FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from.............to......................
Commission file number 1-225
KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 39-0394230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 619100
DALLAS, TEXAS
75261-9100
(Address of principal executive offices)
(Zip Code)
(972) 281-1200
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------. ------.
AS OF NOVEMBER 5, 2001, THERE WERE 525,152,502 SHARES OF THE CORPORATION'S
COMMON STOCK OUTSTANDING.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED INCOME STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Three Months Nine Months
Ended September 30 Ended September 30
-----------------------------------------------
(Millions of dollars except per share amounts) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------
NET SALES . . . . . . . . . . . . . . . . . . . . . . . $3,710.0 $3,529.5 $10,852.6 $10,381.2
Cost of products sold . . . . . . . . . . . . . . . . 2,161.8 2,098.1 6,416.5 6,111.1
-------- -------- --------- ---------
GROSS PROFIT 1,548.2 1,431.4 4,436.1 4,270.1
Advertising, promotion and selling expenses . . . . . 616.1 515.2 1,723.7 1,601.4
Research expense. . . . . . . . . . . . . . . . . . . 73.9 67.4 215.8 197.0
General expense . . . . . . . . . . . . . . . . . . . 189.0 174.0 551.2 540.5
Goodwill amortization . . . . . . . . . . . . . . . . 22.7 21.6 67.0 60.6
Other (income) expense, net . . . . . . . . . . . . . 17.4 11.1 27.6 (88.5)
-------- -------- --------- ---------
OPERATING PROFIT 629.1 642.1 1,850.8 1,959.1
Interest income . . . . . . . . . . . . . . . . . . . 4.1 4.4 12.8 19.4
Interest expense. . . . . . . . . . . . . . . . . . . (46.5) (58.8) (145.4) (162.2)
-------- -------- --------- ---------
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . 586.7 587.7 1,718.2 1,816.3
Provision for income taxes. . . . . . . . . . . . . . 173.7 181.0 512.9 566.1
-------- -------- --------- ---------
INCOME BEFORE EQUITY INTERESTS. . . . . . . . . . . . . 413.0 406.7 1,205.3 1,250.2
Share of net income of equity companies . . . . . . . 30.2 52.4 122.3 141.1
Minority owners' share of subsidiaries' net income. . (23.8) (18.7) (59.4) (46.4)
-------- -------- --------- ---------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . $ 419.4 $ 440.4 $ 1,268.2 $ 1,344.9
======== ======== ========= =========
NET INCOME PER SHARE:
Basic . . . . . . . . . . . . . . . . . . . . . . . . $ .79 $ .82 $ 2.39 $ 2.48
======== ======== ======== =========
Diluted . . . . . . . . . . . . . . . . . . . . . . . $ .79 $ .81 $ 2.37 $ 2.46
======== ======== ======== =========
CASH DIVIDENDS DECLARED . . . . . . . . . . . . . . . . $ .28 $ .27 $ .84 $ .81
======== ======== ======== =========
Unaudited
See Notes to Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEET
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, December 31,
(Millions of dollars) 2001 2000
- -----------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . $ 336.4 $ 206.5
Accounts receivable. . . . . . . . . . . . . . . . 1,811.0 1,809.6
Inventories. . . . . . . . . . . . . . . . . . . . 1,473.8 1,390.4
Other current assets . . . . . . . . . . . . . . . 355.0 383.4
--------- ---------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . 3,976.2 3,789.9
PROPERTY . . . . . . . . . . . . . . . . . . . . . . 12,858.0 12,014.8
Less accumulated depreciation. . . . . . . . . . . 5,539.4 5,096.3
--------- ---------
NET PROPERTY . . . . . . . . . . . . . . . . . . 7,318.6 6,918.5
INVESTMENTS IN EQUITY COMPANIES. . . . . . . . . . . 695.5 798.8
GOODWILL, NET OF ACCUMULATED AMORTIZATION. . . . . . 2,008.8 2,009.9
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . 1,118.2 962.7
--------- ---------
$15,117.3 $14,479.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt payable within one year . . . . . . . . . . . $ 1,244.9 $ 1,490.5
Accounts payable . . . . . . . . . . . . . . . . . 1,040.2 1,175.9
Accrued expenses . . . . . . . . . . . . . . . . . 1,169.0 1,239.8
Other current liabilities. . . . . . . . . . . . . 778.3 667.7
--------- ---------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . 4,232.4 4,573.9
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . 2,113.8 2,000.6
NONCURRENT EMPLOYEE BENEFIT AND OTHER OBLIGATIONS. . 904.5 869.2
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . 1,049.5 987.5
MINORITY OWNERS' INTERESTS IN SUBSIDIARIES . . . . . 347.6 281.3
PREFERRED SECURITIES OF SUBSIDIARY . . . . . . . . . 533.6 -
STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . 5,935.9 5,767.3
--------- ---------
$15,117.3 $14,479.8
========= =========
Unaudited
See Notes to Consolidated Financial Statements.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Nine Months
Ended September 30
--------------------
(Millions of dollars) 2001 2000
- ----------------------------------------------------------------------------
OPERATIONS
Net income. . . . . . . . . . . . . . . . . . . . . $1,268.2 $ 1,344.9
Depreciation. . . . . . . . . . . . . . . . . . . . 475.4 444.3
Goodwill amortization . . . . . . . . . . . . . . . 67.0 60.6
Changes in operating working capital. . . . . . . . (197.2) (323.1)
Other . . . . . . . . . . . . . . . . . . . . . . . 51.6 (8.6)
-------- ---------
CASH PROVIDED BY OPERATIONS . . . . . . . . . . . 1,665.0 1,518.1
-------- ---------
INVESTING . . . . . . . . . . . . . . . . . . . . . .
