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 MARCH 31, 2002
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 MAY 3, 2002, THERE WERE 518,877,997 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
Ended March 31
-------------------
(Millions of dollars except per share amounts) 2002 2001
- -----------------------------------------------------------------------------------
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,330.9 $3,323.2
Cost of products sold . . . . . . . . . . . . . . . . . . . . 2,118.5 2,152.5
-------- --------
GROSS PROFIT 1,212.4 1,170.7
Marketing, research and general expenses. . . . . . . . . . . 566.2 515.6
Goodwill amortization . . . . . . . . . . . . . . . . . . . . - 21.8
Other (income) expense, net . . . . . . . . . . . . . . . . . (18.7) 2.2
-------- --------
OPERATING PROFIT. . . . . . . . . . . . . . . . . . . . . . . . 664.9 631.1
Interest income . . . . . . . . . . . . . . . . . . . . . . . 3.7 4.7
Interest expense. . . . . . . . . . . . . . . . . . . . . . . (46.7) (50.5)
-------- --------
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . . . 621.9 585.3
Provision for income taxes. . . . . . . . . . . . . . . . . . 185.1 174.9
-------- --------
INCOME BEFORE EQUITY INTERESTS. . . . . . . . . . . . . . . . . 436.8 410.4
Share of net income of equity companies . . . . . . . . . . . 32.4 39.5
Minority owners' share of subsidiaries' net income. . . . . . (18.6) (16.5)
-------- --------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE. . . . . . 450.6 433.4
Cumulative effect of accounting change, net of income taxes . (11.4) -
-------- --------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 439.2 $ 433.4
======== ========
PER SHARE BASIS:
BASIC
Income before cumulative effect of accounting change. . . . $ .87 $ .81
======== ========
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ .84 $ .81
======== ========
DILUTED
Income before cumulative effect of accounting change. . . . $ .86 $ .81
======== ========
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ .84 $ .81
======== ========
CASH DIVIDENDS DECLARED . . . . . . . . . . . . . . . . . . . $ .30 $ .28
======== ========
Unaudited
See Notes to Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEET
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
MARCH 31, December 31,
(Millions of dollars) 2002 2001
- ---------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 359.7 $ 405.2
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 1,786.7 1,672.4
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 1,459.5 1,494.1
Other current assets. . . . . . . . . . . . . . . . . . . . . 306.2 350.5
--------- ---------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . 3,912.1 3,922.2
PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,738.6 12,714.7
Less accumulated depreciation . . . . . . . . . . . . . . . . 5,457.5 5,388.2
--------- ---------
NET PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . 7,281.1 7,326.5
INVESTMENTS IN EQUITY COMPANIES . . . . . . . . . . . . . . . . 738.1 705.3
GOODWILL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,943.2 1,950.3
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . 1,121.4 1,103.3
--------- ---------
$14,995.9 $15,007.6
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt payable within one year. . . . . . . . . . . . . . . . . $ 776.3 $ 1,236.1
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . 1,033.3 1,104.2
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . 1,167.5 1,225.3
Other current liabilities . . . . . . . . . . . . . . . . . . 656.9 602.7
--------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 3,634.0 4,168.3
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . . . 2,816.5 2,424.0
NONCURRENT EMPLOYEE BENEFIT AND OTHER OBLIGATIONS . . . . . . . 922.4 916.0
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . 1,032.6 1,004.6
MINORITY OWNERS' INTERESTS IN SUBSIDIARIES. . . . . . . . . . . 310.7 309.4
PREFERRED SECURITIES OF SUBSIDIARY. . . . . . . . . . . . . . . 542.3 538.4
STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . . . . 5,737.4 5,646.9
--------- ---------
$14,995.9 $15,007.6
========= =========
Unaudited
See Notes to Consolidated Financial Statements.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Three Months
Ended March 31
-----------------
(Millions of dollars) 2002 2001
- -----------------------------------------------------------------------------------
OPERATIONS
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 439.2 $ 433.4
Cumulative effect of accounting change, net of income taxes . . 11.4 -
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . 170.9 155.5
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . - 21.8
Changes in operating working capital. . . . . . . . . . . . . . (159.8) (147.6)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59.4 (5.5)
------- -------
CASH PROVIDED BY OPERATIONS . . . . . . . . . . . . . . . . . 521.1 457.6
------- -------
INVESTING
Capital spending. . . . . . . . . . . . . . . . . . . . . . . . (165.8) (258.7)
Acquisitions of businesses, net of cash acquired. . . . . . . . (8.0) (39.8)
Proceeds from investments . . . . . . . . . . . . . . . . . . . 4.0 12.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34.3) (21.1)
------- -------
CASH USED FOR INVESTING . . . . . . . . . . . . . . . . . . . (204.1) (307.0)
------- -------
FINANCING
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . (146.5) (144.2)
Net decrease in short-term debt . . . . . . . . . . . . . . . . (751.8) (356.6)
Proceeds from issuance of long-term debt. . . . . . . . . . . . 795.9 11.7
Repayments of long-term debt. . . . . . . . . . . . . . . . . . (105.6) (22.1)
Issuances of preferred securities of subsidiary . . . . . . . . - 516.5
Proceeds from exercise of stock options . . . . . . . . . . . . 27.2 70.2
Acquisitions of common stock for the treasury . . . . . . . . . (166.7) (144.6)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15.0) (10.5)
------- -------
CASH USED FOR FINANCING . . . . . . . . . . . . . . . . . . . (362.5) (79.6)
------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . $ (45.5) $ 71.0
======= =======
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,
2001, 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. Certain reclassifications have been made to conform prior year
data to the current year presentation. On January 1, 2002, the Corporation
adopted the following new accounting pronouncements:
- Emerging Issues Task Force ("EITF") 01-9, Accounting for Consideration
Given by a Vendor to a Customer or a Reseller of the Vendor's Products.
