials other than fiber and $10 million of higher distribution costs. On the other hand, lower production volumes in 2012 to manage inventory levels and unfavorable currency translation effects adversely affected operating profit comparisons by $20 million each. In addition, overall marketing, research and general expenses increased versus the year-ago period. The higher spending included a $35 million increase in strategic marketing, primarily to support product innovations and targeted growth initiatives. Administrative and research spending increased, in part to build further capabilities and support future growth.
In addition, the current year results include $19 million of pre-tax charges for the pulp and tissue restructuring actions, while the prior year period includes $90 million of pre-tax charges for the restructuring actions.
Personal care segment operating profit in North America decreased due to lower sales volumes, higher marketing, research and general expenses and the negative impact of lower production volumes, partially offset by higher net selling prices, cost savings and lower input costs. Operating profit in Europe increased due to cost savings, higher sales volumes and the positive impact of higher production volumes, mostly offset by lower net selling prices and higher marketing, research and general expenses. In K-C International, operating profit increased as higher net selling prices, higher sales volumes and cost savings were partially offset by higher marketing, research and general expenses, unfavorable currency rates and increased input costs.
Consumer tissue segment operating profit in North America increased as higher net selling prices, input cost deflation and cost savings were partially offset by lower sales volumes. In Europe, operating profit increased as cost savings and input cost deflation were partially offset by higher marketing, research and general expenses and unfavorable product mix. Operating profit in K-C International increased as higher net selling prices and favorable product mix were partially offset by higher marketing, research and general expenses and unfavorable currency rates.
Operating profit for the KCP & other segment increased as sales growth, cost savings and lower input costs were partially offset by higher marketing, research and general expenses and unfavorable currency rates.
Health care segment operating profit increased as a result of higher sales volumes, partially offset by higher input costs.

20

Table of Contents

Additional Income Statement Commentary
Other (income) and expense, net benefited in year-over-year comparison by $10 million, primarily due to the resolution of a legal matter in 2012.
Our share of net income of equity companies in the second quarter of 2012 was $4 million lower than the prior year. At Kimberly-Clark de Mexico, S.A.B. de C.V., although sales volumes increased double-digits, U.S. dollar earnings were down somewhat driven by a decline in the value of the Mexican peso and a higher effective tax rate.

First Six Months of 2012 Compared With First Six Months of 2011
Analysis of Net Sales
By Business Segment
Net Sales
 
2012
 
2011
 
 
(Millions of dollars)
Personal Care
 
$
4,782

 
$
4,528

Consumer Tissue
 
3,247

 
3,343

K-C Professional & Other
 
1,636

 
1,614

Health Care
 
816

 
779

Corporate & Other
 
29

 
24

 
 
 
 
 
Consolidated
 
$
10,510

 
$
10,288


By Geography
Net Sales
 
2012
 
2011
 
 
(Millions of dollars)
North America
 
$
5,397

 
$
5,340

Outside North America
 
5,515

 
5,316

Intergeographic sales
 
(402
)
 
(368
)
 
 
 
 
 
Consolidated
 
$
10,510

 
$
10,288

Commentary:
 
Percent Change in Net Sales Versus Prior Year
 
Total
Change
 
Changes Due To
 
Volume
Growth
 
Net
Price
 
Mix/
Other
 
Currency
 
 
 
 
 
 
 
 
 
 
 
Consolidated
2.2
 
1
 
3
 
 
(2)
Personal Care
5.6
 
5
 
3
 
 
(2)
Consumer Tissue
(2.9)
 
(5)
 
4
 
 
(2)
K-C Professional & Other
1.4
 
1
 
1
 
1
 
(2)
Health Care
4.7
 
5
 
 
1
 
(1)

21

Table of Contents

Analysis of Operating Profit
By Business Segment
Operating Profit
 
2012
 
2011
 
 
(Millions of dollars)
Personal Care
 
$
805

 
$
789

Consumer Tissue
 
436

 
323

K-C Professional & Other
 
263

 
233

Health Care
 
109

 
103

Corporate & Other(a)
 
(169
)
 
(289
)
Other (income) and expense, net
 
(10
)
 
(10
)
 
 
 
 
 
Consolidated
 
$
1,454

 
$
1,169

By Geography
Operating Profit
 
2012
 
2011
 
 
(Millions of dollars)
North America
 
$
977

 
$
953

Outside North America
 
636

 
495

Corporate & Other(a)
 
(169
)
 
(289
)
Other (income) and expense, net
 
(10
)
 
(10
)
 
 
 
 
 
Consolidated
 
$
1,454

 
$
1,169


(a) 
For the six months ended June 30, 2012 and 2011, Corporate & Other includes pulp and tissue restructuring charges of $54 million and $172 million, respectively. The six months ended June 30, 2011 also included a non-deductible business tax charge of $32 million related to a law change in Colombia.

