Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

Year Ended December 31
(Millions of dollars, except per share amounts)202120202019
Net Sales$19,440$19,140$18,450
Cost of products sold13,45212,31812,415
Gross Profit5,9886,8226,035
Marketing, research and general expenses3,3993,6323,254
Other (income) and expense, net28(54)(210)
Operating Profit2,5613,2442,991
Nonoperating expense(86)(70)(91)
Interest income6811
Interest expense(256)(252)(261)
Income Before Income Taxes and Equity Interests2,2252,9302,650
Provision for income taxes(479)(676)(576)
Income Before Equity Interests1,7462,2542,074
Share of net income of equity companies98142123
Net Income1,8442,3962,197
Net income attributable to noncontrolling interests(30)(44)(40)
Net Income Attributable to Kimberly-Clark Corporation$1,814$2,352$2,157
Per Share Basis
Net Income Attributable to Kimberly-Clark Corporation
Basic$5.38$6.90$6.28
Diluted$5.35$6.87$6.24

See notes to the consolidated financial statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31
(Millions of dollars)202120202019
Net Income$1,844$2,396$2,197
Other Comprehensive Income (Loss), Net of Tax
Unrealized currency translation adjustments(288)12919
Employee postretirement benefits1223712
Other84(34)(34)
Total Other Comprehensive Income (Loss), Net of Tax(82)132(3)
Comprehensive Income1,7622,5282,194
Comprehensive income attributable to noncontrolling interests(15)(55)(31)
Comprehensive Income Attributable to Kimberly-Clark Corporation$1,747$2,473$2,163

See notes to the consolidated financial statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31
(Millions of dollars)20212020
ASSETS
Current Assets
Cash and cash equivalents$270$303
Accounts receivable, net2,2072,235
Inventories2,2391,903
Other current assets849733
Total Current Assets5,5655,174
Property, Plant and Equipment, Net8,0978,042
Investments in Equity Companies290300
Goodwill1,8401,895
Other Intangible Assets, Net810832
Other Assets1,2351,280
TOTAL ASSETS$17,837$17,523
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Debt payable within one year$433$486
Trade accounts payable3,8403,336
Accrued expenses and other current liabilities2,0962,262
Dividends payable380359
Total Current Liabilities6,7496,443
Long-Term Debt8,1417,878
Noncurrent Employee Benefits809864
Deferred Income Taxes694723
Other Liabilities681718
Redeemable Preferred Securities of Subsidiaries2628
Stockholders' Equity
Kimberly-Clark Corporation
Preferred stock - no par value - authorized 20.0 million shares, none issued——
Common stock - $1.25 par value - authorized 1.2 billion shares; issued 378.6 million shares at December 31, 2021 and 2020473473
Additional paid-in capital605657
Common stock held in treasury, at cost - 41.8 and 39.9 million shares at December 31, 2021 and 2020, respectively(5,183)(4,899)
Retained earnings7,8587,567
Accumulated other comprehensive income (loss)(3,239)(3,172)
Total Kimberly-Clark Corporation Stockholders' Equity514626
Noncontrolling Interests223243
Total Stockholders' Equity737869
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$17,837$17,523

See notes to the consolidated financial statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Millions of dollars, shares in thousands, except per share amounts)Common Stock IssuedAdditional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Non- controlling InterestsTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at December 31, 2018378,597$473$54833,635$(3,956)$5,947$(3,299)$241$(46)
Net income in stockholders' equity, excludes redeemable interests' share—————2,157—372,194
Other comprehensive income, net of tax, excludes redeemable interests' share——————6(10)(4)
Stock-based awards exercised or vested——(93)(2,817)322———229
Shares repurchased———6,331(820)———(820)
Recognition of stock-based compensation——94—————94
Dividends declared ($4.12 per share)—————(1,415)—(42)(1,457)
Other——7——(3)(1)14
Balance at December 31, 2019378,59747355637,149(4,454)6,686(3,294)227194
Net income in stockholders' equity, excludes redeemable interests' share—————2,352—412,393
Other comprehensive income, net of tax, excludes redeemable interests' share——————12112133
Stock-based awards exercised or vested——(55)(2,339)271———216
Shares repurchased———5,063(716)———(716)
Recognition of stock-based compensation——142—————142
Dividends declared ($4.28 per share)—————(1,458)—(36)(1,494)
Other——14——(13)1(1)1
Balance at December 31, 2020378,59747365739,873(4,899)7,567(3,172)243869
Net income in stockholders' equity, excludes redeemable interests' share—————1,814—291,843
Other comprehensive income, net of tax, excludes redeemable interests' share——————(67)(14)(81)
Stock-based awards exercised or vested——(80)(1,339)146———66
Shares repurchased———3,228(430)———(430)
Recognition of stock-based compensation——26—————26
Dividends declared ($4.56 per share)—————(1,538)—(36)(1,574)
Other——2——15—118
Balance at December 31, 2021378,597$473$60541,762$(5,183)$7,858$(3,239)$223$737

See notes to the consolidated financial statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CASH FLOW STATEMENTS

Year Ended December 31
(Millions of dollars)202120202019
Operating Activities
Net income$1,844$2,396$2,197
Depreciation and amortization766796917
Asset impairments317—
Stock-based compensation2614796
Deferred income taxes(70)4529
Net (gains) losses on asset dispositions3968(193)
Equity companies' earnings (in excess of) less than dividends paid25(30)(6)
Operating working capital46363(288)
Postretirement benefits47(28)13
Other4(45)(29)
Cash Provided by Operations2,7303,7292,736
Investing Activities
Capital spending(1,007)(1,217)(1,209)
Acquisition, net of cash acquired—(1,083)(4)
Proceeds from dispositions of property4331242
Investments in time deposits(918)(753)(568)
Maturities of time deposits836690542
Other(10)27(45)
Cash Used for Investing(1,056)(2,305)(1,042)
Financing Activities
Cash dividends paid(1,516)(1,451)(1,408)
Change in short-term debt(97)(561)303
Debt proceeds6051,845706
Debt repayments(269)(854)(707)
Proceeds from exercise of stock options65217228
Acquisitions of common stock for the treasury(400)(700)(800)
Other(84)(63)(114)
Cash Used for Financing(1,696)(1,567)(1,792)
Effect of Exchange Rate Changes on Cash and Cash Equivalents(11)41
Change in Cash and Cash Equivalents(33)(139)(97)
Cash and Cash Equivalents - Beginning of Year303442539
Cash and Cash Equivalents - End of Year$270$303$442

See notes to the consolidated financial statements.

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Accounting Policies

Basis of Presentation

The consolidated financial statements present the accounts of Kimberly-Clark Corporation and all subsidiaries in which it has a controlling financial interest as if they were a single economic entity in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany transactions and accounts are eliminated in consolidation. The terms "Corporation," "Kimberly-Clark," "we," "our," and "us" refer to Kimberly-Clark Corporation and all subsidiaries in which it has a controlling financial interest. Dollar amounts are reported in millions, except per share dollar amounts, unless otherwise noted.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Actual results could differ from these estimates, and changes in these estimates are recorded when known. Estimates are used in accounting for, among other things, sales incentives and trade promotion allowances, employee postretirement benefits, and deferred income taxes and potential assessments.

Cash Equivalents

Cash equivalents are short-term investments with an original maturity date of three months or less.

Inventories and Distribution Costs

Most U.S. inventories are valued at the lower of cost, using the Last-In, First-Out ("LIFO") method, or market. The balance of the U.S. inventories and inventories of consolidated operations outside the U.S. are valued at the lower of cost or net realizable value using either the First-In, First-Out ("FIFO") or weighted-average cost methods. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Distribution costs are classified as cost of products sold.

Property and Depreciation

Property, plant and equipment are stated at cost and are depreciated on the straight-line method. Buildings are depreciated over their estimated useful lives, primarily 40 years. Machinery and equipment are depreciated over their estimated useful lives, primarily ranging from 16 to 20 years. Purchases of computer software, including external costs and certain internal costs (including payroll and payroll-related costs of employees) directly associated with developing significant computer software applications for internal use, are capitalized. Computer software costs are amortized on the straight-line method over the estimated useful life of the software, which generally does not exceed 5 years.