The accounting issues previously addressed in EITF 00-14, Accounting for
Certain Sales Incentives, and in EITF 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's
Products, were codified and reconciled in EITF 01-9. Under EITF 01-9,
the cost of promotion activities offered to customers is classified as a
reduction in sales revenue. In addition, the estimated redemption value
of consumer coupons is recorded at the time the coupons are issued
and classified as a reduction in sales revenue. The Corporation has
reclassified the face value of coupons and other applicable promotional
activities as a reduction in revenue for all periods presented. As of
January 1, 2002, the Corporation recorded a cumulative effect of a
change in accounting principle, equal to an after-tax charge of
approximately $.02 per share, resulting from a change in the period
for recognizing the face value of coupons.
- Statement of Financial Accounting Standards ("SFAS") 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS 144 provides a
single, comprehensive accounting model for impairment and disposal of
long-lived assets and discontinued operations. Adoption of SFAS 144 had
no effect on the Corporation's financial statements.
- SFAS 142, Goodwill and Other Intangible Assets. In accordance with SFAS
142, the Corporation has discontinued the amortization of goodwill and
has determined that it has no identified intangible assets with indefinite
useful lives. The Corporation is in the process of performing the
required impairment testing of goodwill as of January 1, 2002. As
required, this testing will be completed by June 30, 2002 and is not
expected to result in any impairment write-offs of goodwill.
Also as required, results for periods prior to the adoption of SFAS 142
have not been restated to reflect the effect of discontinuing
goodwill amortization. The following table reconciles reported net income
and earnings per share to results that would have been reported if
SFAS 142 had been adopted as of January 1, 2001:
Three Months
Ended March 31
-------------------
(Millions of dollars) 2002 2001
-----------------------------------------------------------------------------------
Reported net income. . . . . . . . . . . . . . . . . . . . . . . $439.2 $433.4
Goodwill amortization, net of income taxes . . . . . . . . . . . - 23.3
------ ------
Adjusted net income. . . . . . . . . . . . . . . . . . . . . . . $439.2 $456.7
====== ======
Earnings Per Share - Basic and Diluted
--------------------------------------
Reported net income. . . . . . . . . . . . . . . . . . . . . . . $ .84 $ .81
Goodwill amortization, net of income taxes . . . . . . . . . . . - .04
------ ------
Adjusted net income. . . . . . . . . . . . . . . . . . . . . . . $ .84 $ .85
====== ======
Intangible assets subject to amortization are included in Other Assets and
consist of the following (millions of dollars):
March 31, 2002
------------------------
Carrying Accumulated
Amount Amortization
-------- ------------
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . $180.4 $20.9
Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.7 7.6
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 2.5
------ -----
Total. . . . . . . . .. . . . . . . . . . . . . . . . . . . $229.2 $31.0
====== =====
Amortization expense for intangible assets for the quarter ended March
31, 2002 was $3.0 million. Amortization expense for the next five years is
estimated to be as follows (millions of dollars):
Year Ended
December 31 Amount
------------ ------
2002 $12
2003 12
2004 11
2005 11
2006 11
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 For the Three
Months Ended March 31
-------------------------
(Millions of dollars) 2002 2001
---------------------------------------------------------------------------------------
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520.3 533.2
Dilutive effect of stock options . . . . . . . . . . . . . . 3.1 4.8
Dilutive effect of deferred compensation plan shares . . . . .3 .2
----- -----
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523.7 538.2
===== =====
Options outstanding during the quarter ended March 31, 2002 and 2001 to
purchase 5.8 million and 2.7 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.
The number of common shares outstanding as of March 31, 2002 and 2001 was
519.1 million and 532.9 million, respectively.
3. The following schedule details inventories by major class as of March
31, 2002 and December 31, 2001:
MARCH 31, December 31,
(Millions of dollars) 2002 2001
-----------------------------------------------------------------------------------------
At lower of cost on the First-In,
First-Out (FIFO) method or market:
Raw materials . . . . . . . . . . . . . . . . . . . . . . $ 343.0 $ 366.1
Work in process . . . . . . . . . . . . . . . . . . . . . 186.8 179.5
Finished goods. . . . . . . . . . . . . . . . . . . . . . 883.4 898.4
Supplies and other. . . . . . . . . . . . . . . . . . . . 207.6 217.5
-------- --------
1,620.8 1,661.5
Excess of FIFO cost over Last-In, First-Out (LIFO) cost . . (161.3) (167.4)
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $1,459.5 $1,494.1
======== ========
FIFO cost of total inventories on the LIFO method were $680.0 million and
$715.2 million at March 31, 2002 and December 31, 2001, respectively.