Capital spending. . . . . . . . . . . . . . . . . . (799.8) (770.6)
Acquisitions of businesses, net of cash acquired. . (97.6) (169.3)
Proceeds from investments . . . . . . . . . . . . . 25.7 38.9
Investments in marketable securities. . . . . . . . (19.7) -
Proceeds from notes receivable. . . . . . . . . . . - 220.0
Other . . . . . . . . . . . . . . . . . . . . . . . (40.2) (22.4)
-------- ---------
CASH USED FOR INVESTING . . . . . . . . . . . . . (931.6) (703.4)
-------- ---------
FINANCING . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . (442.2) (435.4)
Changes in debt payable within one year . . . . . . (23.4) 541.4
Increases in long-term debt . . . . . . . . . . . . 60.4 336.8
Decreases in long-term debt . . . . . . . . . . . . (252.6) (316.2)
Issuance of preferred securities of subsidiary. . . 516.5 -
Proceeds from exercise of stock options . . . . . . 87.2 45.6
Acquisitions of common stock for the treasury . . . (547.7) (1,087.5)
Other . . . . . . . . . . . . . . . . . . . . . . . (1.7) .9
-------- --------
CASH USED FOR FINANCING . . . . . . . . . . . . . (603.5) (914.4)
-------- --------
INCREASE(DECREASE)IN CASH AND CASH EQUIVALENTS. . . . $ 129.9 $ (99.7)
======== =========
Unaudited
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
1. The unaudited consolidated financial statements of Kimberly-Clark
Corporation (the "Corporation") have been prepared on a basis consistent with
that used in the Annual Report on Form 10-K for the year ended December 31,
2000, and include all normal recurring adjustments necessary to present
fairly the condensed consolidated balance sheet, consolidated income
statement and condensed consolidated cash flow statement for the periods
indicated.
Statements of Financial Accounting Standards ("SFAS") 141, Business
Combinations, and 142, Goodwill and Other Intangible Assets, were issued in
June 2001. SFAS 141 became effective July 1, 2001 and SFAS 142 is effective
for fiscal years beginning after December 15, 2001. Under these new
standards, goodwill and intangible assets having indefinite lives will no
longer be amortized but will be subject to annual impairment tests. Other
intangible assets will continue to be amortized over their estimated useful
lives.
SFAS 142 will be adopted beginning in the first quarter of 2002. Application
of the nonamortization provisions of SFAS 142 would have increased reported
net income for the full year 2000 by approximately $88.3 million, or $.16 per
share. During 2002, the Corporation will perform the required impairment
tests of goodwill and indefinite lived intangible assets as of January 1,
2002.
SFAS 143, Accounting for Asset Retirement Obligations, was issued in June
2001 and is effective for fiscal years beginning after June 15, 2002.
SFAS 143 requires that any legal obligation related to the retirement of
long-lived assets be quantified and recorded as a liability with the
associated asset retirement cost capitalized on the balance sheet in the
period it is incurred when a reasonable estimate of the fair value of
the liability can be made.
SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
was issued in August 2001 and is effective for fiscal years beginning
after December 15, 2001. SFAS 144 provides a single, comprehensive accounting
model for impairment and disposal of long-lived assets and discontinued
operations.
SFAS 143 and SFAS 144 will be adopted on their effective dates, and
adoption is not expected to result in any material effects on the
Corporation's financial statements.
In April 2001, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board issued EITF 00-25, Accounting for Consideration
from a Vendor to a Retailer in Connection with the Purchase or Promotion of
the Vendor's Products. Under EITF 00-25, the cost of promotion activities
offered to customers will be classified as a reduction in sales revenue. The
Corporation is currently reviewing the rule and plans to adopt EITF 00-25, as
required, in the first quarter of 2002. Adoption is not expected to change
reported earnings.
Also in April 2001, the EITF delayed implementation of EITF 00-14, Accounting
for Certain Sales Incentives, to coincide with the implementation date for
EITF 00-25. Under EITF 00-14, the estimated redemption value of consumer
coupons must be recorded at the time the coupons are issued and classified as
a reduction in sales revenue. The Corporation will adopt EITF 00-14 in the
first quarter of 2002 and will reclassify the face value of coupons and
similar discounts ("Discounts") as a reduction in revenue for all periods
presented. Discounts recorded as promotion expense during the third quarter
and nine months ended September 30, 2001 were approximately $48 million and
$143 million, respectively. Discounts recorded as promotion expense during
the third quarter and nine months ended September 30, 2000 were approximately
$37 million and $132 million, respectively. Upon adoption of EITF 00-14, the
Corporation will report a cumulative effect of a
change in accounting principle, resulting from a change in the period for
recognizing the face value of coupons, which at December 31, 2000 was
estimated to be an after-tax charge equal to approximately $.02 per share.