Estimated useful lives are periodically reviewed and, when warranted, changes are made to them. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss would be indicated when estimated undiscounted future cash flows from the use and eventual disposition of an asset group, which are identifiable and largely independent of the cash flows of other asset groups, are less than the carrying amount of the asset group. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Fair value is measured using discounted cash flows or independent appraisals, as appropriate. When property is sold or retired, the cost of the property and the related accumulated depreciation are removed from the consolidated balance sheet and any gain or loss on the transaction is included in income.

Goodwill and Other Intangible Assets

Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill is not amortized, but rather is assessed for impairment annually and whenever events and circumstances indicate that impairment may have occurred. Impairment testing compares the reporting unit carrying amount, including goodwill, with its fair value. If the reporting unit carrying amount, including goodwill, exceeds its fair value, a goodwill impairment charge for the excess amount above fair value would be recorded. In our evaluation of goodwill impairment, we have the option to first assess qualitative factors such as macroeconomic, industry and competitive conditions, legal and regulatory environments, historical and

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projected financial performance, significant changes in the reporting unit and the magnitude of excess fair value over carrying amount from the previous quantitative impairment testing. If the qualitative assessment determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative impairment test using discounted cash flows to estimate fair value must be performed. Alternatively, if the qualitative assessment determines that it is more likely than not that the fair value of a reporting unit is more than its carrying value, then further quantitative testing is not required. For 2021, we completed the required annual assessment of goodwill for impairment for all of our reporting units using a qualitative assessment as of the first day of the third quarter, and we determined that it is more likely than not that the fair value of goodwill significantly exceeds the carrying amount for each of our reporting units.

Indefinite-lived intangible assets, other than goodwill, consist of certain brand names related to our acquisition of Softex Indonesia and are tested for impairment annually at the same time as our goodwill impairment assessment and whenever events and circumstances indicate that impairment may have occurred. Our estimate of the fair value of our brand assets is based on a discounted cash flow model and a market-based approach using inputs which include projected revenues from our long-range plan, assumed royalty rates that could be payable if we did not own the brands, and a discount rate. For 2021, we completed the required annual assessment of indefinite-lived intangible assets, other than goodwill, for impairment using a qualitative assessment as of the first day of the third quarter, and we determined that it is more likely than not that the fair value is more than the carrying amount for each of these intangible assets.

Intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss would be indicated when estimated undiscounted future cash flows from the use of the asset are less than its carrying amount. An impairment loss would be measured as the difference between the fair value (based on discounted future cash flows) and the carrying amount of the asset. Estimated useful lives range from 10 to 20 years for trademarks and 15 to 20 years for certain acquired distributor and customer relationships.

Investments in Equity Companies

Investments in companies which we do not control but over which we have the ability to exercise significant influence and that, in general, are at least 20 percent-owned by us, are stated at cost plus equity in undistributed net income. These investments are evaluated for impairment when warranted. An impairment loss would be recorded whenever a decline in value of an equity investment below its carrying amount is determined to be other than temporary. In judging "other than temporary," we would consider the length of time and extent to which the fair value of the equity company investment has been less than the carrying amount, the near-term and longer-term operating and financial prospects of the equity company, and our longer-term intent of retaining the investment in the equity company.

Revenue Recognition

Sales revenue is recognized at the time of product shipment or delivery, depending on when control passes, to unaffiliated customers, and when all of the following have occurred: a firm sales agreement is in place, pricing is fixed or determinable, and collection is reasonably assured. Sales are reported net of returns, consumer and trade promotions, rebates and freight allowed. Taxes imposed by governmental authorities on our revenue-producing activities with customers, such as sales taxes and value-added taxes, are excluded from net sales.

Sales Incentives and Trade Promotion Allowances

The cost of promotion activities provided to customers is classified as a reduction in sales revenue. In addition, the estimated redemption value of consumer coupons and related expense are recorded when the related revenue from customers is realized. 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.

Advertising Expense

Advertising costs are expensed in the year the related advertisement or campaign is first presented through traditional or digital media. For interim reporting purposes, advertising expenses are charged to operations as a percentage of sales based on estimated sales and related advertising expense for the full year.

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Research Expense

Research and development costs are charged to expense as incurred.

Other Income

Certain amounts not directly associated with the current operations of the business are recorded in Other (income) and expense, net. In the fourth quarter of 2020, we received a favorable legal ruling that resolved certain matters related to prior years’ business taxes in Brazil. These matters involved the revenue base, which included value added taxes, used to calculate and pay social security taxes for the period 2004 to 2014. In the legal ruling, the São Paulo State Court recognized our right to exclude the value added taxes from the revenue base used to calculate those social security taxes. This decision resulted in business tax credits being recognized of $77.

In the fourth quarter of 2019, gains of $194 on the sales of manufacturing facilities and associated real estate which were disposed of as part of the restructuring were recorded. See Note 2**.** Also, in the fourth quarter of 2019, we recognized a gain of $31 on the sale of property associated with a former manufacturing facility that was closed in 2012 as part of a past restructuring.

Foreign Currency Translation

The income statements of foreign operations, other than those in highly inflationary economies, are translated into U.S. dollars at rates of exchange in effect each month. The balance sheets of these operations are translated at period-end exchange rates, and the differences from historical exchange rates are reflected in stockholders' equity as unrealized translation adjustments.

As of July 1, 2018, we elected to adopt highly inflationary accounting for our subsidiaries in Argentina (“K-C Argentina”). The effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in Other (income) and expense, net and was not material. As of December 31, 2021, K-C Argentina had a small net peso monetary position. Net sales of K-C Argentina were approximately 1 percent of our consolidated net sales in 2021, 2020 and 2019.

Derivative Instruments and Hedging

Our policies allow the use of derivatives for risk management purposes and prohibit their use for speculation. Our policies also prohibit the use of any leveraged derivative instrument. Consistent with our policies, foreign currency derivative instruments, interest rate swaps and locks, and the majority of commodity hedging contracts are entered into with major financial institutions. At inception, we formally designate certain derivatives as cash flow, fair value or net investment hedges and establish how the effectiveness of these hedges will be assessed and measured. This process links the derivatives to the transactions or financial balances they are hedging. Changes in the fair value of derivatives not designated as hedging instruments are recorded in earnings as they occur. All derivative instruments are recorded as assets or liabilities on the balance sheet at fair value. Changes in the fair value of derivatives are either recorded in the income statement or other comprehensive income, as appropriate. The gain or loss on derivatives designated as fair value hedges and the offsetting loss or gain on the hedged item attributable to the hedged risk are included in income in the period that changes in fair value occur. The gain or loss on derivatives designated as cash flow hedges is included in other comprehensive income in the period that changes in fair value occur, and is reclassified to income in the same period that the hedged item affects income. The gain or loss on derivatives designated as hedges of investments in foreign subsidiaries is recognized in other comprehensive income to offset the change in value of the net investments being hedged. Certain foreign-currency derivative instruments not designated as hedging instruments have been entered into to manage certain non-functional currency denominated monetary assets and liabilities. The gain or loss on these derivatives is included in income in the period that changes in their fair values occur. Cash flows from derivatives are classified within the consolidated statement of cash flows in the same category as the items being hedged. Cash flows from derivatives are classified within Operating Activities, except for derivatives designated as net investment hedges which are classified in Investing Activities. See Note 12 for disclosures about derivative instruments and hedging activities.

Leases

Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease asset, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments

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made and exclude lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.

Variable lease payments are generally expensed as incurred and include certain index-based changes in rent, certain nonlease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.

Certain lease agreements with lease and nonlease components are combined as a single lease component. The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Recently Adopted Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01 to further clarify the scope of this guidance. The effects of these standards on our financial position, results of operations and cash flows were not material for the year ended December 31, 2021 and are not expected to be material through December 31, 2022.

In 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the tax basis of goodwill after a business combination, and the recognition of deferred tax liabilities for outside basis differences. The new guidance also changes the calculation of the income tax impact of hybrid taxes and the methodology for calculating income taxes in an interim period. We adopted this standard as of January 1, 2021 on either a prospective basis, or through a modified retrospective approach, as required by the standard. There was no cumulative effect adjustment recorded to retained earnings as the amount was not material. The effects of this standard on our financial position, results of operations and cash flows were not material.

