Exhibit No. (13)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Kimberly-Clark Corporation and Subsidiaries
GLOBAL BUSINESS SEGMENTS
The Corporation is organized into three global business segments. Each
segment is responsible for the development and execution of global strategies
to expand the Corporation's worldwide tissue, personal care, and health care
and other businesses. Such strategies include global plans for branding and
product positioning, cost reductions, technology and research and development
programs, and capacity and capital investment for each of these businesses.
The major products manufactured and marketed by each of the Corporation's
business segments are as follows:
- - Tissue - facial and bathroom tissue, paper towels and wipers for
household and away-from-home use; wet wipes; printing, premium business
and correspondence papers; and related products.
- - Personal Care - disposable diapers, training and youth pants; feminine
and incontinence care products; and related products.
- - Health Care and Other - health care products such as surgical packs and
gowns, sterilization wraps and disposable face masks; disposable
medical devices for respiratory care, gastroenterology and cardiology;
specialty and technical papers and related products; and other
products.
BUSINESS IMPROVEMENT AND OTHER PROGRAMS
The Corporation has undertaken a number of actions in recent years to
address ongoing business competitiveness by improving its operating efficiency
and cost structure. These programs began in 1995, at the time of the merger
with Scott Paper Company ("Scott"), and were substantially completed at
December 31, 1999. The activities involved in these plans did not disrupt the
Corporation's business operations to any significant extent. The principal
benefits of these plans have been lower production costs and a more simplified
manufacturing infrastructure. A summary and status of each of these programs
is set forth below.
1998 PLAN
In the fourth quarter of 1998, the Corporation announced a facilities
consolidation plan (the "1998 Plan") to, among other things, further align
tissue manufacturing capacity with demand in Europe, close a diaper
manufacturing facility in Canada, shut down and dispose of a tissue machine in
Thailand, write down certain excess feminine care production equipment in
North America and reduce the Corporation's workforce by approximately 830
employees. Costs for the 1998 Plan of $42.6 million and $49.1 million were
recorded in 1999 and 1998, respectively, and charged to cost of products sold.
Costs of approximately $20 million will be charged to cost of products sold in
2000. These costs are comprised primarily of certain severance costs and
charges for accelerated depreciation for the Corporation's Larkfield, U.K.
tissue manufacturing facility that will remain in use until its expected
shutdown in October 2000.
Through December 31, 1999, 800 employees have been notified of the
Corporation's plans to terminate their employment, and the costs of this
workforce reduction were charged to earnings in the period in which such
employee severance benefits were appropriately communicated. Of the employees
that have been notified, 530 employees have been terminated and 270 additional
employees will be terminated in 2000. Approximately 50 additional employees
will be notified in 2000 of the Corporation's plans to terminate their
employment. Their severance costs, which are included in the $20 million
discussed above, will be accrued and charged to cost of products sold at that
time.
The charges under the 1998 Plan for the two years ended December 31, 1999
are summarized below:
Amounts Charged
to Earnings
-------------------
(Millions of dollars) 1999 1998
- ----------------------- ----- -----
Workforce severance. . . . . . . . . . . . . . . . . . . . . $16.0 $11.1
Write-downs of property, plant and equipment and other costs (3.0) 35.2
Accelerated depreciation . . . . . . . . . . . . . . . . . . 29.6 2.8
------ -----
Total pretax charge. . . . . . . . . . . . . . . . . . . . $42.6 $49.1
====== =====
Charges under the 1998 Plan were included in operating profit by business
segment and geography as follows:
Year Ended
December 31
------------------
(Millions of dollars) 1999 1998
- ----------------------- ----- -----
By Business Segment
Tissue. . . . . . . . . . . . . . . . . . . . . . . . . $36.4 $14.9
Personal Care . . . . . . . . . . . . . . . . . . . . . 6.2 34.2
----- -----
Total pretax charge . . . . . . . . . . . . . . . . . . $42.6 $49.1
===== =====
By Geography
North America . . . . . . . . . . . . . . . . . . . . . $ 5.7 $34.0
Outside North America . . . . . . . . . . . . . . . . . 36.9 15.1
----- -----
Total pretax charge . . . . . . . . . . . . . . . . . . $42.6 $49.1
===== =====
Charges under the 1998 Plan reduced operating profit and net income as
follows:
Year Ended
December 31
-----------------
(Millions of dollars) 1999 1998
- ----------------------- ---- ----
Operating profit . . . . . . . . . . . . . . . . . . . . . $42.6 $49.1
Net income . . . . . . . . . . . . . . . . . . . . . . . . 30.3 34.1
Set forth below is a summary of the types and amounts recognized as
accrued expenses for the 1998 Plan together with cash payments made against
such accruals for the year ended December 31, 1999.
1999
------------------
Balance Additions Balance
(Millions of dollars) 12/31/98 (Reductions) Payments 12/31/99
- ----------------------- ------------------------------------------------
Workforce severance . . . . . . . . . . . . . . . . $10.6 $16.0 $(10.2) $16.4
Asset removal costs . . . . . . . . . . . . . . . . 2.5 (.4) (2.1) -
Environmental costs and lease contract terminations 1.0 - - 1.0
Other costs . . . . . . . . . . . . . . . . . . . . 4.7 (2.6) (2.1) -
----- ----- ----- -----
$18.8 $13.0 $(14.4) $17.4
===== ===== ====== =====
Management considers the 1998 Plan to be substantially completed as of
December 31, 1999. The accrued expense balance of $17.4 million will be paid
in accordance with the terms of the applicable employee severance and other
agreements.
1997 PLAN
On November 21, 1997, the Corporation announced a restructuring plan (the
"1997 Plan"). The plan included the sale, closure or downsizing of 17
manufacturing facilities worldwide and a workforce reduction of approximately
4,800 employees. Costs for the 1997 Plan of $250.8 million and
$414.2 million were recorded in 1998 and 1997, respectively, at the time costs
became accruable under appropriate accounting principles. Included in such
costs was accelerated depreciation charged to cost of products sold related to
assets that were to be disposed of but which continued to be operated during
1997 and 1998. In 1999, the Corporation recorded a net credit of $16.7
million, which was comprised of accelerated depreciation expense of $23.7
million, reductions in accrued costs of $31.9 million and lower asset
write-offs and higher sales proceeds totaling $8.5 million, due to changes in
estimates.
Charges or (credits) under the 1997 Plan for the three years ended
December 31, 1999 are summarized below:
Amounts Charged to Earnings
------------------------------
(Millions of dollars) 1999 1998 1997
- ----------------------- ------------------------------
Workforce severance. . . . . . . . . . . . . . . . . . . . . . $ (4.8) $ 53.2 $ 35.4
Write-downs of property, plant and equipment and other assets. (8.5) 56.2 93.6
Contract settlements, lease terminations and other costs . . . (27.1) 31.3 64.2
Asset impairments. . . . . . . . . . . . . . . . . . . . . . . - 31.3 187.4
Accelerated depreciation . . . . . . . . . . . . . . . . . . . 23.7 78.8 33.6
------- ------ ------
Total pretax charge (credit) . . . . . . . . . . . . . . . $(16.7) $250.8 $414.2
======= ====== ======
Income statement classification:
Cost of products sold. . . . . . . . . . . . . . . . . . . . $ 10.3 $134.0 $113.7
Restructuring and other unusual charges. . . . . . . . . . . (27.0) 116.8 300.5
------- ------ ------
Total pretax charge (credit) . . . . . . . . . . . . . . . $(16.7) $250.8 $414.2
======= ====== ======
The effects of the 1997 Plan were included in operating profit by
business segment and geography as follows:
Year Ended December 31
----------------------------
(Millions of dollars) 1999 1998 1997
- ----------------------- ----------------------------
By Business Segment
Tissue . . . . . . . . . . . . . . . . . . . . . . . . . $(16.5) $149.3 $324.4
Personal Care . . . . . . . . . . . . . . . . . . . . . 7.2 87.6 72.8
Health Care . . . . . . . . . . . . . . . . . . . . . . (1.3) 13.2 8.7
Unallocated. . . . . . . . . . . . . . . . . . . . . . . (6.1) .7 8.3
------ ------ ------
Total pretax charge (credit) . . . . . . . . . . $(16.7) $250.8 $414.2
===== ====== ======
By Geography
North America . . . . . . . . . . . . . . . . . . . . . $ .7 $160.9 $181.5
Outside North America. . . . . . . . . . . . . . . . . (11.3) 89.2 224.4
Unallocated. . . . . . . . . . . . . . . . . . . . . . . (6.1) .7 8.3
------ ------ ------
Total pretax charge (credit) . . . . . . . . . . $(16.7) $250.8 $414.2
====== ====== ======
The effects of the 1997 Plan decreased (increased) operating profit and
net income as follows:
Year Ended December 31
----------------------------
(Millions of dollars) 1999 1998 1997
- ----------------------- ----------------------------
Operating profit . . . . . . . . . . . . . . . . . . . . . . $(16.7) $250.8 $414.2
Net income . . . . . . . . . . . . . . . . . . . . . . . . . (9.2) 178.9 315.0
The principal components of the 1997 Plan were as follows:
- - The sale, closure or downsizing of certain manufacturing facilities
worldwide has resulted in the consolidation of the Corporation's
manufacturing operations into fewer, larger and more efficient
facilities and the elimination of excess, high-cost tissue
manufacturing capacity in North America and Europe. Of the
originally identified facilities, 16 have been closed as of
December 31, 1999 and one will remain in operation. In addition, four
other small facilities were closed. The effects of these modifications
were reflected in earnings at the time such modifications became
accruable events.
- - The workforce reduction has been completed and, through December 31, 1999,
a total reduction of 3,740 employees has been realized. The costs of the
reduction were charged to earnings in the period in which such
employee severances and benefits were appropriately communicated.
- - Property, plant and equipment and other assets not used in the
restructured manufacturing operations have been written down,
excess manufacturing capacity has been eliminated, and certain
inventories in restructured operations and other assets have been
written down.
- - Certain of the Corporation's facilities and capacity which became
excessive as a result of the combination of the Corporation's health
care operations with those of Tecnol Medical Products, Inc. ("Tecnol")
have been eliminated.
- - Certain contracts have been terminated and other costs have been
incurred to achieve planned efficiencies.
In 1998, as a result of additional evaluations of the Corporation's
tissue manufacturing operations, the Villanovetta, Italy tissue manufacturing
facility became an impaired asset because its cash flows from use and disposal
were insufficient to cover the carrying amount of the asset. Consequently, a
charge to earnings of $26.8 million was recorded in the fourth quarter of
1998. In addition, management intended to close the facility in 2000 in order
to continue to align capacity with demand. While the facility continues to be
an impaired asset, in late 1999, after negotiations with labor
representatives, management agreed to only downsize the facility and continue
operations through 2001. During this period, additional negotiations with
governmental authorities and labor representatives will continue. In 1998,
other less significant modifications were made to the 1997 Plan, the largest
of which was a $12.1 million charge for losses on European feminine care
equipment removed from service. The effects of these modifications were
included in 1998 results of operations.
Set forth below is a summary of the types and amounts of charges that
were recognized as accrued expenses for the 1997 Plan together with cash
payments made against such accruals for the two years ended December 31, 1999.
Balance 1999 Balance
------------------------
(Millions of dollars) 12/31/98 (Reductions) Payments 12/31/99
- ----------------------- ----------------------------------------
Workforce severance . . . . . . . . . . . . . . . . $ 42.7 $ (4.8) $(37.8) $ .1
Asset removal costs . . . . . . . . . . . . . . . . 12.7 (8.5) (4.2) -
Environmental costs and lease contract terminations 40.2 (9.1) (24.1) 7.0
Other costs . . . . . . . . . . . . . . . . . . . . 15.4 (9.5) (5.9) -
------ ------ ------ ----
$111.0 $(31.9) $(72.0) $7.1
====== ====== ====== ====
Balance 1998 Balance
------------------------
(Millions of dollars) 12/31/97 Additions Payments 12/31/98
- ----------------------- ----------------------------------------
Workforce severance . . . . . . . . . . . . . . . . $32.1 $53.2 $(42.6) $ 42.7
Asset removal costs . . . . . . . . . . . . . . . . 17.2 .3 (4.8) 12.7
Environmental costs and lease contract terminations 32.1 23.2 (15.1) 40.2
Other costs . . . . . . . . . . . . . . . . . . . . 9.2 7.8 (1.6) 15.4
----- ----- ------ ------
$90.6 $84.5 $(64.1) $111.0
===== ===== ====== ======
Management considers the 1997 Plan to be substantially completed as of
December 31, 1999. The accrued expense balance of $7.1 million will be paid
in accordance with the terms of the applicable contract settlement and other
agreements.
1995 SCOTT MERGER AND RESTRUCTURING PLAN
In connection with the Scott merger, in December 1995, the Corporation
announced a plan to restructure the combined operations and to accomplish
other business improvement objectives (the "1995 Plan"). The 1995 Plan
included (i) the cost of plant rationalizations and employee terminations to
eliminate duplicate facilities and excess capacity; (ii) disposition of
facilities to comply with the merger-related decrees of the U.S. Justice
Department and the European Commission; (iii) costs of terminating leases,
contracts and other long-term agreements; (iv) the direct costs of the merger,
including fees of investment bankers, outside legal counsel and accountants;
(v) impaired asset charges; and (vi) accelerated depreciation charges on
assets that were to be disposed of but which were not to be immediately
removed from operations.
The original estimated pretax cost of the 1995 Plan was $1,440 million.
The plan was completed in 1998 at a pretax cost of $1,305 million. Charges or
(credits) under the 1995 Plan for the two years ended December 31, 1998 are
summarized below:
Amounts
Charged
to Earnings
---------------
(Millions of dollars) 1998 1997
- ----------------------- --------------------
Cost of products sold. . . . . . . . . . . . . . . . $ 1.7 $15.1
Restructuring and other unusual charges. . . . . . . (5.0) 49.0
----- -----
Total pretax charge (credit) . . . . . . . . . . . $(3.3) $64.1
===== =====
The effects of the 1995 Plan were included in operating profit by
business segment and geography as follows:
Year Ended
December 31
--------------
(Millions of dollars) 1998 1997
- ----------------------- ---- ----
By Business Segment
Tissue . . . . . . . . . . . . . . . . . . . . . . $ .7 $60.5
Personal Care. . . . . . . . . . . . . . . . . . . .9 1.9
Health Care. . . . . . . . . . . . . . . . . . . . (.8) (.3)
Unallocated. . . . . . . . . . . . . . . . . . . . (4.1) 2.0
----- -----
Total pretax charge (credit) $(3.3) $64.1
===== ======
By Geography
North America. . . . . . . . . . . . . . . . . . . $(2.9) $11.5
Outside North America. . . . . . . . . . . . . . . 3.7 50.6
Unallocated. . . . . . . . . . . . . . . . . . . . (4.1) 2.0
----- -----
Total pretax charge (credit) . . . . . . . . . . $(3.3) $64.1
===== =====
The effects of the 1995 Plan decreased (increased) operating profit and
net income as follows:
Year Ended
December 31
--------------
(Millions of dollars) 1998 1997
- ----------------------- ---- ----
Operating profit . . . . . . . . . . . . . . . . . . $(3.3) $64.1
Net income . . . . . . . . . . . . . . . . . . . . . (.9) 51.3
Set forth below is a summary of the types and amounts recognized as
accrued expenses for the 1995 Plan together with the cash payments made
against such accruals for the year ended December 31, 1998.
1998
Balance -------------------------- Balance
(Millions of dollars) 12/31/97 (Reductions) Payments 12/31/98
- ----------------------- -------------------------------------------------
Workforce severance . . . . . . . . . . . . . . $ 8.1 $ (3.5) $ (4.6) $ -
Asset removal costs . . . . . . . . . . . . . . 1.9 - (1.9) -
Contract settlement and lease termination costs 27.1 (6.1) (5.7) 15.3
Other costs . . . . . . . . . . . . . . . . . . 9.1 (1.4) (7.0) .7
----- ------ ------ -----
$46.2 $(11.0) $(19.2) $16.0
===== ====== ====== =====
The 1998 accrued expense balance of $16.0 million is being paid in
accordance with the terms of the contract settlement agreements and, as of
December 31, 1999, approximately $4 million remains to be paid under a
contractual lease obligation.
OTHER INFORMATION
1999 Unusual Charges
- ----------------------
In 1999, the Corporation incurred $13.6 million of unusual business
improvement costs that were not related to the three formally adopted business
improvement plans discussed above. The costs, which primarily were for
employee severances and write off of assets removed from service, were charged
to cost of products sold when incurred.
Write-down of Certain Intangible and Other Assets
- -------------------------------------------------------
In 1998, the carrying amounts of trademarks and unamortized goodwill of
certain European businesses were determined to be impaired and written down.
These write-downs, which were charged to general expense, reduced 1998
operating profit $70.2 million and net income $57.1 million. In addition, the
Corporation began depreciating the cost of all newly acquired personal
computers ("PCs") over two years. In recognition of the change in estimated
useful lives, PC assets with a remaining net book value of $16.6 million
became subject to accelerated depreciation charges. These charges, along
with $8.8 million of charges for write-downs of other assets and a loss on a
pulp contract, reduced 1998 operating profit $81.2 million and net income
$64.7 million. Of the $81.2 million, $6.8 million was charged to cost of
products sold and $74.4 million was charged to general expense. In 1999,
accelerated depreciation on PCs reduced operating profit by $8.3 million, $2.7
million of which was charged to cost of products sold and $5.6 million was
charged to general expense.
Approximately 91 percent of the 1998 write-down of certain intangible and
other assets and accelerated depreciation on PCs described above relates to
the Personal Care segment and 9 percent relates to the Tissue segment. In
1999, 50 percent of the $8.3 million of accelerated depreciation was charged
to each of the Tissue and Personal Care segments.
ANALYSIS OF CONSOLIDATED NET SALES - THREE YEARS ENDED DECEMBER 31, 1999
By Business Segment
Net Sales
---------------------------------
(Millions of dollars) 1999 1998 1997
- ----------------------- ---------------------------------
Tissue. . . . . . . . . . . . . . . . . . . . . $ 6,968.8 $ 6,733.1 $ 7,210.2
Personal Care . . . . . . . . . . . . . . . . . 5,138.1 4,596.5 4,510.7
Health Care and Other . . . . . . . . . . . . . 936.4 1,001.5 863.6
Intersegment sales. . . . . . . . . . . . . . . (36.5) (33.3) (37.9)
--------- --------- ---------
Consolidated. . . . . . . . . . . . . . . . . . $13,006.8 $12,297.8 $12,546.6
========= ========== ==========
By Geographic Area
Net Sales
--------------------------------
(Millions of dollars) 1999 1998 1997
- --------------------- --------------------------------
United States . . . . . . . . . . . . . . . . . $ 8,392.5 $ 7,992.8 $ 7,854.3
Canada. . . . . . . . . . . . . . . . . . . . . 843.4 785.1 1,052.5
Intergeographic sales . . . . . . . . . . . . . (507.4) (408.9) (397.2)
--------- --------- ---------
Total North America . . . . . . . . . . . . . 8,728.5 8,369.0 8,509.6
Europe. . . . . . . . . . . . . . . . . . . . . 2,544.7 2,471.2 2,548.1
Asia, Latin America and Africa. . . . . . . . . 2,084.6 1,766.2 1,837.9
Intergeographic sales . . . . . . . . . . . . . (351.0) (308.6) (349.0)
--------- --------- ---------
Consolidated. . . . . . . . . . . . . . . . . . $13,006.8 $12,297.8 $12,546.6
========= ========= =========
Commentary:
1999 versus 1998
Consolidated net sales increased 5.8 percent above 1998. In 1998, the
Corporation sold K-C Aviation Inc. ("KCA"). In 1999, it closed its Mobile,
Alabama pulp mill and sold its Southeast Timberlands ("SET") and its pulp mill
located in Miranda, Spain ("Miranda"). Excluding the revenues of these
divested businesses for both years, consolidated net sales increased about 8
percent. Sales volumes increased approximately 9 percent, with each of the
business segments contributing to the gain. However, changes in foreign
currency exchange rates reduced consolidated net sales by about 1 percent,
with favorable effects in Korea being more than offset by unfavorable changes
in Brazil and Europe. Although the preceding tables include the divested
businesses, the following net sales commentary excludes their results in order
to facilitate a more meaningful discussion.