4. The following schedule provides the detail of comprehensive income:
Three Months
Ended March 31
-------------------
(Millions of dollars) 2002 2001
-----------------------------------------------------------------------------------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 439.2 $ 433.4
Unrealized currency translation adjustments, net of tax . . . (67.4) (123.8)
Deferred losses on cash flow hedges, net of tax . . . . . . . (.1) (1.0)
Unrealized holding gains on securities. . . . . . . . . . . . .1 -
------- -------
Comprehensive income. . . . . . . . . . . . . . . . . . . . . $ 371.8 $ 308.6
======= =======
5. The following schedule presents information concerning consolidated
operations by business segment:
Three Months
Ended March 31
--------------------
(Millions of dollars) 2002 2001
------------------------------------------------------------------------------------
NET SALES:
Personal Care. . . . . . . . . . . . . . . . . . . . . . . . . $1,257.2 $1,259.1
Consumer Tissue. . . . . . . . . . . . . . . . . . . . . . . . 1,254.8 1,231.5
Business-to-Business . . . . . . . . . . . . . . . . . . . . . 852.9 881.7
Intersegment sales . . . . . . . . . . . . . . . . . . . . . . (34.0) (49.1)
-------- --------
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . $3,330.9 $3,323.2
======== ========
Three Months
Ended March 31
-------------------
(Millions of dollars) 2002 2001
-----------------------------------------------------------------------------------
OPERATING PROFIT (reconciled to income before taxes):
Personal Care . . . . . . . . . . . . . . . . . . . . . . . . . $264.1 $263.6
Consumer Tissue . . . . . . . . . . . . . . . . . . . . . . . . 245.2 234.7
Business-to-Business. . . . . . . . . . . . . . . . . . . . . . 159.9 150.8
Other income (expense), net . . . . . . . . . . . . . . . . . . 18.7 (2.2)
Unallocated items - net . . . . . . . . . . . . . . . . . . . . (23.0) (15.8)
------ ------
Total Operating Profit. . . . . . . . . . . . . . . . . . . . . 664.9 631.1
Interest income . . . . . . . . . . . . . . . . . . . . . . . 3.7 4.7
Interest expense. . . . . . . . . . . . . . . . . . . . . . . (46.7) (50.5)
------ ------
Income Before Income Taxes. . . . . . . . . . . . . . . . . . . $621.9 $585.3
====== ======
Goodwill amortization is included in operating profit of the business
segments as follows:
2001
-----
Personal Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.9
Consumer Tissue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7
Business-to-Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2
-----
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21.8
=====
Description of Business Segments:
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 and Poise.
The Consumer Tissue segment manufactures and markets facial and bathroom
tissue, paper towels and napkins for household use; wet wipes; and related
products. Products in this segment are sold under the Kleenex, Scott,
Cottonelle, Viva, Andrex, Scottex, Page, Huggies and other brand names.
The Business-to-Business segment manufactures and markets facial and bathroom
tissue, paper towels, wipers and napkins for away-from-home use; 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; printing, premium business
and correspondence papers; specialty and technical papers; and other products.
Products in this segment are sold under the Kimberly-Clark, Kleenex, Scott,
Kimwipes, WypAll, Surpass, 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:
FIRST QUARTER OF 2002 COMPARED WITH FIRST QUARTER OF 2001
By Business Segment
(Millions of dollars)
NET SALES 2002 2001
- -------------------------------------------------------------------------------------
Personal Care. . . . . . . . . . . . . . . . . . . . . . . . . $1,257.2 $1,259.1
Consumer Tissue. . . . . . . . . . . . . . . . . . . . . . . . 1,254.8 1,231.5
Business-to-Business . . . . . . . . . . . . . . . . . . . . . 852.9 881.7
Intersegment sales . . . . . . . . . . . . . . . . . . . . . . (34.0) (49.1)
-------- --------
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . $3,330.9 $3,323.2
======== ========
Commentary:
Consolidated net sales for the first quarter of 2002 were approximately $3.3
billion, slightly higher than in 2001. Excluding currency effects, net sales
rose more than 2 percent, driven mainly by higher sales volumes of consumer
tissue and personal care products in North America and the consolidation of
Kimberly-Clark Australia Pty. Limited ("KCA"). Overall sales volumes were 4.5
percent higher while competitive pricing, including promotional activity,
reduced sales by about 2 percent. Net sales in both years are stated net of
the cost of trade promotions and both the face value of consumer coupons and
other applicable promotional activities as required under a newly effective
accounting pronouncement issued by the Financial Accounting Standards Board
(EITF 01-9).
The first quarter of 2002 included net sales of KCA of approximately $100
million (by segment: about $40 million in both personal care and consumer
tissue and $20 million in business-to-business). Effective July 1, 2001, the
Corporation acquired an additional 5 percent of KCA and began consolidating
KCA's operating results at that time.