Note 2. 2018 Global Restructuring Program

In 2018, we initiated our 2018 Global Restructuring Program to reduce our structural cost base by streamlining and simplifying our manufacturing supply chain and overhead organization. The restructuring actions were completed in 2021. We closed or sold 11 manufacturing facilities and expanded production capacity at several others. We exited or divested some lower-margin businesses that generated approximately 1 percent of our net sales. Workforce reductions were approximately 6,000. The restructuring impacted all of our business segments and our organizations in all major geographies.

The restructuring actions were completed with total costs of $2.2 billion pre-tax ($1.6 billion after tax). Pre-tax cash and non-cash costs of $1.2 billion and $1.0 billion, respectively, were incurred.

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The following net charges were incurred in connection with the 2018 Global Restructuring Program:

Year Ended December 31
2021202020192018Total
Cost of products sold:
Charges for workforce reductions$4$10$31$149$194
Asset impairments317—7494
Asset write-offs176354112246
Incremental depreciation1894235172519
Other exit costs112999634341
Total1542834165411,394
Marketing, research and general expenses:
Charges for workforce reductions3913(12)243283
Other exit costs7296111137416
Total11110999380699
Other (income) and expense, net(a)10(9)(194)(12)(205)
Nonoperating expense(b)793645127287
Total charges3544193661,0362,175
Provision for income taxes(75)(94)(118)(243)(530)
Net charges2793252487931,645
Net impact related to equity companies and noncontrolling interests2(2)—(10)(10)
Net charges attributable to Kimberly-Clark Corporation$281$323$248$783$1,635

(a)Other (income) and expense, net in 2019 was the result of pre-tax gains on the sales of manufacturing facilities and associated real estate which were disposed of as part of the restructuring.

(b)Represents non-cash pension settlement and curtailment charges resulting from restructuring actions, primarily in the U.S., United Kingdom and Canada.

The measurement of the asset impairment charges was based on the excess of the carrying values 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 or the expected sales value, and as a result, the assets were essentially written off or written down to fair value less costs to sell. The use of discounted cash flows represents a level 3 measure under the fair value hierarchy.

The following summarizes the restructuring liabilities activity:

20212020
Restructuring liabilities at January 1$93$132
Charges for workforce reductions and other cash exit costs222210
Cash payments(235)(249)
Currency and other(2)—
Restructuring liabilities at December 31$78$93

As of December 31, 2021 and 2020, restructuring liabilities of $75 and $73 are recorded in Accrued expenses and other current liabilities and $3 and $20 are recorded in Other Liabilities, respectively. The impact related to restructuring charges is recorded in Operating working capital and Other Operating Activities, as appropriate, in our consolidated cash flow statement. Cash payments of $302 and $325 were made during 2019 and 2018, respectively.

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Note 3. Acquisition

On October 1, 2020 (“Acquisition Date”), we acquired Softex Indonesia, a leader in the fast-growing Indonesian personal care market, in an all-cash transaction for approximately $1.2 billion. This transaction significantly expands our presence in an important developing and emerging market and is a strong strategic fit with our core business. The transaction price, subject to working capital and net debt adjustments, resulted in a final purchase price of $1.1 billion in addition to the assumption of certain indebtedness of Softex Indonesia at closing. During the year ended December 31, 2020, we recorded transaction and integration costs of $32 in Marketing, research and general expenses.

During the fourth quarter of 2020, we substantially completed and recorded an initial purchase price allocation, in which we utilized several generally accepted valuation methodologies to determine the fair value of certain acquired assets. The primary valuation methods included the replacement cost approach, sales comparison approach, discounted cash flow, multi-period excess earnings, relief from royalty and distributor methods. The purchase price allocation was finalized by October 2021 and included an immaterial amount of recorded measurement period adjustments. The measurement period adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired and liabilities assumed as of the Acquisition Date.

The total purchase price consideration was allocated to the net assets acquired based upon their respective final estimated fair values as follows:

Cash and cash equivalents$9
Accounts receivables, net111
Inventories39
Other current assets9
Goodwill404
Other Intangible Assets757
Property, Plant and Equipment, Net196
Other assets2
Accrued expenses and other current liabilities(129)
Deferred income taxes(152)
Other liabilities(141)
Fair value of net assets acquired$1,105

Goodwill of $404 was allocated to the Personal Care business segment. The goodwill is primarily attributable to future growth opportunities and any intangible assets that did not qualify for separate recognition. While the goodwill is not deductible for local tax purposes, it is treated as an amortizable expense for the U.S. global intangible low-taxed income ("GILTI") computation.

The consolidated results of operations for Softex Indonesia are reported primarily in our Personal Care business segment on a one-month lag.

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Note 4. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2021 and 2020 were as follows:

Personal CareConsumer TissueK-C ProfessionalTotal
Balance as of December 31, 2019$557$522$388$1,467
Acquisition416——416
Effect of foreign currency translation11(3)412
Balance as of December 31, 20209845193921,895
Acquisition14——14
Effect of foreign currency translation(37)(25)(7)(69)
Balance as of December 31, 2021$961$494$385$1,840

The changes in the carrying amount of Other Intangible Assets, Net for the years ended December 31, 2021 and 2020 were as follows:

December 31
20212020
Gross Carrying Amount**(b)**Accumulated Amortization**(b)**Net Carrying AmountGross Carrying Amount**(b)**Accumulated Amortization**(b)**Net Carrying Amount
Intangible assets with indefinite lives:
Brand names$666$—$666$676$—$676
Intangibles assets with finite lives:
Trademarks and brand names140(82)57152(89)63
Other intangible assets(a)103(17)87108(15)93
Total intangible assets with finite lives243(99)144260(104)156
Total$909$(99)$810$936$(104)$832

(a) Other intangible assets primarily include customer and distributor relationships.

(b) Amounts subject to foreign currency adjustments.

Amortization expense relating to the intangible assets with finite lives was $9, $2 and $3 for the three years ended December 31, 2021, 2020 and 2019, respectively. Based on the carrying values of the intangible assets with finite lives as of December 31, 2021, amortization expense for each of the next five years is estimated to be approximately $9.

Note 5. 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 2021 and 2020, there were no significant transfers to or from level 3 fair value determinations.

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Derivative assets and liabilities are measured on a recurring basis at fair value. At December 31, 2021 and 2020, derivative assets were $65 and $44, respectively, and derivative liabilities were $41 and $92, 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. See Note 12 for additional information on our use of derivative instruments.

Redeemable preferred securities of subsidiaries are measured on a recurring basis at fair value and were $26 and $28 at December 31, 2021 and 2020, respectively. They are not traded in active markets. The fair values of the redeemable securities were based on a discounted cash flow valuation model, and the 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 $72 and $73 at December 31, 2021 and 2020, 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.

The following table includes the fair value of our financial instruments for which disclosure of fair value is required:

Fair Value Hierarchy LevelCarrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
December 31, 2021December 31, 2020
Assets
Cash and cash equivalents(a)1$270$270$303$303
Time deposits(b)1416416364364
Liabilities
Short-term debt(c)2118118223223
Long-term debt(d)28,4569,4928,1419,627

(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.

42KIMBERLY-CLARK CORPORATION - 2021 Annual Report

Note 6. Debt and Redeemable Preferred Securities of Subsidiaries

Long-term debt is composed of the following:

Weighted- Average Interest RateMaturitiesDecember 31
20212020
Notes and debentures3.2%2022 - 2050$8,198$7,897
Industrial development revenue bonds0.4%2023 - 2045169169
Bank loans and other financings in various currencies2.7%2022 - 20398975
Total long-term debt8,4568,141
Less current portion315263
Long-term portion$8,141$7,878

Scheduled maturities of long-term debt for the next five years are $317 in 2022, $473 in 2023, $574 in 2024, $558 in 2025 and $407 in 2026.

In October 2021, we issued $600 aggregate principal amount of 2.00% notes due November 2, 2031. Proceeds from the offering were used for general corporate purposes.

In September 2020, we issued $600 aggregate principal amount of 1.05% notes due September 15, 2027. Proceeds from the offering together with cash on hand and borrowings under our commercial paper program were used to fund the acquisition of Softex Indonesia.

In March 2020, we issued $750 aggregate principal amount of 3.10% notes due March 26, 2030. Proceeds from the offering were used for general corporate purposes including the repayment of a portion of our commercial paper indebtedness.