- - Worldwide net sales of tissue products increased 5 percent. Sales
volumes grew by nearly 6 percent, while slightly lower prices and
unfavorable foreign currency exchange rate effects, primarily in Europe,
reduced net sales by approximately 1 percent. The increase in sales
volumes is primarily attributable to the contribution from the Attisholz
Holding AG ("Attisholz") tissue brands in Europe, acquired in June 1999,
and improved sales of Kleenex Cottonelle and Scott bathroom tissue in
North America. Other significant contributors to the increase were Kleenex
facial tissue, washroom systems and wet wipes products, which more than
offset a decline in sales volumes for consumer towel products in North
America. A portion of the tissue sales volume increase is due to operations
in Colombia, in which the Corporation made an additional investment in
late 1998 to gain majority ownership of certain Latin American equity
companies (the "Colombian Investment").
- - Worldwide net sales of personal care products were 11.8 percent greater
primarily due to a 13 percent increase in sales volumes. A selling
price increase of approximately 1 percent was more than offset by the
negative effect of changes in foreign currency exchange rates of slightly
more than 2 percent. Net sales were higher in every geographic region.
In North America, net sales increased across all brands, led by higher
volumes for Huggies diapers. There was particular improvement in diaper
sales in Europe and notably increased sales of personal care products in
Korea. In addition, a portion of the increase in net sales is
attributable to the Colombian Investment.
- - Net sales for health care and other products increased 11 percent
primarily due to sales volume growth for professional health care
products, including the contribution from the acquisition of Ballard
Medical Products ("Ballard") in September 1999.
1998 versus 1997
Consolidated net sales were 2.0 percent lower than in 1997. In 1997, the
Corporation divested a pulp and newsprint facility located in Coosa Pines,
Alabama ("Coosa") and sold its 50.1 percent interest in Scott Paper Limited
("SPL"). Excluding the revenues from these divested businesses for both
years, consolidated net sales remained essentially even. Sales volumes,
however, increased more than 2 percent and selling prices were nearly 2
percent higher, primarily due to improved pricing for consumer tissue products
in the United States. However, changes in foreign currency exchange rates,
primarily in Asia, reduced consolidated net sales slightly more than 3
percent. Although the preceding tables include the divested businesses, the
following net sales commentary excludes their results in order to facilitate a
more meaningful discussion.
- - Worldwide net sales for tissue products declined slightly more than 3
percent primarily due to changes in currency exchange rates in Asia.
Sales volumes declined approximately 1 percent as sales volume increases
in Latin America and for wet wipes products, primarily in North
America, were offset by lower sales volumes in Europe and Asia and
lower consumer towel volume in North America. The decline in sales volumes,
however, was more than offset by an increase of nearly 2 percent in selling
prices.
- - Worldwide net sales of personal care products increased about 2 percent.
Sales volumes grew by nearly 5 percent and selling prices increased by
about 2 percent; however, changes in foreign currency exchange rates
reduced net sales by approximately 4 percent. Training and youth pants
in North America and sales volume growth in Latin America were the primary
factors contributing to the overall sales volume increase. These
increases more than offset lower diaper sales volumes in North America
and Europe which were attributable to the transition to larger size
product packaging, the introduction of unisex product and increased
competition.
- - Net sales for health care and other products increased more than 24
percent due to sales volume growth in health care products, driven,
in large part, by the acquisition of Tecnol in December 1997.
UNUSUAL ITEMS
For purposes of this Management's Discussion and Analysis, and in order
to facilitate a meaningful discussion of the ongoing operations of the
Corporation, the items summarized in the following table are considered to be
unusual items ("Unusual Items").
Year Ended December 31
--------------------------------
(Millions of dollars) 1999 1998 1997
- ----------------------- --------------------------------
Charges (credits) to Operating Profit:
Business Improvement and Other Programs:
1998 Plan . . . . . . . . . . . . . . . . . . . . . $ 42.6 $ 49.1 $ -
1997 Plan . . . . . . . . . . . . . . . . . . . . . (16.7) 250.8 414.2
1995 Plan . . . . . . . . . . . . . . . . . . . . . - (3.3) 64.1
1999 unusual charges. . . . . . . . . . . . . . . . 13.6 - -
Write-down of certain intangible and other assets . . 8.3 81.2 -
Gains on disposals of assets. . . . . . . . . . . . . (176.7) (140.0) (26.5)
Mobile pulp mill fees and related severances. . . . . 9.0 42.3 -
Business integration and other costs. . . . . . . . . 22.6 - -
-------- --------- --------
Net charge (credit) for unusual items . . . . . . . . . (97.3) 280.1 451.8
Operating profit as reported. . . . . . . . . . . . . . 2,435.4 1,697.7 1,486.1
-------- --------- --------
Operating profit excluding unusual items. . . . . . . . $2,338.1 $1,977.8 $1,937.9
======== ========= =========
Note: Gains on certain disposals of assets are recorded in the
Consolidated Income Statement as other (income) expense, net. In December
1999, the Corporation reclassified other (income) expense, net, to be part of
reported operating profit in accordance with Regulation S-X.
- - A description of the items included in the 1998, 1997 and 1995 Plans, the
1999 unusual charges and the write-down of certain intangible and other
assets is contained in the Business Improvement and Other Programs
section above.
- - Gains on disposals of assets are primarily related to the sale of a portion
of SET in 1999, the sale of KCA in 1998 and the sale of the
Corporation's investment in Ssangyong Paper Co., Ltd. (Korea) in 1997.
- - In 1999, the Corporation recorded severance related to the sale of SET.
In 1998, a contract cancellation fee and severance related to the closure
of the Mobile pulp mill were recorded.
- - As part of the integration of acquired businesses, Attisholz and Ballard,
the Corporation recorded certain costs, which were expensed as incurred,
related to assimilating these operations. It is estimated that an
additional $10 million of cost related to these activities will be incurred
and expensed in 2000.
The items displayed in the preceding table have been excluded from
operating profit in the "Excluding Unusual Items" columns in the following
Consolidated Operating Profit tables.
ANALYSIS OF CONSOLIDATED OPERATING PROFIT - THREE YEARS ENDED DECEMBER 31,
1999
By Business Segment
1999 1998 1997
----------------- -------------------- -------------------
Excluding Excluding Excluding
As Unusual As Unusual As Unusual
(Millions of dollars) Reported Items Reported Items Reported Items
- ----------------------- -------- --------- -------- --------- -------- ---------
Tissue . . . . . . . . . . . . $1,114.1 $1,171.3 $ 921.3 $1,135.7 $ 704.3 $1,089.2
Personal Care. . . . . . . . . 1,092.8 1,109.1 588.7 785.3 737.8 812.5
Health Care and Other. . . . . 154.3 161.9 161.2 173.7 135.1 143.5
Unallocated - net. . . . . . . 74.2 (104.2) 26.5 (116.9) (91.1) (107.3)
-------- -------- -------- -------- -------- --------
Consolidated . . . . . . . . . $2,435.4 $2,338.1 $1,697.7 $1,977.8 $1,486.1 $1,937.9
======== ======== ======== ======== ======== ========
By Geographic Area
1999 1998 1997
----------------- -------------------- -------------------
Excluding Excluding Excluding
As Unusual As Unusual As Unusual
(Millions of dollars) Reported Items Reported Items Reported Items
- ----------------------- -------- --------- -------- --------- -------- ---------
United States . . . . . . . . . $1,821.9 $1,868.8 $1,407.2 $1,663.4 $1,362.8 $1,553.1
Canada. . . . . . . . . . . . . 105.3 110.9 112.7 104.8 151.9 154.6
Europe. . . . . . . . . . . . . 183.3 219.8 (39.7) 123.1 (76.1) 128.7
Asia, Latin America and Africa 250.7 242.8 191.0 203.4 138.6 208.8
Unallocated - net . . . . . . . 74.2 (104.2) 26.5 (116.9) (91.1) (107.3)
-------- --------- --------- --------- --------- ---------
Consolidated. . . . . . . . . . $2,435.4 $2,338.1 $1,697.7 $1,977.8 $1,486.1 $1,937.9
======== ========= ========= ========= ========= =========
Note: Unallocated - net consists of expenses not associated with the business
segments or geographic areas and other (income) expense, net.
Commentary:
1999 versus 1998
Excluding the Unusual Items, operating profit increased 18.2 percent, and
operating profit as a percentage of net sales increased to 18.0 percent in
1999 from 16.1 percent in 1998. Excluding the divested businesses and the
Unusual Items for both years, operating profit increased 20.0 percent. The
increase in operating profit was driven by the higher sales volumes, with
productivity improvements and other manufacturing cost efficiencies
contributing to the gain. The benefits of these improvements more than offset
the additional investments in marketing and product improvement initiatives.
The following commentary excludes the Unusual Items and the results of
divested businesses in both years.
- - Operating profit for tissue products increased slightly more than 4 percent
primarily due to higher sales volumes for facial and bathroom tissue and
wet wipes products in North America, the Attisholz acquisition in Europe
and the Colombian Investment. The sales growth along with manufacturing
efficiencies more than offset the increased marketing costs for new
Kleenex Cottonelle bathroom tissue and improved Scott towels and bathroom
tissue in North America.
- - Operating profit for personal care products increased 41.2 percent, led
by results in North America where the higher sales volumes, manufacturing
cost reductions and selling price increases more than offset increased
marketing costs. Operating profit also benefited from contributions by
Europe due to the increased diaper sales volume, other cost savings
and lower marketing expense and the Colombian Investment.
- - Operating profit for the health care and other segment increased nearly
3 percent primarily due to increased sales volumes for professional
health care products which benefited from the Ballard acquisition.
1998 versus 1997
Excluding the Unusual Items, operating profit increased 2.1 percent in
absolute terms and increased to 16.1 percent in 1998 from 15.4 percent in 1997
as a percentage of net sales. Excluding the divested businesses and the
Unusual Items for both years, operating profit increased approximately 3.8
percent. The increase in operating profit was due to the price and sales
volume increases partially offset by higher spending for advertising and
promotion, the negative effect of changes in foreign currency exchange rates
and additional goodwill amortization. The following operating profit
commentary excludes the Unusual Items and the results of divested businesses
in both years.
- - Tissue operating profit increased 7 percent principally due to the
selling price increases. Restructuring and other cost savings were
partially offset by changes in currency exchange rates.
- - Operating profit for personal care declined 3 percent, as increased
advertising and promotion, and product improvement costs, primarily in
North America, and changes in currency exchange rates more than offset
the gains in selling prices and sales volumes.
- - Operating profit for health care and other products increased
approximately 24 percent due, in large part, to the acquisition of
Tecnol, partially offset by increased goodwill amortization.
- - Changes in currency exchange rates reduced consolidated operating profit
by nearly 3 percent.
ADDITIONAL INCOME STATEMENT COMMENTARY
1999 versus 1998
- - Interest expense increased primarily due to higher average debt levels.
- - The Corporation's effective income tax rate was 32.4 percent in 1999
compared with 34.3 percent in 1998. Excluding the Unusual Items from
both years, the Corporation's effective income tax rate was 32.1 percent
in 1999 compared with 32.0 percent in 1998.
- - The Corporation's share of net income of equity companies was $189.6
million in 1999 compared with $146.3 million in 1998, excluding a
charge related to the change in value of the Mexican peso in 1998. The
increase is primarily due to the results of Kimberly-Clark de
Mexico, S.A. de C.V. ("KCM"), which benefited from higher selling
prices and increased sales volumes.
- - Minority owners' share of subsidiaries' net income increased in 1999
primarily due to the previously mentioned Colombian Investment
and the improved results of the Corporation's majority owned subsidiary
in Korea.
- - Diluted net income was $3.09 per share in 1999 compared with $1.99 per
share in 1998, an increase of 55.3 percent. Excluding the Unusual Items
in both years, the charge for the devaluation of the Mexican peso
and the cumulative effect of the accounting change for start-up
costs in 1998, earnings from operations were $2.98 per share in 1999
compared with $2.44 per share in 1998, an increase of 22.1 percent.
1998 versus 1997
- - Interest expense increased primarily due to higher average debt levels.
- - The Corporation's effective income tax rate was 34.3 percent in 1998
compared with 36.5 percent in 1997. Excluding the Unusual Items from
both years, the Corporation's effective income tax rate was 32.0 percent
in 1998 compared with 32.8 percent in 1997.
- - The Corporation's 1998 share of net income of equity companies includes
a charge equal to $.02 per share related to the change in the value of
the Mexican peso. In 1997, a gain equal to $.03 per share, primarily
related to the sale of a portion of the tissue business of KCM to meet
Mexican regulatory requirements in connection with KCM's merger with
Scott's former Mexican affiliate, was included in the Corporation's
share of net income of equity companies. Also included in the
Corporation's share of 1997 net income of equity companies was $2.2
million of charges for the 1997 Plan. Excluding these items in both
years, the Corporation's share of net income of equity companies increased
2.2 percent.
- - Minority owners' share of subsidiaries' net income in 1998 and 1997
includes $.8 million and $6.5 million, respectively, attributable to
other owners' share of Unusual Items. Also included in 1997 is $8.7
million of other owners' share of the net income of SPL. Excluding these
items, minority owners' share of subsidiaries' net income decreased
$4.8 million.
- - In 1997, the Corporation recorded extraordinary gains of $17.5 million
(or $.03 per share), net of income taxes of $38.4 million. The gains
related to certain asset disposals and impairments occurring subsequent
to a business combination accounted for as a pooling of interest
(the Scott merger).
- - Effective January 1, 1998, the Corporation changed its method of
accounting for preoperating and start-up costs to expense these costs
as incurred in accordance with new accounting requirements. Previously,
these costs incurred for major projects were capitalized and amortized
over five years. The cumulative effect of this accounting change is
presented on the income statement net of income taxes. This charge reduced
reported net income for the first quarter and 1998 by $.02 per share.
- - Diluted net income was $1.99 per share in 1998 compared with $1.79 per
share in 1997, an increase of 11.2 percent. Excluding the Unusual Items
in both years, the change in the value of the Mexican peso and the
cumulative effect of the accounting change in 1998, and the extraordinary
gains in 1997, earnings per share from operations increased to $2.44 from
$2.36 in 1997, an increase of 3.4 percent.
SALES OF PRINCIPAL PRODUCTS
(Billions of dollars) 1999 1998 1997 1996
- ----------------------- ---- ----- ----- -----
Tissue-based products . . . . . . . . . . $ 5.9 $ 5.7 $ 6.1 $ 6.9
Diapers . . . . . . . . . . . . . . . . . 3.0 2.6 2.7 2.3
All other . . . . . . . . . . . . . . . . 4.1 4.0 3.7 3.9
----- ----- ----- -----
Consolidated. . . . . . . . . . . . . . . $13.0 $12.3 $12.5 $13.1
===== ===== ===== =====
- - Consolidated net sales increased 5.8 percent in 1999, after declining
for the two years after 1996. The declining sales trend was affected by
the divestment of noncore businesses and those businesses that were sold
following the 1995 Scott merger.
LIQUIDITY AND CAPITAL RESOURCES
Year Ended December 31
-------------------------
(Millions of dollars) 1999 1998
- ----------------------- ---- ----
Cash provided by operations . . . . . . . . . . . . . $2,134.3 $1,993.7
Capital spending. . . . . . . . . . . . . . . . . . . 786.4 669.5
Acquisitions of businesses, net of cash acquired. . . 271.9 342.5
Proceeds from dispositions of property and businesses 115.2 324.9
Proceeds from notes receivable. . . . . . . . . . . . 383.0 -
Ratio of net debt to capital. . . . . . . . . . . . . 28.9% 35.6%
Pretax interest coverage - times. . . . . . . . . . . 11.4 8.7
Cash Flow Commentary:
- - Cash provided by operations increased by $140.6 million. Net income
plus noncash charges included in net income increased to $2.2 billion in
1999 compared with $1.9 billion in 1998. The Corporation invested $67.1
million in working capital in 1999 versus a decrease of $63.6
million in 1998.
- - Approximately $86 million and $83 million of cash payments were charged
to the accruals for the Business Improvement and Other Programs in 1999
and 1998, respectively.
- - Cash proceeds received in 1999 from the disposal of a portion of SET and
from the sale of Miranda and other asset disposals totaled $115.2
million. Additionally, in 1999, $383 million of notes receivable
from the SET transaction were transferred for cash to a
nonconsolidated special purpose entity in which the Corporation has a
minority voting interest. The transfer of the notes, which was accounted
for as a sale, resulted in no gain or loss to the Corporation. Cash
proceeds received in 1998 from the sale of KCA and other asset disposals
totaled $324.9 million.
- - In 1999, the Corporation purchased 13.5 million shares of its common
stock in connection with its share repurchase program at a total cost of
about $750 million. At December 31, 1999, authority to repurchase
7.5 million shares remained under an October 1998 repurchase
authority from the Corporation's board of directors. In 1998, the
Corporation purchased 19.5 million shares of its common stock in
connection with its share repurchase program at a total cost of
approximately $900 million.
Financing Commentary:
- - At December 31, 1999, total debt was $2.7 billion, essentially even with
the prior year. Net debt (total debt net of cash, cash equivalents and
$220 million of long-term notes receivable) was $2.2 billion at
December 31, 1999 compared with $2.3 billion at December 31, 1998. The
Corporation's ratio of net debt to capital of 28.9 percent at
December 31, 1999 is below the targeted range of 30 to 40 percent.
- - The increase in the pretax interest coverage ratio is primarily due to
the higher level of pretax income. Excluding the Unusual Items in 1999
and 1998, the pretax interest coverage ratio would have been 11.0
and 10.7, respectively.
- - Revolving credit facilities of $1.1 billion are in place for general
corporate purposes and to back up commercial paper borrowings.
- - The Corporation's long-term debt securities have a Double-A rating and
its commercial paper is rated in the top category.
Other Commentary:
- - On November 17, 1999, the Corporation announced that it had signed a
definitive agreement to acquire Safeskin Corporation ("Safeskin"), a
leading maker of high quality, disposable gloves for the health care,
high-technology and scientific industries. Under the agreement,
Safeskin shareholders will receive .1956 shares of the Corporation's
common stock in exchange for each share of Safeskin common stock.
The transaction, which is valued at approximately $800 million,
will be accounted for as a purchase.
- - 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.
MARKET RISK SENSITIVITY AND INFLATION RISKS
The Corporation is disclosing information concerning market risk with
respect to foreign exchange rates, interest rates and commodity prices. The
Corporation makes such disclosures utilizing a sensitivity analysis approach
based on hypothetical changes in foreign exchange rates, interest rates and
commodity prices.
As a multinational enterprise, the Corporation is exposed to changes in
foreign currency exchange rates, interest rates and commodity prices. The
Corporation employs a variety of practices to manage these market risks,
including its operating and financing activities and, where deemed
appropriate, the use of derivative financial instruments. The Corporation
uses derivative financial instruments only for risk management purposes and
does not use them for speculation or for trading. All derivative instruments
are either exchange traded or are entered into with major financial
institutions for the purpose of reducing the Corporation's credit risk and the
risk of nonperformance by third parties.
Foreign Currency Risk
Foreign currency risk is managed by the use of foreign currency
forward, swap and option contracts. The use of these contracts allows the
Corporation to manage its transactional exposure to exchange rate fluctuations
because the gains or losses incurred on the derivative instruments will offset
in whole, or in part, losses or gains on the underlying foreign currency
exposure. There have been no significant changes in how foreign
currency transactional exposures were managed during 1999, and management
does not foresee or expect any significant changes in such exposures or in
the strategies it employs to manage them in the near future.
