Document


 
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, 2018
OR
o    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
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12366745&doc=14
KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
 
39-0394230
(State or other jurisdiction of
incorporation)
 
(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  o
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  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
  
Accelerated filer
o
Non-accelerated filer
o(Do not check if a smaller reporting company)
  
Smaller reporting company
o
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o    No  x
As of July 17, 2018, there were 347,664,541 shares of the Corporation's common stock outstanding.
 



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)
 
2018
 
2017
 
2018
 
2017
Net Sales
 
$
4,604

 
$
4,576

 
$
9,335

 
$
9,080

Cost of products sold
 
3,149

 
2,924

 
6,556

 
5,768

Gross Profit
 
1,455

 
1,652

 
2,779

 
3,312

Marketing, research and general expenses
 
771

 
835

 
1,850

 
1,642

Other (income) and expense, net
 
10

 
3

 
8

 
8

Operating Profit
 
674

 
814

 
921

 
1,662

Nonoperating expense
 
(36
)
 
(15
)
 
(45
)
 
(29
)
Interest income
 
3

 
2

 
5

 
4

Interest expense
 
(68
)
 
(85
)
 
(134
)
 
(168
)
Income Before Income Taxes and Equity Interests
 
573

 
716

 
747

 
1,469

Provision for income taxes
 
(138
)
 
(202
)
 
(242
)
 
(409
)
Income Before Equity Interests
 
435

 
514

 
505

 
1,060

Share of net income of equity companies
 
30

 
26

 
57

 
55

Net Income
 
465

 
540

 
562

 
1,115

Net income attributable to noncontrolling interests
 
(10
)
 
(9
)
 
(14
)
 
(21
)
Net Income Attributable to Kimberly-Clark Corporation
 
$
455

 
$
531

 
$
548

 
$
1,094

 
 
 
 
 
 
 
 
 
Per Share Basis
 
 
 
 
 
 
 
 
Net Income Attributable to Kimberly-Clark Corporation
 
 
 
 
 
 
 
 
Basic
 
$
1.30

 
$
1.50

 
$
1.57

 
$
3.08

Diluted
 
$
1.30

 
$
1.49

 
$
1.56

 
$
3.06

 
 
 
 
 
 
 
 
 
Cash Dividends Declared
 
$
1.00

 
$
0.97

 
$
2.00

 
$
1.94


See notes to consolidated financial statements.


3



KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)

 
 
Three Months Ended
June 30
 
Six Months Ended
June 30
(Millions of dollars)
 
2018
 
2017
 
2018
 
2017
Net Income
 
$
465

 
$
540

 
$
562

 
$
1,115

Other Comprehensive Income (Loss), Net of Tax
 
 
 
 
 
 
 
 
   Unrealized currency translation adjustments
 
(381
)
 
55

 
(264
)
 
322

   Employee postretirement benefits
 
79

 
(1
)
 
79

 
(3
)
   Other
 
29

 
(24
)
 
28

 
(40
)
Total Other Comprehensive Income (Loss), Net of Tax
 
(273
)
 
30

 
(157
)
 
279

Comprehensive Income
 
192

 
570

 
405

 
1,394

   Comprehensive (income) loss attributable to noncontrolling interests
 
1

 
(1
)
 
(4
)
 
(32
)
Comprehensive Income Attributable to Kimberly-Clark Corporation
 
$
193

 
$
569

 
$
401

 
$
1,362

See notes to consolidated financial statements.


4



KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(2018 Data is Unaudited)


(Millions of dollars)
 
June 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
484

 
$
616

Accounts receivable, net
 
2,286

 
2,315

Inventories
 
1,750

 
1,790

Other current assets
 
508

 
490

Total Current Assets
 
5,028

 
5,211

Property, Plant and Equipment, Net
 
7,046

 
7,436

Investments in Equity Companies
 
257

 
233

Goodwill
 
1,504

 
1,576

Other Assets
 
729

 
695

TOTAL ASSETS
 
$
14,564

 
$
15,151

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current Liabilities
 
 
 
 
Debt payable within one year
 
$
1,741

 
$
953

Trade accounts payable
 
2,802

 
2,834

Accrued expenses
 
1,764

 
1,730

Dividends payable
 
348

 
341

Total Current Liabilities
 
6,655

 
5,858

Long-Term Debt
 
5,746

 
6,472

Noncurrent Employee Benefits
 
1,091

 
1,184

Deferred Income Taxes
 
467

 
395

Other Liabilities
 
366

 
299

Redeemable Preferred Securities of Subsidiaries
 
61

 
61

Stockholders' Equity (Deficit)
 
 
 
 
Kimberly-Clark Corporation
 
(57
)
 
629

Noncontrolling Interests
 
235

 
253

Total Stockholders' Equity
 
178

 
882

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
14,564

 
$
15,151

See notes to consolidated financial statements.


5



KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENT
(Unaudited)
 
 
 
Six Months Ended June 30
(Millions of dollars)
 
2018
 
2017
Operating Activities
 
 
 
 
Net income
 
$
562

 
$
1,115

Depreciation and amortization
 
435

 
358

Asset impairments
 
74

 

Stock-based compensation
 
26

 
50

Deferred income taxes
 
17

 
(34
)
Net losses on asset dispositions
 
53

 
10

Equity companies' earnings in excess of dividends paid
 
(25
)
 
(22
)
Operating working capital
 
93

 
(191
)
Postretirement benefits
 
(14
)
 
(8
)
Other
 
108

 
(17
)
Cash Provided by Operations
 
1,329

 
1,261

Investing Activities
 
 
 
 
Capital spending
 
(347
)
 
(386
)
Investments in time deposits
 
(147
)
 
(61
)
Maturities of time deposits
 
94

 
70

Other
 
(12
)
 
(10
)
Cash Used for Investing
 
(412
)
 
(387
)
Financing Activities
 
 
 
 
Cash dividends paid
 
(691
)
 
(674
)
Change in short-term debt
 
104

 
114

Debt proceeds
 

 
344

Debt repayments
 
(4
)
 
(12
)
Proceeds from exercise of stock options
 
22

 
107

Acquisitions of common stock for the treasury
 
(420
)
 
(597
)
Other
 
(41
)
 
(46
)
Cash Used for Financing
 
(1,030
)
 
(764
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
 
(19
)
 
18

Change in Cash and Cash Equivalents
 
(132
)
 
128

Cash and Cash Equivalents - Beginning of Period
 
616

 
923

Cash and Cash Equivalents - End of Period
 
$
484

 
$
1,051

See notes to consolidated financial statements.


6



KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Accounting Policies
Basis of Presentation
The accompanying unaudited 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 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. Dollar amounts are reported in millions, except per share dollar amounts, unless otherwise noted.
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, 2017. The terms "Corporation," "Kimberly-Clark," "K-C," "we," "our" and "us" refer to Kimberly-Clark Corporation and its consolidated subsidiaries.
In prior years, we followed an accounting practice whereby costs associated with sales of K-C Professional dispensers were classified as a reduction in revenue, similar to sales incentives. Effective January 1, 2018, we changed this practice and now classify these costs as cost of products sold. This change resulted in an immaterial increase in net sales and cost of products sold and all applicable amounts included in this filing have been recast accordingly.
Adoption of Highly Inflationary Accounting in Argentina
GAAP guidance requires the use of highly inflationary accounting for countries whose cumulative three-year inflation exceeds 100 percent. We have been closely monitoring the inflation data and currency volatility in Argentina, where there are multiple data sources for measuring and reporting inflation. In the second quarter of 2018, the Argentine peso rapidly devalued relative to the U.S. dollar, which along with increased inflation, indicated that the three-year cumulative inflation in that country exceeded 100 percent as of June 30, 2018. As a result, we have elected to adopt highly inflationary accounting as of July 1, 2018 for our subsidiaries in Argentina (“K-C Argentina”). Under highly inflationary accounting, K-C Argentina’s functional currency became the U.S. dollar, and its income statement and balance sheet will be measured in U.S. dollars using both current and historical rates of exchange.  The effect of changes in exchange rates on peso-denominated monetary assets and liabilities will be reflected in earnings in other (income) and expense, net.  As of June 30, 2018, K-C Argentina had a small net peso monetary position.  Net sales of K-C Argentina were less than 2 percent of our consolidated net sales for the six months ended June 30, 2018 and 2017.
Recently Adopted Accounting Standards
The Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.  This new standard permits entities to reclassify to retained earnings the tax effects stranded in accumulated other comprehensive income ("AOCI") as a result of U.S. tax reform.  We early adopted this ASU as of April 1, 2018 and reclassified $156 of stranded tax effects related to the U.S. tax reform change in the federal corporate tax rate from AOCI to retained earnings.
The FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The standard requires that an employer report the service cost component in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of operating profit (presented as "Nonoperating expense" in our consolidated income statement). We adopted this standard as of January 1, 2018 and applied the amendments retrospectively, and all applicable amounts included in this filing have been recast accordingly. We used the practical expedient that permits us to use the amounts previously disclosed in our employee postretirement benefits note for the prior comparative periods as the basis for applying the retrospective presentation requirements.
The FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. We adopted this ASU effective January 1, 2018 on a full retrospective basis. Adoption of this standard did not result in significant changes to our accounting policies, business processes, systems or controls, or have a material impact on our financial position, results of operations and cash flows or related disclosures. As such, prior period financial statements were not recast. We primarily generate revenue from the sale of finished products and recognize revenue at the time of product shipment or delivery, depending on when control passes. Rebate and promotion accruals are based on estimates of the quantity of customer sales. Promotion accruals also consider estimates of the number of consumer coupons that will be redeemed and timing and costs of activities within the promotional programs. The cost