2. There are no adjustments required to be made to net income for purposes
of computing basic and diluted earnings per share ("EPS"). The average number
of common shares outstanding used in the basic EPS computations is reconciled
to those used in the diluted EPS computation as follows:
Average Common Shares Outstanding
--------------------------------------
Third Quarter Nine Months
Ended Sept. 30 Ended Sept. 30
--------------------------------------
(Millions) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . 529.0 537.0 531.4 541.5
Dilutive effect of stock options. . . . . . . . . . . . . 3.0 3.3 3.7 3.6
Dilutive effect of deferred compensation plan
shares. . . . . . . . . . . . . . . . . . . . . . . . . .2 .2 .2 .1
Dilutive effect of shares issued for participation share
awards. . . . . . . . . . . . . . . . . . . . . . . . . - - - .4
----- ----- ----- -----
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 532.2 540.5 535.3 545.6
===== ===== ===== =====
Options outstanding during the third quarter and nine months ended
September 30, 2001 to purchase 5.9 million and 4.9 million shares of common
stock, respectively, were not included in the computation of diluted EPS
because the exercise prices of the options were greater than the average
market price of the common shares.
Options outstanding during both the third quarter and nine months ended
September 30, 2000 to purchase .6 million shares of common stock were not
included in the computation of diluted EPS because the exercise prices of the
options were greater than the average market price of the common shares.
The number of common shares outstanding as of September 30, 2001 and 2000
was 526.2 million and 533.6 million, respectively.
3. Details of inventories by major class as of September 30, 2001 and
December 31, 2000 are as follows:
SEPTEMBER 30, December 31,
(Millions of dollars) 2001 2000
- -----------------------------------------------------------------------------------------------
At lower of cost on the First-In,
First-Out (FIFO) method or market:
Raw materials. . . . . . . . . . . . . . . . . . . . . . $ 359.1 $ 387.2
Work in process. . . . . . . . . . . . . . . . . . . . . 172.3 159.1
Finished goods . . . . . . . . . . . . . . . . . . . . . 891.9 840.1
Supplies and other . . . . . . . . . . . . . . . . . . . 224.7 220.0
-------- --------
1,648.0 1,606.4
Excess of FIFO cost over Last-In, First-Out (LIFO) cost. . (174.2) (216.0)
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . $1,473.8 $1,390.4
======== ========
4. Detail of accrued consumer coupon redemption costs is as follows:
Third Quarter Nine Months
Ended Sept. 30 Ended Sept.30
------------------ ------------------
(Millions of dollars) 2001 2000 2001 2000
- ----------------------------------------------------------------------------------
Beginning balance . . . . . . . . . . $ 51.8 $ 53.9 $ 54.0 $ 58.7
Additions charged to expense. . . . . 40.1 43.0 117.9 121.5
Payments. . . . . . . . . . . . . . . (38.3) (29.6) (116.4) (106.4)
Changes in estimates. . . . . . . . . (2.3) (17.3) (3.8) (23.4)
Currency rate changes . . . . . . . . - (.3) (.4) (.7)
------ ----- ------- -------
Ending balance. . . . . . . . . . . . $ 51.3 $ 49.7 $ 51.3 $ 49.7
====== ====== ======= =======
5. Detail of comprehensive income is as follows:
Nine Months
Ended Sept. 30
--------------------------
(Millions of dollars) 2001 2000
- -------------------------------------------------------------------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . $1,268.2 $1,344.9
Unrealized currency translation adjustments . . . . . . (190.0) (212.3)
Deferred gains on cash flow hedges, net of tax. . . . . (1.2) -
Unrealized holding gains on securities. . . . . . . . . .4 -
-------- --------
Comprehensive income. . . . . . . . . . . . . . . . . . $1,077.4 $1,132.6
======== ========
6. Information concerning consolidated operations by business segment is
as follows:
Third Quarter Nine Months
Ended Sept.30 Ended Sept.30
-------------------- ---------------------
(Millions of dollars) 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------
NET SALES:
Tissue . . . . . . . . . . . . . . . . . . . . . . . . $1,918.7 $1,845.3 $ 5.619.3 $ 5,423.3
Personal Care. . . . . . . . . . . . . . . . . . . . . 1,473.6 1,374.9 4,264.4 4,034.0
Health Care and Other. . . . . . . . . . . . . . . . . 327.0 322.3 999.7 962.0
Intersegment Sales . . . . . . . . . . . . . . . . . . (9.3) (13.0) (30.8) (38.1)
-------- -------- -------- ---------
Consolidated . . . . . . . . . . . . . . . . . . . . . $3,710.0 $3,529.5 $10,852.6 $10,381.2
======== ======== ========= =========
OPERATING PROFIT (reconciled to income before taxes):
Tissue . . . . . . . . . . . . . . . . . . . . . . . . $ 331.4 $ 335.4 $ 975.6 $ 961.0
Personal Care. . . . . . . . . . . . . . . . . . . . . 289.1 287.5 816.9 836.9
Health Care and Other. . . . . . . . . . . . . . . . . 47.9 46.4 143.1 137.1
Other income (expense), net. . . . . . . . . . . . . . (17.4) (11.1) (27.6) 88.5
Unallocated items - net. . . . . . . . . . . . . . . . (21.9) (16.1) (57.2) (64.4)
-------- -------- --------- ---------
Total Operating Profit . . . . . . . . . . . . . . . . 629.1 642.1 1,850.8 1,959.1
Interest income. . . . . . . . . . . . . . . . . . . 4.1 4.4 12.8 19.4
Interest expense . . . . . . . . . . . . . . . . . . (46.5) (58.8) (145.4) (162.2)
-------- -------- --------- --------
Income Before Income Taxes . . . . . . . . . . . . . . $ 586.7 $ 587.7 $ 1,718.2 $ 1,816.3
======== ======== ========= =========
Description of Business Segments:
The Tissue segment manufactures and markets facial and bathroom tissue, paper
towels, wipers and napkins for household and away-from-home use; wet wipes;
printing, premium business and correspondence papers; and related products.