Commentary: 
 
Percentage Change in Operating Profit Versus Prior Year
 
 
 
Change Due To
 
Total
Change
 
Volume
 
Net
Price
 
Input
Costs(a)
 
Cost
Savings
 
Currency
Translation
 
Other(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
24.4
 
2
 
24
 
2
 
11
 
(2)
 
(13)
Personal Care
2.0
 
7
 
18
 
(5)
 
10
 
(1)
 
(27)
Consumer Tissue
35.0
 
(13)
 
37
 
16
 
14
 
(2)
 
(17)
K-C Professional & Other
12.9
 
4
 
9
 
6
 
7
 
(4)
 
(9)
Health Care
5.8
 
11
 
3
 
(3)
 
(9)
 
1
 
3
(a) 
Includes inflation/deflation in raw materials, energy and distribution costs.
(b) 
Consolidated includes the impact of the charges in 2012 and 2011 related to pulp and tissue restructuring actions and a 2011 non-deductible business tax charge related to a law change in Colombia.
Consolidated operating profit increased compared to the prior year. The benefits of higher net selling prices, cost savings, increased sales volumes and deflation in key input costs were partially offset by increased marketing, research and general expenses, including $80 million in higher strategic marketing spending and unfavorable currency translation effects. In addition, current year results include $54 million of pre-tax charges for the pulp and tissue restructuring actions, while the prior year includes $172 million of pre-tax charges related to the pulp and tissue restructuring and a $32 million business tax charge related to a law change in Colombia.
Personal care segment operating profit increased due to higher net selling prices, cost savings and increased sales volumes, partially offset by increased marketing, research and general expenses, inflation in key input costs and unfavorable currency effects.

22

Table of Contents

Consumer tissue segment operating profit increased due to higher net selling prices, deflation in key input costs and cost savings, partially offset by lower sales volumes, increased marketing, research and general expenses, the negative effects of lower production volumes and unfavorable currency effects.
Operating profit for KCP products increased due to higher net selling prices, cost savings, deflation in key input costs and higher sales volumes, partially offset by increased marketing, research and general expenses and unfavorable currency effects.
Health care segment operating profit increased due to higher sales volumes, favorable mix, and higher net selling prices, partially offset by inflation in key input costs.
Pulp and Tissue Restructuring Actions:
On January 21, 2011, we initiated a pulp and tissue restructuring plan in order to exit our remaining integrated pulp manufacturing operations and improve the underlying profitability and return on invested capital of our consumer tissue and KCP businesses. The restructuring involves the streamlining, sale or closure of six of our manufacturing facilities around the world. In conjunction with these actions, we are exiting certain non-strategic products, primarily non-branded offerings, and transferring some production to lower-cost facilities in order to improve overall profitability and returns.
In addition, on January 24, 2012, we announced our decision to streamline an additional manufacturing facility in North America to further enhance the profitability of our consumer tissue business.
Both restructuring actions are anticipated to be substantially completed by the end of 2012. The restructuring actions are expected to result in cumulative pre-tax charges of approximately $550 to $600 million ($385 to $420 million after tax) over 2011 and 2012. Cash costs related to the streamlining of operations, sale or closure, relocation of equipment, severance and other expenses are expected to account for approximately 30 percent to 40 percent of the charges. Noncash charges will consist primarily of incremental depreciation.
As a result of the restructuring activities, versus the 2010 baseline, we expect that by 2013 annual net sales will decrease by $250 to $300 million, and operating profit will increase by at least $75 million in 2013 and at least $100 million in 2014. Through the second quarter of 2012, we have recognized cumulative operating profit benefits of $35 million from the restructuring actions. Most of the restructuring will impact the consumer tissue business segment.
See additional information on the pulp and tissue restructuring actions in Note 3 to the Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
Cash provided by operations for the first six months of 2012 was $1.3 billion compared to $1.0 billion in the prior year. The increase was driven by lower defined benefit plan contributions and higher cash earnings, offset partially by increases in working capital. Contributions to our defined benefit pension plans totaled $45 million for the six months ended June 30, 2012 versus $415 million for the six months ended June 30, 2011. We currently anticipate contributing between $50 to $100 million to our pension trusts in 2012.
During the first six months of 2012, we repurchased 8.9 million shares of our common stock at a cost of $660 million. In 2012, we plan to repurchase $1.3 billion of shares through open market purchases, subject to market conditions (increased from our prior share repurchase estimate of $900 million to $1.1 billion).
Capital spending for the first six months was $486 million compared with $435 million last year. We anticipate that full year 2012 capital spending will be between $1.0 and $1.1 billion.
At June 30, 2012, total debt and redeemable securities was $6.8 billion compared with $6.7 billion at December 31, 2011.
Our short-term debt as of June 30, 2012 was $354 million (included in Debt payable within one year on the Condensed Consolidated Balance Sheet) and consisted of U.S. commercial paper with original maturities up to 90 days and other similar short-term debt issued by non-U.S. subsidiaries. The average month-end balance of short-term debt for the second quarter of 2012 was $438 million. These short-term borrowings, which included commercial paper that we issue from time to time, provide supplemental funding for supporting our operations. The level of short-term debt during a quarter generally fluctuates depending upon the amount of operating cash flows and the timing of customer receipts and payments for items such as dividends and income taxes.
We have an unused revolving credit facility comprised of (1) a 5 year facility of $1.5 billion scheduled to expire in October 2016, (2) an additional $500 million facility scheduled to expire in October 2012, and (3) an option to increase either (but not both) the $1.5 billion facility or the $500 million facility by an additional $500 million.  This facility supports our commercial