Foreign currency contracts and transactional exposures are sensitive to
changes in foreign currency exchange rates. As of December 31, 1999, a ten
percent unfavorable change in the exchange rate of the U.S. dollar against the
prevailing market rates of the foreign currencies in which the Corporation has
transactional exposures would have resulted in a net pretax loss of
approximately $27 million. Gains or losses on foreign currency contracts and
transactional exposures are defined as the difference between the contract
rates and the hypothetical exchange rates. In the view of management, the
above losses resulting from the hypothetical changes in foreign currency
exchange rates are not material to the Corporation's consolidated financial
position, results of operations or cash flows.
Interest Rate Risk
Interest rate risk is managed through the maintenance of a portfolio of
variable- and fixed-rate debt composed of short- and long-term instruments.
The objective is to maintain a cost-effective mix that management deems
appropriate. At December 31, 1999, the Corporation's debt portfolio was
composed of approximately 33 percent variable-rate debt, adjusted for the
effect of variable-rate assets, and 67 percent fixed-rate debt. The strategy
employed by the Corporation to manage its exposure to interest rate
fluctuations did not change significantly during 1999, and management does not
foresee or expect any significant changes in its exposure to interest rate
fluctuations or in how such exposure is managed in the near future.
Various financial instruments issued by the Corporation and its
subsidiaries are sensitive to changes in interest rates. Interest rate
changes would result in gains or losses in the market value of the
Corporation's fixed-rate debt due to differences between the current market
interest rates and the rates governing these instruments. With respect to the
Corporation's fixed-rate debt outstanding at December 31, 1999, a ten percent
change in interest rates would have resulted in no material change in the fair
value of the Corporation's fixed-rate debt. With respect to the Corporation's
commercial paper and other variable-rate debt, a ten percent increase in
interest rates would have had no material effect on the Corporation's future
results of operations.
Commodity Price Risk
The Corporation is subject to commodity price risk arising from price
movement for purchased pulp, the market price of which is determined by
industry supply and demand. Selling prices of the Corporation's tissue
products can be influenced by the market price for pulp. On a worldwide
basis, the Corporation has reduced its internal pulp supply to approximately
40 percent of its virgin fiber needs. The Corporation has announced its
intention to further reduce its level of pulp integration to approximately 20
percent. However, such a reduction in pulp integration could increase the
Corporation's commodity price risk. Specifically, increases in pulp prices
could adversely affect the Corporation's earnings if selling prices are not
adjusted or if such adjustments significantly trail the increases in pulp
prices. The Corporation has not used derivative instruments in the management
of these risks.
Inflation Risk
The Corporation's inflation risks are managed on an entity-by-entity
basis through selective price increases, productivity increases and
cost-containment measures. Management does not believe that inflation risk is
material to the Corporation's business or its consolidated financial position,
results of operations or cash flows.
"YEAR 2000" READINESS
Beginning in 1995, the Corporation was involved in a worldwide program to
be "Year 2000" ready. The program involved reviews of major business,
financial and other information systems, including equipment with embedded
microprocessors; development of specific plans for modification or replacement
of date-sensitive software or microprocessors; execution of such plans and the
testing of such systems to ensure their "Year 2000" readiness. Included
within the scope of the program were contacts with key suppliers and customers
to determine their "Year 2000" readiness in order to ensure a steady flow of
goods and services to the Corporation and continuity with respect to customer
service.
As a result of this worldwide program, there were no significant
occurrences of Year 2000-related failures. Additionally, the Corporation does
not anticipate that any significant subsequent events will occur.
The total costs incurred to complete "Year 2000" readiness, which was
comprised of staff time and the costs of replacing certain computerized
systems and microprocessors, was approximately $80 million.
CONTINGENCIES AND LEGAL MATTERS
In connection with the Mobile pulp mill closure, and as permitted by the
terms of the governing contract, on May 5, 1998, the Corporation gave notice
to Mobile Energy Services Company, L.L.C. ("MESC") of the Corporation's intent
to terminate MESC's long-term contract for power, steam and liquor processing
services with respect to the Mobile pulp mill. The resulting termination
penalty of $24.3 million, which comprised six months of adjusted demand
payments under the contract, was charged to cost of products sold in the
second quarter of 1998. On January 14, 1999, MESC and Mobile Energy Services
Holdings, Inc. (the "debtors") filed an action against the Corporation
claiming unspecified damages in connection with the cancellation of the
contract.
On December 31, 1999, a joint motion of the debtors and the MESC
bondholders' steering committee (the "Motion") was filed with the U.S.
Bankruptcy Court seeking approval of a settlement and compromise of claims
against the Corporation arising from the closure of the Mobile pulp mill and
termination of the pulp mill's energy services agreement. The Motion,
which was granted by the U.S. Bankruptcy Court by order dated January 24,
2000, outlines the terms of settlement for various litigation matters
between the Corporation and MESC. Under the proposed settlement, the
Corporation agreed to pay MESC at closing approximately $30 million, subject
to certain adjustments. Closing of the settlement would be subject to, among
other conditions, MESC filing a plan of reorganization from bankruptcy and
the ultimate approval of that plan by the U.S. Bankruptcy Court. The
approximate $30 million payment, which will be accrued when appropriate, is
in addition to $24.3 million previously accrued by the Corporation. In
addition, the proposed settlement provides MESC with an option to purchase the
Mobile pulp mill at a nominal price; a settlement of all pending litigation
and arbitration between the Corporation and MESC; mutual releases by the
Corporation, MESC and its affiliate (the Southern Company and affiliates),
and the representatives of the MESC bondholders; and an agreement by MESC
to terminate the existing tissue mill energy services agreement and to provide
the Mobile tissue mill energy at market rates.
The outcome of the MESC litigation and settlement matters is not expected
to have a material adverse effect on the Corporation's business, financial
condition or results of operations.
ENVIRONMENTAL MATTERS
The Corporation is subject to federal, state and local environmental
protection laws and regulations with respect to its business operations and is
operating in compliance with, or taking action aimed at ensuring compliance
with, such laws and regulations. Compliance with these laws and regulations
is not expected to have a material adverse effect on the Corporation's
business or results of operations. 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 the Corporation's business, financial
condition or results of operations.
OUTLOOK
The Corporation expects sales to continue to rise 6 percent to 8 percent
annually and earnings per share to grow at double-digit rates. A portion of
this growth is expected to be achieved by increasing our shares in existing
markets and entering new countries for additional growth. The Corporation
expects product superiority and innovation to remain as the cornerstones of
its growth strategy. The Corporation also expects acquisitions to continue to
play a key role in its growth strategy.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report concerning, among other things,
the business outlook, anticipated financial and operating results, strategies,
contingencies and contemplated transactions of the Corporation including, but
not limited to, the adequacy of the charges under the 1997 Plan, the adequacy
of the 1998 Plan and the anticipated acquisition of Safeskin constitute
forward-looking statements and are based upon management's expectations and
beliefs concerning future events impacting the Corporation. There can be no
assurance that these events will occur or that the Corporation's results will
be as estimated.
The assumptions used as a basis for the forward-looking statements
include many estimates that, among other things, depend on the achievement of
future cost savings, including cost savings as a result of the 1997 Plan and
the 1998 Plan, and the ability to achieve intended facilities consolidations,
and projected volume increases. Furthermore, the Corporation has assumed that
it will continue to identify suitable acquisition candidates in those product
markets where it intends to grow by acquisition. In addition, many
factors outside the control of the Corporation, including the prices of the
Corporation's raw materials, potential competitive pressures on selling prices
or advertising and promotion expenses for the Corporation's products, and
fluctuations in foreign currency exchange rates, as well as general economic
conditions in the markets in which the Corporation does business, also
could impact the realization of such estimates.
For a description of these and other 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 I of the
Corporation's Annual Report on Form 10-K entitled "Factors That May Affect
Future Results."
CONSOLIDATED INCOME STATEMENT
Kimberly-Clark Corporation and Subsidiaries
Year Ended December 31
----------------------
(Millions of dollars, except per share amounts) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . $13,006.8 $12,297.8 $12,546.6
Cost of products sold . . . . . . . . . . . . . . . . . . 7,681.6 7,700.2 7,939.0
---------- ---------- ----------
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . 5,325.2 4,597.6 4,607.6
Advertising, promotion and selling expenses . . . . . . . 2,097.8 1,937.4 1,937.2
Research expense. . . . . . . . . . . . . . . . . . . . . 249.8 224.8 211.8
General expense . . . . . . . . . . . . . . . . . . . . . 707.4 717.0 623.9
Goodwill amortization . . . . . . . . . . . . . . . . . . 41.8 33.3 16.8
Restructuring and other unusual charges . . . . . . . . . (27.0) 111.8 349.5
Other (income) expense, net . . . . . . . . . . . . . . . (180.0) (124.4) (17.7)
---------- ---------- ----------
OPERATING PROFIT. . . . . . . . . . . . . . . . . . . . . . 2,435.4 1,697.7 1,486.1
Interest income . . . . . . . . . . . . . . . . . . . . . 29.4 24.3 31.4
Interest expense. . . . . . . . . . . . . . . . . . . . . (213.1) (198.7) (164.8)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . 2,251.7 1,523.3 1,352.7
Provision for income taxes. . . . . . . . . . . . . . . . 730.2 522.2 493.3
---------- ---------- ----------
INCOME BEFORE EQUITY INTERESTS. . . . . . . . . . . . . . . 1,521.5 1,001.1 859.4
Share of net income of equity companies . . . . . . . . . 189.6 137.1 157.3
Minority owners' share of subsidiaries' net income. . . . (43.0) (23.9) (31.3)
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY GAINS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE . . . . . . . . . . . . . . . 1,668.1 1,114.3 985.4
Extraordinary gains, net of income taxes. . . . . . . . - - 17.5
Cumulative effect of accounting change,
net of income taxes . . . . . . . . . . . . . . . . . - (11.2) -
---------- ---------- ----------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,668.1 $ 1,103.1 $ 1,002.9
========== ========== ==========
PER SHARE BASIS
BASIC
Income before extraordinary gains and cumulative effect
of accounting change. . . . . . . . . . . . . . . . . $ 3.11 $ 2.02 $ 1.77
========== ========== ==========
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 3.11 $ 2.00 $ 1.80
========== ========== ==========
DILUTED
Income before extraordinary gains and cumulative effect
of accounting change. . . . . . . . . . . . . . . . . $ 3.09 $ 2.01 $ 1.76
========== ========== ==========
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 3.09 $ 1.99 $ 1.79
========== ========== ==========
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEET
Kimberly-Clark Corporation and Subsidiaries
December 31
-----------
(Millions of dollars) ASSETS 1999 1998
- -----------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . $ 322.8 $ 144.0
Accounts receivable . . . . . . . . . . 1,600.6 1,465.2
Inventories . . . . . . . . . . . . . . 1,239.9 1,283.8
Deferred income taxes . . . . . . . . . 311.4 375.3
Prepaid expenses and other. . . . . . . 87.1 117.5
--------- ---------
TOTAL CURRENT ASSETS. . . . . . . . . 3,561.8 3,385.8
PROPERTY
Land . . . . . . . . . . . . . . . . . 190.7 161.1
Buildings . . . . . . . . . . . . . . . 1,739.2 1,673.1
Machinery and equipment . . . . . . . . 8,747.7 8,461.2
Construction in progress. . . . . . . . 403.2 264.6
--------- ---------
11,080.8 10,560.0
Less accumulated depreciation . . . . . 4,858.8 4,561.9
--------- ---------
NET PROPERTY. . . . . . . . . . . . . 6,222.0 5,998.1
INVESTMENTS IN EQUITY COMPANIES . . . . . 863.1 813.1
ASSETS HELD FOR SALE . . . . . . . . . . - 109.5
GOODWILL, NET OF ACCUMULATED AMORTIZATION 1,246.1 589.4
OTHER ASSETS. . . . . . . . . . . . . . . 922.5 791.9
--------- ---------
$12,815.5 $11,687.8
========= =========
See Notes to Consolidated Financial Statements.
December 31
---------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- ---------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Debt payable within one year . . . . . . . . . . . . . . . . . . . . . . $ 782.4 $ 635.4
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 780.4 670.1
Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245.3 333.1
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,312.1 1,419.1
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 584.6 570.9
Dividends payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 141.0 135.5
---------- ----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 3,845.8 3,764.1
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,926.6 2,068.2
NONCURRENT EMPLOYEE BENEFIT AND OTHER OBLIGATIONS . . . . . . . . . . . . . 868.5 899.9
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 836.9 721.6
MINORITY OWNERS' INTERESTS IN SUBSIDIARIES. . . . . . . . . . . . . . . . . 244.6 202.5
STOCKHOLDERS' EQUITY
Preferred stock - no par value - authorized 20.0 million shares,
none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Common stock - $1.25 par value - authorized 1.2 billion shares;
issued 568.6 million shares at December 31, 1999 and 1998 . . . . . . . 710.8 710.8
Additional paid-in capital 166.4 86.3
Common stock held in treasury, at cost - 28.0 million and 30.3 million
shares at December 31, 1999 and 1998, respectively. . . . . . . . . . . (1,420.4) (1,454.7)
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . (1,114.8) (964.3)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,764.6 5,653.4
Unearned compensation on restricted stock . . . . . . . . . . . . . . . . (13.5) -
---------- ----------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . . . . . 5,093.1 4,031.5
---------- ----------
$12,815.5 $11,687.8
========== ==========
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Kimberly-Clark Corporation and Subsidiaries
Common Stock
------------------- Accumulated Unearned Total
Issued Additional Treasury Stock Other Compensation Stock- Compre-
(Millions of dollars, ------------------- Paid-In --------------- Comprehensive Retained on Restricted holders' hensive
except share amounts) Shares Amount Capital Shares Amount Income(Loss) Earnings Stock Equity Income
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 . . . . . .568,596,810 $710.8 $136.7 5,223,194 $(214.4) $(667.4) $4,629.3 $ - $4,595.0
Shares issued for the
exercise of stock options
and awards. . . . . . . . . . - - (18.2) (2,434,504) 88.2 - - - 70.0
Shares purchased for
treasury. . . . . . . . . . . - - - 18,143,208 (910.6) - - - (910.6)
Shares issued for the
acquisition of Tecnol
Medical Products, Inc . . . - - (5.2) (8,681,530) 419.7 - - - 414.5
Comprehensive income:
Net income. . . . . . . . . . - - - - - - 1,002.9 - 1,002.9 $1,002.9
Other comprehensive
income (loss):
Unrealized translation
adjustments . . . . . . - - - - - (296.4) - - (296.4) (296.4)
Minimum pension liability
adjustment. . . . . . . - - - - (2.8) - - (2.8) (2.8)
- --------
Comprehensive income. . . . . . - - - - - - - - - $ 703.7
========
Dividends declared on
common shares . . . . . . . . - - - - - - (532.3) - (532.3)
--------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 . . . . . .568,596,810 710.8 113.3 12,250,368 (617.1) (966.6) 5,099.9 - 4,340.3
Shares issued for the
exercise of stock options 55.1
and awards. . . . . . . . . . - - (27.0) (1,643,718) 82.1 - - -
Shares purchased for
treasury. . . . . . . . . . . - - - 19,732,752 - (919.7) - - (919.7)
Comprehensive income:
Net income. . . . . . . . . . - - - - - - 1,103.1 - 1,103.1 $1,103.1
Other comprehensive
income (loss):
Unrealized translation
adjustments . . . . . . - - - - - 3.1 - - 3.1 3.1
Minimum pension liability
adjustment. . . . . . . - - - - - (.8) - - (.8) (.8)
-------
Comprehensive income. . . . . . - - - - - - - - - $1,105.4
========
Dividends declared on
common shares . . . . . . . . - - - - - - (549.6) - (549.6)
----------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 . . . . . .568,596,810 710.8 86.3 30,339,402 (1,454.7) (964.3) 5,653.4 - 4,031.5
Shares issued for the
exercise of stock options
and awards. . . . . . . . . . - - (19.7) (2,189,629) 108.9 - - - 89.2
Shares purchased for
treasury. . . . . . . . . . . - - - 13,940,653 (779.0) - - - (779.0)
Shares issued for the
acquisition of Ballard
Medical Products. . . . . . . - - 100.6 (13,758,610) 686.2 - - - 786.8
Stock issued, net of
forfeitures, under restricted
stock plans, less
amortization. . . . . . . . . - - (.8) (362,000) 18.2 - - (13.5) 3.9
Comprehensive income:
Net income. . . . . . . . . . - - - - - - 1,668.1 - 1,668.1 $1,668.1
Other comprehensive
income (loss):
Unrealized translation
adjustments . . . . . . - - - - - (154.6) - - (154.6) (154.6)
Minimum pension liability
adjustment. . . . . . . - - - - - 4.1 - - 4.1 4.1
--------
Comprehensive income. . . . . . - - - - - - - - - $1,517.6
========
Dividends declared on
common shares . . . . . . . . - - - - - - (556.9) - (556.9)
------------------------------------------------------------------------------------------
Balance at
December 31, 1999 . . . . . .568,596,810 $710.8 $166.4 27,969,816 $(1,420.4) $(1,114.8) $6,764.6 $(13.5) $5,093.1
=========== ====== ====== ========== ========= ========= ======== ====== ========
See Notes to Consolidated Financial Statements.
CONSOLIDATED CASH FLOW STATEMENT
Kimberly-Clark Corporation and Subsidiaries
Year Ended December 31
----------------------
(Millions of dollars) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
OPERATIONS
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,668.1 $ 1,103.1 $ 1,002.9
Charges for business improvement and other programs
Restructuring and other unusual charges . . . . . . . . . (27.0) 111.8 349.5
Other charges . . . . . . . . . . . . . . . . . . . . . . 13.2 180.7 91.2
Cumulative effect of accounting change, net of income taxes - 11.2 -
Extraordinary gains, net of income taxes. . . . . . . . . . - - (17.5)
Mobile pulp mill fees and related severances. . . . . . . . 9.0 42.3 -
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . 586.2 594.5 528.5
Goodwill amortization . . . . . . . . . . . . . . . . . . . 41.8 33.3 16.8
Deferred income tax provision . . . . . . . . . . . . . . . 126.2 13.6 71.4
Net gains on asset sales. . . . . . . . . . . . . . . . . . (143.9) (125.9) (8.4)
Equity companies' earnings in excess of dividends paid. . . (78.7) (15.1) (62.1)
Minority owners' share of subsidiaries' net income. . . . . 43.0 23.9 31.3
(Increase) decrease in operating working capital. . . . . . (67.1) 63.6 (588.4)
Pension funding in excess of expense. . . . . . . . . . . . (32.8) (45.9) (10.2)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.7) 2.6 4.0
---------- ---------- ----------
CASH PROVIDED BY OPERATIONS . . . . . . . . . . . . . . 2,134.3 1,993.7 1,409.0
---------- ---------- ----------
INVESTING
Capital spending. . . . . . . . . . . . . . . . . . . . . . (786.4) (669.5) (944.3)
Acquisitions of businesses, net of cash acquired. . . . . . (271.9) (342.5) (82.2)
Proceeds from dispositions of property and businesses . . . 115.2 324.9 779.6
Proceeds from notes receivable. . . . . . . . . . . . . . . 383.0 - -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (16.7) (16.7) (66.8)
---------- ---------- ----------
CASH USED FOR INVESTING . . . . . . . . . . . . . . . . (576.8) (703.8) (313.7)
---------- ---------- ----------
FINANCING
Cash dividends paid . . . . . . . . . . . . . . . . . . . . (551.3) (545.5) (530.6)
Net (decrease) increase in short-term debt. . . . . . . . . (163.8) (2.6) 355.3
Increases in long-term debt . . . . . . . . . . . . . . . . 117.7 541.3 113.0
Decreases in long-term debt . . . . . . . . . . . . . . . . (75.9) (319.1) (253.8)
Proceeds from exercise of stock options . . . . . . . . . . 60.8 38.3 49.2
Acquisitions of common stock for the treasury . . . . . . . (779.0) (919.7) (910.6)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.8 (29.4) 89.8
---------- ---------- ----------
CASH USED FOR FINANCING . . . . . . . . . . . . . . . . (1,378.7) (1,236.7) (1,087.7)
---------- ---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . $ 178.8 $ 53.2 $ 7.6
========== ========== ==========
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kimberly-Clark Corporation and Subsidiaries
NOTE 1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Kimberly-Clark Corporation and all subsidiaries that are more than 50 percent
owned and controlled. Investments in nonconsolidated companies that are at
least 20 percent owned are stated at cost plus equity in undistributed net
income. These latter companies are referred to as equity companies. All
significant intercompany transactions and accounts are eliminated in
consolidation.