- - Net sales of personal care products decreased slightly from the first
quarter of 2001, but increased more than 3 percent before currency effects.
Global sales volumes increased approximately 6 percent despite a
significant decline in sales volumes in Argentina and Brazil. Lower selling
prices, down 2 percent, and product mix partially offset the volume
increases. In North America, sales volumes rose about 6 percent,
highlighted by a double-digit increase in shipments of Depend and Poise
adult incontinence care products and solid gains for Huggies diapers and
Pull-Ups training pants. Selling prices declined nearly 4 percent in
response to competitive pricing and promotional activities, including
selected package count increases to improve consumer value. Sales of
personal care products in Europe decreased approximately 3 percent when
measured in constant exchange rates. Sales volumes were slightly lower
and net selling prices declined more than 2 percent amid intense
competition in diapers and training pants.
- - Consumer tissue net sales increased 1.9 percent compared with the first
quarter of 2001 and advanced approximately 4 percent before currency
effects. Global sales volumes increased nearly 5 percent while selling
prices were approximately 1 percent lower. In North America, sales volumes
were more than 4 percent higher, driven by sales of Cottonelle and Scott
bathroom tissue and Scott towels. Overall selling prices in North America
declined 1 percent due to competitive promotional activity. In Europe,
sales of consumer tissue increased 1 percent before currency effects.
Selling prices were about 3 percent higher while sales volumes were
nearly 2 percent lower. Market shares remained healthy for Andrex
bathroom tissue in the U.K. and Scottex, Page and Hakle bathroom
tissue and Kleenex facial tissue in key European markets.
- - Net sales of the business-to-business sector declined 3.3 percent and
about 2 percent excluding currency effects. Overall sales volumes increased
almost 2 percent and selling prices decreased nearly 4 percent. Sales of
K-C Professional's away-from-home products in North America began to show
signs of recovery in the first quarter following a decline of 8 percent
in the fourth quarter of 2001. Meanwhile, sales of health care products
were essentially even with last year as 5 percent growth in sales volumes
was offset by reduced selling prices.
Unusual Items
For purposes of this Management's Discussion and Analysis, the items
summarized in the following table are considered to be unusual items ("Unusual
Items").
Three Months
Ended March 31
----------------
(Millions of dollars) 2002 2001
- ---------------------------------------------------------------------------------
Charges to operating profit:
Business improvement programs. . . . . . . . . . . . . . . . $8.9 $21.2
Business integration and other costs . . . . . . . . . . . . - 6.9
---- -----
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $8.9 $28.1
==== =====
- - Unusual Items in the first quarter of 2002 were comprised primarily of
costs associated with the previously announced plans to streamline
manufacturing operations in Latin America.
- - In the first quarter of 2001, charges for Unusual Items related mainly
to reorganizing the Corporation's feminine and adult care operations in
North America and business integration programs.
These Unusual Items have been excluded from operating profit in the "Before
Unusual Items" column in the following tables:
2002 2001
-------------------------- ------------------------
AS BEFORE As Before
OPERATING PROFIT REPORTED UNUSUAL ITEMS Reported Unusual Items
- -------------------------------------------------------------------------------------------
Personal Care . . . . . . . . . . $264.1 $267.5 $263.6 $285.0
Consumer Tissue . . . . . . . . . 245.2 249.4 234.7 234.9
Business-to-Business. . . . . . . 159.9 161.2 150.8 156.8
Other income (expense), net . . . 18.7 18.7 (2.2) (1.7)
Unallocated items - net . . . . . (23.0) (23.0) (15.8) (15.8)
------ ------ ------ ------
Consolidated. . . . . . . . . . . $664.9 $673.8 $631.1 $659.2
====== ====== ====== ======
Note: Unallocated items - net, consists of expenses not associated with the
business segments.
Commentary:
Before Unusual Items, operating profit increased 2.2 percent to $673.8 million
in the first quarter of 2002 compared with $659.2 million in 2001. Higher
sales volumes and the discontinuation of goodwill amortization contributed to
the increase, and fiber and energy costs were approximately $80 million lower.
A stepped-up level of advertising and promotion activities, in response to
intense competition, and an increase in pension and other employee benefit
costs, among other things, partially offset these positive factors. The
following commentary is before Unusual Items.
- - Although personal care segment sales volumes rose about 6 percent,
operating profit was constrained by actions to counter aggressive
competition in the diaper and training pants markets in the U.S. and
Europe, as well as the continued difficult business conditions in
Argentina and Brazil.
- - Consumer tissue segment operating profit in the first quarter of 2002
was boosted by the increased sales volumes, particularly on the strength
of bathroom tissue and paper towels sales in North America. In
addition, operating profit rose strongly in Europe and in the
Asia/Pacific region. Overall, the lower fiber costs more than compensated
for the higher levels of promotional activity and marketing expense.
- - The business-to-business segment operating profit increased, however,
excluding goodwill amortization in 2001 it declined nearly 6 percent.
Higher sales volumes for health care products and the beginning of
recovery in the North American K-C Professional business were not
sufficient to overcome lower selling prices across the segment.