23

Table of Contents

paper program and would provide liquidity in the event our access to the commercial paper market is unavailable for any reason.
The Venezuelan government has currency exchange regulations that limit U.S. dollar availability to pay for the historical levels of U.S. dollar-denominated imports to support operations of our Venezuelan subsidiary (“K-C Venezuela”).  At June 30, 2012, K-C Venezuela had a bolivar-denominated net monetary asset position of $156 million and our net investment in K-C Venezuela was $293 million, both valued at 5.4 bolivars per U.S. dollar. Net sales of K-C Venezuela represented 1 percent of Consolidated Net Sales for full-year 2011. The Venezuelan government enacted price controls effective April 1, 2012 that reduced the net selling prices of certain of K-C Venezuela's products.  The enacted price controls are not expected to have a material impact on our consolidated financial results.       
We believe that our ability to generate cash from operations and our capacity to issue short-term and long-term debt are adequate to fund working capital, capital spending, payment of dividends, pension plan contributions and other needs for the foreseeable future. Further, we do not expect restrictions or taxes on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition or results of operations for the foreseeable future.
Legal Matters
We are subject to various legal proceedings, claims and governmental inspections, audits or investigations pertaining to issues such as contract disputes, product liability, patents and trademarks, advertising, governmental regulations, employment and other matters. Although the results of litigation and claims cannot be predicted with certainty, we believe that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on our business, financial condition, results of operations or liquidity.
We are subject to federal, state and local environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. We have been named a potentially responsible party under the provisions of the U.S. federal Comprehensive Environmental Response, Compensation, and Liability Act, or analogous state statutes, at a number of waste disposal sites. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our business, financial condition, results of operations or liquidity.
Business Outlook
During the second half of 2012, we expect economic conditions to continue to be volatile.  In this global environment, we will seek to continue to increase strategic marketing faster than net sales, pursue targeted growth initiatives, deliver cost savings and generate cash flow.  As the commodity cost environment has improved over the first half of 2012, and several currencies have recently weakened against the U.S. dollar, we are anticipating lower commodity costs and higher unfavorable currency impacts than previously estimated.  We will continue to manage our company with financial discipline.
Information Concerning Forward-Looking Statements
Certain matters contained in this report concerning the business outlook, including the anticipated costs, scope, timing and effects of restructuring actions, the impact of foreign government actions, cash flow, cash sources and uses of cash, economic conditions and market demand, cost savings and reductions, cost inflation and input costs, anticipated currency rates and exchange risk, anticipated financial and operating results, contingencies and anticipated transactions of Kimberly-Clark, including share repurchases and pension contributions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are based upon management's expectations and beliefs concerning future events impacting Kimberly-Clark.  There can be no assurance that these future events will occur as anticipated or that our results will be as estimated.  Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update them. 
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 our control, including fluctuations in foreign currency exchange rates, the prices and availability of our raw materials, potential competitive pressures on selling prices for our products, energy costs and retail trade customer actions, as well as general economic and political conditions globally and in the markets in which we do business, could affect the realization of these estimates.
For a description of certain factors that could cause our future results to differ from those expressed in these forward-looking statements, see Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011 entitled “Risk Factors.”