Products in this segment are sold under the Kleenex, Scott, Kimberly-Clark,
Kleenex Cottonelle, Kleenex Viva, Huggies, Kimwipes, WypAll, Surpass and other
brand names.
The Personal Care segment manufactures and markets disposable diapers,
training and youth pants and swimpants; feminine and incontinence care
products; and related products. Products in this segment are primarily for
household use and are sold under a variety of well-known brand names,
including Huggies, Pull-Ups, Little Swimmers, GoodNites, Kotex, Lightdays,
Depend, Poise and other brand names.
The Health Care and Other segment manufactures and markets health care
products such as surgical gowns, drapes, infection control products,
sterilization wraps, disposable face masks and exam gloves, respiratory
products and other disposable medical products; specialty and technical
papers; and other products. Products in this segment are sold under the
Kimberly-Clark, Safeskin, Tecnol, Ballard and other brand names.
Unaudited
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
THIRD QUARTER OF 2001 COMPARED WITH THIRD QUARTER OF 2000
By Business Segment
(Millions of dollars)
Net Sales 2001 2000
- ---------------------------------------------------------------------------------------
Tissue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,918.7 $1,845.3
Personal Care. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,473.6 1,374.9
Health Care and Other. . . . . . . . . . . . . . . . . . . . . . . 327.0 322.3
Intersegment Sales . . . . . . . . . . . . . . . . . . . . . . . . (9.3) (13.0)
-------- --------
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,710.0 $3,529.5
======== ========
Commentary:
Consolidated net sales for the quarter increased 5.1 percent over 2000.
Excluding currency effects, net sales increased about 8 percent, with
improvement in each business segment. Sales volumes were approximately 6
percent higher and selling prices increased about 2 percent. Net sales in the
third quarter of 2001 included approximately $120 million as a result of the
Corporation's acquisition of an additional 5 percent of Kimberly-Clark
Australia Pty. Limited ("KCA"), increasing ownership of its former equity
affiliate to 55 percent. Consequently, effective July 1, KCA became a
consolidated subsidiary.
- - Worldwide net sales of tissue products rose 4.0 percent compared with
the third quarter of 2000. Excluding currency effects, the sales gain was
more than 6 percent. The consolidation of KCA made a significant contribution
to the improvement and selling prices were approximately 2 percent higher,
mainly due to price increases implemented in North America and Europe over
the past year. In North America, sales of consumer tissue products climbed 10
percent, led by higher sales of Cottonelle and Scott bathroom tissue, Viva
and Scott paper towels and Huggies baby wipes. In total, sales volumes
increased 6 percent and prices were 4 percent higher. Sales volumes for
away-from-home products in North America were more than 2 percent lower, with
a sharp decline in sales following September 11. In other regions, sales
volumes of tissue products rose more than 50 percent in Asia
(8 percent excluding KCA), highlighted by continued good growth in
Korea, but were lower by about 4 percent in Europe and 7 percent in
Latin America.
- - Worldwide net sales of personal care products rose 7.2 percent compared
with the third quarter of 2000, and were up over 10 percent before
currency effects. Sales volumes advanced about 10 percent, with
increases in every region of the world, and selling prices were 1
percent higher. The sales volume gains were highlighted by continued
double-digit growth in volumes of Huggies diapers in Europe, including
the benefit of the January 2001 acquisition of Linostar Spa.
("Linostar") in Italy, and strong sales of Pull-Ups training pants,
GoodNites youth pants and Little Swimmers swimpants in North America.
Sales volumes also rose more than 40 percent in Asia (7 percent excluding
KCA), with continuing market share gains in Korea, and were 11 percent
higher in Latin America, despite difficult market conditions in Brazil.
- - Worldwide net sales of health care and other products increased 1.5
percent. Sales of health care products were up about 6 percent, driven by
growth in sales volumes of nearly 8 percent. The improvement, however, was
largely offset by soft demand for other products in the segment.
Unusual Items:
During the third quarter and first nine months of 2001 and 2000, the
Corporation recorded the following unusual items ("Unusual Items"), which for
the purpose of facilitating a meaningful discussion of ongoing operations have
been excluded in the "Excluding Unusual Items" columns in the Operating Profit
tables.
Third Quarter Nine Months
Ended September 30 Ended September 30
------------------ ------------------
(Millions of dollars) 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------
Charges (credits) to operating profit:
Business improvement charges. . . . . . . . . . . . . . $ 6.5 $ 5.5 $48.8 $ 21.0
Business integration and other costs. . . . . . . . . . 5.1 5.7 19.4 23.1
Litigation settlement . . . . . . . . . . . . . . . . . - 14.6 - 14.6
Patent settlement and accrued liability reversal. . . . - - - (75.8)
----- ----- ----- ------
Total charges (credits) . . . . . . . . . . . . . . . $11.6 $25.8 $68.2 $(17.1)
===== ===== ===== ======
Income Statement Classification of Unusual Items:
- -----------------------------------------------------
Third Quarter Nine Months
Ended September 30 Ended September 30
------------------ ------------------
(Millions of dollars) 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------
Cost of products sold . . . . . . . . . . . . . . . . . $ 7.0 $ 4.3 $50.8 $ 23.3
Advertising, promotion and selling expenses . . . . . . .7 2.0 2.7 5.5
Research expense. . . . . . . . . . . . . . . . . . . . - .1 - .1
General expense . . . . . . . . . . . . . . . . . . . . 3.9 4.8 14.2 15.2
Other (income) expense, net . . . . . . . . . . . . . . - 14.6 .5 (61.2)
----- ----- ----- ------
Total pretax charge (credit). . . . . . . . . . . . . . $11.6 $25.8 $68.2 $(17.1)
===== ===== ===== ======
- - The 2001 business improvement charges primarily relate to workforce
severance and asset consolidation programs to streamline personal
care operations in North America and China. The 2000 charges primarily
were for accelerated depreciation stemming from business improvement
programs announced in 1998.