In February 2020, we issued $500 aggregate principal amount of 2.875% notes due February 7, 2050. Proceeds from the offering were used for general corporate purposes including the repayment of a portion of our commercial paper indebtedness.

We maintain a $2.0 billion revolving credit facility which expires in June 2026 and a $750 revolving credit facility which expires in June 2022. These facilities, currently unused, support our commercial paper program, and would provide liquidity in the event our access to the commercial paper markets is unavailable for any reason.

Our subsidiary in Central America has outstanding redeemable preferred securities that are held by a noncontrolling interest.

Note 7. Stock-Based Compensation

We have a stock-based Equity Participation Plan and an Outside Directors' Compensation Plan (the "Plans"), under which we can grant stock options, restricted shares and restricted share units to employees and outside directors. As of December 31, 2021, the number of shares of common stock available for grants under the Plans aggregated 11 million shares.

Stock options are granted at an exercise price equal to the fair market value of our common stock on the date of grant, and they have a term of 10 years. Stock options are subject to graded vesting whereby options vest 30 percent at the end of each of the first two 12-month periods following the grant and 40 percent at the end of the third 12-month period.

Restricted shares, time-vested restricted share units and performance-based restricted share units granted to employees are valued at the closing market price of our common stock on the grant date and vest generally at the end of three years. The number of performance-based share units that ultimately vest ranges from zero to 200 percent of the number granted based on performance. Beginning in 2021, performance metrics are tied to modified free cash flow and organic sales growth during the three-year performance period. Modified free cash flow and organic sales growth are set at the beginning of the performance period. Performance-based share units granted prior to 2021 are structured similarly but vest on performance tied to return on invested capital ("ROIC") and net sales. Restricted share units granted to outside directors are valued at the closing market price of our common stock on the grant date and vest when they are granted. The restricted period begins on the date of grant and expires on the date the outside director retires from or otherwise terminates service on our Board.

43KIMBERLY-CLARK CORPORATION - 2021 Annual Report

At the time stock options are exercised or restricted shares and restricted share units become payable, common stock is issued from our accumulated treasury shares. Dividend equivalents are credited on restricted share units on the same date and at the same rate as dividends are paid on Kimberly-Clark's common stock. These dividend equivalents, net of estimated forfeitures, are charged to retained earnings.

Stock-based compensation costs of $26, $147 and $96 and related deferred income tax benefits of $7, $32 and $11 were recognized for 2021, 2020 and 2019, respectively.

The fair value of stock option awards was determined using a Black-Scholes-Merton option-pricing model utilizing a range of assumptions related to dividend yield, volatility, risk-free interest rate, and employee exercise behavior. Dividend yield is based on historical experience and expected future dividend actions. Expected volatility is based on a blend of historical volatility and implied volatility from traded options on Kimberly-Clark's common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. We estimate forfeitures based on historical data.

The weighted-average fair value of options granted was estimated at $10.26, $15.92 and $13.54, in 2021, 2020 and 2019, respectively, per option on the date of grant based on the following assumptions:

Year Ended December 31
202120202019
Dividend yield3.9%3.3%3.3%
Volatility17.4%21.9%17.0%
Risk-free interest rate0.8%0.3%2.3%
Expected life - years4.64.54.6

Total remaining unrecognized compensation costs and amortization period are as follows:

December 31, 2021Weighted-Average Service Years
Stock options$81.1
Restricted shares and time-vested restricted share units271.7
Performance-based restricted share units321.7

A summary of stock-based compensation is presented below:

Stock OptionsShares (in thousands)Weighted-Average Exercise PriceWeighted-Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding at January 1, 20215,391$123.14
Granted1,016132.67
Exercised(611)109.52
Forfeited or expired(200)132.86
Outstanding at December 31, 20215,596126.016.25$95
Exercisable at December 31, 20213,448121.004.88$76
44KIMBERLY-CLARK CORPORATION - 2021 Annual Report

The total intrinsic value of options exercised during 2021, 2020 and 2019 was $16, $62 and $62, respectively.

Time-Vested Restricted Share UnitsPerformance-Based Restricted Share Units
Other Stock-Based AwardsShares (in thousands)Weighted- Average Grant-Date Fair ValueShares (in thousands)Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2021182$130.911,537$122.56
Granted335131.37608131.46
Vested(94)127.03(592)108.74
Forfeited(30)134.37(143)128.60
Nonvested at December 31, 2021393131.851,410131.03

The total fair value of restricted share units that were distributed to participants during 2021, 2020 and 2019 was $100, $62 and $75, respectively.

Note 8. Employee Postretirement Benefits

Substantially all regular employees in the U.S. and the United Kingdom are covered by defined contribution retirement plans and certain U.S. and United Kingdom employees previously earned benefits covered by defined benefit pension plans that currently provide no future service benefit (the "Principal Plans"). Certain other subsidiaries have defined benefit pension plans or, in certain countries, termination pay plans covering substantially all regular employees. The funding policy for our qualified defined benefit pension plans is to contribute assets at least equal in amount to regulatory minimum requirements. Nonqualified U.S. plans providing pension benefits in excess of limitations imposed by the U.S. income tax code are not funded.

Substantially all U.S. retirees and employees have access to our unfunded health care and life insurance benefit plans. The annual increase in the consolidated weighted-average health care cost trend rate is expected to be 5.4 percent in 2022 and to decline to 4.5 percent in 2029 and thereafter. Assumed health care cost trend rates affect the amounts reported for postretirement health care benefit plans.

As a result of restructuring actions related to the 2018 Global Restructuring Program, aggregate pension settlement charges of $91, $49 and $46 during 2021, 2020 and 2019, respectively, and curtailment gains of $2 and $1 during 2021 and 2019, respectively, were recognized in Nonoperating expense, primarily related to the defined benefit pension plans in the U.S, Switzerland and the United Kingdom (see Note 2 for further information about the 2018 Global Restructuring Program).

45KIMBERLY-CLARK CORPORATION - 2021 Annual Report

Summarized financial information about postretirement plans, excluding defined contribution retirement plans, is presented below:

Pension BenefitsOther Benefits
Year Ended December 31
2021202020212020
Change in Benefit Obligation
Benefit obligation at beginning of year$4,341$4,047$709$693
Service cost212288
Interest cost80951923
Actuarial (gain) loss(a)(105)333(8)42
Currency and other(54)134(3)(10)
Benefit payments from plans(138)(169)——
Direct benefit payments(8)(8)(54)(47)
Settlements and curtailments(326)(113)(2)—
Benefit obligation at end of year3,8114,341669709
Change in Plan Assets
Fair value of plan assets at beginning of year4,1933,803——
Actual return on plan assets52489——
Employer contributions1040——
Currency and other(45)120——
Benefit payments(138)(169)——
Settlements(328)(90)——
Fair value of plan assets at end of year3,7444,193——
Funded Status$(67)$(148)$(669)$(709)

(a) The actuarial net gains in 2021 and actuarial net losses in 2020 were primarily due to discount rate increases and decreases, respectively.

Substantially all of the funded status of pension and other benefits is recognized in the consolidated balance sheet in Noncurrent Employee Benefits, with the remainder recognized in Accrued expenses and other current liabilities and Other Assets.

Information for the Principal Plans and All Other Pension Plans

Principal PlansAll Other Pension PlansTotal
Year Ended December 31
202120202021202020212020
Projected benefit obligation (“PBO”)$3,339$3,629$472$712$3,811$4,341
Accumulated benefit obligation (“ABO”)3,3393,6294086193,7474,248
Fair value of plan assets3,3893,6273555663,7444,193

Approximately one-half of the PBO and fair value of plan assets for the Principal Plans relate to the U.S. qualified and nonqualified pension plans.

Information for Pension Plans with an ABO in Excess of Plan Assets

December 31
20212020
ABO$1,788$311
Fair value of plan assets1,616119
46KIMBERLY-CLARK CORPORATION - 2021 Annual Report

Information for Pension Plans with a PBO in Excess of Plan Assets

December 31
20212020
PBO$1,835$744
Fair value of plan assets1,648529

Components of Net Periodic Benefit Cost

Pension BenefitsOther Benefits
Year Ended December 31
202120202019202120202019
Service cost$21$22$21$8$8$8
Interest cost8095121192328
Expected return on plan assets(a)(132)(134)(144)———
Recognized net actuarial loss37424411—
Settlements and curtailments894945———
Other(5)(4)(4)(2)(2)(1)
Net periodic benefit cost$90$70$83$26$30$35

(a)The expected return on plan assets is determined by multiplying the fair value of plan assets at the remeasurement date, typically the prior year-end adjusted for estimated current year cash benefit payments and contributions, by the expected long-term rate of return.