In 1999, the Corporation reclassified other (income) expense, net, to be
part of operating profit in accordance with Regulation S-X. This item, which
is substantially comprised of gains on certain disposals of assets, was
previously reported below operating profit. Certain other reclassifications
have been made to conform prior year data to the current year presentation.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingencies at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. Differences from those estimates are recorded in the period
they become known.
INVENTORIES
Most U.S. inventories are valued at cost on the Last-In, First-Out (LIFO)
method for U.S. income tax purposes and for financial reporting purposes. The
balance of the U.S. inventories and inventories of consolidated operations
outside the U.S. are generally valued at the lower of cost, using either the
First-In, First-Out (FIFO) or weighted average cost methods, or market.
PROPERTY AND DEPRECIATION
Property, plant and equipment are stated at cost and are depreciated over
their estimated useful lives on the straight-line or units-of-production
method for financial reporting purposes and generally on an accelerated method
for income tax purposes. Estimated useful lives are periodically reviewed
and, when warranted, changes are made that result in an acceleration of
depreciation. These long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that their cost may
not be recoverable. An impairment loss would be recognized when
estimated future cash flows from the use of the asset and its eventual
disposition are less than its carrying amount. When property is sold or
retired, the cost of the property and the related accumulated depreciation
are removed from the balance sheet and any gain or loss on the transaction is
included in income.
Costs of bringing significant new or expanded facilities into operation
are expensed as incurred. Prior to 1998, the Corporation's practice had
been to record such costs as deferred charges and to amortize them over
periods of not more than five years. The Corporation adopted Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities, effective
January 1, 1998, and recorded a pretax charge of $17.8 million, $11.2 million
after taxes, or $.02 per share, as the cumulative effect of this accounting
change.
NOTE 1. (Continued)
GOODWILL
Goodwill is amortized on the straight-line method ranging from 10 years
to 40 years. The realizability and period of benefit of goodwill is evaluated
periodically to assess recoverability. If it becomes probable that the future
undiscounted cash flows associated with such goodwill is less than its
carrying value, an impairment loss would be recognized. Accumulated
amortization of goodwill at December 31, 1999 and 1998 was $185.8 million and
$150.8 million, respectively.
ADVERTISING EXPENSE
Advertising expense is comprised of media, agency and production
expenses. Advertising expenses are charged to income during the period
incurred, except for expenses related to the development of a major
commercial or media campaign which are charged to income during the
period in which the advertisement or campaign is first presented by the media.
Advertising expenses charged to income totaled $336.5 million in 1999, $295.3
million in 1998 and $306.6 million in 1997.
REVENUE RECOGNITION
Sales revenue is recognized at the time of product shipment to
unaffiliated customers and appropriate provision is made for uncollectible
accounts.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures related to current operations that qualify as
property, plant and equipment or which substantially increase the economic
value or extend the useful life of an asset are capitalized, and all other
expenditures are expensed as incurred. Environmental expenditures that relate
to an existing condition caused by past operations are expensed as incurred.
Liabilities are recorded when environmental assessments and/or remedial
efforts are probable and the costs can be reasonably estimated. Generally,
the timing of these accruals coincides with completion of a feasibility study
or a commitment to a formal plan of action.
STOCK-BASED COMPENSATION
Compensation cost for stock options and awards is measured based on
intrinsic value under Accounting Principles Board Opinion ("APB") 25,
Accounting for Stock Issued to Employees.
NEW PRONOUNCEMENTS
In 1998, Statement of Financial Accounting Standards ("SFAS") 133,
Accounting for Derivative Instruments and Hedging Activities, was issued.
This standard, which establishes new accounting and reporting standards for
derivative financial instruments, must be adopted no later than January 1,
2001. The Corporation is currently analyzing the effect of this standard but
does not expect it to have a material effect on the Corporation's consolidated
financial position, results of operations or cash flows.
NOTE 2. BUSINESS IMPROVEMENT AND OTHER PROGRAMS
The Corporation has undertaken a number of actions in recent years to
address ongoing business competitiveness by improving its operating efficiency
and cost structure. These programs began in 1995, at the time of the merger
with Scott Paper Company ("Scott"), and were substantially completed at
December 31, 1999. A summary and status of each of these programs is set
forth below.
1998 PLAN
In the fourth quarter of 1998, the Corporation announced a facilities
consolidation plan (the "1998 Plan") to, among other things, further align
tissue manufacturing capacity with demand in Europe, close a diaper
manufacturing facility in Canada, shut down and dispose of a tissue machine in
Thailand, write down certain excess feminine care production equipment in
North America and reduce the Corporation's workforce by approximately 830
employees. Costs for the 1998 Plan of $42.6 million and $49.1 million were
recorded in 1999 and 1998, respectively, and charged to cost of products sold.
Costs of approximately $20 million will be charged to cost of products sold in
2000. These costs are comprised primarily of certain severance costs and
charges for accelerated depreciation for the Corporation's Larkfield, U.K.
tissue manufacturing facility that will remain in use until its expected
shutdown in October 2000.
Through December 31, 1999, 800 employees have been notified of the
Corporation's plans to terminate their employment, and the costs of this
workforce reduction were charged to earnings in the period in which such
employee severance benefits were appropriately communicated. Of the employees
that have been notified, 530 employees have been terminated and 270 additional
employees will be terminated in 2000. Approximately 50 additional employees
will be notified in 2000 of the Corporation's plans to terminate their
employment. Their severance costs, which are included in the $20 million
discussed above, will be accrued and charged to cost of products sold at that
time.
The charges under the 1998 Plan for the two years ended December 31, 1999
are summarized below:
Amounts Charged
to Earnings
-------------------
(Millions of dollars) 1999 1998
- ----------------------- ----- ----
Workforce severance. . . . . . . . . . . . . . . . . . . . . $16.0 $11.1
Write-downs of property, plant and equipment and other costs (3.0) 35.2
Accelerated depreciation . . . . . . . . . . . . . . . . . . 29.6 2.8
------ -----
Total pretax charge. . . . . . . . . . . . . . . . . . . . $42.6 $49.1
====== =====
NOTE 2. (Continued)
Charges under the 1998 Plan were included in operating profit by business
segment and geography as follows:
Year Ended
December 31
-----------------
(Millions of dollars) 1999 1998
- ----------------------- ---- ----
By Business Segment
Tissue. . . . . . . . . . . . . . . . . . . . . . . . . . . $36.4 $14.9
Personal Care . . . . . . . . . . . . . . . . . . . . . . . 6.2 34.2
----- -----
Total pretax charge . . . . . . . . . . . . . . . . . . . . $42.6 $49.1
===== =====
By Geography
North America . . . . . . . . . . . . . . . . . . . . . . . $ 5.7 $34.0
Outside North America . . . . . . . . . . . . . . . . . . . 36.9 15.1
----- -----
Total pretax charge . . . . . . . . . . . . . . . . . . . . $42.6 $49.1
===== =====
Charges under the 1998 Plan reduced operating profit and net income as
follows:
Year Ended
December 31
-----------------
(Millions of dollars) 1999 1998
- ----------------------- -----------------
Operating profit . . . . . . . . . . . . . . . . . . . . . . $42.6 $49.1
Net income . . . . . . . . . . . . . . . . . . . . . . . . . 30.3 34.1
Set forth below is a summary of the types and amounts recognized as
accrued expenses for the 1998 Plan together with cash payments made against
such accruals for the year ended December 31, 1999.
1999
------------------
Balance Additions Balance
(Millions of dollars) 12/31/98 (Reductions) Payments 12/31/99
- ----------------------- ------------------------------------------------
Workforce severance . . . . . . . . . . . . . . . . $10.6 $16.0 $(10.2) $16.4
Asset removal costs . . . . . . . . . . . . . . . . 2.5 (.4) (2.1) -
Environmental costs and lease contract terminations 1.0 - - 1.0
Other costs . . . . . . . . . . . . . . . . . . . . 4.7 (2.6) (2.1) -
----- ------ ------ ------
$18.8 $13.0 $(14.4) $17.4
===== ===== ======= =====
Management considers the 1998 Plan to be substantially completed as of
December 31, 1999. The accrued expense balance of $17.4 million will be paid
in accordance with the terms of the applicable employee severance and other
agreements.
1997 PLAN
On November 21, 1997, the Corporation announced a restructuring plan (the
"1997 Plan"). The plan included the sale, closure or downsizing of 17
manufacturing facilities worldwide and a workforce reduction of approximately
4,800 employees. Costs for the 1997 Plan of $250.8 million and
NOTE 2. (Continued)
$414.2 million were recorded in 1998 and 1997, respectively, at the time costs
became accruable under appropriate accounting principles. Included in such
costs was accelerated depreciation charged to cost of products sold related to
assets that were to be disposed of but which continued to be operated during
1997 and 1998. In 1999, the Corporation recorded a net credit of $16.7
million, which was comprised of accelerated depreciation expense of $23.7
million, reductions in accrued costs of $31.9 million and lower asset
write-offs and higher sales proceeds totaling $8.5 million, due to changes in
estimates.
Charges or (credits) under the 1997 Plan for the three years ended
December 31, 1999 are summarized below:
Amounts Charged to Earnings
------------------------------
(Millions of dollars) 1999 1998 1997
- ----------------------- ------- ------ ------
Workforce severance. . . . . . . . . . . . . . . . . . . . . . $ (4.8) $ 53.2 $ 35.4
Write-downs of property, plant and equipment and other assets. (8.5) 56.2 93.6
Contract settlements, lease terminations and other costs . . . (27.1) 31.3 64.2
Asset impairments. . . . . . . . . . . . . . . . . . . . . . . - 31.3 187.4
Accelerated depreciation . . . . . . . . . . . . . . . . . . . 23.7 78.8 33.6
------- ------ ------
Total pretax charge (credit) . . . . . . . . . . . . . . . $(16.7) $250.8 $414.2
======= ====== ======
Income statement classification:
Cost of products sold. . . . . . . . . . . . . . . . . . . . $ 10.3 $134.0 $113.7
Restructuring and other unusual charges. . . . . . . . . . . (27.0) 116.8 300.5
------- ------ ------
Total pretax charge (credit) . . . . . . . . . . . . . . . $(16.7) $250.8 $414.2
======= ====== ======
The effects of the 1997 Plan were included in operating profit by
business segment and geography as follows:
Year Ended December 31
----------------------------
(Millions of dollars) 1999 1998 1997
- ----------------------- ------- ------ ------
By Business Segment
Tissue . . . . . . . . . . . . . . . . . . . . . . . . . . . $(16.5) $149.3 $324.4
Personal Care. . . . . . . . . . . . . . . . . . . . . . . . 7.2 87.6 72.8
Health Care. . . . . . . . . . . . . . . . . . . . . . . . . (1.3) 13.2 8.7
Unallocated. . . . . . . . . . . . . . . . . . . . . . . . . (6.1) .7 8.3
------- ------ ------
Total pretax charge (credit) . . . . . . . . . . . . . . . $(16.7) $250.8 $414.2
======= ====== ======
By Geography
North America. . . . . . . . . . . . . . . . . . . . . . . . $ .7 $160.9 $181.5
Outside North America. . . . . . . . . . . . . . . . . . . . (11.3) 89.2 224.4
Unallocated. . . . . . . . . . . . . . . . . . . . . . . . . (6.1) .7 8.3
------- ------ ------
Total pretax charge (credit) . . . . . . . . . . . . . . . $(16.7) $250.8 $414.2
======= ====== ======
NOTE 2. (Continued)
The effects of the 1997 Plan decreased (increased) operating profit and
net income as follows:
Year Ended December 31
----------------------------
(Millions of dollars) 1999 1998 1997
- ----------------------- ------- ------ ------
Operating profit . . . . . . . . . . . . . $(16.7) $250.8 $414.2
Net income . . . . . . . . . . . . . . . . (9.2) 178.9 315.0
The principal components of the 1997 Plan were as follows:
- - The sale, closure or downsizing of certain manufacturing facilities
worldwide has resulted in the consolidation of the Corporation's
manufacturing operations into fewer, larger and more efficient
facilities and the elimination of excess, high-cost tissue manufacturing
capacity in North America and Europe. Of the originally identified
facilities, 16 have been closed as of December 31, 1999 and one will
remain in operation. In addition, four other small facilities were closed.
The effects of these modifications were reflected in earnings at the
time such modifications became accruable events.
- - The workforce reduction has been completed and, through December 31,
1999, a total reduction of 3,740 employees has been realized. The costs of
the reduction were charged to earnings in the period in which such
employee severances and benefits were appropriately communicated.
- - Property, plant and equipment and other assets not used in the
restructured manufacturing operations have been written down,
excess manufacturing capacity has been eliminated, and certain
inventories in restructured operations and other assets have been
written down.
- - Certain of the Corporation's facilities and capacity which became
excessive as a result of the combination of the Corporation's health
care operations with those of Tecnol Medical Products, Inc. ("Tecnol")
have been eliminated.
- - Certain contracts have been terminated and other costs have been
incurred to achieve planned efficiencies.
In 1998, as a result of additional evaluations of the Corporation's
tissue manufacturing operations, the Villanovetta, Italy tissue manufacturing
facility became an impaired asset because its cash flows from use and disposal
were insufficient to cover the carrying amount of the asset. Consequently, a
charge to earnings of $26.8 million was recorded in the fourth quarter of
1998. In addition, management intended to close the facility in 2000 in order
to continue to align capacity with demand. While the facility continues to be
an impaired asset, in late 1999, after negotiations with labor
representatives, management agreed to only downsize the facility and continue
operations through 2001. During this period, additional negotiations with
governmental authorities and labor representatives will continue. In 1998,
other less significant modifications were made to the 1997 Plan, the largest
of which was a $12.1 million charge for losses on European feminine care
equipment removed from service. The effects of these modifications were
included in 1998 results of operations.
NOTE 2. (Continued)
Set forth below is a summary of the types and amounts of charges that
were recognized as accrued expenses for the 1997 Plan together with cash
payments made against such accruals for the two years ended December 31, 1999.
1999
Balance ---------------------------- Balance
(Millions of dollars) 12/31/98 (Reductions) Payments 12/31/99
- ----------------------- ----------------------------------------------
Workforce severance . . . . . . . . . . . . . . . . $ 42.7 $ (4.8) $(37.8) $ .1
Asset removal costs . . . . . . . . . . . . . . . . 12.7 (8.5) (4.2) -
Environmental costs and lease contract terminations 40.2 (9.1) (24.1) 7.0
Other costs . . . . . . . . . . . . . . . . . . . . 15.4 (9.5) (5.9) -
------ ------- ------- ----
$111.0 $(31.9) $(72.0) $7.1
====== ======= ======= ====
1998
Balance ---------------------------- Balance
(Millions of dollars) 12/31/97 Additions Payments 12/31/98
- ----------------------- --------- --------- -------- --------
Workforce severance . . . . . . . . . . . . . . . . $32.1 $53.2 $(42.6) $ 42.7
Asset removal costs . . . . . . . . . . . . . . . . 17.2 .3 (4.8) 12.7
Environmental costs and lease contract terminations 32.1 23.2 (15.1) 40.2
Other costs . . . . . . . . . . . . . . . . . . . . 9.2 7.8 (1.6) 15.4
----- ----- ------- ------
$90.6 $84.5 $(64.1) $111.0
===== ===== ======= ======
Management considers the 1997 Plan to be substantially completed as of
December 31, 1999. The accrued expense balance of $7.1 million will be paid
in accordance with the terms of the applicable contract settlement and other
agreements.
1995 SCOTT MERGER AND RESTRUCTURING PLAN
In connection with the Scott merger, in December 1995, the Corporation
announced a plan to restructure the combined operations and to accomplish
other business improvement objectives (the "1995 Plan"). The 1995 Plan
included (i) the cost of plant rationalizations and employee terminations to
eliminate duplicate facilities and excess capacity; (ii) disposition of
facilities to comply with the merger-related decrees of the U.S. Justice
Department and the European Commission; (iii) costs of terminating leases,
contracts and other long-term agreements; (iv) the direct costs of the merger,
including fees of investment bankers, outside legal counsel and accountants;
(v) impaired asset charges; and (vi) accelerated depreciation charges on
assets that were to be disposed of but which were not to be immediately
removed from operations.
NOTE 2. (Continued)
The original estimated pretax cost of the 1995 Plan was $1,440 million.
The plan was completed in 1998 at a pretax cost of $1,305 million. Charges or
(credits) under the 1995 Plan for the two years ended December 31, 1998 are
summarized below:
Amounts
Charged
to Earnings
------------------
(Millions of dollars) 1998 1997
- ----------------------- ---- ----
Cost of products sold . . . . . . . . . . . . . . . . $ 1.7 $15.1
Restructuring and other unusual charges . . . . . . . (5.0) 49.0
------ -----
Total pretax charge (credit). . . . . . . . . . . . $(3.3) $64.1
====== =====
The effects of the 1995 Plan were included in operating profit by
business segment and geography as follows:
Year Ended
December 31
--------------
(Millions of dollars) 1998 1997
- ----------------------- ---- ----
By Business Segment
Tissue . . . . . . . . . . . . . . . . . . . . . . . $ .7 $60.5
Personal Care. . . . . . . . . . . . . . . . . . . . .9 1.9
Health Care. . . . . . . . . . . . . . . . . . . . . (.8) (.3)
Unallocated. . . . . . . . . . . . . . . . . . . . . (4.1) 2.0
------ -----
Total pretax charge (credit) . . . . . . . . . . . $(3.3) $64.1
====== =====
By Geography
North America. . . . . . . . . . . . . . . . . . . . $(2.9) $11.5
Outside North America. . . . . . . . . . . . . . . . 3.7 50.6
Unallocated. . . . . . . . . . . . . . . . . . . . . (4.1) 2.0
------ -----
Total pretax charge (credit) . . . . . . . . . . . $(3.3) $64.1
====== =====
The effects of the 1995 Plan decreased (increased) operating profit and
net income as follows:
Year Ended
December 31
--------------
(Millions of dollars) 1998 1997
- ----------------------- ---- ----
Operating profit . . . . . . . . . . . . . . . . . . . $(3.3) $64.1
Net income . . . . . . . . . . . . . . . . . . . . . . (.9) 51.3
NOTE 2. (Continued)
Set forth below is a summary of the types and amounts recognized as
accrued expenses for the 1995 Plan together with the cash payments made
against such accruals for the year ended December 31, 1998.
Balance 1998 Balance
-----------------------
(Millions of dollars) 12/31/97 (Reductions) Payments 12/31/98
- ----------------------- -------- ------------ -------- --------
Workforce severance . . . . . . . . . . . . . . $ 8.1 $ (3.5) $ (4.6) $ -
Asset removal costs . . . . . . . . . . . . . . 1.9 - (1.9) -
Contract settlement and lease termination costs 27.1 (6.1) (5.7) 15.3
Other costs . . . . . . . . . . . . . . . . . . 9.1 (1.4) (7.0) .7
----- ------- ------- -----
$46.2 $(11.0) $(19.2) $16.0
===== ======= ======= =====
The 1998 accrued expense balance of $16.0 million is being paid in
accordance with the terms of the contract settlement agreements and, as of
December 31, 1999, approximately $4 million remains to be paid under a
contractual lease obligation.
OTHER INFORMATION
1999 Unusual Charges
- ----------------------
In 1999, the Corporation incurred $13.6 million of unusual business
improvement costs that were not related to the three formally adopted business
improvement plans discussed above. The costs, which primarily were for
employee severances and write off of assets removed from service, were charged
to cost of products sold when incurred.
Write-down of Certain Intangible and Other Assets
- -------------------------------------------------------
In 1998, the carrying amounts of trademarks and unamortized goodwill of
certain European businesses were determined to be impaired and written down.