- - Costs to integrate acquired businesses into the Corporation's existing
operations were recorded in both 2001 and 2000. Also in 2000, a downward
revision in the estimated market value of certain nonproductive assets
was recorded.
- - In the third quarter of 2000, the Corporation reached an agreement to
settle litigation and accordingly recorded a charge related to this
settlement.
- - In 2000, as part of a patent settlement, the Corporation was compensated
for royalty income related to prior years. The settlement, together with the
reversal of certain estimated accrued liabilities, related to the 1997 sale
of a pulp and newsprint mill that ceased to be required, was recorded in
other income.
2001 2000
------------------------ -------------------------
AS EXCLUDING As Excluding
Operating Profit REPORTED UNUSUAL ITEMS Reported Unusual Items
- -------------------------------------------------------------------------------------
Tissue . . . . . . . . . . . . . $ 331.4 $334.0 $335.4 $340.2
Personal Care. . . . . . . . . . 289.1 294.5 287.5 288.4
Health Care and Other. . . . . . 47.9 51.5 46.4 51.9
Other income (expense), net. . . (17.4) (17.4) (11.1) 3.5
Unallocated items - net. . . . . (21.9) (21.9) (16.1) (16.1)
------- ------ ------ ------
Consolidated . . . . . . . . . . $ 629.1 $640.7 $642.1 $667.9
======= ====== ====== ======
Note: Unallocated items - net, consists of expenses not associated with
the business segments.
Commentary:
Excluding Unusual Items, operating profit declined 4.1 percent to $640.7
million in the third quarter of 2001 compared with $667.9 million in 2000.
Increased sales volumes and higher selling prices contributed positively.
However, weakness of key currencies, including the Australian dollar, the
euro, the British pound, the Brazilian real and the South Korean won reduced
operating profit approximately $42 million compared with the third quarter of
2000. In addition, the third quarter of 2001 included net costs of $27
million related to the Corporation's new Cottonelle Fresh rollwipes operations
and the start-up of three new tissue machines. Lower fiber costs of
approximately $60 million were more than offset by a step-up in advertising
and promotion expenses for both new product introductions and increased levels
of competitive activity.
- - Operating profit for the tissue segment declined 1.8 percent from 2000,
as higher costs, primarily for marketing support, equipment start-ups and
energy, offset the combined benefits from higher sales, lower fiber costs and
the consolidation of KCA.
- - Operating profit for the personal care segment increased 2.1 percent
compared with the third quarter of 2000. Segment results benefited from the
sales volume increases and higher selling prices for diapers in North America
and Europe. Operating profit in Latin America was below year-ago levels
primarily due to the continued difficult operating environment in Brazil,
where the decline in the value of the real has negatively affected market
conditions and pricing.
- - Operating profit for health care products increased approximately 20
percent from last year, but lower earnings for other products in the segment
resulted in a .8 percent decline in operating profit for the health care and
other segment.
- - The change in other income (expense), net is primarily due to currency
transactions, including losses in 2001 on forward contracts that hedge the
currency exposure for the purchase of the remaining 45 percent interest of
KCA.
By Geography
(Millions of dollars)
Net Sales 2001 2000
- -----------------------------------------------------------------------------------
North America. . . . . . . . . . . . . . . . . . . . . . . . $2,445.3 $2,369.3
Outside North America. . . . . . . . . . . . . . . . . . . . 1,419.4 1,256.7
Intergeographic Sales. . . . . . . . . . . . . . . . . . . . (154.7) (96.5)
-------- --------
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . $3,710.0 $3,529.5
======== ========
2001 2000
------------------------ -------------------------
AS EXCLUDING As Excluding
Operating Profit REPORTED UNUSUAL ITEMS Reported Unusual Items
- -------------------------------------------------------------------------------------
North America . . . . . . . . . $538.0 $546.1 $560.0 $567.7
Outside North America . . . . . 130.4 133.9 109.3 112.8
Other income (expense), net . . (17.4) (17.4) (11.1) 3.5
Unallocated items - net . . . . (21.9) (21.9) (16.1) (16.1)
------ ------ ------ ------
Consolidated. . . . . . . . . . $629.1 $640.7 $642.1 $667.9
====== ====== ====== ======
Note: Unallocated items - net, consists of expenses not associated with
the geographic areas.
Commentary:
- - Net sales in North America increased 3.2 percent compared with 2000
principally due to the higher sales volumes and selling prices for consumer
tissue and personal care products, and the higher sales volumes for health
care products, tempered by the lower sales volumes for away-from-home
products.