The components of net periodic benefit cost other than the service cost component are included in the line item Nonoperating expense in our consolidated income statement.

Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31

Pension BenefitsOther Benefits
Projected 2022202120202019202120202019
Discount rate2.36%1.98%2.44%3.40%2.69%3.51%4.50%
Expected long-term return on plan assets3.52%3.41%3.66%4.39%———
Rate of compensation increase3.23%3.07%3.08%3.08%———

Weighted-Average Assumptions Used to Determine Benefit Obligations at December 31

Pension BenefitsOther Benefits
2021202020212020
Discount rate2.36%1.93%3.15%2.69%
Rate of compensation increase3.23%3.07%——

Investment Strategies for the Principal Plans

Strategic asset allocation decisions are made considering several risk factors, including plan participants' retirement benefit security, the estimated payments of the associated liabilities, the plan funded status, and Kimberly-Clark's financial condition. The resulting strategic asset allocation is a diversified blend of equity and fixed income investments. Equity investments are typically diversified across geographies and market capitalization. Fixed income investments are diversified across multiple sectors including government issues and corporate debt instruments with a portfolio duration that is consistent with the estimated payment of the associated liability. Actual asset allocation is regularly reviewed and periodically rebalanced to the strategic allocation when considered appropriate. Our 2022 target plan asset allocation for the Principal Plans is approximately 85 percent fixed income securities and 15 percent equity securities.

47KIMBERLY-CLARK CORPORATION - 2021 Annual Report

The expected long-term rate of return is generally evaluated on an annual basis. In setting this assumption, we consider a number of factors including projected future returns by asset class relative to the current asset allocation. The weighted-average expected long-term rate of return on pension fund assets used to calculate pension expense for the Principal Plans was 3.51 percent in 2021, 3.76 percent in 2020 and 4.59 percent in 2019, and will be 3.55 percent in 2022.

Set forth below are the pension plan assets of the Principal Plans measured at fair value, by level in the fair-value hierarchy. More than 70 percent of the assets are held in pooled funds and are measured using a net asset value (or its equivalent). Accordingly, such assets do not meet the Level 1, Level 2, or Level 3 criteria of the fair value hierarchy.

Fair Value Measurements at December 31, 2021
Total Plan AssetsAssets at Quoted Prices in Active Markets for Identical Assets (Level 1)Assets at Significant Observable Inputs (Level 2)Assets at Significant Unobservable Inputs (Level 3)
Cash and Cash Equivalents
Held directly$50$50$—$—
Held through mutual and pooled funds measured at net asset value26———
Fixed Income
Held directly
U.S. government and municipals1661588—
U.S. corporate debt2937286—
International bonds43—43—
Held through mutual and pooled funds measured at net asset value
U.S. government and municipals149———
U.S. corporate debt646———
International bonds1,144———
Equity
Held directly
U.S. equity1717——
International equity3232——
Held through mutual and pooled funds measured at net asset value
Non-U.S. equity46———
Global equity423———
Insurance Contracts355——355
Other(1)1——
Total Plan Assets$3,389$265$337$355

Futures contracts are used when appropriate to manage duration targets. As of December 31, 2021 and 2020, the U.S. plan held directly Treasury futures contracts with a total notional value of approximately $377 and $396, respectively, and an insignificant fair value. As of December 31, 2021 and 2020, the United Kingdom plan held through a pooled fund future contracts with a total notional value of approximately $403 and $454, and an insignificant fair value.

During 2021 and 2020, the plan assets did not include a significant amount of Kimberly-Clark common stock.

48KIMBERLY-CLARK CORPORATION - 2021 Annual Report
Fair Value Measurements at December 31, 2020
Total Plan AssetsAssets at Quoted Prices in Active Markets for Identical Assets (Level 1)Assets at Significant Observable Inputs (Level 2)Assets at Significant Unobservable Inputs (Level 3)
Cash and Cash Equivalents
Held directly$56$56$—$—
Held through mutual and pooled funds measured at net asset value15———
Fixed Income
Held directly
U.S. government and municipals19117120—
U.S. corporate debt310—310—
International bonds42—42—
Held through mutual and pooled funds measured at net asset value
U.S. government and municipals167———
U.S. corporate debt730———
International bonds1,062———
Equity
Held directly
U.S. equity1818——
International equity3131——
Held through mutual and pooled funds measured at net asset value
Non-U.S. equity107———
Global equity517———
Insurance Contracts380——380
Other11——
Total Plan Assets$3,627$277$372$380

Inputs and valuation techniques used to measure the fair value of plan assets vary according to the type of security being valued. Substantially all of the equity securities held directly by the plans are actively traded and fair values are determined based on quoted market prices. Fair values of U.S. government securities are determined based on trading activity in the marketplace.

Fair values of U.S. corporate debt, U.S. municipals and international bonds are typically determined by reference to the values of similar securities traded in the marketplace and current interest rate levels. Multiple pricing services are typically employed to assist in determining these valuations.

Fair values of equity securities and fixed income securities held through units of pooled funds are based on net asset value of the units of the pooled fund determined by the fund manager. Pooled funds are similar in nature to retail mutual funds, but are typically more efficient for institutional investors. The fair value of pooled funds is determined by the value of the underlying assets held by the fund and the units outstanding.

Equity securities held directly by the pension trusts and those held through units in pooled funds are monitored as to issuer and industry. Except for U.S. Treasuries, concentrations of fixed income securities are similarly monitored for concentrations by issuer and industry. As of December 31, 2021, there were no significant concentrations of equity or debt securities in any single issuer or industry.

No level 3 transfers (in or out) were made in 2021 or 2020. Fair values of insurance contracts are based on an evaluation of various factors, including purchase price.

49KIMBERLY-CLARK CORPORATION - 2021 Annual Report

We expect to contribute approximately $25 to our defined benefit pension plans in 2022. Over the next ten years, we expect that the following gross benefit payments will occur:

Pension BenefitsOther Benefits
2022$196$61
202319962
202420661
202520358
202620554
2027-20311,004236

Defined Contribution Pension Plans

Our 401(k) profit sharing plan and supplemental plan provide for a matching contribution of a U.S. employee's contributions and accruals, subject to predetermined limits, as well as a discretionary profit sharing contribution, in which contributions will be based on our profit performance. We also have defined contribution pension plans for certain employees outside the U.S. Costs charged to expense for our defined contribution pension plans were $116 in 2021, $141 in 2020, and $131 in 2019. Approximately 35 percent of these costs were for plans outside the U.S.

Note 9. Stockholders' Equity

The changes in the components of AOCI attributable to Kimberly-Clark, net of tax, are as follows:

Unrealized TranslationDefined Benefit Pension PlansOther Postretirement Benefit PlansCash Flow Hedges and Other
Balance as of December 31, 2019$(2,271)$(979)$(13)$(31)
Other comprehensive income (loss) before reclassifications1144(26)(31)
(Income) loss reclassified from AOCI—63(a)(1)(a)(1)
Net current period other comprehensive income (loss)11467(27)(32)
Balance as of December 31, 2020(2,157)(912)(40)(63)
Other comprehensive income (loss) before reclassifications(265)37953
(Income) loss reclassified from AOCI—72(a)(3)(a)30
Net current period other comprehensive income (loss)(265)109683
Balance as of December 31, 2021$(2,422)$(803)$(34)$20

(a) Included in computation of net periodic pension and other postretirement benefits costs (see Note 8).

Included in the above defined benefit pension plans and other postretirement benefit plans balances as of December 31, 2021 is $835 and $2 of unrecognized net actuarial loss and unrecognized net prior service credit, respectively.

