Fitch Affirms Kimberly-Clark's IDR at 'AA'; Outlook Remains Negative.

NEW YORK -- Fitch Ratings has affirmed Kimberly-Clark Corporation as follows:

-- Issuer Default Rating (IDR) 'AA';

-- Senior unsecured debt 'AA';

-- $1.5 billion revolving credit facility 'AA';

-- Commercial paper program 'F1+'.

The Rating Outlook remains Negative. At June 30, 2006, $3.67 billion in senior unsecured debt was outstanding.

Through acquisitions, continued geographic expansion and the introduction of new products, Kimberly-Clark has emerged as one of the leading global personal care and household products companies with a strong presence in the away-from-home market with $16.3 billion in latest twelve months (LTM) June 30, 2006 net revenues. Kimberly-Clark (KMB) is a strong cash flow generator. Cash flow from operations has exceeded $2.3 billion in each of the past six years and through the LTM June 30, 2006. As a result, KMB has funded high capital expenditures, dividends and share repurchases with debt balances remaining essentially flat over the past 5 years. On a recently specific note, the company spent over $4.7 billion in dividends and share repurchases during the past two fiscal years on these activities. Therefore, despite large shareholder value initiatives, its leverage (Total Debt + Preferred Share/EBITDA) remains at the lower end of its peer group at 1.27 times (x) at LTM June 30, 2006. Kimberly-Clark's leading brands, scale, and strong internal cash generation are a key credit strength underpinning the 'AA/F1+' ratings.

The Negative Outlook reflects weaker operating trends over several years, which have been impacted by escalating raw material costs and the competitive environment. The gross margin has declined from 34.2% at fiscal-year end (FYE) 2003 to 33.2% at FYE2005 and was 32.4% for the first half of fiscal 2006. Over the past 10 quarters however, commodity costs have been the main damper on profitability. The negative operating trends has resulted in a reduction in cash flow from operations from $2.7 billion in FYE2004 to $2.3 billion at LTM 6/30/06 as well as funds from operations (FFO) interest coverage declining from 18.5X at FYE2004 to 12X during the similar period.

Commodity costs, particularly energy and pulp, appear to be moderating in the near term. The company has been able to sustain its price increases with more due to flow through during this fiscal year and next. KMB has two cost savings programs in place (FORCE and Competitive Improvement Initiatives) which are expected to generate $275 million in savings in 2006 and higher levels thereafter. While the company has a solid track record in meeting its cost savings goals, much of the savings are back-end loaded and the commodity environment has proved unpredictable of late. Nevertheless, it would appear that stabilized margins should occur over the next 12 months given the combination of cost savings, sustained price increases, and lower levels of accelerating commodity costs. Fitch expects to see this stabilization and also expects management to remain prudent around debt levels and stay within current leverage metrics while funding capital expenditures and shareholder activities. If these occur as expected, Fitch may review the outlook.

Kimberly-Clark is a leading global manufacturer and marketer of tissue-based consumer products. Approximately 59% of revenues and 77% of operating profit (before corporate and other expenses) are derived from North America. In its principal product lines, the company holds the number 1 or 2 brand position in more than 80 countries. Kimberly-Clark's global tissue, personal care and health care brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott, Kimberly-Clark, Safeskin, Tecnol, Kimwipes and WypAll.

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