- - The change in other income (expense), net is primarily related to
currency transactions, including a gain of approximately $14 million
on forward exchange contracts that hedge the currency exposure
for the anticipated acquisition of the remaining 45 percent ownership
interest in KCA from Amcor Limited, the Corporation's joint venture
partner.
By Geography
(Millions of dollars)
NET SALES 2002 2001
- -------------------------------------------------------------------------------------
North America . . . . . . . . . . . . . . . . . . . . . . . . . $2,210.8 $2,222.6
Outside North America . . . . . . . . . . . . . . . . . . . . . 1,251.9 1,224.2
Intergeographic sales . . . . . . . . . . . . . . . . . . . . . (131.8) (123.6)
-------- --------
Consolidated. . . . . . . . . . . . . . . . . . . . . . . . . . $3,330.9 $3,323.2
======== ========
2002 2001
-------------------------- ------------------------
AS BEFORE As Before
OPERATING PROFIT REPORTED UNUSUAL ITEMS Reported Unusual Items
- -------------------------------------------------------------------------------------------
North America . . . . . . . . . . . $538.1 $539.2 $534.8 $561.7
Outside North America . . . . . . . 131.1 138.9 114.3 115.0
Other income (expense), net . . . . 18.7 18.7 (2.2) (1.7)
Unallocated items - net . . . . . . (23.0) (23.0) (15.8) (15.8)
------ ------ ------ ------
Consolidated. . . . . . . . . . . . $664.9 $673.8 $631.1 $659.2
====== ====== ====== ======
Note: Unallocated items - net, consists of expenses not associated with
the geographic areas.
Commentary:
- - Net sales in North America decreased slightly as the higher sales
volumes in personal care and consumer tissue were offset by the
higher promtional activity and the lower business-to-business net sales.
- - Net sales outside of North America increased 2.3 percent primarily due
to the consolidation of KCA, partially offset by the lower net sales
in Argentina and Brazil.
- - Operating profit before Unusual Items in North America decreased 4.0
percent because the higher promotion spending, increased pension and
other employee benefit costs and other factors more than offset the
favorable pulp costs.
- - Operating profit before Unusual Items outside of North America increased
20.8 percent due to the consolidation of KCA and the lower pulp
costs.
Additional Income Statement Commentary:
- - Interest expense decreased primarily due to lower interest rates.
- - The effective tax rate, before Unusual Items in both years, was 29.7
percent in 2002 compared with 30.2 percent in 2001. The lower effective tax
rate was primarily due to the discontinuation, for financial reporting
purposes, of amortizing goodwill that had not been deductible for income
tax purposes.
- - The Corporation's share of net income of equity companies decreased in
2002 primarily due to the consolidation of KCA and lower net income at
Kimberly-Clark de Mexico, S.A. de C.V. ("KCM"). At KCM, continued strong
performance of its consumer products operations boosted sales and operating
profit; however, a higher tax rate, due to new legislation, caused net
income to decline.
- - On a diluted basis, net income was $.84 per share, including a charge of
$.02 per share for the cumulative effect of an accounting change related to
the adoption of EITF 01-9, in 2002. In the first quarter of 2001, on a
diluted basis, net income was $.81 per share. First quarter earnings before
Unusual Items and the cumulative effect of the accounting change were $.87
per share in 2002, up 3.6 percent from $.84 per share in 2001.
LIQUIDITY AND CAPITAL RESOURCES
- - Cash provided by operations in the first quarter of 2002 increased $63.5
million, or 13.9 percent, compared with the first quarter of 2001. This
increase was achieved despite cash payments of more than $50 million in
February 2002 under the terms of two previously announced arbitration
rulings.
- - During the first quarter of 2002, the Corporation repurchased 2.5
million shares of its common stock at a cost of approximately $155 million.
These repurchases are consistent with the Corporation's stated target of
repurchasing between 2 percent and 3 percent of its common stock during
2002.
- - On February 8, 2002, the Corporation issued $400 million of 5 5/8
percent Notes due February 15, 2012 and used the proceeds to retire
commercial paper.
- - On March 19, 2002, the Corporation issued $400 million 4 1/2 percent Notes
due July 30, 2005 and used the proceeds to retire commercial paper. In
connection with the borrowing, the Corporation entered into an interest
rate swap agreement maturing on July 30, 2005 with a counterparty under
which the difference between the fixed- and floating-rate interest amounts
calculated on a $400 million notional amount is exchanged on a quarterly
basis. The floating rate is 3 month LIBOR minus .295 percent. The swap
agreement permits the Corporation to maintain its desired ratio of
fixed- and floating-rate borrowings.
- - Following a review with its board of directors, the Corporation
announced a new target range for its ratio of net debt and preferred
securities to capital of 35 percent to 45 percent. The new range represents
an increase from the previous range of 30 percent to 40 percent. At March
31, 2002, total debt and preferred securities was $4.1 billion compared
with $4.2 billion at December 31, 2001. Net debt (total debt net of
cash and cash equivalents) and preferred securities was $3.8 billion
at March 31, 2002, essentially even with the previous year end. At March
31, 2002, the ratio of net debt and preferred securities to capital was
38.4 percent, down slightly from the 38.9 percent ratio at December
31, 2001.