7



of promotion activities provided to customers is classified as a reduction in sales revenue. Under ASU No. 2014-09, effective January 1, 2018 for interim reporting, the estimated redemption value of consumer coupons and related expense are recorded when the related revenue from customers is recognized.  In prior years, these costs were recognized at the time of coupon issuance.  The impact of this change was not material.
Accounting Standards Issued - Not Yet Adopted
The FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The standard makes more financial and non-financial hedging strategies eligible for hedge accounting, amends the presentation and disclosure requirements and changes how companies assess effectiveness. For public companies, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period. The effects of this standard on our financial position, results of operations and cash flows are not expected to be material.
The FASB issued ASU No. 2016-02, Leases (Topic 842). Under the new guidance, a lessee will be required to recognize assets and liabilities for all leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The ASU requires additional disclosures. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The ASU requires adoption based upon a modified retrospective transition approach. The effects of this standard will be to increase total assets and total liabilities by an amount yet to be determined. The impact on our results of operations and cash flows is not expected to be material.
Note 2.    2018 Global Restructuring Program
On January 23, 2018, we announced the 2018 Global Restructuring Program to reduce our structural cost base by streamlining and simplifying our manufacturing supply chain and overhead organization. We expect to close or sell approximately 10 manufacturing facilities and expand production capacity at several others. We expect to exit or divest some lower-margin businesses that generate approximately 1 percent of our net sales. The sales are concentrated in our consumer tissue business segment. The restructuring is expected to impact our organizations in all major geographies. Workforce reductions are expected to be in the range of 5,000 to 5,500. Certain capital appropriations under the 2018 Global Restructuring Program are being finalized. Accounting for actions related to each appropriation will commence when the appropriation is authorized for execution.
The restructuring is expected to be completed by the end of 2020, with total costs anticipated to be $1.7 billion to $1.9 billion pre-tax ($1.35 billion to $1.5 billion after tax). Cash costs are expected to be $900 to $1.0 billion, primarily related to workforce reductions.  Non-cash charges are expected to be $800 to $900 pre-tax and will primarily consist of incremental depreciation and asset impairments. Restructuring charges in 2018 are expected to be $1.2 billion to $1.35 billion pre-tax ($950 to $1.05 billion after tax).

8



The following charges were incurred in connection with the 2018 Global Restructuring Program:
 
Three Months Ended
June 30, 2018
 
Six Months Ended
June 30, 2018
Cost of products sold:
 
 
 
Charges for workforce reductions
$
6

 
$
125

Asset impairments

 
74

Asset write-offs
31

 
86

Incremental depreciation
40

 
68

Other exit costs
8

 
9

Total
85

 
362

Marketing, research and general expenses:
 
 
 
Charges (adjustments) for workforce reductions
(16
)
 
270

Other exit costs
31

 
45

Total
15

 
315

Nonoperating expense(a)
30

 
30

Total charges
130

 
707

Provision for income taxes
(24
)
 
(167
)
Net charges
106

 
540

Net impact related to equity companies and noncontrolling interests
(4
)
 
(10
)
Net charges attributable to Kimberly-Clark Corporation
$
102

 
$
530

(a)
Represents non-cash pension settlement charges resulting from restructuring actions. 
The asset impairments charge measurement was based on the excess of the carrying value of the impacted asset groups over their fair values. These fair values were measured by using discounted cash flows expected over the limited time the assets would remain in use and as a result, the assets were essentially written off. The use of discounted cash flows represents a level 3 measure under the fair value hierarchy.
The following summarizes the restructuring liabilities activity:
 
 
2018
Restructuring liabilities at January 1
 
$

Charges for workforce reductions and other cash exit costs
 
446

Cash payments
 
(158
)
Currency and other
 
(13
)
Restructuring liabilities at June 30
 
$
275

As of June 30, 2018, restructuring liabilities of $157 are recorded in Accrued expenses and $118 are recorded in Other Liabilities. The cash impact related to restructuring charges is recorded in Operating working capital and Other Operating Activities, as appropriate, in our consolidated cash flow statement.
Note 3. U.S. Tax Reform
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act made changes to the U.S. tax code, which included (1) reduced U.S. corporate tax rate from 35 percent to 21 percent, (2) implemented a base erosion and anti-abuse tax, (3) generally eliminated U.S. federal income taxes on dividends from foreign subsidiaries, (4) a new provision designed to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries which allows for the possibility of utilizing foreign tax credits to offset the tax liability (subject to some limitations), (5) a lower effective U.S. tax rate on certain revenues from sources outside the U.S., and (6) a one-time transition tax on certain undistributed earnings of foreign subsidiaries.
In the period ended December 31, 2017, we recorded a provisional discrete net tax benefit associated with the Tax Act and related matters. In the first quarter of 2018, we recorded discrete net tax expense of $82 primarily related to new guidance issued affecting tax benefits we recorded in fourth quarter 2017 for certain tax planning actions taken in anticipation of the Tax Act.

9



As of June 30, 2018, the amounts recorded for the Tax Act remain provisional for the transition tax, the remeasurement of deferred taxes, and our reassessment of permanently reinvested earnings, uncertain tax positions and valuation allowances. These estimates may be impacted by further analysis and future clarification and guidance regarding available tax accounting methods and elections, earnings and profits computations, state tax conformity to federal tax changes and the impact of the GILTI provisions. At June 30, 2018, we were not able to reasonably estimate, and therefore have not recorded, deferred taxes for the GILTI provisions. We have not yet determined our policy election with respect to whether to record deferred taxes for basis differences expected to reverse as a result of the GILTI provisions in future periods or use the period cost method. We have, however, included an estimate of the current GILTI impact in our tax provision for 2018.
Note 4. Fair Value Information
The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:
Level 1 – Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.
Level 2 – Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3 – Prices or valuations that require inputs that are significant to the valuation and are unobservable.
A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
During the six months ended June 30, 2018 and for the full year 2017, there were no significant transfers among level 1, 2, or 3 fair value determinations.
Derivative assets and liabilities are measured on a recurring basis at fair value. At June 30, 2018 and December 31, 2017, derivative assets were $39 and $27, respectively, and derivative liabilities were $63 and $51, respectively. 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 values of hedging instruments used to manage foreign currency risk are based on published quotations of spot currency rates and forward points, which are converted into implied forward currency rates. Measurement of our derivative assets and liabilities is considered a level 2 measurement. Additional information on our classification and use of derivative instruments is contained in Note 7.
Redeemable preferred securities of subsidiaries are measured on a recurring basis at fair value and were $61 at both June 30, 2018 and December 31, 2017. They are not traded in active markets. For certain redeemable securities, fair values were calculated using a floating rate pricing model that compared the stated spread to the fair value spread to determine the price at which each of the financial instruments should trade. The model used the following inputs to calculate fair values: face value, current LIBOR rate, unobservable fair value credit spread, stated spread, maturity date and interest or dividend payment dates. The fair values of the remaining redeemable securities were based on a discounted cash flow valuation model. Measurement of the redeemable preferred securities is considered a level 3 measurement.
Company-owned life insurance ("COLI") assets are measured on a recurring basis at fair value. COLI assets were $69 and $68 at June 30, 2018 and December 31, 2017, respectively. The COLI policies are a source of funding primarily for our nonqualified employee benefits and are included in other assets. The COLI policies are measured at fair value using the net asset value per share practical expedient, and therefore, are not classified in the fair value hierarchy.