50KIMBERLY-CLARK CORPORATION - 2021 Annual Report

The changes in the components of AOCI attributable to Kimberly-Clark, including the tax effect, are as follows:

Year Ended December 31
202120202019
Unrealized translation$(248)$98$21
Tax effect(17)165
(265)11426
Defined benefit pension plans
Unrecognized net actuarial loss and transition amount
Funded status recognition1624(17)
Amortization374144
Settlements and curtailments914946
Currency and other10(26)(13)
1548860
Unrecognized prior service cost/credit
Funded status recognition(2)2(1)
Amortization(4)(4)(5)
Curtailments(3)—(1)
Currency and other—1(2)
(9)(1)(9)
Tax effect(36)(20)(13)
1096738
Other postretirement benefit plans
Unrecognized net actuarial loss and transition amount and other12(35)(35)
Tax effect(6)810
6(27)(25)
Cash flow hedges and other
Recognition of effective portion of hedges70(32)(23)
Amortization39(2)(16)
Currency and other(4)(5)(1)
Tax effect(22)76
83(32)(34)
Change in AOCI$(67)$122$5

Amounts are reclassified from AOCI into Cost of products sold, Nonoperating expense, Interest expense, or Other (income) and expense, net, as applicable, in the consolidated income statement.

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 adjustment would be removed from AOCI and reported as part of the gain or loss on the sale or liquidation. The change in unrealized translation in 2021 is primarily due to the weakening of various foreign currencies versus the U.S. dollar, particularly the Korean won, the euro, the Australian dollar, and Brazilian real. 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.

51KIMBERLY-CLARK CORPORATION - 2021 Annual Report

Note 10. Leases and Commitments

We have entered into leases for certain facilities, vehicles, material handling and other equipment. Our leases have remaining contractual terms up to 97 years, some of which include options to extend the leases for up to 99 years, and some of which include options to terminate the leases within 1 year. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Our lease costs are primarily related to facility leases for inventory warehousing and administration offices.

Lease Expense

Year Ended December 31
202120202019Income Statement Classification
Operating lease expense$157$168$162Cost of products sold, Marketing, research and general expenses
Finance lease expense:
Amortization of lease assets1395Cost of products sold
Interest on lease liabilities212Interest expense
Total finance lease expense15107
Variable lease expense(a)219202145Cost of products sold, Marketing, research and general expenses
Total lease expense$391$380$314

(a) Includes short-term leases, which are immaterial.

Lease Assets and Liabilities

December 31
20212020Balance Sheet Classification
Assets
Operating lease$488$540Other Assets
Finance lease8647Property, Plant and Equipment, Net
Total lease assets$574587
Liabilities
Current:
Operating lease130$133Accrued expenses and other current liabilities
Finance lease$11$9Debt payable within one year
Noncurrent:
Operating lease393423Other Liabilities
Finance lease6020Long-Term Debt
Total lease liabilities$594$585

As of December 31, 2021 and 2020, accumulated amortization of finance lease assets was $27 and $14, respectively.

52KIMBERLY-CLARK CORPORATION - 2021 Annual Report

Maturity of Lease Liabilities

December 31, 2021
Operating LeasesFinance LeasesTotal
2022$142$12$154
202311912131
20249310103
202576783
202664670
Thereafter643599
Total lease payments55882640
Less imputed interest351146
Present value of lease liabilities$523$71$594

As of December 31, 2021, our operating leases have a weighted-average remaining lease term of 5 years and a weighted-average discount rate of 3 percent and our finance leases have a weighted-average remaining lease term of 9 years and a weighted-average discount rate of 3 percent.

Supplemental Information Related to Leases

December 31
202120202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating leases$155$164$163
Finance leases131418
Lease assets obtained in exchange for new lease obligations:
Operating leases34198504
Finance leases562038
Other non-cash modifications to lease assets:
Operating leases619831

We have entered into long-term contracts for the purchase of superabsorbent materials, pulp and certain utilities. Commitments under these contracts based on current prices are $1,530 in 2022, $729 in 2023, $96 in 2024, $94 in 2025, $34 in 2026, and $56 beyond the year 2026.

Although we are primarily liable for payments on the above-mentioned leases and purchase commitments, our exposure to losses, if any, under these arrangements is not material.

Note 11. Legal Matters

We are subject to various legal proceedings, claims and governmental inquiries, inspections, audits or investigations pertaining to issues such as contract disputes, product liability, tax matters, patents and trademarks, advertising, pricing, business practices, governmental regulations, employment and other matters.

We are party to certain legal proceedings relating to our former health care business, Avanos Medical, Inc. ("Avanos", previously Halyard Health, Inc.), which we spun-off on October 31, 2014, including a qui tam matter and certain subpoena and document requests from the federal government.

The subpoena and document requests include subpoenas from the United States Department of Justice (DOJ) concerning allegations of potential criminal and civil violations of federal laws, including the Food, Drug, and Cosmetic Act, in connection with the manufacturing, marketing and sale of surgical gowns by our former health care business. We continue to produce

53KIMBERLY-CLARK CORPORATION - 2021 Annual Report

documents and cooperate in this ongoing investigation. At this stage, we are unable to predict an outcome or estimate the potential range of outcomes to resolve this matter.

We are subject to federal, state and local environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. We have been named a potentially responsible party under the provisions of the U.S. federal Comprehensive Environmental Response, Compensation and Liability Act, or analogous state statutes, at a number of sites where hazardous substances are present. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our business, liquidity, financial condition or results of operations.

Note 12. 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.

At December 31, 2021 and 2020, derivative assets were $65 and $44, respectively, and derivative liabilities were $41 and $92, respectively, primarily comprised of foreign currency exchange contracts. Derivative assets are recorded in Other current assets or Other Assets, as appropriate, and derivative liabilities are recorded in Accrued expenses and other current liabilities or Other Liabilities, as appropriate.

Foreign Currency Exchange Rate Risk

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 cross-currency swap contracts and certain foreign denominated debt which are designated as net investment 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.

Derivative instruments are entered into 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 as cash flow hedges.

Interest Rate Risk

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 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.

Commodity Price Risk

We use derivative instruments, such as forward 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. In addition, we utilize negotiated short-term contract structures, including fixed price contracts, to manage volatility for a portion of our commodity costs.

Fair Value Hedges

Derivative instruments that are designated and qualify as fair value hedges are predominantly used to manage interest rate risk. The fair values of these derivative instruments are recorded as an asset or liability, as appropriate, with the offset recorded in current Interest expense. The offset to the change in fair values of the related debt is also recorded in Interest expense. 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 December 31, 2021, the aggregate notional values and carrying values of debt subject to outstanding interest rate contracts designated as fair value hedges were $625 and $633, respectively. For each of the three years ended December 31, 2021, gains or losses recognized in Interest expense for interest rate swaps were not significant.

54KIMBERLY-CLARK CORPORATION - 2021 Annual Report

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, 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 income statement line and period that the hedged exposure affects earnings. As of December 31, 2021, outstanding commodity forward contracts were in place to hedge a limited portion of our estimated requirements of the related underlying commodities in 2022 and future periods. As of December 31, 2021, the aggregate notional value of outstanding foreign exchange derivative contracts designated as cash flow hedges was $691. For each of the three years ended December 31, 2021, no significant gains or losses were reclassified into Interest expense, Cost of products sold or Other (income) and expense, net as a result of the discontinuance of cash flow hedges due to the original forecasted transaction no longer being probable of occurring. At December 31, 2021, amounts to be reclassified from AOCI into Interest expense, Cost of products sold or Other (income), net during the next twelve months are not expected to be material. The maximum maturity of cash flow hedges in place at December 31, 2021 is December 2023.

Net Investment Hedges

For derivative instruments that are designated and qualify as net investment hedges, the aggregate notional value was $1.4 billion at December 31, 2021. We exclude the interest accruals on cross-currency swap contracts and the forward points on foreign exchange forward contracts from the assessment and measurement of hedge effectiveness. We recognize the interest accruals on cross-currency swap contracts in earnings within Interest expense. We amortize the forward points on foreign exchange contracts into earnings within Interest expense over the life of the hedging relationship. Changes in fair value of net investment hedges are recorded in AOCI and offset the change in the value of the net investment being hedged. For the year ended December 31, 2021, unrealized gain of $81 related to net investment hedge fair value changes were recorded in AOCI and no significant amounts were reclassified from AOCI to Interest expense.

No significant amounts were excluded from the assessment of net investment, fair value or cash flow hedge effectiveness as of December 31, 2021.