- - On May 7, 2002, Amcor Limited informed the Corporation of its intent to
exercise its option to sell its remaining 45 percent interest in KCA to the
Corporation for the previously agreed to price of A$697.5 million
(approximately US$ 375 million). The transaction is expected to close at
the end of June 2002.
- - 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 of the
business in the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Corporation adopted the following new accounting
pronouncements:
- - Emerging Issues Task Force ("EITF") 01-9, Accounting for Consideration
Given by a Vendor to a Customer or a Reseller of the Vendor's Products. The
accounting issues previously addressed in EITF 00-14, Accounting for
Certain Sales Incentives, and in EITF 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's
Products, were codified and reconciled in EITF 01-9. Under EITF 01-9,
the cost of promotion activities offered to customers is classified as a
reduction in sales revenue. In addition, the estimated redemption value of
consumer coupons is recorded at the time the coupons are issued and
classified as a reduction in sales revenue. The Corporation has
reclassified the face value of coupons and other applicable promotional
activities as a reduction in revenue for all periods presented. As of
January 1, 2002, the Corporation recorded a cumulative effect of a
change in accounting principle, equal to an after-tax charge of
approximately $.02 per share, resulting from a change in the period for
recognizing the face value of coupons.
- - Statement of Financial Accounting Standards ("SFAS") 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS 144 provides a
single, comprehensive accounting model for impairment and disposal
of long-lived assets and discontinued operations. Adoption of SFAS 144
had no effect on the Corporation's financial statements.
- - SFAS 142, Goodwill and Other Intangible Assets. In accordance with SFAS
142, the Corporation has discontinued the amortization of goodwill and
has determined that it has no identified intangible assets with indefinite
useful lives. The Corporation is in the process of performing the
required impairment testing of goodwill as of January 1, 2002. As
required, this testing will be completed by June 30, 2002 and is not
expected to result in any impairment write-offs of goodwill.
Also as required, results for periods prior to the adoption of SFAS 142
have not been restated to reflect the effect of discontinuing goodwill
amortization. The following table reconciles reported net income and
earnings per share to results that would have been reported if
SFAS 142 had been adopted as of January 1, 2001:
Three Months
Ended March 31
----------------
(Millions of dollars) 2002 2001
---------------------------------------------------------------------------------
Reported net income. . . . . . . . . . . . . . . . . . . . . . $439.2 $433.4
Goodwill amortization, net of income taxes . . . . . . . . . . - 23.3
------ ------
Adjusted net income. . . . . . . . . . . . . . . . . . . . . . $439.2 $456.7
====== ======
Earnings Per Share - Basic and Diluted
------------------------------------------
Reported net income. . . . . . . . . . . . . . . . . . . . . . $ .84 $ .81
Goodwill amortization, net of income taxes . . . . . . . . . . - .04
------ ------
Adjusted net income. . . . . . . . . . . . . . . . . . . . . . $ .84 $ .85
====== ======
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
The Corporation believes that the outlook for improvement in the economies and
market conditions in Argentina and Brazil continues to be uncertain; however,
the Corporation should benefit from improved market conditions for its
business-to-business operations in North America as the economy recovers.
Also, in the near term, the Corporation expects competition will remain
intense, particularly in the diaper and training pants categories in North
America and Europe. The Corporation intends to continue to focus on
increasing cash flow to help fund its growth. The Corporation continues to
believe it is doing the right things strategically to build competitive
advantage and drive top- and bottom-line growth 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, the
business outlook, including new product introductions, cost savings and
acquisitions, 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, 2001 entitled "Factors That May Affect Future Results."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following material developments have occurred in the litigation
proceedings described in Part I, Item 3 of the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2001:
- - With respect to the Mobile Energy Services Company L.L.C. ("MESC")
litigation, during the first quarter of 2002, pursuant to mediation between
MESC and the Corporation, a pending arbitration proceeding and one of the
pending adversary proceedings between the parties were resolved with the
Corporation agreeing to pay MESC $675,000. This settlement is subject to
the approval of the bankruptcy court. Additionally, the court has ruled in
favor of the Corporation and granted a motion to dismiss the fraudulent
transfer claim asserted by MESC. At present, two minor adversary
proceedings are the only claims MESC has pending against the Corporation.
- - With respect to the asbestos litigation, as of April 30, 2002, the
Corporation, along with numerous other non-affiliated companies, was a
party to approximately 267 lawsuits in California, Florida, Georgia,
Illinois, Louisiana, Mississippi, Missouri, New York, Pennsylvania
and Texas state courts. These lawsuits allege personal injury resulting
from asbestos exposure on the defendants' premises and/or that the
defendants manufactured, sold, distributed or installed products which
cause asbestos-related lung disease. No specific product ever manufactured
by the Corporation or its subsidiaries has been identified by the
plaintiffs as having caused or contributed to any asbestos-related lung
disease. The Corporation has denied the allegations and raised numerous
defenses in all of these asbestos cases. All asbestos cases have been
tendered to the Corporation's insurance carriers for defense and indemnity.