10



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, 2018
 
December 31, 2017
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents(a)
1
 
$
484

 
$
484

 
$
616

 
$
616

Time deposits(b)
1
 
229

 
229

 
185

 
185

Liabilities and redeemable securities of subsidiaries
 
 
 
 
 
 
 
 
 
Short-term debt(c)
2
 
638

 
638

 
547

 
547

Long-term debt(d)
2
 
6,849

 
7,102

 
6,878

 
7,398

(a)
Cash equivalents are composed 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 are composed of deposits with original maturities of more than 90 days but less than one year and instruments with original maturities of greater than one year, included in other current assets or other assets in the consolidated balance sheet, as appropriate. Time deposits are recorded at cost, which approximates fair value.
(c)
Short-term debt is composed of U.S. commercial paper and/or other similar short-term debt issued by non-U.S. subsidiaries, all of which are recorded at cost, which approximates fair value.
(d)
Long-term debt includes the current portion 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.
Note 5. Earnings Per Share ("EPS")
There are no adjustments required to be made to net income for purposes of computing 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)
 
2018
 
2017
 
2018
 
2017
Basic
 
348.8

 
354.4

 
349.6

 
355.2

Dilutive effect of stock options and restricted share unit awards
 
1.5

 
2.3

 
1.7

 
2.4

Diluted
 
350.3

 
356.7

 
351.3

 
357.6

The impact of options outstanding that were not included in the computation of diluted EPS because their exercise price was greater than the average market price of the common shares was insignificant. The number of common shares outstanding as of June 30, 2018 and 2017 was 347.9 million and 353.4 million, respectively.
Note 6. Stockholders' Equity (Deficit)
Set forth below is a reconciliation for the six months ended June 30, 2018 of the carrying amount of total stockholders' equity from the beginning of the period to the end of the period.
 
 
Stockholders' Equity (Deficit) Attributable to
 
 
The Corporation
 
Noncontrolling Interests
Balance at December 31, 2017
 
$
629

 
$
253

Net Income
 
548

 
12

Other comprehensive income, net of tax
 
(147
)
 
(10
)
Stock-based awards exercised or vested
 
24

 

Recognition of stock-based compensation
 
25

 

Shares repurchased
 
(447
)
 

Dividends declared
 
(699
)
 
(20
)
Other
 
10

 

Balance at June 30, 2018
 
$
(57
)
 
$
235

During the six months ended June 30, 2018, we repurchased 3.9 million shares at a total cost of $427 pursuant to a share repurchase program authorized by our Board of Directors.

11



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 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 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.
The change in net unrealized currency translation for the six months ended June 30, 2018 was primarily due to the weakening of most foreign currencies versus the U.S. dollar, including the Brazilian real, Australian dollar and South Korean won.
The changes in the components of AOCI attributable to Kimberly-Clark, net of tax, are as follows:
 
 
Unrealized Translation
 
Defined Benefit Pension Plans
 
Other Postretirement Benefit Plans
 
Cash Flow Hedges and Other
Balance as of December 31, 2016
 
$
(2,351
)
 
$
(1,097
)
 
$
(31
)
 
$
5

Other comprehensive income (loss) before reclassifications
 
310

 
(17
)
 

 
(37
)
(Income) loss reclassified from AOCI
 

 
15

(a)

 
(3
)
Net current period other comprehensive income (loss)
 
310

 
(2
)
 

 
(40
)
Balance as of June 30, 2017
 
$
(2,041
)
 
$
(1,099
)
 
$
(31
)
 
$
(35
)
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
 
$
(1,864
)
 
$
(976
)
 
$
(39
)
 
$
(40
)
Other comprehensive income (loss) before reclassifications
 
(254
)
 
27

 
13

 
15

(Income) loss reclassified from AOCI
 
1

 
39

(a)
(1
)
(a)
13

Net current period other comprehensive income (loss)
 
(253
)
 
66

 
12

 
28

Tax effects reclassified from AOCI
 
(18
)
 
(125
)
 
(5
)
 
(8
)
Balance as of June 30, 2018
 
$
(2,135
)
 
$
(1,035
)
 
$
(32
)
 
$
(20
)
(a)
Included in computation of net periodic benefit costs.
Note 7. 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, and commodity prices. We employ a number of practices to manage these risks, including operating and financing activities and, where appropriate, the use of derivative instruments. We enter into derivative instruments to hedge a portion of forecasted cash flows denominated in foreign currencies for non-U.S. operations' purchases of raw materials, which are priced in U.S. dollars, and imports of intercompany finished goods and work-in-process priced predominantly in U.S. dollars and euros. The derivative instruments used to manage these exposures are designated and qualify as cash flow hedges. The foreign currency exposure on certain non-functional currency denominated monetary assets and liabilities, primarily intercompany loans and accounts payable, is hedged with primarily undesignated derivative instruments.
Interest rate risk is managed using a portfolio of variable and fixed-rate debt composed of short and long-term instruments. Interest rate swap contracts may be used to facilitate the maintenance of the desired ratio of variable and fixed-rate debt and are designated and qualify as fair value hedges. From time to time, we also hedge the anticipated issuance of fixed-rate debt, and these contracts are designated as cash flow hedges.
We use derivative instruments, such as forward swap contracts, to hedge a limited portion of our exposure to market risk arising from changes in prices of certain commodities. These derivatives are designated as cash flow hedges of specific quantities of the underlying commodity expected to be purchased in future months.
Translation adjustments result from translating foreign entities' financial statements into 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 borrowings. A portion of our balance sheet translation exposure for certain affiliates, which results from changes in translation rates between the affiliates’ functional currencies and the U.S. dollar, is hedged with financial instruments. These instruments are

12



designated as net investment hedges and have an aggregate notional value of $808 at June 30, 2018. Changes in fair value of net investment hedges are recorded in AOCI as part of the cumulative translation adjustment.
At June 30, 2018 and December 31, 2017, derivative assets were $39 and $27, respectively, and derivative liabilities were $63 and $51, respectively, primarily comprised of foreign currency exchange contracts.
Derivative instruments that are designated and qualify as fair value hedges are predominantly used to manage interest rate risk. The fair values of these derivative 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. As of June 30, 2018, the aggregate notional value of outstanding interest rate contracts designated as fair value hedges was $300. Fair value hedges resulted in no significant ineffectiveness in the six months ended June 30, 2018 and 2017, and gains or losses recognized in interest expense for interest rate swaps were not significant. For the six months ended June 30, 2018 and 2017, no gains or losses were recognized in earnings as a result of a hedged firm commitment no longer qualifying as a fair value hedge.
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. As of June 30, 2018, outstanding commodity forward contracts were in place to hedge a limited portion of our estimated requirements of the related underlying commodities in the remainder of 2018 and future periods. As of June 30, 2018, the aggregate notional values of outstanding foreign exchange and interest rate derivative contracts designated as cash flow hedges were $699 and $100, respectively. Cash flow hedges resulted in no significant ineffectiveness for the six months ended June 30, 2018 and 2017, and no significant 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, 2018, amounts to be reclassified from AOCI during the next twelve months are not expected to be material. The maximum maturity of cash flow hedges in place at June 30, 2018 is June 2020.
Gains or losses on undesignated foreign exchange hedging instruments are immediately recognized in other (income) and expense, net. A loss of $40 and a gain of $19 were recorded in the three months ended June 30, 2018 and 2017, respectively. A loss of $37 and a gain of $16 were recorded in the six months ended June 30, 2018 and 2017, respectively. The effect on earnings from the use of these non-designated derivatives is substantially neutralized by the transactional gains and losses recorded on the underlying assets and liabilities. At June 30, 2018, the notional value of these undesignated derivative instruments was approximately $2.3 billion.
Note 8. Business Segment Information
We are 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 K-C Professional. The reportable segments were determined in accordance with how our chief operating decision maker and 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 ongoing operations of the business segments, including the costs of corporate decisions related to the 2018 Global Restructuring Program described in Note 2.
The principal sources of revenue in each global business segment are described below:
Personal Care brands offer our consumers a trusted partner in caring for themselves and their families by delivering confidence, protection and discretion 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, DryNites, Kotex, U by Kotex, Intimus, Depend, Plenitud, 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, Neve and other brand names.
K-C Professional partners with businesses to create Exceptional Workplaces, helping to make them healthier, safer and more productive through a range of solutions and supporting products such as wipers, tissue, towels, apparel, soaps and sanitizers. Our brands, including Kleenex, Scott, WypAll, Kimtech and Jackson Safety, are well-known for quality and trusted to help people around the world work better.

13



Information concerning consolidated operations by business segment is presented in the following tables:
 
 
Three Months Ended June 30
 
 
 
Six Months Ended June 30
 
 
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
NET SALES
 
 
 
 
 
 
 
 
 
 
 
 
Personal Care
 
$
2,257

 
$
2,270

 
-1
 %
 
$
4,564

 
$
4,520

 
+1
 %
Consumer Tissue
 
1,472

 
1,463

 
+1
 %
 
3,051

 
2,918

 
+5
 %
K-C Professional
 
861

 
832

 
+3
 %
 
1,693

 
1,621

 
+4
 %
Corporate & Other
 
14

 
11

 
N.M.