- - Net sales outside of North America rose 12.9 percent because of the
increased diaper sales in Europe, the higher sales volumes in Korea and the
consolidation of KCA, tempered by the negative currency effects.
- - Excluding the Unusual Items, operating profit in North America declined
3.8 percent because the higher start-up, energy and marketing costs exceeded
the effect of increased selling prices and sales volumes and lower fiber
costs. Also, fringe benefit costs increased in 2001 compared with the prior
year, primarily due to a decline in returns on pension assets.
- - Excluding the Unusual Items, operating profit outside of North America
increased 18.7 percent primarily due to the improved results in Korea and the
consolidation of KCA.
Additional Income Statement Commentary:
- - Interest expense decreased primarily due to lower interest rates.
- - Excluding the Unusual Items from both years, the effective tax rate was
29.8 percent in the third quarter of 2001 compared with 31.1 percent in 2000.
The lower tax rate was primarily because the mix of the Corporation's income
continues to shift to jurisdictions with lower effective tax rates and
resolution of certain prior years' income tax matters.
- - The Corporation's share of net income of equity companies in the third
quarter decreased to $30.2 million in 2001 from $52.4 million in 2000,
primarily due to lower net income at Kimberly-Clark de Mexico, S.A. de C.V.
(KCM). A decline in the value of the Mexican peso was a key factor
contributing to the reduction in net income. In addition, KCM's sales and
operating profit softened late in the quarter. The previously mentioned
consolidation of KCA reduced the Corporation's share of net income of equity
companies by approximately 14 percent. Also, weak results in 2001 at Klabin
Kimberly S.A., the Corporation's tissue products joint venture in Brazil,
was another factor affecting the comparison.
- - On a diluted basis, net income was $.79 per share in 2001 compared to
$.81 per share in 2000, a decline of 2.5 percent. Excluding the Unusual
Items, earnings from operations were $.80 per share in 2001 compared to
$.84 in 2000, a decrease of 4.8 percent.
FIRST NINE MONTHS OF 2001 COMPARED WITH FIRST NINE MONTHS OF 2000
By Business Segment
(Millions of dollars)
Net Sales 2001 2000
- ------------------------------------------------------------------------------------
Tissue . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,619.3 $ 5,423.3
Personal Care. . . . . . . . . . . . . . . . . . . . . . . . 4,264.4 4,034.0
Health Care and Other. . . . . . . . . . . . . . . . . . . . 999.7 962.0
Intersegment Sales . . . . . . . . . . . . . . . . . . . . . (30.8) (38.1)
--------- ---------
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . $10,852.6 $10,381.2
========= =========
2001 2000
------------------------ -------------------------
AS EXCLUDING As Excluding
Operating Profit REPORTED UNUSUAL ITEMS Reported Unusual Items
- -------------------------------------------------------------------------------------
Tissue . . . . . . . . . . . . . $ 975.6 $ 988.6 $ 961.0 $ 984.3
Personal Care. . . . . . . . . . 816.9 861.2 836.9 841.8
Health Care and Other. . . . . . 143.1 153.5 137.1 153.0
Other income (expense), net. . . (27.6) (27.1) 88.5 27.3
Unallocated items - net. . . . . (57.2) (57.2) (64.4) (64.4)
-------- -------- ------- -------
Consolidated . . . . . . . . . . $1,850.8 $1,919.0 $1,959.1 $1,942.0
======== ======== ======== ========
Note: Unallocated items - net, consists of expenses not associated with
the business segments.
Commentary:
Consolidated net sales for the first nine months of 2001 were 4.5 percent
greater than in 2000. Excluding currency effects, net sales were more than 7
percent higher with improvement in each of the Corporation's business
segments. Sales volumes were nearly 5 percent higher, including about 3
percentage points of the increase for the sales volumes of acquired companies:
Linostar, KCA, Hogla-Kimberly, Limited ("Hogla") and S-K Corporation. Selling
prices increased over 2 percent.
- - Worldwide net sales of tissue products increased 3.6 percent over 2000.
Excluding currency effects, net sales rose more than 6 percent. Sales volumes
were more than 2 percent higher due to increased sales of bathroom tissue and
Huggies baby wipes in North America and the consolidation of KCA. Selling
prices were over 3 percent higher due to increases implemented in 2000.
- - Worldwide net sales of personal care products grew 5.7 percent and excluding
currency effects, increased over 9 percent. Sales volumes advanced almost 8
percent, driven by the higher diaper sales in Europe and growth in Latin
America and Asia, including the previously mentioned acquisitions. Selling
prices increased slightly below 2 percent.
- - Worldwide net sales of health care and other products increased 3.9
percent from 2000 primarily due to higher sales volumes for health care
products.
Excluding the Unusual Items, total operating profit decreased approximately 1
percent, however operating profit for each of the business segments improved
in 2001 over 2000.
- - Operating profit for the tissue segment gained less than 1 percent as
the higher selling prices and sales volumes and reduced fiber costs were
nearly offset by increased energy and equipment start-up costs, higher
marketing expenses and unfavorable currency effects.
- - Operating profit for the personal care segment advanced 2.3 percent due
to the higher sales volumes and selling prices, tempered by increased
marketing costs and currency effects.
- - Operating profit for the health care and other segment was slightly
better than last year.
- - Other income (expense), net reflects currency transaction losses in
2001, including the KCA related losses on forward contracts, compared to
gains in 2000. Also included in 2000 are gains on minor asset sales.