- - With respect to the Anne Meader litigation, the Corporation has reached
a tentative settlement with the plaintiffs. The settlement is conditional
on several factors that have yet to occur.
In management's opinion, none of the legal and administrative proceedings
described above or in Part I, Item 3 of the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2001, individually or in the
aggregate, is expected to have a material adverse effect on the Corporation's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2002 Annual Meeting of Stockholders was convened at 11:00 a.m. on
Thursday, April 25, 2002, at the Corporation's World Headquarters, 351 Phelps
Drive, Irving, Texas. Represented at the meeting in person or by proxy were
463,878,538 shares of common stock or at least 89% of all shares of common
stock outstanding.
The following directors were elected to three-year terms expiring in 2005:
John F. Bergstrom; Paul J. Collins; and Robert W. Decherd. The Corporation's
other directors are Thomas J. Falk, William O. Fifield, Wayne R. Sanders,
Wolfgang R. Schmitt, Randall L. Tobias, Pastora San Juan Cafferty, Claudio X.
Gonzalez, Linda Johnson Rice and Marc J. Shapiro. Of the shares represented
at the meeting, at least 96% voted for each nominee. There were no broker
non-votes with respect to this matter, and the votes for and votes withheld for
each nominee are as follows:
Nominee Votes For Votes Withheld
----------------- ----------- --------------
John F. Bergstrom 448,798,008 15,080,530
Paul J. Collins 455,523,857 8,354,681
Robert W. Decherd 455,794,589 8,083,949
The stockholders also approved the adoption of the Corporation's Executive
Office Achievement Award Program. Of the shares represented at the meeting,
426,559,254 shares (92%) voted for such adoption, 33,336,271 shares (7.2%)
voted against and 3,983,013 shares (.8%) abstained or did not vote. There
were no broker non-votes with respect to this matter.
The stockholders also approved a stockholder proposal relating to the
Corporation's amended and restated rights agreement. Of the shares
represented at the meeting, 251,222,757 shares (61.8%) voted for such
adoption, 148,500,773 shares (36.5%) voted against, 6,838,564 shares (1.7%)
abstained or did not vote and there were 57,316,444 broker non-votes. The
votes in favor of this proposal represent 48.3% of the shares eligible to vote
at the meeting. This proposal is not binding on the Corporation and the
Board of Directors is expected to consider this matter at a future board
meeting.
In addition to the election of directors, the adoption of the Executive
Officer Achievement Award Program and the approval of the stockholder
proposal, the stockholders approved the selection of Deloitte & Touche LLP as
the principal independent auditors for the Corporation. Of the shares
represented at the meeting, 443,696,704 shares (95.6%) voted for such
selection, 16,953,953 shares (3.7%) voted against and 3,227,881 shares (.7%)
abstained or did not vote. There were no broker non-votes with respect to
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, 1999.
(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.
(10) Executive Officer Achievement Award Program, adopted April 25,
2002.
(b) Reports on Form 8-K
The Corporation filed the following Current Reports after January 1, 2002 and
prior to the date of this Form 10-Q:
1. Current Report on Form 8-K, dated January 17, 2002, to report the
reclassification of business segment sales and operating profit for
1999, 2000 and the first nine months of 2001 to reflect newly defined
business segments of the Corporation.
2. Current Report on Form 8-K, dated January 23, 2002, to report further
reclassification of certain amounts contained in the Form 8-K dated
January 17, 2002.
3. Current Report on Form 8-K, dated February 5, 2002, to report the text
of a press release issued on January 23, 2002 relating to the
Corporation's 2001 fourth quarter earnings and the results of
an arbitration ruling.
4. Current Report on Form 8-K, dated March 27, 2002, to report the
Corporation's statement relating to its agreement to the issuance of an
administrative order by the Securities and Exchange Commission on
March 27, 2002.
5. Current Report on Form 8-K, dated April 12, 2002, to report the
reclassification of certain financial information of the Corporation for
1998, 1999, 2000 and 2001, and for each quarter in 2001, in accordance
with Emerging Issues Task Force ("EITF") Issue No. 00-14 (Accounting
for Certain Sales Incentives) and Issue No. 00-25 (Accounting for
Consideration from a Vendor to a Retailer in Connection with the
Purchase or Promotion of the Vendor's Products).
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)
May 9, 2002
Exhibit 10
KIMBERLY-CLARK CORPORATION
EXECUTIVE OFFICER ACHIEVEMENT AWARD PROGRAM
(AS ADOPTED EFFECTIVE APRIL 25, 2002)
1. PURPOSE
This Executive Officer Achievement Award Program ("EOAAP" or the "Plan")
is adopted effective April 25, 2002. The purpose of EOAAP is to further
unite the interests of the stockholders of Kimberly-Clark Corporation
(the "Company") and its executive officers through the annual
payment of performance-based incentive compensation to each
participating executive in the form of a cash award.