 
27

 
21

 
N.M.

TOTAL NET SALES
 
$
4,604

 
$
4,576

 
+1
 %
 
$
9,335

 
$
9,080

 
+3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING PROFIT
 
 
 
 
 
 
 
 
 
 
 
 
Personal Care
 
$
461

 
$
474

 
-3
 %
 
$
931

 
$
961

 
-3
 %
Consumer Tissue
 
207

 
245

 
-16
 %
 
456

 
525

 
-13
 %
K-C Professional
 
165

 
166

 
-1
 %
 
323

 
315

 
+3
 %
Corporate & Other(a)
 
(149
)
 
(68
)
 
N.M.

 
(781
)
 
(131
)
 
N.M.

Other (income) and expense, net(a)
 
10

 
3

 
+233
 %
 
8

 
8

 

TOTAL OPERATING PROFIT
 
$
674

 
$
814

 
-17
 %
 
$
921

 
$
1,662

 
-45
 %
(a)
Corporate & Other and Other (income) and expense, net include income and expense not associated with the business segments, including charges related to the 2018 Global Restructuring Program. Restructuring charges related to the personal care, consumer tissue and K-C Professional business segments were $401, $159 and $101, respectively, for the six months ended June 30, 2018.
N.M. - Not Meaningful
Sales of Principal Products
 
 
Three Months Ended June 30
 
Six Months Ended June 30
(Billions of dollars)
 
2018
 
2017
 
2018
 
2017
Consumer tissue products
 
$
1.5

 
$
1.5

 
$
3.1

 
$
2.9

Baby and child care products
 
1.6

 
1.6

 
3.2

 
3.2

Away-from-home professional products
 
0.9

 
0.8

 
1.7

 
1.6

All other
 
0.6

 
0.7

 
1.3

 
1.4

Consolidated
 
$
4.6

 
$
4.6

 
$
9.3

 
$
9.1

Note 9. Supplemental Balance Sheet Data
The following schedule presents a summary of inventories by major class:
 
 
June 30, 2018
 
December 31, 2017
 
 
LIFO
 
Non-LIFO
 
Total
 
LIFO
 
Non-LIFO
 
Total
Raw materials
 
$
86

 
$
247

 
$
333

 
$
87

 
$
258

 
$
345

Work in process
 
108

 
99

 
207

 
110

 
103

 
213

Finished goods
 
453

 
654

 
1,107

 
421

 
684

 
1,105

Supplies and other
 

 
280

 
280

 

 
303

 
303

 
 
647

 
1,280

 
1,927

 
618

 
1,348

 
1,966

Excess of FIFO or weighted-average cost over LIFO cost
 
(177
)
 

 
(177
)
 
(176
)
 

 
(176
)
Total
 
$
470

 
$
1,280

 
$
1,750

 
$
442

 
$
1,348

 
$
1,790

Inventories are valued at the lower of cost or net realizable value, determined on the FIFO or weighted-average cost methods, and at the lower of cost or market, determined on the LIFO cost method.

14



The following schedule presents a summary of property, plant and equipment, net:
 
June 30, 2018
 
December 31, 2017
Land
$
169

 
$
173

Buildings
2,791

 
2,830

Machinery and equipment
14,120

 
14,612

Construction in progress
383

 
300

 
17,463

 
17,915

Less accumulated depreciation
(10,417
)
 
(10,479
)
Total
$
7,046

 
$
7,436


15



Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Introduction
This management's discussion and analysis ("MD&A") 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 2018 Results
Results of Operations and Related Information
Liquidity and Capital Resources
Business Outlook
We describe our business outside North America in two groups – Developing and Emerging Markets ("D&E") and Developed Markets. D&E markets comprise Eastern Europe, the Middle East and Africa, Latin America and Asia-Pacific, excluding Australia and South Korea. Developed Markets consist of Western and Central Europe, Australia and South Korea.
This section presents a discussion and analysis of our second quarter 2018 net sales, operating profit and other information relevant to an understanding of the results of operations. In addition, we provide commentary regarding organic sales growth, which describes the impact of changes in volume, net selling prices and product mix on net sales. Changes in foreign currency exchange rates and acquisitions and divestitures also impact the year-over-year change in net sales. Our analysis compares the three and six months ended June 30, 2018 results to the same periods in 2017.
Effective January 1, 2018, we adopted ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, and accordingly classify the other components of net benefit costs separately from the service cost component and outside of operating profit (presented as "Nonoperating expense" in our consolidated income statement). Prior periods have been recast for the adoption of this standard.
In prior years, we followed an accounting practice whereby costs associated with sales of K-C Professional dispensers were classified as a reduction in revenue, similar to sales incentives. Effective January 1, 2018, we changed this practice and now classify these costs as cost of products sold. This change resulted in an immaterial increase in net sales and cost of products sold and all applicable prior period amounts have been recast accordingly.
Throughout this MD&A, we refer to financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S., or GAAP, and are therefore referred to as non-GAAP financial measures. These measures include adjusted gross and operating profit, adjusted net income, adjusted earnings per share, adjusted other (income) and expense, net and adjusted effective tax rate. We believe these measures provide our investors with additional information about our underlying results and trends, as well as insight into some of the financial measures used to evaluate management.
Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measures, and they should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.  There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items being excluded.  We compensate for these limitations by using these non-GAAP financial measures as a supplement to the GAAP measures and by providing reconciliations of the non-GAAP and comparable GAAP financial measures.
The non-GAAP financial measures exclude the following items for the relevant time periods as indicated in the reconciliations included later in this MD&A:
2018 Global Restructuring Program - In 2018, we initiated this restructuring program to reduce our structural cost base by streamlining and simplifying our manufacturing supply chain and overhead organization. Results in 2018 include charges related to this program. See Note 2 to the consolidated financial statements for details.
U.S. Tax Reform Related Matters - In the first quarter of 2018, we recognized a net charge associated with U.S. tax reform related matters. See Note 3 to the consolidated financial statements for details.
Overview of Second Quarter 2018 Results
Net sales of $4.6 billion increased 1 percent compared to the year-ago period. Changes in foreign currency exchange rates benefited sales by 1 percent while organic sales were even year-on-year.

16



Operating profit was $674 in 2018 and $814 in 2017. Net income attributable to Kimberly-Clark Corporation was $455 in 2018 compared to $531 in 2017, and diluted earnings per share were $1.30 in 2018 and $1.49 in 2017. Results in 2018 include charges related to the 2018 Global Restructuring Program.
Results of Operations and Related Information
This section presents a discussion and analysis of our second quarter 2018 net sales, operating profit and other information relevant to an understanding of the results of operations.
Consolidated
Selected Financial Results
Three Months Ended June 30
 
Six Months Ended June 30
 
2018
 
2017
 
Percent Change
 
2018
 
2017
 
Percent Change
Net Sales:
 
 
 
 

 
 
 
 
 

North America
$
2,347

 
$
2,379

 
-1
 %
 
$
4,732

 
$
4,703

 
+1
 %
Outside North America
2,335

 
2,279

 
+2
 %
 
4,757

 
4,542

 
+5
 %
Intergeographic sales
(78
)
 
(82
)
 
N.M.

 
(154
)
 
(165
)
 
N.M.

Total Net Sales
4,604

 
4,576

 
+1
 %
 
9,335

 
9,080

 
+3
 %
Operating Profit:
 
 
 
 
 
 
 
 
 
 
 
North America
571

 
574

 
-1
 %
 
1,124

 
1,154

 
-3
 %
Outside North America
262

 
311

 
-16
 %
 
586

 
647

 
-9
 %
Corporate & Other(a)
(149
)
 
(68
)
 
N.M.

 
(781
)
 
(131
)
 
N.M.