These write-downs, which were charged to general expense, reduced 1998
operating profit $70.2 million and net income $57.1 million. In addition, the
Corporation began depreciating the cost of all newly acquired personal
computers ("PCs") over two years. In recognition of the change in estimated
useful lives, PC assets with a remaining net book value of $16.6 million
became subject to accelerated depreciation charges. These charges, along
with $8.8 million of charges for write-downs of other assets and a loss on a
pulp contract, reduced 1998 operating profit $81.2 million and net income
$64.7 million. Of the $81.2 million, $6.8 million was charged to cost of
products sold and $74.4 million was charged to general expense. In 1999,
accelerated depreciation on PCs reduced operating profit by $8.3 million, $2.7
million of which was charged to cost of products sold and $5.6 million was
charged to general expense.
Approximately 91 percent of the 1998 write-down of certain intangible and
other assets and accelerated depreciation on PCs described above relates to
the Personal Care segment and 9 percent relates to the Tissue segment. In
1999, 50 percent of the $8.3 million of accelerated depreciation was charged
to each of the Tissue and Personal Care segments.
NOTE 3. INCOME TAXES
An analysis of the provision for income taxes follows:
Year Ended December 31
----------------------
(Millions of dollars) 1999 1998 1997
- ----------------------- ---- ---- ----
Current income taxes:
United States . . . . . . . . . . . . . . . . . . . . . . . . $386.9 $402.0 $423.9
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.8 26.8 96.7
Other countries . . . . . . . . . . . . . . . . . . . . . . . 147.3 79.8 104.6
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 604.0 508.6 625.2
------- ------- -------
Deferred income taxes:
United States . . . . . . . . . . . . . . . . . . . . . . . . 139.2 39.8 (29.3)
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18.7) 5.5 (49.5)
Other countries . . . . . . . . . . . . . . . . . . . . . . . 5.7 (38.3) (14.7)
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 126.2 7.0 (93.5)
------- ------- -------
Total provision for income taxes. . . . . . . . . . . . . . . . 730.2 515.6 531.7
Less income taxes related to:
Extraordinary gains . . . . . . . . . . . . . . . . . . . . . - - 38.4
Cumulative effect of accounting change. . . . . . . . . . . . - (6.6) -
------- ------- -------
Total provision excluding income taxes related to extraordinary
gains and cumulative effect of accounting change. . . . . . . $730.2 $522.2 $493.3
======= ======= =======
Income before income taxes is classified in the Consolidated Income
Statement as follows:
Year Ended December 31
----------------------
(Millions of dollars) 1999 1998 1997
- ----------------------- ---- ---- ----
Income Before Extraordinary Gains and
Cumulative Effect of Accounting Change:
United States . . . . . . . . . . . . . . . $1,782.7 $1,455.6 $1,291.6
Other countries . . . . . . . . . . . . . . 469.0 67.7 61.1
-------- -------- --------
$2,251.7 $1,523.3 $1,352.7
======== ======== ========
Extraordinary Gains:
United States . . . . . . . . . . . . . . . . $ - $ - $ 55.9
======== ======== ========
Cumulative Effect of Accounting Change:
United States . . . . . . . . . . . . . . . . $ - $ (17.2) $ -
Other countries . . . . . . . . . . . . . . . - (.6) -
-------- -------- --------
$ - $ (17.8) $ -
======== ======== ========
- ------
NOTE 3. (Continued)
Deferred income tax assets are composed of the following:
December 31
-----------
(Millions of dollars) 1999 1998
- ----------------------- ---- ----
Current deferred income tax asset attributable to:
Advertising and promotion accruals. . . . . . . . . . . . . . . . $ 27.5 $ 29.7
Pension, postretirement and other employee benefits . . . . . . . 121.9 92.0
Other accrued expenses, including those related to business
improvement programs. . . . . . . . . . . . . . . . . . . . . . 124.6 210.4
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.0 41.9
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 6.1
Valuation allowances. . . . . . . . . . . . . . . . . . . . . . . (.3) (4.8)
-------- --------
Net current deferred income tax asset . . . . . . . . . . . . . . . $ 311.4 $ 375.3
======== ========
Noncurrent deferred income tax asset attributable to:
Accumulated depreciation. . . . . . . . . . . . . . . . . . . . . $ (42.4) $ (11.7)
Income tax loss carryforwards . . . . . . . . . . . . . . . . . . 294.1 290.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 6.3
Valuation allowances. . . . . . . . . . . . . . . . . . . . . . . (255.8) (267.1)
-------- --------
Net noncurrent deferred income tax asset included in other assets . $ 7.0 $ 17.9
======== ========
Noncurrent deferred income tax liability attributable to:
Accumulated depreciation. . . . . . . . . . . . . . . . . . . . $(869.0) $(908.6)
Income tax loss carryforwards . . . . . . . . . . . . . . . . . 55.3 47.4
Pension and other postretirement benefits . . . . . . . . . . . 227.0 242.0
Installment sales . . . . . . . . . . . . . . . . . . . . . . . (275.7) (137.9)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.5 35.5
-------- --------
Net noncurrent deferred income tax liability. . . . . . . . . . . . $(836.9) $(721.6)
======== ========
Valuation allowances for deferred income tax assets decreased by $15.8
million in 1999 and increased $68.9 million in 1998. Valuation allowances at
the end of 1999 primarily relate to the potentially unusable portion of income
tax loss carryforwards of $931.2 million in jurisdictions primarily outside
the United States. If not utilized against taxable income, $306.4 million of
the loss carryforwards will expire from 2000 through 2009. The remaining
$624.8 million has no expiration date.
Realization of deferred tax assets is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not
that all of the deferred tax assets, net of applicable valuation allowances,
will be realized. The amount of the deferred tax assets considered realizable
could be reduced or increased if estimates of future taxable income
during the carryforward period are reduced or increased.
NOTE 3. (Continued)
Presented below is a reconciliation of the income tax provision computed
at the U.S. federal statutory tax rate to the provision for income taxes
excluding income taxes applicable to extraordinary gains and cumulative effect
of an accounting change.
Year Ended December 31
-----------------------------------------------------------
1999 1998 1997
---- ---- ----
(Millions of dollars) Amount Percent Amount Percent Amount Percent
- ----------------------- -------------------- ---------------- ------------------
Income before income taxes:
As reported. . . . . . . . . . . . $2,251.7 $1,523.3 $1,352.7
Charges (credits) for business
improvement programs and
other unusual items. . . . . . . (97.3) 280.1 451.8
--------- -------- --------
Income before income taxes
excluding the above charges. $2,154.4 $1,803.4 $1,804.5
========= ======== ========
Tax at U.S. statutory rate(a). . . . $ 754.0 35.0% $ 631.2 35.0% $631.6 35.0%
State income taxes, net of federal
tax benefit. . . . . . . . . . . . 29.7 1.4 17.3 1.0 34.9 1.9
Operating losses for which no tax
benefit was recognized, net of
operating losses realized. . . . . 7.0 .3 24.4 1.4 22.0 1.2
Other - net. . . . . . . . . . . . . (99.1) (4.6) (96.1) (5.4) (97.2) (5.3)
--------- --------- -------- ------- --------- ------
691.6 32.1% 576.8 32.0% 591.3 32.8%
========= ======= =======
Tax effects of business improvement
programs and other unusual items . 38.6 39.7% (54.6) (19.5)% (98.0) (21.7)%
--------- ========= --------- ======= ------- =======
Provision for income taxes . . . . . $ 730.2 32.4% $ 522.2 34.3% $493.3 36.5%
========= ========= ========= ======= ======= =======
(a) Tax at U.S. statutory rate is based on income before income taxes
excluding the charges (credits) for business improvement programs and
other unusual items. The tax effects of such programs are shown elsewhere
in the table.
At December 31, 1999, income taxes have not been provided on
approximately $1.7 billion of unremitted earnings of subsidiaries operating
outside the U.S. These earnings, which are considered to be invested
indefinitely, would become subject to income tax if they were remitted as
dividends, were lent to the Corporation or a U.S. affiliate, or if the
Corporation were to sell its stock in the subsidiaries. Determination of the
amount of unrecognized deferred U.S. income tax liability on these unremitted
earnings is not practicable because of the complexities associated with its
hypothetical calculation. Withholding taxes of approximately $170 million
would be payable upon remittance of all previously unremitted earnings at
December 31, 1999.
NOTE 4. POSTRETIREMENT AND OTHER BENEFITS
The Corporation and its subsidiaries in North America and the United
Kingdom have defined benefit and/or defined contribution retirement plans
covering substantially all regular employees. Certain other subsidiaries have
defined benefit pension plans or, in certain countries, termination pay plans
covering substantially all regular employees. For the principal defined
benefit plans in North America and the United Kingdom, the funding policy is
to contribute assets that, at a minimum, fully fund the accumulated benefit
obligation, subject to regulatory and tax deductibility limits. The funding
policy for the remaining defined benefit plans outside North America and
nonqualified U.S. plans providing pension benefits in excess of limitations
imposed by the U.S. income tax code is based on legal requirements, tax
considerations, customary business practices in such countries and investment
opportunities.
Substantially all retired employees of the Corporation and its North
American subsidiaries and certain international employees are covered by
health care and life insurance benefit plans. Benefits are based on years of
service and age at retirement. The plans are principally noncontributory for
employees who retired before 1993, and are contributory for most employees who
retire in 1993 or after. Certain U.S. plans limit the Corporation's cost of
future annual per capita retiree medical benefits to no more than
200 percent of the 1992 annual per capita cost. Certain other U.S. plans
limit the Corporation's future cost for retiree medical benefits to a defined
annual per capita medical cost.
Summarized financial information about postretirement plans, excluding
defined contribution retirement plans, is presented below.
NOTE 4. (Continued)
Pension Benefits Other Benefits
------------------- -----------------
Year Ended December 31
---------------------------------------
(Millions of dollars) 1999 1998 1999 1998
- ----------------------- ---- ---- ---- ----
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year . . . . . $3,867.5 $3,623.2 $ 658.6 $ 638.0
Service cost. . . . . . . . . . . . . . . . . . . 73.3 69.2 12.5 11.8
Interest cost . . . . . . . . . . . . . . . . . . 251.1 247.1 45.2 44.2
Participants' contributions . . . . . . . . . . . 7.2 8.3 4.9 4.0
Amendments. . . . . . . . . . . . . . . . . . . . 11.6 9.5 - -
Actuarial (gain) loss . . . . . . . . . . . . . . (292.9) 171.8 (28.4) 27.5
Acquisitions. . . . . . . . . . . . . . . . . . . 1.0 1.5 - -
Curtailments. . . . . . . . . . . . . . . . . . . 11.9 (8.4) (4.1) (2.6)
Special termination benefits. . . . . . . . . . . 1.9 5.0 - -
Currency exchange rate effects. . . . . . . . . . (12.2) (2.3) 1.5 (2.0)
Benefit payments. . . . . . . . . . . . . . . . . (271.9) (257.4) (63.3) (62.3)
--------- --------- -------- --------
Benefit obligation at end of year . . . . . . . . 3,648.5 3,867.5 626.9 658.6
--------- --------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year. . 3,927.2 3,619.9 - -
Actual return on plan assets. . . . . . . . . . . 736.9 525.7 - -
Employer contributions. . . . . . . . . . . . . . 25.0 24.5 58.4 58.3
Participants' contributions . . . . . . . . . . . 7.2 8.3 4.9 4.0
Currency exchange rate effects. . . . . . . . . . (8.4) (11.3) - -
Benefit payments. . . . . . . . . . . . . . . . . (261.7) (239.9) (63.3) (62.3)
--------- --------- -------- --------
Fair value of plan assets at end of year. . . . . 4,426.2 3,927.2 - -
--------- --------- -------- --------
FUNDED STATUS
Funded status at end of year. . . . . . . . . . . 777.7 59.7 (626.9) (658.6)
Unrecognized net actuarial (gain) loss. . . . . . (682.4) 9.5 (91.6) (68.0)
Unrecognized transition amount. . . . . . . . . . (10.9) (15.3) - -
Unrecognized prior service cost . . . . . . . . . 67.0 64.2 (15.5) (17.7)
--------- --------- -------- --------
Net amount recognized . . . . . . . . . . . . . . $ 151.4 $ 118.1 $(734.0) $(744.3)
========= ========= ======== ========
AMOUNTS RECOGNIZED IN THE BALANCE SHEET CONSIST OF:
Prepaid benefit cost. . . . . . . . . . . . . . . $ 248.2 $ 228.8 $ - $ -
Accrued benefit cost. . . . . . . . . . . . . . . (117.9) (139.6) (734.0) (744.3)
Intangible asset. . . . . . . . . . . . . . . . . 4.9 6.1 - -
Accumulated other comprehensive income. . . . . . 16.2 22.8 - -
--------- --------- -------- --------
Net amount recognized . . . . . . . . . . . . . . $ 151.4 $ 118.1 $(734.0) $(744.3)
========= ========= ======== ========
The above pension benefit information has been presented on an aggregated
basis whereby benefit obligation and plan asset information for plans in which
plan assets exceed accumulated benefit obligations ("ABO") have been combined
with plans where the ABO exceeds plan assets. Summary disaggregated
information about these plans follows:
NOTE 4. (Continued)
Assets Exceed ABO Exceeds
ABO Assets
--------------- ---------------
December 31
----------------------------------
(Millions of dollars) 1999 1998 1999 1998
- ----------------------- ---- ---- ---- ----
Projected benefit obligation . . . . . . . . . $3,483.1 $3,757.1 $165.4 $110.4
ABO. . . . . . . . . . . . . . . . . . . . . . 3,309.1 3,417.3 152.6 100.1
Fair value of plan assets. . . . . . . . . . . 4,379.6 3,926.2 46.6 1.0
Pension Benefits Other Benefits
----------------- ---------------
December 31
-----------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Weighted Average Assumptions
Discount rate. . . . . . . . . . 7.4% 6.6% 7.7% 6.7%
Expected return on plan assets . 9.3% 9.3% - -
Rate of compensation increase. . 4.3% 3.9% - -
Health care cost trend rate(a) . - - 7.5% 7.8%
(a) Assumed to decrease gradually to 6% in 2003 and remain at that level
for the large majority of plans and to zero by 2006 and thereafter for
the balance.
Pension Benefits Other Benefits
-------------------------- ----------------------
Year Ended December 31
----------------------------------------------------
(Millions of dollars) 1999 1998 1997 1999 1998 1997
- ----------------------- ---- ---- ---- ---- ---- ----
Components Of Net Periodic
Benefit Cost
Service cost. . . . . . . . . . . . $ 73.3 $ 69.2 $ 72.6 $12.5 $11.8 $10.7
Interest cost . . . . . . . . . . . 251.1 247.1 246.7 45.2 44.2 44.9
Expected return on plan assets. . . (352.8) (332.3) (297.8) - - -
Amortization of prior service cost. 9.5 8.5 7.9 (2.1) (2.1) -
Amortization of transition amount . (4.6) (5.3) (5.3) - - -
Recognized net actuarial loss
(gain). . . . . . . . . . . . . . 4.8 2.9 2.9 (4.4) (4.9) (8.1)
Curtailments. . . . . . . . . . . . 18.0 .7 .5 (4.1) (.4) (.7)
Other . . . . . . . . . . . . . . . 6.1 5.1 - - - -
-------- -------- -------- ------ ------ ------
Net periodic benefit
cost (income) . . . . . . . . . . $ 5.4 $ (4.1) $ 27.5 $47.1 $48.6 $46.8
======== ======== ======== ====== ====== ======
Assumed health care cost trend rates affect the amounts reported for
postretirement health care benefit plans. A one-percentage-point change in
assumed health care trend rates would have the following effects:
One-Percentage-Point
--------------------
(Millions of dollars) Increase Decrease
- ----------------------- --------------------
Effect on total of service and interest cost components $ 4.1 $ 3.3
Effect on postretirement benefit obligation . . . . . . 44.6 37.4
NOTE 4. (Continued)
DEFINED CONTRIBUTION RETIREMENT PLANS
The Corporation's contributions to the defined contribution retirement
plans are based on the age and compensation of covered employees. The
Corporation's contributions, all of which were charged to expense, were $26.1
million, $23.8 million and $14.8 million in 1999, 1998 and 1997, respectively.
INVESTMENT PLANS
Voluntary contribution investment plans are provided to substantially all
North American employees. Under the plans, the Corporation matches a portion
of employee contributions. Costs charged to expense under the plans were
$25.1 million, $26.1 million and $24.9 million in 1999, 1998 and 1997,
respectively.
NOTE 5. EARNINGS PER SHARE
There are no adjustments required to be made to Income Before
Extraordinary Gains and Cumulative Effect of Accounting Change for purposes of
computing basic and diluted earnings per share ("EPS").
A reconciliation of the average number of common shares outstanding used
in the basic and diluted EPS computations follows:
Average Common Shares Outstanding
-----------------------------------
(Millions) 1999 1998 1997
- ---------- ---- ---- ----
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536.3 550.3 555.9
Dilutive effect of stock options. . . . . . . . . . . . . . . . 3.1 2.3 3.1
Dilutive effect of deferred compensation plan shares. . . . . . .1 - -
Dilutive effect of shares issued for participation share awards .6 .5 .3
----- ----- -----
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540.1 553.1 559.3
===== ===== =====
Options outstanding that were not included in the computation of diluted
EPS because their exercise price was greater than the average market price of
the common shares are summarized below:
Description 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Number of shares (millions). . . . . . . . . . . . . . . . . . . . .1 9.1 -
Weighted-average option price. . . . . . . . . . . . . . . . . . . $58.10 $52.74 -
Expiration date of option. . . . . . . . . . . . . .. . . . . . . 2009 2004-2008 -
Options outstanding at year end. . . . . . . . . . . . . . . . . . yes yes -
The number of common shares outstanding as of December 31, 1999, 1998 and
1997 was 540.6 million, 538.3 million and 556.3 million, respectively.
NOTE 6. DEBT
The major issues of long-term debt outstanding were:
December 31
------------------
(Millions of dollars) 1999 1998
- ----------------------- ---- ----
Kimberly-Clark Corporation:
6 1/4% Debentures due 2018. . . . . . . . . . . . . . . . . . . . . . . . $ 297.7 $ 297.6
6 3/8% Debentures due 2028. . . . . . . . . . . . . . . . . . . . . . . . 198.3 198.2
7 7/8% Debentures due 2023. . . . . . . . . . . . . . . . . . . . . . . . 199.7 199.7
8 5/8% Notes due 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 199.9 199.8
9% Notes due 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 99.9
6 7/8% Debentures due 2014. . . . . . . . . . . . . . . . . . . . . . . . 99.7 99.7
5% Notes maturing to 2002 . . . . . . . . . . . . . . . . . . . . . . . . 27.0 36.0
6.2% to 7.55% Industrial Development Revenue Bonds maturing to 2023 . . . 79.7 79.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5 3.7
-------- --------
1,218.5 1,214.3
Subsidiaries:
7% Debentures due 2023. . . . . . . . . . . . . . . . . . . . . . . . . . 194.3 194.0
11.1% Bonds due 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . 99.8 99.6
8.3% to 11% Debentures maturing to 2022 . . . . . . . . . . . . . . . . . 175.2 163.8
Industrial Development Revenue Bonds at variable rates (weighted-
average rate at December 31, 1999 - 4%) maturing to 2032. . . . . . . . 298.3 286.6
5 3/4% to 6 3/8% Industrial Development Revenue Bonds maturing
to 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.3 22.9
Bank loans and other financings in various currencies at fixed rates
(weighted-average rate at December 31, 1999 - 9.6%)
maturing to 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.7 97.9
Bank loans and other financings in various currencies at variable rates
(weighted-average rate at December 31, 1999 - 10.1%)
maturing to 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.9 45.6
-------- --------
Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,224.0 2,124.7
Less current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . 297.4 56.5
-------- --------
Long-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,926.6 $2,068.2
======== ========
Fair value of long-term debt was $2,212.0 million and $2,256.6 million at
December 31, 1999 and 1998, respectively. Scheduled maturities of long-term
debt are $249.5 million in 2001, $34.9 million in 2002, $12.2 million in 2003
and $124.0 million in 2004.