2. ELIGIBILITY
Employees eligible to participate in EOAAP (the "Participants") shall be
limited to the Chief Executive Officer and other executive officers of
the Company (within the meaning of Rule 3b-7 of the Securities Exchange
Act of 1934 as amended from time to time) as of March 30 of each
calendar year ("performance year") who shall receive awards under
the Plan for such performance year. An individual who becomes an
executive officer after March 30 and on or before October 1 of a calendar
year shall receive an award as provided in Section 3.
3. AWARDS
Subject to the Compensation Committee's discretion to reduce such awards,
each Participant shall be entitled to an award for each performance year
equal to 0.5 percent of the Company's earnings before unusual items.
The Company's independent auditors will review the Corporation's
calculation of the award amount and confirm its mathematical accuracy
to the Compensation Committee.
An individual who becomes a Participant after March 30 and on or before
October 1 of a performance year shall receive an award for that
performance year based on the earnings before unusual items of the
Company for each calendar quarter following the quarter in which the
individual becomes an executive officer.
4. PAYMENT OF AWARDS; COMPENSATION COMMITTEE DISCRETION TO REDUCE
As soon as practicable after the end of each performance year, the
Company's independent auditors shall determine and report to the
Compensation Committee the Company's earnings before unusual items and
the Compensation Committee shall certify the amount of each award for
that year under the provisions of this Plan.
The Compensation Committee, in its sole discretion, based on any factors
the Compensation Committee deems appropriate, may reduce the award
to a Participant in any year (including reduction to zero if the
Compensation Committee so determines). The Compensation Committee
shall make a determination of whether and to what extent to reduce
awards under the Plan for each year at such time or times as the
Compensation Committee shall deem appropriate. The reduction in the
amount of an award to a Participant for a performance year shall have no
effect on the amount of the award to any other Participant for such
year.
Payments of awards to Participants who are employees of subsidiaries of
the Company shall be paid directly by such subsidiaries.
Termination of employment for any reason may result in a pro rata or
other adjustment to the amount of the award on such basis as shall be
determined fair and equitable by the Compensation Committee.
Notwithstanding any provision of EOAAP, no award shall be paid to a
Participant who, in any calendar year, has discharged his principal
accountabilities in a manner deemed unacceptable by the Chief Executive
Officer. Participants under the EOAAP will be ineligible for awards
relating to the same calendar quarter under the Company's Management
Achievement Award Program.
Awards shall be paid in cash as of a date or dates determined by the
Compensation Committee, or if the Compensation Committee makes no
determination, then as soon as practicable after the amount of the award
has been determined.
Prior to becoming entitled to receive an award, a Participant may elect
to defer the receipt thereof to some future date or dates. Except as
otherwise provided under the Company's Deferred Compensation Plan,
deferred EOAAP awards shall not bear interest.
5. GENERAL PROVISIONS
The Plan shall be administered by the Compensation Committee.
The Compensation Committee, in its sole discretion, shall have
the power to interpret and construe the Plan; provided, however,
that no such action or determination may increase the amount of
compensation payable that would otherwise be due in a manner that
would result in the disallowance of a deduction to the Company under
Section 162(m) of the Code or any successor section. Any interpretation
or construction of any provisions of the Plan by the Compensation
Committee shall be final and conclusive upon all persons. No member of
the Board or the Compensation Committee shall be liable for any
action or determination made in good faith.
"Compensation Committee" means the Compensation Committee of the Board
of Directors of the Company, provided that if the requisite number of
members of the Compensation Committee are not Disinterested Persons,
the Plan shall be administered by a committee, all of whom are
Disinterested Persons, appointed by the Board and consisting of two or
more directors with full authority to act in the matter.
Except as provided in this Plan, no right of any Participant shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, attachment, garnishment,
execution, levy, bankruptcy, or any other disposition of any kind,
whether voluntary or involuntary, prior to actual payment of an award.
No Participant, or any other person, shall have any interest in any
fund, or in any specific asset or assets of the Company, by reason of an
award that has been made but has not been paid or distributed.
Nothing contained in EOAAP shall be construed as a contract of employment
or as a right of any Participant to be continued in the employment
of the Company, or as a limitation on the right of the Company to
discharge any Participant with or without cause.
The Compensation Committee may at any time amend, suspend, or discontinue
the Plan or alter or amend any or all awards under the Plan to the
extent (1) permitted by law and (2) that such action would not result in
the disallowance of a deduction to the Company under Section 162(m) of
the Code or any successor section (including the rules and regulations
promulgated thereunder); provided, however, that if any of the foregoing
requires the approval by stockholders of any such amendment, suspension
or discontinuance, then the Compensation Committee may take such action
subject to the approval of the stockholders. No such amendment,
suspension, or termination of the Plan shall, without the consent of the
Participant, adversely alter or change any of the rights or obligations
under any awards previously granted the Participant. In the case of a
Participant employed outside the United States the Board may vary the
provisions of the Plan as it may deem appropriate to conform to local
laws, practices and procedures. Further, unless the stockholders
of the Company shall have first approved thereof, no amendments shall
be made which shall increase the maximum amount of any award above the
amount determined by the formula described in Section 3 in any
year.