Other (income) and expense, net(a)
10

 
3

 
+233
 %
 
8

 
8

 

Total Operating Profit
674

 
814

 
-17
 %
 
921

 
1,662

 
-45
 %
Share of net income of equity companies
30

 
26

 
+15
 %
 
57

 
55

 
+4
 %
Net Income Attributable to Kimberly-Clark Corporation
455

 
531

 
-14
 %
 
548

 
1,094

 
-50
 %
Diluted Earnings per Share
1.30

 
1.49

 
-13
 %
 
1.56

 
3.06

 
-49
 %
(a)
Corporate & Other and Other (income) and expense, net include income and expense not associated with the business segments, including adjustments as indicated in the Non-GAAP Reconciliations.
N.M. - Not Meaningful
GAAP to Non-GAAP Reconciliations of Selected Financial Results
 
 
Three Months Ended June 30, 2018
 
 
As
Reported
 
2018 Global
Restructuring
Program
 
As
Adjusted
Non-GAAP
Cost of products sold
 
$
3,149

 
$
85

 
$
3,064

Gross Profit
 
1,455

 
(85
)
 
1,540

Marketing, research and general expenses
 
771

 
15

 
756

Operating Profit
 
674

 
(100
)
 
774

Nonoperating expense
 
(36
)
 
(30
)
 
(6
)
Provision for income taxes
 
(138
)
 
24

 
(162
)
Effective tax rate
 
24.1
%
 

 
23.0
%
Share of net income of equity companies
 
30

 
2

 
28

Net income attributable to noncontrolling interests
 
(10
)
 
2

 
(12
)
Net Income Attributable to Kimberly-Clark Corporation
 
455

 
(102
)
 
557

Diluted Earnings per Share
 
1.30

 
(0.29
)
 
1.59




17



 
 
Six Months Ended June 30, 2018
 
 
As
Reported
 
2018 Global
Restructuring
Program
 
U.S. Tax Reform
Related Matters
 
As
Adjusted
Non-GAAP
Cost of products sold
 
$
6,556

 
$
362

 
$

 
$
6,194

Gross Profit
 
2,779

 
(362
)
 

 
3,141

Marketing, research and general expenses
 
1,850

 
315

 

 
1,535

Operating Profit
 
921

 
(677
)
 

 
1,598

Nonoperating expense
 
(45
)
 
(30
)
 

 
(15
)
Provision for income taxes
 
(242
)
 
167

 
(82
)
 
(327
)
Effective tax rate
 
32.4
%
 

 

 
22.5
%
Share of net income of equity companies
 
57

 
(1
)
 

 
58

Net income attributable to noncontrolling interests
 
(14
)
 
11

 

 
(25
)
Net Income Attributable to Kimberly-Clark Corporation
 
548

 
(530
)
 
(82
)
 
1,160

Diluted Earnings per Share
 
1.56

 
(1.51
)
 
(0.23
)
 
3.30



Analysis of Consolidated Results
Net Sales
 
Percent Change
 
Adjusted Operating Profit
 
Percent Change
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
Volume
 
(1
)
 
1

 
Volume
 
(2
)
 
2

Net Price
 
(1
)
 
(1
)
 
Net Price
 
(3
)
 
(4
)
Mix/Other
 
1

 

 
Input Costs
 
(25
)
 
(23
)
Acquisition
 

 

 
Cost Savings(c)
 
18

 
14

Currency
 
1

 
2

 
Currency Translation
 
1

 
1

Total(a)
 
1

 
3

 
Other(d)
 
6

 
6

Organic(b)
 

 
1

 
Total
 
(5
)
 
(4
)
(a) Total may not equal the sum of volume, net price, mix/other, acquisition and currency due to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Combined benefits of the FORCE (Focused On Reducing Costs Everywhere) program and 2018 Global Restructuring Program.
(d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Net sales of $4.6 billion in the second quarter of 2018 increased 1 percent compared to the year-ago period. Changes in foreign currency exchange rates benefited sales by 1 percent. Organic sales were even year-on-year. Changes in product mix improved sales by 1 percent, while sales volumes decreased approximately 1 percent and changes in net selling prices decreased sales slightly. In North America, organic sales decreased 2 percent in consumer products and increased 2 percent in K-C Professional. Outside North America, organic sales increased 1 percent in D&E markets and also in developed markets.
Operating profit in the second quarter of 2018 was $674, including charges related to the 2018 Global Restructuring Program. Adjusted operating profit was $774 in 2018 compared to operating profit of $814 in 2017. Results were impacted by $200 of higher input costs, driven by $125 in pulp and $45 in other raw materials. The operating profit comparison was also affected by lower net selling prices and sales volumes. On the other hand, results benefited from $110 of cost savings from our FORCE program and $40 of cost savings from the 2018 Global Restructuring Program. In addition, the comparison benefited from improved product mix and reduced marketing, research and general spending, including lower general and administrative costs.
The second quarter effective tax rate was 24.1 percent in 2018 and 28.2 percent in 2017. The adjusted effective tax rate was 23.0 percent in the second quarter of 2018. The comparison benefited from U.S. tax reform, along with resolution of certain tax matters.
Our share of net income of equity companies in the second quarter was $30 in 2018 and $26 in 2017. Kimberly-Clark de Mexico, S.A.B. de C.V. ("K-C de Mexico") results benefited from sales growth and cost savings, but were negatively impacted by higher input costs.

18



Diluted net income per share for the second quarter of 2018 was $1.30. Second quarter adjusted earnings per share were $1.59 in 2018, an increase of 7 percent compared to diluted net income per share of $1.49 in 2017.
Year-to-date net sales of $9.3 billion increased 3 percent compared to the year ago period, as changes in foreign currency exchange rates were favorable by 2 percent. Organic sales increased 1 percent. Sales volumes increased more than 1 percent and changes in product mix improved sales slightly, while changes in net selling prices decreased sales by about 1 percent. Year-to-date operating profit was $921 in 2018, including charges related to the 2018 Global Restructuring Program. Adjusted operating profit was $1,598 in 2018 compared to operating profit of $1,662 in 2017. The comparison was impacted by $375 of higher input costs and lower net selling prices. Results benefited from sales volume growth, $200 of FORCE cost savings, $40 of cost savings from the 2018 Global Restructuring Program and reduced marketing, research and general spending. Diluted net income per share was $1.56 in 2018. Year-to-date adjusted earnings per share were $3.30 in 2018, an increase of 8 percent compared to diluted net income per share of $3.06 in 2017.
Results by Business Segments
Personal Care
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 


 
Three Months Ended June 30
 
Six Months Ended June 30
 
 
2018
 
2017
 
2018
 
2017
 
 
 
2018
 
2017
 
2018
 
2017
Net Sales
 
$
2,257

 
$
2,270

 
$
4,564

 
$
4,520

 
Operating Profit
 
$
461

 
$
474

 
$
931

 
$
961

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
Percent Change
 
Percent Change
 
Operating Profit
 
Percent Change
 
Percent Change
Volume
 

 
 
 
1

 
Volume
 

 
 
 
1

Net Price
 
(2
)
 
 
 
(2
)
 
Net Price
 
(10
)
 
 
 
(10
)
Mix/Other
 
1

 
 
 
1

 
Input Costs
 
(12
)
 
 
 
(12
)
Acquisition
 

 
 
 
1

 
Cost Savings(c)
 
16

 
 
 
13

Currency
 

 
 
 
1

 
Currency Translation
 

 
 
 
1

Total(a)
 
(1
)
 
 
 
1

 
Other(d)
 
3

 
 
 
4

Organic(b)
 
(1
)
 
 
 

 
Total
 
(3
)
 
 
 
(3
)
(a) Total may not equal the sum of volume, net price, mix/other, acquisition and currency due to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Combined benefits of the FORCE program and 2018 Global Restructuring Program.
(d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Second quarter net sales of $2.3 billion decreased 1 percent. Changes in net selling prices decreased sales by 2 percent, while changes in product mix improved sales by 1 percent. Second quarter operating profit of $461 decreased 3 percent. The comparison was impacted by input cost inflation and lower net selling prices, while results benefited from cost savings, reduced marketing, research and general spending and favorable product mix.
Net sales in North America decreased 1 percent. Changes in net selling prices decreased sales by nearly 3 percent, including higher promotion spending to support innovations and growth initiatives, while sales volumes increased 2 percent. Volumes were up double-digits in adult care, including benefits from innovations and category growth. Volumes were similar year-on-year in Huggies diapers, baby wipes and child care.
Net sales in D&E markets decreased 1 percent. Changes in currency rates were unfavorable by 2 percent while the acquisition of our joint venture in India benefited sales by 1 percent. Changes in product mix improved sales by 2 percent while net selling prices decreased sales by 2 percent. Sales volumes were even year-on-year, including increases in Eastern Europe and declines in China and Argentina.
Net sales in developed markets outside North America increased 1 percent, including a 5 percent benefit from favorable currency rates. Sales volumes decreased 3 percent, driven by South Korea, and the combined impact of changes in net selling prices and product mix decreased sales by 1 percent.