By Geography
(Millions of dollars)
By Business Segment
(Millions of dollars)
Net Sales 2001 2000
- ------------------------------------------------------------------------------------
North America . . . . . . . . . . . . . . . . . . . . . . . . $ 7,214.5 $ 6,972.0
Outside North America . . . . . . . . . . . . . . . . . . . . 4,052.0 3,696.1
Intergeographic Sales . . . . . . . . . . . . . . . . . . . . (413.9) (286.9)
--------- ---------
Consolidated. . . . . . . . . . . . . . . . . . . . . . . . . $10,852.6 $10,381.2
========= =========
2001 2000
------------------------ -------------------------
AS EXCLUDING As Excluding
Operating Profit REPORTED UNUSUAL ITEMS Reported Unusual Items
- -------------------------------------------------------------------------------------
North America . . . . . . . . $1,606.8 $1,656.6 $1,622.5 $1,654.1
Outside North America . . . . 328.8 346.7 312.5 325.0
Other income (expense), net . (27.6) (27.1) 88.5 27.3
Unallocated items - net . . . (57.2) (57.2) (64.4) (64.4)
-------- -------- -------- --------
Consolidated. . . . . . . . . $1,850.8 $1,919.0 $1,959.1 $1,942.0
======== ======== ======== ========
Note: Unallocated items - net, consists of expenses not associated with the
geographic areas.
Commentary:
- - Net sales in North America rose 3.5 percent in 2001 because of the
increased selling prices for tissue and personal care products and the
higher sales volumes for bathroom tissue products.
- - Net sales outside of North America were 9.6 percent greater in 2001 as the
higher selling prices for tissue in Europe and the increased sales volumes,
in Europe for diapers, and in Asia, more than offset the unfavorable currency
effects. Acquisitions and the consolidation of Hogla and KCA contributed
approximately 7.6 percentage points of the improvement in sales volumes.
- - Excluding the Unusual Items in both years, operating profit in North
America was essentially unchanged as the higher selling prices and sales
volumes and lower fiber costs were offset by the increased energy and
equipment start-up costs and higher marketing expenses. Fringe benefit costs
increased because of the lower returns on pension assets in 2001 compared
with 2000.
- - Excluding the Unusual Items in both years, operating profit outside
North America increased 6.7 percent due to higher selling prices for tissue
products in Europe and increased sales volumes that benefited from the
consolidation of KCA, partially offset by overall higher marketing expenses
and the unfavorable currency effects.
Additional Income Statement Commentary:
- - Interest expense decreased due to lower interest rates, partially offset
by a higher average debt level.
- - Excluding the Unusual Items from both years, the effective tax rate was
30.1 percent in 2001 compared with 31.0 percent in 2000. The lower tax rate
was primarily because the mix of the Corporation's income continues to shift
to jurisdictions with lower effective tax rates and resolution of certain
prior years' income tax matters.
- - The Corporation's share of net income of equity companies decreased 13.3
percent from 2000 principally due to the weak results at the Corporation's
affiliate in Brazil and the previously mentioned consolidation of Hogla and
KCA.
- - On a diluted basis, net income was $2.37 per share in 2001 compared with
$2.46 per share in 2000, a decline of 3.7 percent. Excluding the Unusual
Items in both years, earnings from operations were $2.45 per share in both
years.
LIQUIDITY AND CAPITAL RESOURCES
- - Cash provided by operations for the first nine months of 2001 increased
by nearly $147 million. Approximately $143 million of this change was due to
a difference in the timing of income tax payments because of a legislated
change which deferred an estimated federal income tax payment from the third
quarter of 2001 to the fourth quarter. Additionally, in 2000, cash inflows
included approximately $55 million from the settlement of a patent dispute.
In the first quarter of 2001, accrued expenses decreased nearly $70 million
due to the payout of long-term incentive compensation, which will not recur
in subsequent quarters of the year.
- - During the first nine months of 2001, the Corporation repurchased 9.1
million shares of its common stock at a cost of $562 million, including 4.4
million shares repurchased in the third quarter for $267 million.
- - At September 30, 2001 the Corporation's total debt and preferred
securities was $3.9 billion compared with $3.5 billion at December 31, 2000.
Net debt (total debt net of cash and cash equivalents) and preferred
securities was $3.6 billion compared with $3.3 billion at December 31, 2000.
The Corporation's ratio of net debt and preferred securities to capital was
36.1 percent, which was within its target range of 30 percent to 40 percent.
- - Management believes that the Corporation's ability to generate cash from
operations and its capacity to issue short-term and long-term debt are
adequate to fund working capital, capital spending and other needs in the
foreseeable future.
NEW PRONOUNCEMENTS
Statements of Financial Accounting Standards ("SFAS") 141, Business
Combinations, and 142, Goodwill and Other Intangible Assets, were issued in
June 2001. SFAS 141 became effective July 1, 2001 and SFAS 142 is effective
for fiscal years beginning after December 15, 2001. Under these new
standards, goodwill and intangible assets having indefinite lives will no
longer be amortized but will be subject to annual impairment tests. Other
intangible assets will continue to be amortized over their estimated useful
lives.
SFAS 142 will be adopted beginning in the first quarter of 2002. Application
of the nonamortization provisions of SFAS 142 would have increased reported
net income for the full year 2000 by approximately $88.3 million, or $.16 per
share. During 2002, the Corporation will perform the required impairment
tests of goodwill and indefinite lived intangible assets as of January 1,
2002.