At December 31, 1999, the Corporation had a $1.1 billion syndicated
revolving credit facility. This facility, unused at December 31, 1999,
permits borrowing at competitive interest rates and is available for general
corporate purposes, including backup for commercial paper borrowings. The
Corporation pays commitment fees on the unused portion but may cancel the
facility without penalty at any time prior to its expiration. Of this
facility, $550 million expires in November 2000 and the balance expires in
November 2004.
NOTE 6. (Continued)
Debt payable within one year:
December 31
--------------
(Millions of dollars) 1999 1998
- ----------------------- ------ ------
Commercial paper. . . . . . . . . . . . . . . $353.4 $418.0
Current portion of long-term debt . . . . . . 297.4 56.5
Other short-term debt . . . . . . . . . . . . 131.6 160.9
------ ------
Total. . . . . . . . . . . . . . . . . . . $782.4 $635.4
====== ======
At December 31, 1999 and 1998, the weighted-average interest rate for
commercial paper was 5.4 percent and 5.3 percent, respectively.
NOTE 7. RISK MANAGEMENT
As a multinational enterprise, the Corporation is exposed to changes in
foreign currency exchange rates, interest rates and commodity prices. The
Corporation employs a variety of practices to manage these market risks,
including its operating and financing activities and, where deemed
appropriate, the use of derivative financial instruments. The Corporation
uses derivative financial instruments only for risk management purposes and
does not use them for speculation or for trading. All derivative instruments
are either exchange traded or are entered into with major financial
institutions for the purpose of reducing the Corporation's credit risk and the
risk of nonperformance by third parties.
Foreign Currency Risk Management
Foreign currency risk is managed by the use of foreign currency
forward, swap and option contracts. The use of these contracts allows the
Corporation to manage its transactional exposure to exchange rate fluctuations
because the gains or losses incurred on the derivative instruments will offset
in whole, or in part, losses or gains on the underlying foreign currency
exposure. There have been no significant changes in how foreign currency
transactional exposures were managed during 1999, and management does not
foresee or expect any significant changes in such exposures or in the
strategies it employs to manage them in the near future.
Foreign currency losses included in consolidated net income were $1.4
million, $32.8 million and $10.2 million in 1999, 1998 and 1997, respectively.
Included in foreign currency losses were the Corporation's share of foreign
currency gains and losses at the Corporation's Mexican affiliate,
Kimberly-Clark de Mexico, S.A. de C.V. ("KCM"), attributable to changes in the
value of the Mexican peso, which is the Corporation's most significant foreign
currency risk. The Corporation's share of the peso currency losses was not
significant in 1999 and 1997 and was $.02 per share in 1998.
Beginning in 1999, the Mexican economy was no longer deemed to be
hyperinflationary and the peso, rather than the U.S. dollar, became the
functional currency for accounting purposes. Consequently, changes in the
value of the peso resulted in gains or losses on U.S. dollar obligations of
KCM. Prior to 1999, Mexico's economy was deemed to be hyperinflationary and
the functional currency of KCM was the U.S. dollar. Accordingly, changes in
the value of the peso did not result in foreign currency gains or losses
attributable to the U.S. dollar obligations of KCM. However, changes in the
value of the peso in 1998 and 1997 resulted in gains or losses attributable to
peso-denominated monetary assets held by KCM.
Gains and losses on instruments that hedge firm commitments are deferred
and included in the basis of the underlying hedged items. Premiums paid for
options are amortized ratably over the life of the option. Contracts used to
hedge recorded foreign currency transactions generally mature within
one year and are marked-to-market with the resulting gains or losses included
in current income. These gains and losses offset foreign exchange gains and
losses on the underlying transactions. Notwithstanding the sizable notional
principal amounts involved, the Corporation's credit exposure under these
arrangements is limited to the fair value of the agreements with a positive
fair value at the reporting date. Additionally, credit risk with respect to
the counterparties is considered minimal in view of the financial strength of
the counterparties.
NOTE 7. (Continued)
The following table presents the aggregate notional principal amounts,
carrying values and fair values of the Corporation's foreign currency forward
contracts outstanding at December 31, 1999 and 1998:
1999 1998
--------------------------------- --------------------------------
Notional Notional
Principal Carrying Fair Principal Carrying Fair
(Millions of dollars) Amounts Values Values Amounts Values Values
- ----------------------- --------- -------- ------ --------- -------- ------
Forward contracts
Assets. . . . . . . . . $770.5 $18.0 $16.8 $848.0 $ 4.1 $(3.0)
Liabilities . . . . . . 375.9 (6.8) (4.4) 964.0 (12.1) (4.4)
Translation Risk
The income statements of foreign operations, other than those in
hyperinflationary economies, are translated into U.S. dollars at rates of
exchange in effect each month. The balance sheets of these operations are
translated at period-end exchange rates, and the differences from historical
exchange rates are reflected in stockholders' equity as unrealized translation
adjustments.
The income statements and balance sheets of operations in
hyperinflationary economies are translated into U.S. dollars using both
current and historical rates of exchange. For balance sheet accounts
translated at current exchange rates, such as cash and accounts receivable,
the differences from historical exchange rates are reflected in income.
Operations that are deemed to be hyperinflationary are as follows: Brazil
(prior to January 1, 1998), Ecuador, Mexico (effective January 1, 1997
through December 31, 1998), Turkey and Venezuela.
Translation exposure is not hedged. The risk to any particular entity's
net assets is minimized to the extent that the entity is financed with local
currency borrowing. In addition, many of the Corporation's non-U.S.
operations buy the majority of their inputs and sell the majority of their
outputs in their local currency, thereby minimizing the effect of currency
rate changes on their local operating profit margins.
Interest Rate Risk Management
Interest rate risk is managed through the maintenance of a portfolio of
variable- and fixed-rate debt composed of short- and long-term instruments.
The objective is to maintain a cost-effective mix that management deems
appropriate. The strategy employed by the Corporation to manage its exposure
to interest rate fluctuations did not change significantly during 1999.
Management does not foresee or expect any significant changes in its exposure
to interest rate fluctuations or in how such exposure is managed in the near
future.
Commodity Price Risk Management
The Corporation is subject to commodity price risk arising from price
movement for purchased pulp, the market price of which is determined by
industry supply and demand. Selling prices of the Corporation's tissue
products can be influenced by the market price for pulp. On a worldwide
basis, the Corporation has reduced its internal pulp supply to approximately
40 percent of its virgin fiber needs. The Corporation has announced
its intention to further reduce its level of pulp integration to
approximately 20 percent. However, such a reduction in pulp integration
could increase the Corporation's commodity price risk. Specifically,
increases in pulp prices could adversely affect the Corporation's
earnings if selling prices are not adjusted or if such adjustments
significantly trail the increases in pulp prices. The Corporation has not
used derivative instruments in the management of these risks.
NOTE 8. STOCK COMPENSATION PLANS
Kimberly-Clark Equity Participation Plans provide for awards of
participation shares and stock options to key employees of the Corporation and
its subsidiaries. Upon maturity, participation share awards are paid, in cash
or cash and shares of the Corporation's stock, based on the increase in the
book value of the Corporation's common stock during the award period.
Participants do not receive dividends on the participation shares, but their
accounts are credited with dividend shares payable, in cash or cash and shares
of the Corporation's stock, at the maturity of the award. Neither
participation nor dividend shares are shares of common stock. In conjunction
with the restricted stock plan discussed later in this note, no additional
participation shares will be awarded after 1998.
Data concerning participation and dividend shares follow:
(Thousands of shares) 1999 1998 1997
- ----------------------- ---- ---- ----
Outstanding - Beginning of year. . . 10,049 9,381 7,173
Awarded. . . . . . . . . . . . . . . - 2,145 1,994
Dividend shares credited - net . . . 808 883 795
Matured. . . . . . . . . . . . . . . (483) (1,925) (500)
Forfeited. . . . . . . . . . . . . . (145) (435) (81)
------- ------- ------
Outstanding - End of year. . . . . . 10,229 10,049 9,381
======= ======= ======
Amounts expensed related to participation shares were $34.9 million,
$23.1 million and $26.8 million in 1999, 1998 and 1997, respectively.
The Corporation also has stock option plans under which executives and
key employees may be granted awards. Under these plans, all stock options are
granted at not less than market value at date of grant, expire 10 years after
the date of grant and generally become exercisable over three years.
In October 1997, approximately 57,000 employees worldwide were granted
approximately 3.2 million stock options and .2 million stock appreciation
rights under the Corporation's Global Stock Option Plan. Employees were
granted options to purchase a fixed number of shares, ranging from 25 to 125
shares per employee, of common stock at a price equal to the fair market value
of the Corporation's stock at the date of grant. The grants generally become
exercisable after the third anniversary of the grant date and have a term of
seven years.
As part of the acquisition of Ballard Medical Products ("Ballard")
discussed in Note 12 to the Consolidated Financial Statements, outstanding
Ballard stock options were converted into options to acquire approximately
463,000 shares of the Corporation's common stock at a weighted-average
exercise price of $36.13.
NOTE 8. (Continued)
Data concerning stock option activity follows:
1999 1998 1997
------------------- ------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
(Options in thousands) Options Price Options Price Options Price
- ------------------------ ------- --------- ------- --------- -------- ----------
Outstanding - Beginning of
year. . . . . . . . . . . . 17,132 $41.04 16,195 $36.73 12,609 $26.61
Granted . . . . . . . . . . . 5,271 48.46 3,076 55.94 6,111 51.12
Exercised . . . . . . . . . . (2,154) 27.24 (1,608) 22.91 (2,401) 20.15
Canceled or expired . . . . . (545) 51.46 (531) 50.86 (124) 38.61
Converted Ballard stock . . .
options . . . . . . . . . . 463 36.13 - - - -
------ ------ ------
Outstanding - End of year . . 20,167(a) 44.08 17,132 41.04 16,195 36.73
====== ====== ======
Exercisable - End of year . . 9,588 36.59 8,429 30.10 7,016 25.57
===== ===== =====
(a) Data concerning stock options at December 31, 1999 follows (options in
thousands):
Options Outstanding
-------------------------------- Options Exercisable
Weighted- -------------------
Average Remaining Weighted-
Exercise Contractual Average
Exercise Price Range Options Price Life(Years) Options Price
- -------------------------------------------------------------------------------
$9.83 - $14.73 . . . 151 $13.43 2.3 151 $13.43
18.16 - 20.44 . . . 837 19.71 2.1 837 19.71
22.36 - 28.34 . . .3,265 26.09 3.9 3,265 26.09
39.94 - 48.31 . . .7,720 45.58 7.9 2,613 40.27
50.00 - 59.81 . . .8,194 52.89 6.6 2,722 52.15
----- -----
20,167 9,588
====== =====
At December 31, 1999, the number of additional shares of common stock of
the Corporation available for awards under the 1992 Plan was 13.2 million
shares.
The Corporation has elected to follow APB 25 and related interpretations
in accounting for its stock options. Under APB 25, because the exercise price
of employee stock options that have been awarded was equal to the market price
of the underlying stock on the date of grant, no compensation expense was
required to be recognized. However, SFAS 123, Accounting for Stock-Based
Compensation, requires presentation of pro forma net income and earnings per
share as if the Corporation had accounted for its employee stock options under
a fair value method. For purposes of pro forma disclosure, the estimated fair
value of such stock options is amortized to expense over the vesting period.
Under the fair value method, the Corporation's net income and net income per
share would have been reduced as follows:
(Millions of dollars, except per share amounts) 1999 1998 1997
- ----------------------------------------------------- ---- ---- ----
Net income . . . . . . . . . . . . . . . . . . . . . $41.2 $31.0 $22.4
Basic and diluted net income per share . . . . . . . .08 .06 .04
NOTE 8. (Continued)
The weighted-average fair value of the individual options granted during
1999, 1998 and 1997 is estimated as $11.77, $13.36 and $12.22, respectively,
on the date of grant. The fair values were determined using a Black-Scholes
option-pricing model with the following assumptions:
1999 1998 1997
---- ---- ----
Dividend yield. . . . . . 2.15% 1.79% 1.88%
Volatility. . . . . . . . 21.40% 17.60% 18.30%
Risk-free interest rate . 5.25% 5.59% 5.98%
Expected life . . . . . . 5.8 YEARS 5.8 years 5.4 years
UNEARNED COMPENSATION ON RESTRICTED STOCK
Effective January 1, 1999, the Corporation adopted a restricted stock
plan under which certain key employees may be granted, in the aggregate, up to
2.5 million shares of the Corporation's common stock (or awards of restricted
stock units). These restricted stock awards vest and become unrestricted
shares in three to ten years from the date of grant. Although plan
participants are entitled to cash dividends and may vote such awarded shares,
the sale or transfer of such shares is limited during the restricted period.
During 1999, .4 million shares were awarded and at December 31, 1999, 2.1
million shares of the Corporation's common stock remained available for
awards.
The market value of the Corporation's common stock determines the value
of the restricted stock award, and such value is recorded at the date of the
award as unearned compensation on restricted stock in a separate component of
stockholders' equity. This unearned compensation is amortized to compensation
expense over the periods of restriction. During 1999, $5.0 million was
charged to compensation expense under the plan.
- ------
NOTE 9. COMMITMENTS
LEASES
The future minimum obligations under leases having a noncancelable term
in excess of one year as of December 31, 1999, are as follows:
Operating
(Millions of dollars) Leases
- ----------------------- ---------
Year Ending December 31:
2000 . . . . . . . . . . . . . . . . . . $ 62.1
2001 . . . . . . . . . . . . . . . . . . 47.9
2002 . . . . . . . . . . . . . . . . . . 30.8
2003 . . . . . . . . . . . . . . . . . . 21.6
2004 . . . . . . . . . . . . . . . . . . 16.7
Thereafter . . . . . . . . . . . . . . 63.0
------
Future minimum obligations . . . . . . . . $242.1
======
Operating lease obligations have been reduced by approximately $11.5
million for rental income from noncancelable sublease agreements.
Consolidated rental expense under operating leases was $151.4 million,
$156.9 million, and $150.8 million in 1999, 1998 and 1997, respectively.
RAW MATERIALS
The Corporation has entered into long-term contracts for the purchase of
raw materials, primarily pulp. The minimum purchase commitments extend to
2003. At current prices, the commitments are approximately $348 million, $341
million and $237 million in 2000, 2001 and 2002, respectively. The commitment
beyond the year 2002 is approximately $96 million in total.
Although the Corporation is primarily liable for rental payments on the
above-mentioned leases and, considering the purchase commitments for raw
materials described above, management believes the Corporation's exposure to
losses, if any, under these arrangements is not material.
NOTE 10. STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME
STOCKHOLDERS' EQUITY
At December 31, 1999, unremitted net income of equity companies included
in consolidated retained earnings was $713.3 million.
On June 21, 1988, the board of directors of the Corporation declared a
distribution of one preferred share purchase right for each outstanding share
of the Corporation's common stock. On June 8, 1995, the board amended the
plan governing such rights. The rights are intended to protect the
stockholders against abusive takeover tactics.
A right will entitle its holder to purchase one two-hundredth of a share
of Series A Junior Participating Preferred Stock at an exercise price of $225,
but will not become exercisable until 10 days after a person or group acquires
or announces a tender offer that would result in the ownership of 20 percent
or more of the Corporation's outstanding common shares.
Under certain circumstances, a right will entitle its holder to acquire
either shares of the Corporation's stock or shares of an acquiring company's
common stock, in either event having a market value of twice the exercise
price of the right. At any time after the acquisition by a person or group of
20 percent or more, but fewer than 50 percent, of the Corporation's common
shares, the Corporation may exchange the rights, except for rights held by the
acquiring person or group, in whole or in part, at a rate of one right for one
share of the Corporation's common stock or for one two-hundredth of a share of
Series A Junior Participating Preferred Stock.
The rights may be redeemed at $.005 per right prior to the acquisition by
a person or group of 20 percent or more of the common stock. Unless
redeemed earlier, the rights expire on June 8, 2005.
NOTE 10. (Continued)
OTHER COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss) are as
follows:
Year Ended December 31
--------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ----------------------------
Pretax Tax Exp. Net Pretax Tax Exp. Net Pretax Tax Exp. Net
(Millions of dollars) Amount (Credit) Amount Amount (Credit) Amount Amount (Credit) Amount
- --------------------- ------ -------- ------ ------ -------- ------ ------ ------ ------
Unrealized translation
adjustments. . . . . . . $(154.6) $ - $(154.6) $ 3.1 $ - $3.1 $(296.4) $ - $(296.4)
Minimum pension liability
adjustment . . . . . . . 6.6 2.5 4.1 (1.4) (.6) (.8) (4.5) (1.7) (2.8)
-------- ---- -------- ------ ----- ----- -------- ------ --------
Other comprehensive
income (loss). . . . . . $(148.0) $2.5 $(150.5) $ 1.7 $(.6) $2.3 $(300.9) $(1.7) $(299.2)
======== ==== ======== ====== ===== ===== ======== ====== ========
Accumulated balances of other comprehensive income (loss), net of
applicable income taxes:
December 31
------------------
(Millions of dollars) 1999 1998
- ----------------------- -------- -------
Unrealized translation adjustments . . . . . . . $(1,104.7) $(950.1)
Minimum pension liability adjustment . . . . . . (10.1) (14.2)
--------- -------
Accumulated other comprehensive income (loss) . .$(1,114.8) $(964.3)
========= =======
NOTE 11. EXTRAORDINARY GAINS
In March 1997, the Corporation sold a noncore pulp and newsprint facility
located in Coosa Pines, Alabama ("Coosa") for approximately $600 million in
cash. Also, in the first quarter of 1997, the Corporation recorded impairment
losses on certain tissue and pulp manufacturing facilities. These impairment
losses totaled $111.5 million before income tax benefits. In June 1997, the
Corporation completed the sale of its interest in Scott Paper Limited ("SPL")
for approximately $127 million. The above described transactions have been
aggregated and reported as extraordinary gains totaling $17.5 million, net of
applicable income taxes of $38.4 million. The high effective income tax rate
on the extraordinary gains is due to income tax loss carryforwards that
precluded the current recognition of the income tax benefit on certain
impairment losses and the tax basis in SPL being substantially lower than the
carrying amount of the investment in the financial statements. The
extraordinary gains were equal to $.03 per share for both basic and diluted
EPS.
NOTE 12. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES
ACQUISITIONS
On June 10, 1999, the Corporation completed the acquisition of the
European consumer and away-from-home tissue businesses of Attisholz Holding AG
("Attisholz") for $365 million in cash. On September 23, 1999, the
Corporation completed the acquisition of Ballard through the exchange of
approximately 13.8 million shares of the Corporation's common stock for all
outstanding shares of Ballard. The value of the exchange of stock plus
related acquisition costs was approximately $788 million. These acquisitions
were accounted for as purchases. Accordingly, the results of operations of
these two entities have been included in the Corporation's consolidated
results of operations from the date of their acquisition and their assets and
liabilities are included in the Consolidated Balance Sheet as of December 31,
1999.
The Corporation engaged independent appraisers to assist in the
determination of the fair value of the acquired assets of Attisholz and
Ballard. Although the appraisals are not yet complete, the Corporation
believes that the allocation of the purchase price will result in assigning
values to intangible assets in a range of $720 million to $740 million. These
intangible assets will be amortized on the straight-line method over periods
up to 30 years.
The unaudited pro forma combined historical results, as if the Attisholz
and Ballard businesses had been acquired at the beginning of fiscal 1999 and
1998 are estimated to be:
(Millions of dollars, except per share amounts) 1999 1998
- ----------------------------------------------------- ---- ----
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,235.8 $12,733.6
Income before extraordinary gains and cumulative effect of accounting
change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,631.8 1,099.9
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,631.8 1,088.7
Basic net income per share. . . . . . . . . . . . . . . . . . . . . . 2.98 1.93
Diluted net income per share. . . . . . . . . . . . . . . . . . . . . 2.96 1.92
The pro forma results include amortization of the intangibles discussed
above and interest expense on debt assumed to be issued to finance the
Attisholz purchase and to acquire the treasury stock exchanged in the Ballard
purchase. The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been completed as of the
beginning of each of the fiscal periods presented, nor are they necessarily
indicative of future consolidated results.