19



Consumer Tissue
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 


 
Three Months Ended June 30
 
Six Months Ended June 30
 
 
2018
 
2017
 
2018
 
2017
 
 
 
2018
 
2017
 
2018
 
2017
Net Sales
 
$
1,472

 
$
1,463

 
$
3,051

 
$
2,918

 
Operating Profit
$
207

 
$
245

 
$
456

 
$
525

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
Percent Change
 
Percent Change
 
Operating Profit
 
Percent Change
 
Percent Change
Volume
 
(3
)
 
 
 
2

 
Volume
 
(10
)
 
 
 
3

Net Price
 
2

 
 
 
1

 
Net Price
 
9

 
 
 
4

Mix/Other
 
1

 
 
 

 
Input Costs
 
(44
)
 
 
 
(40
)
Acquisition
 

 
 
 

 
Cost Savings(c)
 
20

 
 
 
15

Currency
 
2

 
 
 
2

 
Currency Translation
 
1

 
 
 
2

Total(a)
 
1

 
 
 
5

 
Other(d)
 
8

 
 
 
3

Organic(b)
 
(1
)
 
 
 
2

 
Total
 
(16
)
 
 
 
(13
)
(a) Total may not equal the sum of volume, net price, mix/other, acquisition and currency due to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Combined benefits of the FORCE program and 2018 Global Restructuring Program.
(d) Includes impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Second quarter net sales of $1.5 billion increased 1 percent. Changes in currency rates benefited sales by 2 percent. Sales volumes decreased 3 percent, while changes in net selling prices increased sales by approximately 2 percent and product mix improved sales slightly. Second quarter operating profit of $207 decreased 16 percent. The comparison was impacted by input cost inflation and lower volumes. Results benefited from cost savings, higher net selling prices, reduced marketing, research and general spending and favorable product mix.
Net sales in North America decreased 4 percent, driven by changes in the timing of promotion shipments, along with lower sales in facial tissue. Sales volumes decreased 6 percent, while changes in net selling prices and product mix each improved sales by 1 percent.
Net sales in D&E markets were even year-on-year. Changes in net selling prices increased sales by 2 percent and product mix increased sales by 1 percent, while sales volumes decreased 3 percent. The changes in net selling prices and volumes occurred primarily in Latin America.
Net sales in developed markets outside North America increased 12 percent. Changes in currency rates benefited sales by 7 percent, mostly in Western/Central Europe. Sales volumes increased 3 percent and net selling prices increased sales by 2 percent.

20



K-C Professional
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 


 
Three Months Ended June 30
 
Six Months Ended June 30
 
 
2018
 
2017
 
2018
 
2017
 
 
 
2018
 
2017
 
2018
 
2017
Net Sales
 
$
861

 
$
832

 
$
1,693

 
$
1,621

 
Operating Profit
$
165

 
$
166

 
$
323

 
$
315

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
Percent Change
 
Percent Change
 
Operating Profit
 
Percent Change
 
Percent Change
Volume
 
1

 
 
 
1

 
Volume
 
3

 
 
 
2

Net Price
 

 
 
 

 
Net Price
 

 
 
 
1

Mix/Other
 
1

 
 
 
1

 
Input Costs
 
(20
)
 
 
 
(16
)
Acquisition
 

 
 
 

 
Cost Savings(c)
 
14

 
 
 
10

Currency
 
2

 
 
 
2

 
Currency Translation
 
1

 
 
 
2

Total(a)
 
3

 
 
 
4

 
Other(d)
 
1

 
 
 
4

Organic(b)
 
2

 
 
 
2

 
Total
 
(1
)
 
 
 
3

(a) Total may not equal the sum of volume, net price, mix/other, acquisition and currency due to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Combined benefits of the FORCE program and 2018 Global Restructuring Program.
(d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Second quarter net sales of $0.9 billion increased more than 3 percent. Changes in currency rates benefited sales by approximately 2 percent. Sales volumes and changes in product mix each increased sales by 1 percent. Second quarter operating profit of $165 decreased 1 percent. The comparison was impacted by input cost inflation, mostly offset by cost savings, volume growth and favorable product mix.
Net sales in North America increased 2 percent. Sales volumes increased 2 percent, with growth in all major product categories.
Net sales in D&E markets increased 3 percent. Sales volumes increased 2 percent, driven by Asia-Pacific, and changes in net selling prices increased sales by 1 percent.
Net sales in developed markets outside North America increased 7 percent. Changes in currency rates benefited sales by approximately 7 percent, mostly in Western/Central Europe. Changes in product mix increased sales by 1 percent.
2018 Global Restructuring Program
On January 23, 2018, we announced the 2018 Global Restructuring Program to reduce our structural cost base by streamlining and simplifying our manufacturing supply chain and overhead organization.  We expect to close or sell approximately 10 manufacturing facilities and expand production capacity at several others. We expect to exit or divest some lower-margin businesses that generate approximately 1 percent of our net sales. The sales are concentrated in our consumer tissue business segment. The restructuring is expected to impact our organizations in all major geographies. Workforce reductions are expected to be in the range of 5,000 to 5,500. Certain capital appropriations under the 2018 Global Restructuring Program are being finalized. Accounting for actions related to each appropriation will commence when the appropriation is authorized for execution.
The restructuring is expected to be completed by the end of 2020, with total costs anticipated to be $1.7 billion to $1.9 billion pre-tax ($1.35 billion to $1.5 billion after tax). Cash costs are expected to be $900 to $1.0 billion, primarily related to workforce reductions.  Non-cash charges are expected to be $800 to $900 pre-tax and will primarily consist of incremental depreciation and asset impairments. Annual pre-tax savings from the restructuring are expected to be $500 to $550 by 2021. In addition, to implement this program, we expect to incur incremental capital spending of approximately $600 to $700 by the end of 2020. Restructuring charges in 2018 are expected to be $1.2 billion to $1.35 billion pre-tax ($950 to $1.05 billion after tax).
Second quarter restructuring cash charges were $28 pre-tax, non-cash charges were $102 pre-tax and total net restructuring charges were $102 after tax. For the six months ended June 30, 2018, cash charges were $446 pre-tax, non-cash charges were $261 pre-tax and total restructuring charges were $530 after tax. Second quarter non-cash charges primarily related to incremental depreciation, asset write-offs and pension settlement charges. Savings for the first six months of 2018 were $40. We expect to generate full year savings of $100 to $120 in 2018.

21



Liquidity and Capital Resources
Cash Provided by Operations
Cash provided by operations was $1,329 for the first six months of 2018, compared to $1,261 in the prior year. The increase was mainly due to lower tax payments in 2018, partially offset by payments for restructuring charges.
Financing
Our short-term debt, which consists of U.S. commercial paper with original maturities up to 90 days and/or other similar short-term debt issued by non-U.S. subsidiaries, was $638 as of June 30, 2018 (included in debt payable within one year on the consolidated balance sheet). The average month-end balance of short-term debt for the second quarter of 2018 was $794. These short-term borrowings provide supplemental funding for supporting our operations. The level of short-term debt 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.
At June 30, 2018 and December 31, 2017, total debt was $7.5 billion and $7.4 billion, respectively.
In June 2018, we entered into a $2.0 billion revolving credit facility which expires in June 2023 and a $500 revolving credit facility which expires in June 2019.  These facilities, currently unused, replaced a similar $2.0 billion facility, support our commercial paper program, and would provide liquidity in the event our access to the commercial paper markets is unavailable for any reason.
We repurchase shares of Kimberly-Clark common stock from time to time pursuant to publicly announced share repurchase programs. During the first six months of 2018, we repurchased 3.9 million shares of our common stock at a cost of $427 through a broker in the open market. We are targeting full-year 2018 share repurchases of $700 to $900, subject to market conditions.
Our subsidiaries in Argentina (“K-C Argentina”) began accounting for their operations as highly inflationary effective July 1, 2018, as required by GAAP.  Under highly inflationary accounting, K-C Argentina’s functional currency became the U.S. dollar, and its income statement and balance sheet will be measured in U.S. dollars using both current and historical rates of exchange.  The effect of changes in exchange rates on peso-denominated monetary assets and liabilities will be reflected in earnings in other (income) and expense, net.  As of June 30, 2018, K-C Argentina had a small net peso monetary position.  Net sales of K-C Argentina were less than 2 percent of our consolidated net sales for the six months ended June 30, 2018 and 2017.
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, payments for our 2018 Global Restructuring Program, capital spending, dividends and other needs for the foreseeable future. Further, we do not expect restrictions or taxes on repatriation of cash held outside of the U.S. to have a material effect on our overall business, liquidity, financial condition or results of operations for the foreseeable future.
Business Outlook
In 2018, we plan to continue to execute our Global Business Plan strategies, which include a focus on targeted growth initiatives, innovation and brand building, cost savings programs and shareholder-friendly capital allocation. In 2018, we expect earnings per share to be $3.37 to $3.87. Adjusted earnings per share are expected to be $6.60 to $6.80 (prior estimate was $6.90 to $7.20), which excludes 2018 Global Restructuring Program charges equivalent to $2.70 to $3.00 and U.S. tax reform related net charge impact of $0.23. Our adjusted earnings per share guidance is based on the assumptions described below:
We expect net sales similar, to up 1 percent, year-on-year (prior assumption reported in our first quarter Form 10-Q was an increase of 2 to 3 percent). We anticipate changes in foreign currency exchange rates to have a neutral to 1 percent negative impact on net sales (previous estimate was 1 to 2 percent positive impact).
We expect organic sales to increase approximately 1 percent.
We expect adjusted operating profit decline of 2 to 5 percent (prior estimate growth of 2 to 5 percent).
We expect inflation in key cost inputs of $675 to $775 (previous estimate of $400 to $550). The update reflects higher assumptions for pulp costs in particular, and secondarily other raw materials.
We plan to achieve cost savings of $425 to $450 from the FORCE program. The prior target was for savings of approximately $400.
We plan to achieve cost savings of approximately $100 to $120 from the 2018 Global Restructuring Program (previous estimate was $50 to $70).
We expect the adjusted effective tax rate to be at the low end of the 23 to 26 percent target range.