Undesignated Hedging Instruments

Gains or losses on undesignated foreign exchange hedging instruments are immediately recognized in Other (income) and expense, net. A loss of $5 and a gain of $39 and a loss of $17 were recorded in the years ending December 31, 2021, 2020 and 2019, 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 December 31, 2021, the notional amount of these undesignated derivative instruments was approximately $2.2 billion.

55KIMBERLY-CLARK CORPORATION - 2021 Annual Report

Note 13. Income Taxes

An analysis of the provision for income taxes follows:

Year Ended December 31
202120202019
Current income taxes
United States$179$252$215
State358194
Other countries335298238
Total549631547
Deferred income taxes
United States(18)6250
State(1)5(16)
Other countries(51)(22)(5)
Total(70)4529
Total provision for income taxes$479$676$576

Income before income taxes is earned in the following tax jurisdictions:

Year Ended December 31
202120202019
United States$1,580$2,336$2,252
Other countries645594398
Total income before income taxes$2,225$2,930$2,650
56KIMBERLY-CLARK CORPORATION - 2021 Annual Report

Deferred income tax assets and liabilities are composed of the following:

December 31
20212020
Deferred tax assets
Pension and other postretirement benefits$215$239
Tax credits and loss carryforwards531477
Lease liability116117
Prepaid royalties1171
Other355464
1,3341,298
Valuation allowances(279)(272)
Total deferred tax assets1,0551,026
Deferred tax liabilities
Property, plant and equipment, net921900
Investments in subsidiaries105111
Intangible assets156159
Lease asset114117
Other228200
Total deferred tax liabilities1,5241,487
Net deferred tax assets (liabilities)$(469)$(461)

Valuation allowances at the end of 2021 primarily relate to tax credits, capital loss carryforwards, and income tax loss carryforwards of $1,286. If these items are not utilized against taxable income, $682 of the income tax loss carryforwards will expire from 2022 through 2041. The remaining $604 has no expiration date.

Realization of income tax loss carryforwards is dependent on generating sufficient taxable income prior to expiration of these carryforwards. Although realization is not assured, we believe it is more likely than not that all of the deferred tax assets, net of applicable valuation allowances, will be realized. The amount of the deferred tax assets considered realizable could be reduced or increased due to changes in the tax environment or if estimates of future taxable income change during the carryforward period.

Presented below is a reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the actual effective tax rate:

Year Ended December 31
202120202019
U.S. statutory rate applied to income before income taxes21.0%21.0%21.0%
State income taxes, net of federal tax benefit1.22.32.5
Routine tax incentives(5.8)(4.3)(3.5)
Nondeductible expenses1.50.80.4
Net tax cost on foreign income2.42.71.5
Valuation allowance2.40.71.0
Nonrecurring capital loss——(1.8)
Other - net(a)(1.2)(0.1)0.6
Effective income tax rate21.5%23.1%21.7%

(a) Other - net is composed of numerous items, none of which is greater than 1.05 percent of income before income taxes.

57KIMBERLY-CLARK CORPORATION - 2021 Annual Report

In December 2019, we generated a nonrecurring capital loss from a legal entity restructuring and recorded a net benefit of $47.

As of December 31, 2021, we have accumulated undistributed earnings generated by our foreign subsidiaries of approximately $7.8 billion. Earnings of $4.4 billion were previously subject to tax, primarily due to the one-time transition tax on foreign earnings required by the 2017 U.S. Tax Cuts and Jobs Act. Any additional taxes due with respect to such previously-taxed earnings, if repatriated, would generally be limited to foreign and U.S. state income taxes. Deferred taxes have been recorded on $0.8 billion of earnings, most of which were previously taxed for U.S. federal income tax purposes, of foreign consolidated subsidiaries expected to be repatriated. We do not intend to distribute the remaining $3.6 billion of previously-taxed foreign earnings and therefore have not recorded deferred taxes for foreign and U.S. state income taxes on such earnings.

We consider any excess of the amount for financial reporting over the tax basis in our foreign subsidiaries to be indefinitely reinvested. The determination of deferred tax liabilities on the amount of financial reporting over tax basis or the $3.6 billion of previously taxed foreign earnings is not practicable.

Presented below is a reconciliation of the beginning and ending amounts of unrecognized income tax benefits:

202120202019
Balance at January 1$497$383$298
Gross increases for tax positions of prior years6214436
Gross decreases for tax positions of prior years(37)(34)(13)
Gross increases for tax positions of the current year423687
Settlements(39)(22)(13)
Other(19)(10)(12)
Balance at December 31$506$497$383

Of the amounts recorded as unrecognized tax benefits at December 31, 2021, $432 would reduce our effective tax rate if recognized.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During each of the three years ended December 31, 2021, the net impact of interest and penalties was not significant. Total accrued penalties and net accrued interest was $24 and $20 at December 31, 2021 and 2020, respectively.

It is reasonably possible that a number of uncertainties could be resolved within the next 12 months. The aggregate resolution of the uncertainties could be up to $210, while none of the uncertainties is individually significant. Resolution of these matters is not expected to have a material effect on our financial condition, results of operations or liquidity.

As of December 31, 2021, the following tax years remain subject to examination for the major jurisdictions where we conduct business:

JurisdictionYears
United States2016to2021
United Kingdom2017to2021
Brazil2015to2021
China2009to2021
South Korea2019to2021

Our U.S. federal income tax returns have been audited through 2015 and U.S. federal income tax amended returns are subject to audit for 2013-2015.

State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective return. The state effect of any changes to filed federal positions remains subject to examination by various states for a period of up to two years after formal notification to the states. We have various state income tax return positions in the process of examination, administrative appeals or litigation.

58KIMBERLY-CLARK CORPORATION - 2021 Annual Report

The Brazilian tax authority, Secretaria da Receita Federal do Brasil ("RFB"), concluded an audit for the taxable periods from 2008-2013. This audit included a review of our determinations of amortization of certain goodwill arising from prior acquisitions in Brazil, and the RFB has proposed adjustments that effectively eliminate the goodwill amortization benefits related to these transactions. Administrative appeals have been exhausted, and the dispute is moving into the judicial phase. The amount of the proposed tax adjustments and penalties is approximately $80 as of December 31, 2021 (translated at the December 31, 2021 currency exchange rate). The amount ultimately in dispute will be significantly greater because of interest. We believe we have meritorious defenses and intend to vigorously defend against these proposed adjustments; however, it is expected to take a number of years to reach resolution of this matter.

The U.S. Internal Revenue Service ("IRS") is currently auditing our federal tax return for the taxable years ended December 31, 2017 and 2018. As part of this tax audit, the IRS is reviewing our one-time transition tax on certain undistributed earnings of foreign subsidiaries. The IRS has proposed an adjustment that would increase the amount of the transition tax owed by us. We believe we have adequate reserves and meritorious defenses and intend to vigorously defend against the proposed adjustment; however, it is expected to take a number of years to reach resolution of this matter.

Note 14. Earnings Per Share ("EPS")

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

(Millions of shares)202120202019
Basic337.3340.7343.6
Dilutive effect of stock options and restricted share unit awards1.51.82.0
Diluted338.8342.5345.6

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 were insignificant. The number of common shares outstanding (in millions) as of December 31, 2021, 2020 and 2019 was 336.8, 338.7 and 341.4, respectively.

Note 15. 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, acquisition-related costs associated with the acquisition of Softex Indonesia as described in Note 3, and business tax credits related to the resolution of certain Brazil tax matters as described in Note 1.

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, Sweety, Kotex, U by Kotex, Intimus, Depend, Plenitud, Softex, Poise and other brand names.

  • Consumer Tissue offers a wide variety of innovative solutions and trusted brands that responsibly improve everyday living for families around the world. 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

59KIMBERLY-CLARK CORPORATION - 2021 Annual Report

sanitizers. Our brands, including Kleenex, Scott, WypAll, Kimtech and KleenGuard are well known for quality and trusted to help people around the world work better.

Net sales to Walmart Inc. as a percent of our consolidated net sales were approximately 14 percent in 2021, 15 percent in 2020 and 14 percent in 2019. Net sales to Walmart Inc. were primarily in the Personal Care and Consumer Tissue segments.