SFAS 143, Accounting for Asset Retirement Obligations, was issued in June 2001
and is effective for fiscal years beginning after June 15, 2002. SFAS 143
requires that any legal obligation related to the retirement of long-lived
assets be quantified and recorded as a liability with the associated asset
retirement cost capitalized on the balance sheet in the period it is incurred
when a reasonable estimate of the fair value of the liability can be made.
SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was
issued in August 2001 and is effective for fiscal years beginning after
December 15, 2001. SFAS 144 provides a single, comprehensive accounting model
for impairment and disposal of long-lived assets and discontinued operations.
SFAS 143 and SFAS 144 will be adopted on their effective dates, and adoption
is not expected to result in any material effects on the Corporation's
financial statements.
In April 2001, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board issued EITF 00-25, Accounting for Consideration
from a Vendor to a Retailer in Connection with the Purchase or Promotion of
the Vendor's Products. Under EITF 00-25, the cost of promotion activities
offered to customers will be classified as a reduction in sales revenue. The
Corporation is currently reviewing the rule and plans to adopt EITF 00-25, as
required, in the first quarter of 2002. Adoption is not expected to change
reported earnings.
Also in April 2001, the EITF delayed implementation of EITF 00-14, Accounting
for Certain Sales Incentives, to coincide with the implementation date for
EITF 00-25. Under EITF 00-14, the estimated redemption value of consumer
coupons must be recorded at the time the coupons are issued and classified as
a reduction in sales revenue. The Corporation will adopt EITF 00-14 in the
first quarter of 2002 and will reclassify the face value of coupons and
similar discounts ("Discounts") as a reduction in revenue for all periods
presented. Discounts recorded as promotion expense during the third quarter
and nine months ended September 30, 2001 were approximately $48 million and
$143 million, respectively. Discounts recorded as promotion expense during
the third quarter and nine months ended September 30, 2000 were approximately
$37 million and $132 million, respectively. Upon adoption of EITF 00-14, the
Corporation will report a cumulative effect of a change in accounting
principle, resulting from a change in the period for recognizing the face
value of coupons, which at December 31, 2000 was estimated to be an after-tax
charge equal to approximately $.02 per share.
ENVIRONMENTAL MATTERS
The Corporation has been named as a potentially responsible party at a number
of waste disposal sites, none of which, individually or in the aggregate, in
management's opinion, is likely to have a material adverse effect on its
business, financial condition or results of operations.
OUTLOOK
In an October 15, 2001 press release, the Corporation stated its belief that
for the full year 2001 earnings per share from operations would be in a range
of $3.20 to $3.30 per share. The Corporation attributed the width of the
range in earnings to be due to the general uncertainties following the events
of September 11, 2001. Nonetheless, currency effects, which have heavily
penalized its results thus far this year, are expected to begin to moderate.
The Corporation also stated that it expects its consumer tissue, personal care
and health care businesses to continue to show strong results. However, its
K-C Professional operations, which supply products for office buildings,
manufacturing facilities, hotels and other uses away from home and which
represent roughly 15 percent of the Corporation's sales, is expected to face
difficult market conditions in the near-term. The Corporation believes that
this business' products and services are preferred versus its competition, so
that as the economy recovers, K-C Professional will benefit first. In
addition, results from the Corporation's affiliate in Mexico are expected to
remain soft in the near-term as ripple effects of a weaker U.S. economy dampen
already slowing growth rates for its markets.
Further, the Corporation does not expect that recent events will diminish its
fundamental strengths or its attractive growth opportunities that are
envisioned for its businesses. Therefore, the Corporation expects to maintain
its 6 to 8 percent top-line and double-digit bottom-line growth objectives
going forward.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain information contained in this report is forward-looking and is based
on various assumptions. Such information includes, without limitation,
anticipated financial and operating results, strategies, contingencies and
contemplated transactions of the Corporation. These forward-looking statements
are based upon management's expectations and beliefs concerning future events
impacting the Corporation. There can be no assurance that such events will
occur or that their effects on the Corporation will be as currently expected.
For a description of certain factors that could cause the Corporation's future
results to differ materially from those expressed in any such forward-looking
statements, see the section of Part I, Item 1 of the Corporation's Annual
Report on Form 10-K for the year ended December 31, 2000 entitled "Factors
That May Affect Future Results."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the Safeskin Securities Actions described in Part 1, Item 3 of
the Corporation's Annual Report on Form 10-K for the year ended December 31,
2000, a plaintiffs' class has been certified consisting of those who purchased
Safeskin Corporation common stock during the period of April 18, 1998 through
March 11, 1999. Discovery is continuing in this matter and the Corporation
continues to contest liability in this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(3)a Restated Certificate of Incorporation, dated June 12, 1997,
incorporated by reference to Exhibit No.(3)a of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 2000.
(3)b By-Laws, as amended November 22, 1996, incorporated by reference to
Exhibit No. 4.2 of the Corporation's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on
December 6, 1996 (File No. 33-17367).
(4) Copies of instruments defining the rights of holders of long-term
debt will be furnished to the Securities and Exchange Commission
upon request.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIMBERLY-CLARK CORPORATION
(Registrant)
By: /s/ John W. Donehower
----------------------------------
John W. Donehower
Senior Vice President and
Chief Financial Officer
(principal financial officer)
By: /s/ Randy J. Vest
----------------------------------
Randy J. Vest
Vice President and Controller
(principal accounting officer)
November 8, 2001