24

Table of Contents

Item 4.
Controls and Procedures
As of June 30, 2012, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of June 30, 2012. There were no changes in our internal control over financial reporting during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


25

Table of Contents

PART II.
– OTHER INFORMATION
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We repurchase shares of Kimberly-Clark common stock from time to time pursuant to publicly announced share repurchase programs. All our share repurchases during the second quarter of 2012 were made through a broker in the open market.
The following table contains information for shares repurchased during the second quarter of 2012. None of the shares in this table were repurchased directly from any of our officers or directors.
Period (2012)
 
Total Number
of Shares
Purchased(a)
 
Average
Price Paid
Per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
April 1 to April 30
 
843,000

 
$
75.67

 
7,004,411

 
42,995,589

May 1 to May 31
 
880,000

 
79.13

 
7,884,411

 
42,115,589

June 1 to June 30
 
820,000

 
81.20

 
8,704,411

 
41,295,589

Total
 
2,543,000

 
 
 
 
 
 
(a) 
Share repurchases were made pursuant to a share repurchase program authorized by our Board of Directors on January 21, 2011. This program allows for the repurchase of 50 million shares in an amount not to exceed $5 billion.


26

Table of Contents

Item 6.
Exhibits

(a)
Exhibits
Exhibit No. (3)a. Amended and Restated Certificate of Incorporation, dated April 30, 2009, incorporated by reference to Exhibit No. (3)a of the Corporation’s Current Report on Form 8-K dated May 1, 2009.
Exhibit No. (3)b. By-Laws, as amended April 30, 2009, incorporated by reference to Exhibit No. (3)b of the Corporation’s Current Report on Form 8-K dated May 1, 2009.
Exhibit No. (4). Copies of instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission on request.
Exhibit No. (10)n. Form of Award Agreements under 2011 Equity Participation Plan, filed herewith.
Exhibit No. (10)q. Agreement between Kimberly-Clark Worldwide, Inc. and Robert W. Black, incorporated by reference to Exhibit No. (10)q of the Corporation's Current Report on Form 8-K dated May 2, 2012.
Exhibit No. (10)w. Consulting Agreement between Kimberly-Clark Corporation and Jan B.C. Spencer, filed herewith.
Exhibit No. (31)a. Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), filed herewith.
Exhibit No. (31)b. Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, filed herewith.
Exhibit No. (32)a. Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, furnished herewith.
Exhibit No. (32)b. Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, furnished herewith.
Exhibit No. (101).INS XBRL Instance Document
Exhibit No. (101).SCH XBRL Taxonomy Extension Schema Document
Exhibit No. (101).CAL XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit No. (101).DEF XBRL Taxonomy Extension Definition Linkbase Document
Exhibit No. (101).LAB XBRL Taxonomy Extension Label Linkbase Document
Exhibit No. (101).PRE XBRL Taxonomy Extension Presentation Linkbase Document



27

Table of Contents

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.
 
 
 
 
KIMBERLY-CLARK CORPORATION
        (Registrant)
 
 
By:
 
/s/ Mark A. Buthman
 
 
Mark A. Buthman
 
 
Senior Vice President and
 
 
Chief Financial Officer
 
 
(principal financial officer)
 
 
By:
 
/s/ Michael T. Azbell
 
 
Michael T. Azbell
 
 
Vice President and Controller
 
 
(principal accounting officer)
August 3, 2012

28

Table of Contents

EXHIBIT INDEX
 
 
 
 
Exhibit No.
  
Description
 
 
(3)a.
  
Amended and Restated Certificate of Incorporation, dated April 30, 2009, incorporated by reference to Exhibit No. (3)a of the Corporation’s Current Report on Form 8-K dated May 1, 2009.
 
 
(3)b.
  
By-Laws, as amended April 30, 2009, incorporated by reference to Exhibit No. (3)b of the Corporation’s Current Report on Form 8-K dated May 1, 2009.
 
 
(4).
  
Copies of instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission on request.
 
 
 
(10)n.
 
Form of Award Agreements under 2011 Equity Participation Plan, filed herewith.
 
 
(10)q.
 
Agreement between Kimberly-Clark Worldwide, Inc. and Robert W. Black, incorporated by reference to Exhibit No. (10)q of the Corporation's Current Report on Form 8-K dated May 2, 2012.
 
 
 
(10)w.
 
Consulting Agreement between Kimberly-Clark Corporation and Jan B.C. Spencer, filed herewith.
 
 
 
(31)a.
  
Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), filed herewith.
 
 
(31)b.
  
Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, filed herewith.
 
 
(32)a.
  
Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, furnished herewith.
 
 
(32)b.
  
Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, furnished herewith.
 
 
(101).INS
  
XBRL Instance Document
 
 
(101).SCH
  
XBRL Taxonomy Extension Schema Document
 
 
(101).CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
(101).DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
 
 
(101).LAB
  
XBRL Taxonomy Extension Label Linkbase Document
 
 
(101).PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document



29