Information concerning consolidated operations by business segment is presented in the following tables:

Consolidated Operations by Business Segment

Year Ended December 31
202120202019
NET SALES**(a)**
Personal Care$10,267$9,339$9,108
Consumer Tissue6,0346,7185,993
K-C Professional3,0723,0193,292
Corporate & Other676457
TOTAL NET SALES$19,440$19,140$18,450
OPERATING PROFIT**(b)**
Personal Care$1,856$1,933$1,904
Consumer Tissue8881,4481,007
K-C Professional404528657
Corporate & Other(c)(559)(719)(787)
Other (income) and expense, net(d)28(54)(210)
TOTAL OPERATING PROFIT$2,561$3,244$2,991

(a)Net sales in the U.S. to third parties totaled $9,285, $9,679 and $9,027 in 2021, 2020 and 2019, respectively. No other individual country's net sales exceeds 10 percent of total net sales.

(b) Segment operating profit excludes Other (income) and expense, net and income and expenses not associated with the business segments.

(c) Corporate & Other includes charges of $265, $392 and $515 related to the 2018 Global Restructuring Program in 2021, 2020 and 2019, respectively. Restructuring charges for the 2018 Global Restructuring Program related to the Personal Care, Consumer Tissue and K-C Professional business segments were $104, $118 and $40 for 2021, $156, $176 and $53 for 2020 and $252, $176 and $75 for 2019, respectively. Corporate & Other also includes acquisition-related costs of $32 associated with the acquisition of Softex Indonesia in 2020.

(d) Other (income) and expense, net for 2020 includes business tax credits of $77 related to a favorable legal ruling that resolved certain matters related to prior years' business taxes in Brazil. For 2019, it includes income of $31 from a gain on the sale of property associated with a former manufacturing facility that was closed in 2012 as part of a past restructuring, and it includes income of $194 related to the 2018 Global Restructuring Program.

60KIMBERLY-CLARK CORPORATION - 2021 Annual Report
Personal CareConsumer TissueK-C ProfessionalCorporate & OtherTotal
Depreciation and Amortization
2021$355$291$116$4$766
20203473341114796
20194303721114917
Capital Spending
2021536303157111,007
202061639120461,217
201951848919571,209
Assets
20218,8905,0832,6501,21417,837
20208,4865,2272,5511,25917,523
20196,6304,9542,4421,25715,283

Sales of Principal Products

(Billions of dollars)202120202019
Baby and child care products$7.2$6.4$6.3
Consumer tissue products6.06.76.0
Away-from-home professional products3.13.03.3
All other3.13.02.9
Consolidated$19.4$19.1$18.5

Note 16. Supplemental Data

Supplemental Income Statement Data

Year Ended December 31
202120202019
Advertising expense$893$956$757
Research expense269276284
61KIMBERLY-CLARK CORPORATION - 2021 Annual Report

Equity Companies' Data

Net SalesGross ProfitOperating ProfitNet IncomeCorporation's Share of Net Income
2021$2,501$696$398$205$98
20202,358786507299142
20192,379727454255123
Current AssetsNoncurrent AssetsCurrent LiabilitiesNoncurrent LiabilitiesStockholders' Equity
2021$1,283$1,219$809$1,334$360
20201,5851,2038421,563382
20191,0201,2757491,196350

Equity companies are principally engaged in operations in the personal care and consumer tissue businesses. At December 31, 2021, our ownership interest in KCM and subsidiaries was 47.9 percent. KCM is partially owned by the public, and its stock is publicly traded in Mexico. At December 31, 2021, our investment in this equity company was $196, and the estimated fair value of the investment was $2.5 billion based on the market price of publicly traded shares. Our other equity ownership interests are not significant to our consolidated balance sheet or financial results.

At December 31, 2021, undistributed net income of equity companies included in consolidated retained earnings was $1.1 billion.

Supplemental Balance Sheet Data

December 31
Summary of Accounts Receivable, Net20212020
From customers$2,092$2,132
Other170153
Less allowance for doubtful accounts and sales discounts(55)(50)
Total$2,207$2,235
December 31
20212020
Summary of Inventories by Major ClassLIFONon- LIFOTotalLIFONon- LIFOTotal
Raw materials$141$352$493$131$263$394
Work in process1538924210386189
Finished goods6078351,4424537491,202
Supplies and other—280280—263263
9011,5562,4576871,3612,048
Excess of FIFO or weighted-average cost over LIFO cost(218)—(218)(145)—(145)
Total$683$1,556$2,239$542$1,361$1,903

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.

62KIMBERLY-CLARK CORPORATION - 2021 Annual Report
December 31
Summary of Property, Plant and Equipment, Net20212020
Land$169$174
Buildings2,9932,932
Machinery and equipment14,60614,382
Construction in progress760845
18,52818,333
Less accumulated depreciation(10,431)(10,291)
Total$8,097$8,042

Property, plant and equipment, net in the U.S. as of December 31, 2021 and 2020 was $4,165 and $3,981, respectively.

December 31
Summary of Accrued Expenses and Other Current Liabilities20212020
Accrued advertising and promotion$434$443
Accrued salaries and wages403531
Accrued rebates249255
Accrued taxes - income and other323332
Operating leases130133
Accrued restructuring7573
Accrued interest8587
Other397408
Total$2,096$2,262

Supplemental Cash Flow Statement Data

Summary of Cash Flow Effects of Operating Working CapitalYear Ended December 31
202120202019
Accounts receivable$(37)$95$(116)
Inventories(417)(96)24
Trade accounts payable627239(153)
Accrued expenses(124)13211
Accrued income taxes(4)42(6)
Derivatives30(9)1
Currency and other(29)(40)(49)
Total$46$363$(288)
Year Ended December 31
Other Cash Flow Data202120202019
Interest paid$243$245$255
Income taxes paid492533528
63KIMBERLY-CLARK CORPORATION - 2021 Annual Report

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Kimberly-Clark Corporation:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Kimberly-Clark Corporation and subsidiaries (the "Corporation") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Table of Contents at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Corporation's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 10, 2022, expressed an unqualified opinion on the Corporation's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the Corporation's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Sales Incentives and Trade Promotion Allowances —Refer to Note 1 to the financial statements

Critical Audit Matter Description

The Corporation utilizes various trade promotion programs globally. The cost of promotion activities is classified as a reduction in sales revenue and can result in a period of time between the date the customer earns a promotion and the date the customer claims the promotion. The Corporation records an accrual for estimated promotions using customer sales associated with valid promotion events, actual promotion claims, and forecasted information of amounts earned by the customer but not yet claimed. As of December 31, 2021, the accrual balance was approximately $405 million.

We identified trade promotions and the related accrual as a critical audit matter because of the complexity and volume of the Corporation’s processes related to trade promotion programs and the subjectivity of estimating future customer claims. This required an extensive audit effort due to the complexity and volume of the trade promotion programs and information systems utilized globally as well as the subjectivity of estimating future customer claims related to the trade promotion accrual.

64KIMBERLY-CLARK CORPORATION - 2021 Annual Report

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the reduction in revenue associated with trade promotions and the related accrual included the following, among others:

  • With the assistance of our IT specialists, we:

- Identified the significant systems used to process trade promotion transactions and tested the general IT controls over each of these systems, including testing of user access controls, change management controls, and IT operations controls

- Tested the effectiveness of automated controls over revenue streams, including those over the evaluation of the accuracy and completeness of trade promotions

  • We tested the effectiveness of controls over the trade promotions and the related accrual, including those over the quantity of customer sales associated with valid promotion events and the estimated future promotion claims associated with the trade accrual.

  • We evaluated gross sales and promotion transactions using either analytical procedures or by evaluating individual transactions. When analytical procedures were performed, we predicted gross sales based on the relationship with either cost of products sold or sales volume and average sales price per unit adjusted for changes in data such as changes in product mix, sales margin, or inflation. When individual promotion transactions were evaluated, we obtained evidence of the promotion agreement with the customer and the amounts of the promotions earned.

  • We evaluated management’s ability to estimate future promotion claims by comparing actual promotion claims to management’s historical estimates.

  • We evaluated the reasonableness of management’s estimate of future promotion claims by testing the underlying data related to (1) customer sales associated with valid promotion events, (2) actual promotion claims, and (3) forecasted information.

/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Dallas, Texas
February 10, 2022

We have served as the Corporation’s auditor since 1928.

65KIMBERLY-CLARK CORPORATION - 2021 Annual Report

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