22



Information Concerning Forward-Looking Statements
Certain matters contained in this report concerning the business outlook, including the anticipated cost savings from our FORCE program, charges and savings from the 2018 Global Restructuring Program, cash flow and uses of cash, growth initiatives, innovations, marketing and other spending, net sales, anticipated currency rates and exchange risks, including the impact in Argentina, raw material, energy and other input costs, effective tax rate, contingencies and anticipated transactions of Kimberly-Clark, including dividends and share repurchases, 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, our ability to maintain key customer relationships, 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, 2017 entitled "Risk Factors." Other factors not presently known to us or that we presently consider immaterial could also affect our business operations and financial results.
Item 4.
Controls and Procedures
As of June 30, 2018, 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, 2018. 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.

23



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 2018 were made through a broker in the open market.
The following table contains information for shares repurchased during the second quarter of 2018. None of the shares in this table were repurchased directly from any of our officers or directors.
Period (2018)
 
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
 
697,100

 
$
105.47

 
19,376,818

 
20,623,182

May 1 to May 31
 
737,300

 
103.83

 
20,114,118

 
19,885,882

June 1 to June 30
 
717,400

 
102.32

 
20,831,518

 
19,168,482

Total
 
2,151,800

 
 
 
 
 
 
(a)
Share repurchases were made pursuant to a share repurchase program authorized by our Board of Directors on November 13, 2014. This program allows for the repurchase of 40 million shares in an amount not to exceed $5 billion.
  


24




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 filed on May 1, 2009.
Exhibit No. (3)b. By-Laws, as amended December 14, 2015, incorporated by reference to Exhibit No. (3)b of the Corporation's Current Report on Form 8-K filed on December 14, 2015.
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 for Nonqualified Stock Options, filed herewith.
Exhibit No. (10)r. Form of Award Agreements under 2011 Equity Participation Plan for Time-Vested Restricted Stock Units, 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




25



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/ Maria Henry
 
 
Maria Henry
 
 
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)
July 24, 2018

26
Exhibit


Exhibit (10)n
KIMBERLY-CLARK CORPORATION
NONQUALIFIED STOCK OPTION
AWARD AGREEMENT



This Award, granted effective on __________ (the “Grant Date”), by Kimberly-Clark Corporation, a Delaware corporation (hereinafter called the “Corporation”), to __________ (the “Participant”) is subject to the terms and conditions of the 2011 Equity Participation Plan (the “Plan”) and the Award Agreement, including any country-specific terms and conditions contained in Appendix A to the Award Agreement.

W I T N E S S E T H:

WHEREAS, the Corporation has adopted the Plan to encourage those employees who materially contribute, by managerial, scientific or other innovative means, to the success of the Corporation or of an Affiliate, to acquire an ownership interest in the Corporation, thereby increasing their motivation for and interest in the Corporation's and its Affiliates’ long-term success;

NOW, THEREFORE, it is agreed as follows:

1.    Number of Shares Optioned; Option Price. The Corporation grants to the Participant the right and option to purchase in his own name, on the terms and conditions hereinafter set forth, all or any part of an aggregate of _______ shares of the $1.25 par value Common Stock of the Corporation, and at the purchase price of $_____ per share, as granted on the date set forth above. This option shall not be an incentive stock option within the meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as amended (the "Code").

2.    Exercise of Option.

(a)    Limitations on Exercise. This option shall be subject to forfeiture until the Participant becomes vested in such Awards according to the schedule set forth below. This option shall not be exercisable until at least one year has expired after the granting of this option, during which time the Participant shall have been in the continuous employ of the Corporation or an Affiliate; provided, however, that the option shall become exercisable immediately in the event of a Qualified Termination of Employment of the Participant, without regard to the limitations set forth below in this subsection. At any time during the period of this option after the end of the first year, the Participant may purchase up to 30 percent of the shares covered by this option; after the end of the second year, an additional 30 percent; and after the end of the third year, the remaining 40 percent of the total number of shares covered by the option, so that, upon the expiration of the third year, the Participant will have become entitled to purchase all shares subject to this option; provided, however, that if the Participant's employment is terminated for any reason other than death, Retirement, or Total and Permanent Disability, this option shall only be exercisable for three months following such termination and only for the number of shares which were exercisable on the date of such termination. In no event, however, may this option be exercised more than ten (10) years after the date of its grant.

The above provisions of Section 2(a) notwithstanding, to the extent provided by rules of the Committee referred to in the Plan (hereinafter referred to as the "Committee"), this option is not exercisable during any period during which the Participant's right to make deposits to the Kimberly-Clark Corporation 401(k) and Profit Sharing Plan is suspended pursuant to a provision of such plan or rules adopted thereunder to comply with regulations regarding hardship withdrawals promulgated by the U.S. Internal Revenue Service.

A termination of employment shall not be deemed to have occurred while a Participant is on military leave or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the Participant retains a right to reemployment with the Corporation or an Affiliate under an applicable statute or by contract. For purposes of this subparagraph, a leave of absence, including any garden leave or similar leave, constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Corporation or an Affiliate. If the period of leave exceeds six months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period. Notwithstanding the foregoing sentence, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a 29-month period of absence is substituted for such six-month period in





determining whether a termination of employment shall be deemed to have occurred. A termination of employment with the Corporation or an Affiliate to accept immediate reemployment with the Corporation or an Affiliate likewise shall not be deemed to be a termination of employment for purposes of the Plan. A Participant who is classified as an intermittent employee shall be deemed to have a termination of employment for purposes of the Plan.

For purposes of this Award, a termination of employment includes a termination that is deemed an “unfair dismissal” or a “constructive dismissal.” Further, the Participant understands that the Award is a conditional right. Participant shall forfeit any unvested Award upon termination of employment except as provided above, for example, regardless of whether (1) the Participant is considered to be unfairly dismissed without good cause; (2) the Participant is dismissed for disciplinary or objective reasons or due to a collective dismissal; (3) the Participant terminates his or her employment or service relationship due to a change of work location, duties or any other employment or contractual condition; and (4) the Participant terminates his or her employment or service relationship due to a unilateral breach of contract by the Corporation or an Affiliate. Consequently, upon termination of the Participant’s employment or service relationship for any of the above reasons, the Participant may automatically lose any rights to the Awards that were not vested on the date of termination of the Participant’s employment or service relationship, as described in the Plan and the Award Agreement.

(b)    Exercise after Death, Retirement, or Disability. If the Participant dies, Retires or becomes Totally and Permanently Disabled without having exercised this option in full, the remaining portion of this option, determined without regard to the limitations in subsection 2(a), may be exercised within the earlier of (i) three years from the date of death or Total and Permanent Disability or five years from the date of Retirement, as the case may be, or (ii) the remaining period of this option. In the case of a Participant who dies, this option may be exercised by the person or persons to whom the Participant's rights under this option shall pass by will or by applicable law or, if no such person has such rights, by his executor or administrator.

Notwithstanding the above, if the Corporation receives an opinion of counsel that there has been a legal judgment and/or legal development in the Participant’s jurisdiction that likely would result in the favorable Retirement treatment that applies to this option pursuant to this subsection (b) being deemed unlawful and/or discriminatory, then the Corporation will not apply the favorable Retirement treatment at the time of termination and this option will be treated as it would under the rules that apply if the Participant’s employment is terminated for reasons other than Retirement.

(c)    Method of Exercise. This option shall be exercised by executing and delivering to the authorized agent of the Corporation, either directly or through an on-line internet transaction with a brokerage firm authorized by the Corporation, a notice of exercise as to which option rights are being exercised or by complying with such other procedures as the Corporation may establish for notifying the Corporation.  The Participant must pay the full the option price of the shares at the time being acquired for which the option is exercised and any Tax-Related Items (as defined in the Acknowledgment of Conditions section).  Payment may be made in cash or, for U.S. Participants only, in shares of the Corporation's Common Stock as set forth in the terms and conditions of exercise.  The date of exercise shall be deemed to be the date of receipt of the notice and payment for the shares being purchased.  The Participant shall have none of the rights of a stockholder with respect to shares covered by such options until the Participant becomes record holder of such shares.