Other acquisitions relating primarily to increased ownership and
expansion in Asia and Latin America in 1999 and 1998 were $44.7 million and
$342.5 million, respectively. The Corporation recognized goodwill on
acquisitions of consolidated subsidiaries of $41.4 million in 1999 and $72.8
million in 1998. In addition, goodwill of $150.4 million related to the
acquisitions of equity companies in 1998 was recorded in investments in equity
companies.
In December 1997, the Corporation acquired Tecnol in a purchase
transaction through the exchange of approximately 8.7 million shares of the
Corporation's common stock for all the outstanding shares of Tecnol common
stock. The value of the exchange of stock plus related acquisition costs was
approximately $428 million. The allocation of the purchase price resulted in
assigning values to goodwill and other intangible assets of $336 million.
NOTE 12. (Continued)
Other acquisitions in 1997 primarily related to increased ownership in
Asia and Latin America were $82.2 million, resulting in goodwill of $48.5
million, none of which relates to acquisitions of equity companies.
DISPOSITIONS
Southeast Timberlands
- ----------------------
In April 1998, the U.S. Environmental Protection Agency enacted new and
more stringent air emission and water discharge regulations, referred to as
the Cluster Rule, that impose additional pollution control requirements on the
Corporation's pulp production facilities. These rules would have required the
Corporation to spend more than $250 million to meet the Cluster Rule
requirements at its Mobile, Alabama pulp mill. Sappi Fine Paper (S.D. Warren
Company), a producer of printing and publishing papers, had purchased
approximately one-third of the pulp mill's output. On May 4, 1998, S.D.
Warren and the Corporation announced an agreement to terminate their pulp
supply contract effective September 1, 1999. As a result of the cancellation
of the pulp supply contract and the cost of implementing the Cluster Rule, on
May 5, 1998, the Corporation announced its intention to dispose of its entire
integrated pulp operation in Mobile, Alabama, including the related sale of
the associated woodlands operations (the "Southeast Timberlands") and the
closure of its pulp production facility. The pulp facility was shut down in
August 1999. Closure of the pulp mill resulted in the elimination of
approximately 450 jobs, and severance costs of $18.0 million for these
employees were charged to cost of products sold in the third quarter of 1998,
at the time the employees were notified of their termination benefits.
On September 30, 1999, the Corporation sold approximately 460,000 acres
of the Southeast Timberlands to Joshua Timberlands, LLC for notes receivable
with approximate face value of $400 million ("Joshua Notes"). The Joshua
Notes, which were recorded at their fair value of approximately $383 million,
bear interest initially at floating rates based on LIBOR less 15 basis points
and are backed by irrevocable standby letters of credit issued by a major
money-center bank, are due September 30, 2009 and are extendable in additional
five-year increments up to September 30, 2029, at the option of the note
holder. Additional acres of such timberland and related equipment were sold
to other buyers prior to September 30, 1999 for $66 million in cash. The
closure of the pulp mill combined with the sale of the related timberlands
resulted in a pretax gain of $153.3 million, which is recorded in other
(income) expense, net. The after-tax effect of the transaction was a gain of
$95.7 million, or $.18 per share.
In November 1999, the Joshua Notes were transferred for cash to a
noncontrolled special purpose entity ("SPE") in which the Corporation has a
minority voting interest. The transfer of the Joshua Notes, which was
accounted for as a sale, resulted in no gain or loss to the Corporation. The
SPE is accounted for as an equity investment by the Corporation.
In connection with the pulp mill closure, and as permitted by the terms
of the governing contract, on May 5, 1998, the Corporation gave notice to
Mobile Energy Services Company, L.L.C. ("MESC") of the Corporation's intent to
terminate MESC's long-term contract for power, steam and liquor processing
services with respect to the Mobile pulp mill. The resulting termination
penalty of $24.3 million, which comprised six months of adjusted demand
payments under the contract, was charged to cost of products sold in the
second quarter of 1998. On January 14, 1999, MESC and Mobile Energy Services
Holdings, Inc. (the "debtors") filed an action against the Corporation
claiming unspecified damages in connection with the cancellation of the
contract.
NOTE 12. (Continued)
On December 31, 1999, a joint motion of the debtors and the MESC
bondholders' steering committee (the "Motion") was filed with the U.S.
Bankruptcy Court seeking approval of a settlement and compromise of claims
against the Corporation arising from the closure of the Mobile pulp mill and
termination of the pulp mill's energy services agreement. The Motion,
which was granted by the U.S. Bankruptcy Court by order dated January 24,
2000, outlines the terms of settlement for various litigation matters
between the Corporation and MESC. Under the proposed settlement, the
Corporation agreed to pay MESC at closing approximately $30 million,
subject to certain adjustments. Closing of the settlement would be subject
to, among other conditions, MESC filing a plan of reorganization from
bankruptcy and the ultimate approval of that plan by the U.S. Bankruptcy Court.
The approximate $30 million payment, which will be accrued when appropriate,
is in addition to $24.3 million previously accrued by the Corporation. In
addition, the proposed settlement provides MESC with an option to purchase the
Mobile pulp mill at a nominal price; a settlement of all pending litigation
and arbitration between the Corporation and MESC; mutual releases by the
Corporation, MESC and its affiliate (the Southern Company and affiliates),
and the representatives of the MESC bondholders; and an agreement by MESC
to terminate the existing tissue mill energy services agreement and to provide
the Mobile tissue mill energy at market rates.
The outcome of the MESC litigation and settlement matters is not expected
to have a material adverse effect on the Corporation's business, financial
condition or results of operations.
K-C Aviation Inc.
- -------------------
In August 1998, the Corporation completed the sale of its subsidiary, K-C
Aviation Inc. ("KCA"), for $250 million in cash. The sale resulted in a
pretax gain of $140.0 million, which is included in other (income) expense,
net. The transaction resulted in an after-tax gain of $78.3 million, or $.14
per share.
Assets Held for Sale
- -----------------------
During 1999, 1998 and 1997, in accordance with SFAS 121, depreciation was
suspended on certain timberlands assets, pulp producing facilities and
depreciable property that were held for disposal or disposed of. Depreciation
for these facilities would have been $5.5 million in 1999, $12.6 million in
1998 and $47.3 million in 1997. The suspended depreciation in 1999 relates to
the sale of the Southeast Timberlands, which was completed in September 1999.
The lower amount of suspended depreciation in 1998 versus 1997 was a result of
the sale of Coosa in March 1997, the sale of SPL in June 1997 and the
reclassification of the New Glasgow, Nova Scotia and the Terrace Bay, Ontario
pulp manufacturing facilities from assets held for sale to property, plant and
equipment used in operations during 1998.
NOTE 13. CONTINGENCIES AND LEGAL MATTERS
LITIGATION
On May 13, 1997, the State of Florida, acting through its attorney
general, filed a complaint in the Gainesville Division of the United States
District Court for the Northern District of Florida (the "Florida District
Court"), alleging that manufacturers of tissue products for away-from-home
use, including the Corporation and Scott, agreed to fix prices by coordinating
price increases for such products. Following Florida's complaint, an action
by the states of Maryland, New York and West Virginia, as well as
approximately 45 class action complaints, have been filed in various federal
and state courts around the United States. These actions contain allegations
similar to those made by the State of Florida in its complaint. The actions
in federal courts have been consolidated for pretrial proceedings in the
Florida District Court. Class certification was granted in the federal
proceedings in July 1998 and will be contested in the state cases. The
foregoing actions seek an unspecified amount of actual and treble damages.
In February 2000, the State of Florida is expected to agree to dismiss
its complaint with prejudice pursuant to a settlement with defendants. With
respect to the remaining actions, the Corporation has answered the complaints
in these actions and has denied the allegations contained therein as well as
any liability. The Corporation intends to contest these claims vigorously.
These actions are not expected to have a material adverse effect on the
Corporation's business, financial condition or results of operations.
The Corporation also is subject to routine litigation from time to time,
which, individually or in the aggregate, is not expected to have a material
adverse effect on the Corporation's business, financial condition or results
of operations.
ENVIRONMENTAL MATTERS
The Corporation has been named a potentially responsible party under the
provisions of the federal Comprehensive Environmental Response, Compensation
and Liability Act, or analogous state statute, 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 the Corporation's
business, financial condition or results of operations.
NOTE 14. UNAUDITED QUARTERLY DATA
1999 1998
(Millions of dollars, ------------------------------------------- -------------------------------------------
except per share amounts) Fourth(a) Third(b) Second(c) First(d) Fourth(e) Third(f) Second(g) First(h)
- --------------------------- --------- -------- --------- -------- --------- -------- --------- --------
Net sales. . . . . . . . . . . $3,425.5 $3,307.5 $3,148.6 $3,125.2 $3,108.2 $3,099.7 $3,041.3 $3,048.6
Gross profit . . . . . . . . . 1,409.0 1,345.9 1,297.0 1,273.3 1,192.3 1,166.6 1,126.1 1,112.6
Operating profit . . . . . . . 602.5 719.0 569.3 544.6 384.1 530.6 400.1 382.9
Income before cumulative
effect of accounting
change . . . . . . . . . . . 424.0 478.4 391.1 374.6 266.7 326.8 262.9 257.9
Per share basis:
Basic. . . . . . . . . . . .78 .90 .73 .70 .49 .60 .47 .46
Diluted. . . . . . . . . . .77 .89 .73 .69 .49 .59 .47 .46
Net income . . . . . . . . . . 424.0 478.4 391.1 374.6 266.7 326.8 262.9 246.7
Per share basis:
Basic. . . . . . . . . . . .78 .90 .73 .70 .49 .60 .47 .44
Diluted. . . . . . . . . . .77 .89 .73 .69 .49 .59 .47 .44
Cash dividends declared
per share. . . . . . . . . . .26 .26 .26 .26 .25 .25 .25 .25
Market price per share:
High . . . . . . . . . . . . 69.56 62.19 64.06 54.88 54.94 49.44 52.44 59.44
Low. . . . . . . . . . . . . 50.81 52.13 48.00 44.81 39.44 35.88 44.44 46.75
Close. . . . . . . . . . . . 65.44 52.75 57.00 47.94 54.50 40.50 45.88 50.13
(a) Included in the fourth quarter 1999 are the following items:
Basic and
Diluted
Gross Operating Net Net Income
(Millions of dollars, except per share amounts) Profit Profit Income per Share
-----------------------------------------------------------------------------------------------------
Charges for business improvement and other programs . . $ 8.5 $(.2) $2.4
Business integration and other costs. . . . . . . . . . 1.8 9.2 6.1
----- ----- ----
Total . . . . . . . . . . . . . . . . . . . . . . . . $10.3 $9.0 $8.5 $.02
===== ===== ==== ====
(b) Included in the third quarter 1999 are the following items:
Basic and
Diluted
Gross Operating Net Net Income
(Millions of dollars, except per share amounts) Profit Profit Income per Share
-----------------------------------------------------------------------------------------------------
Charges for business improvement and other programs . . $36.2 $ 19.4 $ 13.4
Business integration and other costs. . . . . . . . . . 9.4 13.4 8.4
Gain on asset disposal. . . . . . . . . . . . . . . . . - (153.3) (95.7)
----- -------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . $45.6 $(120.5) $(73.9) $(.14)
===== ======== ======= ======
NOTE 14. (Continued)
(c) Included in the second quarter 1999 are the following items:
Basic and
Diluted
Gross Operating Net Net Income
(Millions of dollars, except per share amounts) Profit Profit Income per Share
-----------------------------------------------------------------------------------------------------
Charges for business improvement and other programs . . $ 5.8 $ 5.8 $ 4.4
Mobile pulp mill fees and related severances. . . . . . 9.0 9.0 5.6
Gains on asset disposals. . . . . . . . . . . . . . . . - (23.4) (16.6)
----- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . $14.8 $ (8.6) $ (6.6) $(.01)
===== ======= ======= ======
(d) Gross profit, operating profit, net income and basic and diluted net
income per share includes $18.5 million, $22.8 million, $15.4 million
and $.03, respectively, related to the charges for business improvement
and other programs.
(e) Gross profit, operating profit, net income and basic and diluted net
income per share includes $69.8 million, $151.9 million, $106.8 million
and $.20, respectively, related to the charges for business improvement
and other programs.
(f) Included in the third quarter 1998 are the following items:
Basic and
Diluted
Gross Operating Net Net Income
(Millions of dollars, except per share amounts) Profit Profit Income per Share
-----------------------------------------------------------------------------------------------------
Charges for business improvement and other programs . . $28.1 $ 100.2 $ 77.4
Mobile pulp mill fees and related severances. . . . . . 18.0 18.0 11.0
Gain on asset disposal. . . . . . . . . . . . . . . . . - (140.0) (78.3)
----- -------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . $46.1 $ (21.8) $ 10.1 $.03
===== ======== ======= ====
Basic and diluted net income per share include a loss of $.01 per share
related to the change in the value of the Mexican peso.
(g) Included in the second quarter 1998 are the following items:
Basic and
Diluted
Gross Operating Net Net Income
(Millions of dollars, except per share amounts) Profit Profit Income per Share
-----------------------------------------------------------------------------------------------------
Charges for business improvement and other programs . . $45.3 $53.9 $45.7
Mobile pulp mill fees and related severances. . . . . . 24.3 24.3 14.9
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . $69.6 $78.2 $60.6 $.11
===== ===== ===== ====
(h) Gross profit, operating profit, net income and basic and diluted net
income per share includes $48.4 million, $71.8 million, $46.9 million
and $.08, respectively, related to the charges for business improvement
and other programs. Basic and diluted net income per share also include
a loss of $.01 per share related to the change in the value of
the Mexican peso.
NOTE 15. SUPPLEMENTAL DATA (Millions of dollars)
SUPPLEMENTAL BALANCE SHEET DATA
December 31
-------------------
Summary of Accounts Receivable 1999 1998
- --------------------------------- -------------------
Accounts Receivable:
From customers . . . . . . . . . . . . . . . . . . . . . $1,492.3 $1,396.0
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 179.9 136.5
Less allowance for doubtful accounts and sales discounts (71.6) (67.3)
--------- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . . $1,600.6 $1,465.2
========= =========
Accounts receivable are carried at amounts that approximate fair value.
Long-term notes receivable carried at $220 million have a fair value of
approximately $212 million.
December 31
-------------------
Summary of Inventories 1999 1998
- ------------------------ -------------------
Inventories by Major Class:
At the lower of cost on the First-In,
First-Out (FIFO) method, weighted-
average cost method or market:
Raw materials . . . . . . . . . . . . . . . . . . . . $ 342.3 $ 355.4
Work in process . . . . . . . . . . . . . . . . . . . 171.2 164.2
Finished goods. . . . . . . . . . . . . . . . . . . . 713.4 751.3
Supplies and other. . . . . . . . . . . . . . . . . . 215.4 195.5
--------- ---------
1,442.3 1,466.4
Excess of FIFO cost over Last-In, First-Out (LIFO) cost (202.4) (182.6)
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . $1,239.9 $1,283.8
========= =========
Total inventories include $399.2 million and $490.2 million of
inventories valued on the LIFO method at December 31, 1999 and 1998,
respectively.
December 31
-------------------
Summary of Accrued Expenses 1999 1998
- ------------------------------ -------------------
Accruals for the 1998 and 1997 Plans. . . . . . . . . . $ 24.5 $ 129.8
Accrued advertising and promotion expense . . . . . . . 277.8 272.6
Accrued salaries and wages. . . . . . . . . . . . . . . 392.8 335.0
Other accrued expenses. . . . . . . . . . . . . . . . . 617.0 681.7
-------- --------
Total accrued expenses. . . . . . . . . . . . . . $1,312.1 $1,419.1
======== ========
NOTE 15. (Continued)
SUPPLEMENTAL CASH FLOW STATEMENT DATA
Year Ended December 31
----------------------------
Summary of Cash Flow Effects of (Increase) Decrease in
Operating Working Capital(a) 1999 1998 1997
- ------------------------------ ----------------------------
Accounts receivable . . . . . . . . . . . . . . . . . . $ (10.3) $ 87.5 $ 13.4
Inventories . . . . . . . . . . . . . . . . . . . . . . 111.2 (.4) (43.7)
Prepaid expenses. . . . . . . . . . . . . . . . . . . . 22.4 14.2 (13.6)
Trade accounts payable. . . . . . . . . . . . . . . . . 41.1 (101.2) (89.0)
Other payables. . . . . . . . . . . . . . . . . . . . . (98.4) 41.0 27.9
Accrued expenses. . . . . . . . . . . . . . . . . . . . (147.3) (116.3) (294.7)
Accrued income taxes. . . . . . . . . . . . . . . . . . 34.9 130.8 (151.9)
Currency rate changes . . . . . . . . . . . . . . . . . (20.7) 8.0 (36.8)
-------- -------- --------
(Increase) decrease in operating working capital. . . . $ (67.1) $ 63.6 $(588.4)
======== ======== ========
(a) Excludes the effects of acquisitions, dispositions and the business
improvement and other programs discussed in Note 2 to the
Consolidated Financial Statements.
Year Ended December 31
----------------------------
Other Cash Flow Data 1999 1998 1997
- ----------------------- ----------------------------
Reconciliation of changes in cash and cash equivalents:
Balance, January 1. . . . . . . . . . . . . . . . . . . $144.0 $ 90.8 $ 83.2
Increase. . . . . . . . . . . . . . . . . . . . . . . . 178.8 53.2 7.6
------ ------ -------
Balance, December 31. . . . . . . . . . . . . . . . . . $322.8 $144.0 $ 90.8
====== ====== =======
Interest paid . . . . . . . . . . . . . . . . . . . . . . $227.1 $192.1 $173.6
Income taxes paid . . . . . . . . . . . . . . . . . . . . 557.8 368.6 557.3
Increase (decrease) in cash and cash equivalents due to
currency rate changes . . . . . . . . . . . . . . . . . .1 2.4 (17.4)
Year Ended December 31
----------------------------
Interest Expense 1999 1998 1997
- ----------------- ----------------------------
Gross interest cost. . . . . . . . . . . . . . . . . . . . $226.0 $211.1 $181.8
Capitalized interest on major construction projects. . . . (12.9) (12.4) (17.0)
------- ------- -------
Interest expense . . . . . . . . . . . . . . . . . . . . . $213.1 $198.7 $164.8
======= ======= =======
NOTE 16. BUSINESS SEGMENT AND GEOGRAPHIC DATA INFORMATION
The Corporation is organized into three global business segments as
follows:
- - The Tissue segment manufactures and markets facial and bathroom tissue,
paper towels and wipers for household and away-from-home use; wet
wipes; printing, premium business and correspondence papers; and related
products.
- - The Personal Care segment manufactures and markets disposable diapers,
training and youth pants; feminine and incontinence care products; and
related products.
- - The Health Care and Other segment manufactures and markets health care
products such as surgical packs and gowns, sterilization wraps
and disposable face masks; disposable medical devices for respiratory
care, gastroenterology and cardiology; specialty and technical papers
and related products; and other products.