(d)    Payment of Tax-Related Items. No shares of Common Stock may be purchased under this option, unless prior to or simultaneously with such purchase, (i) the Participant or (ii) in the event of his death, the person succeeding to his rights hereunder, pay to the Corporation or an Affiliate, as applicable, such amount as the Corporation advises is required under applicable federal, state or local laws to withhold and pay over to governmental taxing authorities in relation to this option. Unless otherwise determined by the Committee, payment of required Tax-Related items (as defined in the Acknowledgment of Conditions section) may be made with shares of the Corporation's Common Stock which otherwise would be distributable upon exercise of the option, pursuant to the rules of the Committee.

3.    Nontransferability and Inalienability of Benefits and Interest. Except as may otherwise be provided by the Committee, this option shall be transferable only by will or by the laws of descent and distribution, and during the Participant's lifetime shall be exercisable only by him or her. This option and the rights and privileges conferred hereby shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any such attempted action shall be void and no such benefit or interest shall be in any manner liable for or subject to debts, contracts, liabilities, engagements, or torts of the Participant.

4.    Compliance with Law. No shares of Common Stock may be purchased under this option, unless prior to the purchase thereof, the Corporation shall have received an opinion of counsel to the effect that the issuance and sale of such shares by the Corporation to the Participant will not constitute a violation of the U.S. Securities Act of 1933, as amended. As a condition of exercise, the Participant shall, if requested by the Corporation, submit a written statement in form satisfactory to counsel for the Corporation, to the effect that any shares of Common Stock purchased upon exercise of this option will be purchased for





investment and not with a view to the distribution thereof within the meaning of the U.S. Securities Act of 1933, as amended, and the Corporation shall have the right, in its discretion, to cause the certificates representing shares of Common Stock purchased hereunder to be appropriately legended to refer to such undertaking or to any legal restrictions imposed upon the transferability thereof by reason of such undertaking.

The option granted hereby is subject to the condition that if the listing, registration or qualification of the shares subject hereto on any securities exchange or under any state or federal law, or if the consent or approval of any regulatory body shall be necessary as a condition of, or in connection with, the granting of the option or the delivery or purchase of shares thereunder, such option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained. The Corporation agrees to use its best efforts to obtain any such requisite listing, registration, qualification, consent or approval.

The Participant is solely responsible for obtaining/providing whatever exchange control approvals, permits, licenses, or notices, which may be necessary for the Participant to hold the Award, or to receive any payment of cash or shares or to hold or sell the shares subject to the Award, if any. Neither the Corporation nor its Affiliates will be responsible for obtaining any such approvals, licenses or permits, or for making any such notices, nor will the Corporation or its Affiliates be liable for any fines or penalties the Participant may incur for failure to obtain any required notices.

5.    No Right of Continued Employment. The granting of this option does not confer upon the Participant any legal right to be continued in the employ of the Corporation or its Affiliates, and the Corporation and its Affiliates reserve the right to discharge the Participant whenever the interest of the Corporation or its Affiliates may so require without liability to the Corporation or its Affiliates, the Board of Directors of the Corporation or its Affiliates, or the Committee, except as to any rights which may be expressly conferred on the Participant under this option.

6.    Discretion of the Corporation, Board of Directors and the Committee. Any decision made or action taken by the Corporation or by the Board of Directors of the Corporation or by the Committee arising out of or in connection with the construction, administration, interpretation and effect of this option shall be within the absolute discretion of the Corporation, the Board of Directors of the Corporation or the Committee, as the case may be, and shall be conclusive and binding upon all persons.

7.    Amendments. The Committee may at any time alter or amend this option to the extent (1) permitted by law, (2) permitted by the rules of any stock exchange on which the Common Stock or any other security of the Corporation is listed, (3) permitted under applicable provisions of the U.S. Securities Act of 1933, as amended, the U.S. Securities Exchange Act of 1934, as amended (including rule 16b-3 thereof), and (4) that such action would not result in the disallowance of a deduction to the Corporation under Section 162(m) of the Code or any successor section (including the rules and regulations promulgated thereunder). Notwithstanding anything to the contrary contained herein, the Committee may not take any action that would result in any amount payable under this option qualifying as "applicable employee remuneration" as so defined for purposes of Section 162(m) of the Code.

8.    Data Privacy. The Participant hereby authorizes their actual employer (the “Employer”) to furnish the Corporation (and any agent of the Corporation administering the Plan or providing Plan recordkeeping services) with such information and data as it shall request in order to facilitate the grant of Awards and administration of the Plan and the Participant waives any data privacy rights such Participant might otherwise have with respect to such information. The Controller of personal data processing is Kimberly-Clark Corporation with registered offices at 351 Phelps Drive, Irving, Texas 75038, United States of America.

9.    Delaware Law to Govern. The Plan is governed by and subject to the laws of the United States of America. All questions pertaining to the construction, interpretation, regulation, validity and effect of the provisions of this Award and any rights under the Plan shall be determined in accordance with the laws of the State of Delaware and federal courts located in the District of Delaware shall be the exclusive forum for any dispute arising out of or related to the Award or the Award Agreement and the Participant consents to and waives any objection to the exercise of personal jurisdiction and venue by such courts.

10.    Purchase of Common Stock. The Corporation and its Affiliates may, but shall not be required to, purchase shares of Common Stock of the Corporation for purposes of satisfying the requirements of this option. The Corporation and its Affiliates shall have no obligation to retain and shall have the unlimited right to sell or otherwise deal with for their own account, any shares of Common Stock of the Corporation purchased for satisfying the requirements of this option.

11.    Notices. Any notice to be given to the Corporation under this option, except as required under Section 16 below, shall be addressed to the Corporation in care of its Director of Compensation located at the World Headquarters, and any notice to be





given to the Participant under the terms of this option may be addressed to him at his address as it appears on the Corporation's records, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given if and when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered and deposited, postage and registry fee prepaid, in a post office or branch post office regularly maintained by the United States Government or any equivalent non-U.S. postal service.

12.    Changes in Capitalization. In the event there are any changes in the Common Stock or the capitalization of the Corporation through a corporate transaction, such as any merger, any acquisition through the issuance of capital stock of the Corporation, any consolidation, any separation of the Corporation (including a spin-off or other distribution of stock of the Corporation), any reorganization of the Corporation (whether or not such reorganization comes within the definition of such term in Section 368 of the Code), or any partial or complete liquidation by the Corporation, recapitalization, stock dividend, stock split or other change in the corporate structure, appropriate adjustments and changes shall be made by the Committee in (a) the number of shares and the option price per share of stock subject to this option, and (b) such other provisions of this option as may be necessary and equitable to carry out the foregoing purposes, provided, however that no such adjustment or change may be made to the extent that such adjustment or change will result in the disallowance of a deduction to the Corporation under Section 162(m) of the Code or any successor section.

13.    Effect on Other Plans. All benefits under this option shall constitute special incentives and shall not affect the level of benefits provided to or received by the Participant (or the Participant's estate or beneficiaries) as part of any employee benefit plan of the Corporation or an Affiliate. This option shall not be construed to affect in any way the Participant's rights and obligations under any other plan maintained by the Corporation or an Affiliate on behalf of employees.

14.    Successors. This Award Agreement, including but not limited to the non-competition obligations described in Section 16 below, shall be binding upon and inure to the benefit of any successor or successors of the Corporation.

15.    Defined Terms. Terms which are capitalized are defined herein or in the Plan and have the same meaning set forth in the Plan, unless the context indicates otherwise.

16.    Non-Competition Provisions For U.S. Participants Only.

(a)    As the Award is intended to encourage the Participant to continue employment with the Corporation or an Affiliate, during which time the Participant will have access to the Corporation’s or Affiliate’s confidential information and trade secrets, during the term of the Participant’s employment and for a period of two (2) years following the termination of employment, regardless of the reason for or the manner of termination, the Participant shall not, without the written consent of General Counsel of the Corporation or his/her designee, either in the United States of America or in any country or countries for which Participant had development, marketing, innovation/technology (R&D), distribution, sales, administrative, operational/supply chain or manufacturing oversight responsibilities during the last twelve (12) months of Participant’s employment, either directly or indirectly, perform duties or undertake responsibilities for a Competitor that are the same or substantially similar to those duties or responsibilities that the Participant performed or undertook for the Corporation or an Affiliate during the two (2) year period prior to the end of the Participant’s employment with the Corporation or an Affiliate. As used herein, “Competitor” means a person or entity who engages in a business that is the same or substantially the same as any aspect of the Business of th