Information concerning consolidated operations by business segment and
geographic area, as well as data for equity companies, is presented in the
tables below and on the following pages:
CONSOLIDATED OPERATIONS BY BUSINESS SEGMENT
Net Sales Operating Profit
---------------------------------- ------------------------------
(Millions of dollars) 1999 1998 1997 1999(a) 1998(a) 1997(a)
- -------------------------------------------------------------------------------------------
Tissue. . . . . . . . . .$ 6,968.8 $ 6,733.1 $ 7,210.2 $1,114.1 $ 921.3 $ 704.3
Personal Care . . . . . . 5,138.1 4,596.5 4,510.7 1,092.8 588.7 737.8
Health Care and Other . . 936.4 1,001.5 863.6 154.3 161.2 135.1
---------- ---------- ---------- -------- -------- ---------
Combined. . . . . . . . . 13,043.3 12,331.1 12,584.5 2,361.2 1,671.2 1,577.2
Intersegment sales. . . . (36.5) (33.3) (37.9) - - -
Unallocated items - net . - - - 74.2 26.5 (91.1)
---------- ---------- ---------- -------- -------- ---------
Consolidated. . . . . . .$13,006.8 $12,297.8 $12,546.6 $2,435.4 $1,697.7 $1,486.1
========= ========= ========= ======== ======== ========
Assets Depreciation Capital Spending
------------------------------ ---------------------- ----------------------
(Millions of dollars) 1999 1998 1997 1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
Tissue. . . . . . . . $ 6,096.6 $ 5,870.8 $ 5,885.0 $359.6 $341.5 $303.3 $482.2 $345.6 $563.5
Personal Care . . . . 3,234.8 3,138.7 3,154.2 195.8 220.0 198.7 260.7 290.4 326.6
Health Care
and Other . . . . . 1,679.0 951.1 1,005.6 29.8 31.8 24.7 43.0 31.2 44.9
--------- --------- --------- ------ ------ ------ ------ ------ ------
Combined. . . . . . . 11,010.4 9,960.6 10,044.8 585.2 593.3 526.7 785.9 667.2 935.0
Unallocated(b)
assets. . . . . . . 1,805.1 1,727.2 1,372.3 1.0 1.2 1.8 .5 2.3 9.3
--------- --------- --------- ------ ------ ------ ------ ------ ------
Consolidated. . . . . $12,815.5 $11,687.8 $11,417.1 $586.2 $594.5 $528.5 $786.4 $669.5 $944.3
========= ========= ========= ====== ====== ====== ====== ====== ======
NOTE 16. (Continued)
(a) Included in Business Segment operating profit are the following
unusual items:
1999
----------------------------------------------------------------
Personal Health Care
(Millions of dollars) Tissue Care and Other Unallocated Total
----------------------- ----------------------------------------------------------------
Charges for business improvement
and other programs. . . . . . . . . . . . . $31.8 $16.3 $1.4 $ (1.7) $ 47.8
Business integration and others costs . . . . 16.4 - 6.2 - 22.6
Mobile pulp mill fees and related severances. 9.0 - - - 9.0
Gains on asset disposals. . . . . . . . . . . - - - (176.7) (176.7)
----- ----- ---- ------- -------
Total. . . . . . . . . . . . . . . . . . . $57.2 $16.3 $7.6 $(178.4) $ (97.3)
===== ===== ==== ======== ========
1998
----------------------------------------------------------------
Personal Health Care
(Millions of dollars) Tissue Care and Other Unallocated Total
----------------------- ----------------------------------------------------------------
Charges for business improvement
and other programs . . . . . . . . . . . . $172.1 $196.6 $12.5 $ (3.4) $377.8
Mobile pulp mill fees and related severances 42.3 - - - 42.3
Gain on asset disposal . . . . . . . . . . . - - - (140.0) (140.0)
------ ------ ----- -------- -------
Total. . . . . . . . . . . . . . . . . . . $214.4 $196.6 $12.5 $(143.4) $280.1
====== ====== ===== ======== ======
1997
----------------------------------------------------------------
Personal Health Care
(Millions of dollars) Tissue Care and Other Unallocated Total
----------------------- ----------------------------------------------------------------
Charges for business improvement
and other programs. . . . . . . . . . . . $384.9 $74.7 $8.4 $ 10.3 $478.3
Gain on asset disposal. . . . . . . . . . . - - - (26.5) (26.5)
------ ----- ---- ------- -------
Total . . . . . . . . . . . . . . . . . . $384.9 $74.7 $8.4 $(16.2) $451.8
====== ===== ==== ======= ======
(b) Assets include investments in equity companies of $863.1 million,
$813.1 million and $567.7 million in 1999, 1998 and 1997,
respectively.
CONSOLIDATED OPERATIONS BY GEOGRAPHIC AREA
Net Sales Operating Profit
------------------------------ -----------------------------
(Millions of dollars) 1999 1998 1997 1999(a) 1998(a) 1997(a)
- --------------------------- --------- --------- --------- -------- -------- --------
United States . . . . . . . . . $ 8,392.5 $ 7,992.8 $ 7,854.3 $1,821.9 $1,407.2 $1,362.8
Canada. . . . . . . . . . . . . 843.4 785.1 1,052.5 105.3 112.7 151.9
Intergeographic items(b). . . . (507.4) (408.9) (397.2) - - -
--------- --------- --------- -------- -------- ---------
North America . . . . . . . . . 8,728.5 8,369.0 8,509.6 1,927.2 1,519.9 1,514.7
Europe. . . . . . . . . . . . . 2,544.7 2,471.2 2,548.1 183.3 (39.7) (76.1)
Asia, Latin America and Africa. 2,084.6 1,766.2 1,837.9 250.7 191.0 138.6
--------- --------- --------- -------- -------- ---------
Combined. . . . . . . . . . . . 13,357.8 12,606.4 12,895.6 2,361.2 1,671.2 1,577.2
Intergeographic items . . . . . (351.0) (308.6) (349.0) - - -
Unallocated items - net . . . . - - - 74.2 26.5 (91.1)
--------- --------- --------- -------- -------- ---------
Consolidated. . . . . . . . . . $13,006.8 $12,297.8 $12,546.6 $2,435.4 $1,697.7 $1,486.1
========= ========= ========= ======== ======== ========
NOTE 16. (Continued)
Assets
------
(Millions of dollars) 1999 1998 1997
- ----------------------- ----------------------------------
United States . . . . . . . . . $ 6,363.1 $ 5,807.4 $ 5,901.0
Canada. . . . . . . . . . . . . 497.5 470.0 547.5
Intergeographic items . . . . . (79.0) (52.6) (65.4)
---------- ---------- ----------
North America . . . . . . . . . 6,781.6 6,224.8 6,383.1
Europe. . . . . . . . . . . . . 2,404.1 2,133.2 2,279.9
Asia, Latin America and Africa. 1,960.7 1,714.9 1,524.6
---------- ---------- ----------
Combined. . . . . . . . . . . . 11,146.4 10,072.9 10,187.6
Intergeographic items . . . . . (136.0) (112.3) (142.8)
Unallocated items - net(c). . . 1,805.1 1,727.2 1,372.3
---------- ---------- ----------
Consolidated. . . . . . . . . . $12,815.5 $11,687.8 $11,417.1
========== ========== ==========
Note: The Corporation has reclassified the results of its Puerto Rican
operations to Latin America from the United States.
(a) Included in geographic operating profit are the following unusual
items:
1999
-------------------------------------------------------------------------
Asia,
Latin America
(Millions of dollars) U.S. Canada Europe and Africa Unallocated Total
----------------------- -------------------------------------------------------------------------
Charges for business improvement
and other programs. . . . . . . . $20.5 $5.6 $31.3 $(7.9) $ (1.7) $ 47.8
Business integration and other
costs . . . . . . . . . . . . . . 17.4 - 5.2 - - 22.6
Mobile pulp mill fees and related
severances. . . . . . . . . . . . 9.0 - - - - 9.0
Gains on asset disposals. . . . . . - - - - (176.7) (176.7)
----- ---- ----- ------ ------- -------
Total . . . . . . . . . . . . . . $46.9 $5.6 $36.5 $(7.9) $(178.4) $ (97.3)
===== ==== ===== ====== ======= =======
1998
-------------------------------------------------------------------------
Asia,
Latin America
(Millions of dollars) U.S. Canada Europe and Africa Unallocated Total
----------------------- -------------------------------------------------------------------------
Charges for business improvement
and other programs . . . . . . . . $213.9 $(7.9) $162.8 $12.4 $ (3.4) $ 377.8
Mobile pulp mill fees and related
severances . . . . . . . . . . . . 42.3 - - - - 42.3
Gain on asset disposal . . . . . . . - - - - (140.0) (140.0)
------ ------ ------ ----- -------- --------
Total. . . . . . . . . . . . . . . $256.2 $(7.9) $162.8 $12.4 $(143.4) $(280.1)
====== ====== ====== ===== ======== ========
1997
-------------------------------------------------------------------------
Asia,
Latin America
(Millions of dollars) U.S. Canada Europe and Africa Unallocated Total
----------------------- -------------------------------------------------------------------------
Charges for business improvement
and other programs . . . . . . . . $190.3 $2.7 $204.8 $70.2 $ 10.3 $ 478.3
Gain on asset disposal . . . . . . . - - - - (26.5) (26.5)
------ ---- ------ ----- ------- -------
Total. . . . . . . . . . . . . . . $190.3 $2.7 $204.8 $70.2 $(16.2) $ 451.8
====== ==== ====== ===== ======= =======
(b) Net sales include $287.6 million, $255.9 million and $246.0 million
by operations in Canada to the U.S. in 1999, 1998 and 1997, respectively.
NOTE 16. (Continued)
(c) Assets include investments in equity companies of $863.1 million,
$813.1 million and $567.7 million in 1999, 1998 and 1997, respectively.
EQUITY COMPANIES' DATA BY GEOGRAPHIC AREA
Kimberly-
Clark's
Share
Net Gross Operating Net of Net
(Millions of dollars) Sales Profit Profit Income Income
- --------------------- -------- --------- --------- -------- --------
For the year ended:
December 31, 1999
Latin America(a). . . . . . . . $1,611.6 $638.9 $477.7 $334.1 $154.0
Asia, Australia and Middle East 714.0 263.1 98.6 73.4 35.6
-------- ------ ------ ------ ------
Total. . . . . . . . . . . $2,325.6 $902.0 $576.3 $407.5 $189.6
======== ====== ====== ====== ======
For the year ended:
December 31, 1998
Latin America(b). . . . . . . . $1,606.8 $574.4 $344.5 $245.5 $113.5
Asia, Australia and Middle East 666.9 236.6 81.8 49.1 23.6
-------- ------ ------ ------ ------
Total . . . . . . . . . . . $2,273.7 $811.0 $426.3 $294.6 $137.1
======== ====== ====== ====== ======
For the year ended:
December 31, 1997
Latin America(c). . . . . . . . $1,464.3 $528.6 $444.2 $283.1 $130.8
Asia, Australia and Middle East 698.1 253.6 93.7 55.0 26.5
-------- ------ ------ ------ ------
Total. . . . . . . . . . . $2,162.4 $782.2 $537.9 $338.1 $157.3
======== ====== ====== ====== ======
(a) As of January 1, 1999, the Corporation consolidated Colombiana
Kimberly Colpapel S.A., its Colombian affiliate, in which the Corporation
made an additional investment in late 1998 to gain majority ownership
of certain equity affiliates.
(b) Operating profit, net income and Kimberly-Clark's share of net income
includes a loss of $38.9 million, $19.8 million and $9.2 million,
respectively, related to the change in the value of the Mexican peso. In
May 1998, the Corporation acquired 50 percent of Klabin Tissue, S.A., the
leading tissue manufacturer in Brazil.
(c) Operating profit, net income and Kimberly-Clark's share of net income
includes a gain of $73.0 million, $36.0 million and $16.3 million,
primarily related to the sale of a portion of the tissue business of KCM.
Additionally, operating profit, net income and Kimberly-Clark's share of net
income includes $6.7 million, $4.4 million and $2.2 million, respectively,
related to the 1997 Plan.
NOTE 16. (Continued)
Non- Non- Stock-
Current Current Current Current holders'
(Millions of dollars) Assets Assets Liabilities Liabilities Equity
- ----------------------- ------------------------------------------------------------
December 31, 1999
Latin America . . . . . . . . . $ 860.6 $1,076.4 $428.8 $400.9 $1,107.3
Asia, Australia and Middle East 254.0 391.7 143.3 194.1 308.3
-------- -------- ------ ------ --------
Total . . . . . . . . . . . $1,114.6 $1,468.1 $572.1 $595.0 $1,415.6
======== ======== ====== ====== ========
December 31, 1998
Latin America . . . . . . . . . $ 785.5 $1,170.7 $575.0 $154.0 $1,227.2
Asia, Australia and Middle East 239.2 359.1 129.5 173.8 295.1
-------- -------- ------ ------ --------
Total . . . . . . . . . . . $1,024.7 $1,529.8 $704.5 $327.8 $1,522.3
======== ======== ====== ====== ========
December 31, 1997
Latin America . . . . . . . . . $ 752.8 $ 624.6 $336.0 $278.4 $ 763.0
Asia, Australia and Middle East 226.8 386.9 128.0 185.5 300.2
-------- -------- ------ ------ --------
Total . . . . . . . . . . . $ 979.6 $1,011.5 $464.0 $463.9 $1,063.2
======== ======== ====== ====== ========
Equity companies are principally engaged in operations in the Tissue and
Personal Care businesses.
KCM is partially owned by the public and its stock is publicly traded in
Mexico. At December 31, 1999, the Corporation's investment in this equity
company was $448.0 million, and the estimated fair value of the investment was
$2.4 billion based on the market price of publicly traded shares.
INDEPENDENT AUDITORS' REPORT
Kimberly-Clark Corporation and Subsidiaries
Kimberly-Clark Corporation, Its Directors and Stockholders:
We have audited the accompanying consolidated balance sheets of
Kimberly-Clark Corporation and Subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Kimberly-Clark Corporation
and Subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
- -----------------------------
Deloitte & Touche LLP
Dallas, Texas
January 24, 2000
AUDIT COMMITTEE CHAIRMAN'S LETTER
Kimberly-Clark Corporation and Subsidiaries
The members of the Audit Committee are selected by the board of
directors. The committee consists of four outside directors and met five
times during 1999.
The Audit Committee oversees the financial reporting process on behalf of
the board of directors. As part of that responsibility, the committee
recommends to the board of directors, subject to stockholder approval, the
selection of the Corporation's independent auditor. The Audit Committee
discusses the overall scope and specific plans for annual audits with the
Corporation's internal auditors and Deloitte & Touche LLP. The committee also
discusses the Corporation's annual consolidated financial statements and the
adequacy of its internal controls. The committee meets regularly with the
internal auditors and with Deloitte & Touche LLP, with and without management
present, to discuss the results of their audits, their evaluations of the
Corporation's internal controls, and the overall quality of the Corporation's
financial reporting. The meetings also are designed to facilitate any private
communication with the committee desired by the internal auditors or
independent auditor.
/s/ Paul J. Collins
- -------------------------------
Paul J. Collins
Chairman, Audit Committee
January 24, 2000
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Kimberly-Clark Corporation and Subsidiaries
The management of Kimberly-Clark Corporation is responsible for
conducting all aspects of the business, including the preparation of the
consolidated financial statements in this annual report. The consolidated
financial statements have been prepared using generally accepted accounting
principles considered appropriate in the circumstances to present fairly the
Corporation's consolidated financial position, results of operations and cash
flows on a consistent basis. Management also has prepared the other
information in this annual report and is responsible for its accuracy and
consistency with the consolidated financial statements.
As can be expected in a complex and dynamic business environment, some
financial statement amounts are based on management's estimates and judgments.
Even though estimates and judgments are used, measures have been taken to
provide reasonable assurance of the integrity and reliability of the financial
information contained in this annual report. These measures include an
effective control-oriented environment in which the internal audit function
plays an important role, an Audit Committee of the board of directors that
oversees the financial reporting process, and independent audits.
One characteristic of a control-oriented environment is a system of
internal control over financial reporting and over safeguarding of assets
against unauthorized acquisition, use or disposition, designed to provide
reasonable assurance to management and the board of directors regarding
preparation of reliable published financial statements and such asset
safeguarding. The system is supported with written policies and procedures,
contains self-monitoring mechanisms and is audited by the internal audit
function. Appropriate actions are taken by management to correct deficiencies
as they are identified. All internal control systems have inherent
limitations, including the possibility of circumvention and overriding of
controls, and, therefore, can provide only reasonable assurance as to
financial statement preparation and such asset safeguarding.
The Corporation also has adopted a code of conduct that, among other
things, contains policies for conducting business affairs in a lawful and
ethical manner everyplace in which it does business, for avoiding potential
conflicts of interest and for preserving confidentiality of information and
business ideas. Internal controls have been implemented to provide reasonable
assurance that the code of conduct is followed.
The consolidated financial statements have been audited by the
independent accounting firm, Deloitte & Touche LLP. During their audits,
independent auditors were given unrestricted access to all financial records
and related data, including minutes of all meetings of stockholders and the
board of directors and all committees of the board. Management believes
that all representations made to the independent auditors during their
audits were valid and appropriate.
During the audits conducted by both the independent auditors and the
internal audit function, management received recommendations to strengthen or
modify internal controls in response to developments and changes. Management
has adopted, or is in the process of adopting, all recommendations that are
cost effective.
The Corporation has assessed its internal control system as of December
31, 1999, in relation to criteria for effective internal control over
financial reporting described in "Internal Control - Integrated Framework"
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management believes that, as of
December 31, 1999, its system of internal control over the preparation of its
published interim and annual consolidated financial statements and over
safeguarding of assets against unauthorized acquisition, use or disposition
met those criteria.
/s/ Wayne R. Sanders /s/ Thomas J. Falk /s/ John W. Donehower
- ------------------------- ----------------------- -------------------------
Wayne R. Sanders Thomas J. Falk John W. Donehower
Chairman of the Board and President and Senior Vice President and
Chief Executive Officer Chief Operating Officer Chief Financial Officer
January 24, 2000
ADDITIONAL INFORMATION
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
BankBoston N.A. is the Transfer Agent, Registrar and Dividend Disbursing Agent
for the Company's common stock and is responsible for maintaining shareholder
account records. Inquiries regarding dividend payments, lost certificates,
IRS Form 1099, changes in address, name or ownership, and information
regarding Kimberly-Clark's Dividend Reinvestment and Stock Purchase Plan
should be addressed to:
BankBoston N.A.
c/o EquiServe L.P.
P.O. Box 8040
Boston, Massachusetts 02266-8040
Telephone: 800-730-4001
Internet: http://www.equiserve.com
DIVIDENDS AND DIVIDEND REINVESTMENT PLAN
Quarterly dividends have been paid continually since 1935. Dividends are paid
on or about the second day of January, April, July and October. The Automatic
Dividend Reinvestment service of EquiServe L.P. is available to Kimberly-Clark
stockholders of record. The service makes it possible for Kimberly-Clark
stockholders of record to have their dividends automatically reinvested in
common stock and to make additional cash investments up to $3,000 per quarter.
STOCK EXCHANGES
Kimberly-Clark common stock is listed on the New York, Chicago and Pacific
stock exchanges. The ticker symbol is KMB.
ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders will be held at the Corporation's World
Headquarters, 351 Phelps Drive, Irving, Texas, at 11:00 a.m. on Thursday,
April 13, 2000.
INVESTOR RELATIONS
Securities analysts, portfolio managers and representatives of institutional
investors seeking information about the Company should contact Michael D.
Masseth, Vice President - Investor Relations, at 972-281-1478. Investors may
also obtain information about Kimberly-Clark and copies of documents released
by the Company by calling 800-639-1352.
CALENDAR
Kimberly-Clark's fiscal year ends December 31. The annual report is
distributed in March.
SEC FORM 10-K AND OTHER INFORMATION/COMPANY WEB SITE
Stockholders and others will find the Company's financial information, press
releases and other information on the Company's web site at
www.kimberly-clark.com. There is a direct link from the web site to the
Securities and Exchange Commission (SEC) filings via the EDGAR database,
including Forms 10-K, 10-Q and 8-K. Stockholders may contact Stockholder
Services, P.O. Box 612606, Dallas, Texas 75261-2606 or call 972-281-1521 to
obtain a hard copy of these reports, without charge.
EMPLOYEES AND STOCKHOLDERS
In its worldwide consolidated operations, Kimberly-Clark had 54,800 employees
as of December 31, 1999. Equity companies had an additional 12,700 employees.
The Corporation had 52,332 stockholders of record and 540.6 million shares of
common stock outstanding as of the same date.
TRADEMARKS
The brand names mentioned in this report - Andrex, Classic Crest, Cottonelle,
Depend, DryNites, Environment, GoodNites, Hakle, Huggies, Kimberly-Clark,
Kimwipes, Kleenex, Kotex, Little Swimmers, Neve, Poise, Pull-Ups, Scott,
Tecnol, UV Ultra and WypAll - are trademarks of Kimberly-Clark Corporation
or its affiliates.