FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from.............to.............
Commission file number 1-225
KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 39-0394230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 619100
DALLAS, TEXAS
75261-9100
(Address of principal executive offices)
(Zip Code)
(972) 281-1200
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X. No .
---- ----
AS OF MAY 4, 2001, THERE WERE 532,203,319 SHARES OF THE CORPORATION'S
COMMON STOCK OUTSTANDING.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED INCOME STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Three Months
Ended March 31
-------------------
(Millions of dollars except per share amounts) 2001 2000
- -------------------------------------------------------------------------------
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . $3,608.4 $3,387.2
Cost of products sold . . . . . . . . . . . . . . . . . . 2,151.0 1,980.9
-------- --------
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . 1,457.4 1,406.3
Advertising, promotion and selling expenses . . . . . . . 555.1 552.2
Research expense. . . . . . . . . . . . . . . . . . . . . 68.7 61.2
General expense . . . . . . . . . . . . . . . . . . . . . 178.5 183.1
Goodwill amortization . . . . . . . . . . . . . . . . . . 21.8 18.3
Other (income) expense, net . . . . . . . . . . . . . . . 2.2 (87.2)
-------- --------
OPERATING PROFIT. . . . . . . . . . . . . . . . . . . . . 631.1 678.7
Interest income . . . . . . . . . . . . . . . . . . . . . 4.7 7.8
Interest expense. . . . . . . . . . . . . . . . . . . . . (50.5) (49.4)
-------- --------
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . . 585.3 637.1
Provision for income taxes. . . . . . . . . . . . . . . . 174.9 202.2
-------- --------
INCOME BEFORE EQUITY INTERESTS. . . . . . . . . . . . . . 410.4 434.9
Share of net income of equity companies . . . . . . . . . 39.5 47.6
Minority owners' share of subsidiaries' net income. . . . (16.5) (12.3)
-------- --------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . $ 433.4 $ 470.2
======== ========
PER SHARE BASIS:
NET INCOME
Basic . . . . . . . . . . . . . . . . . . . . . . . . $ .81 $ .86
======== ========
Diluted . . . . . . . . . . . . . . . . . . . . . . . $ .81 $ .86
======== ========
CASH DIVIDENDS DECLARED . . . . . . . . . . . . . . . $ .28 $ .27
======== ========
Unaudited
See Notes to Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEET
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
MARCH 31, December 31,
(Millions of dollars) 2001 2000
- -------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . $ 277.5 $ 206.5
Accounts receivable. . . . . . . . . . . . . . . . 1,719.2 1,809.6
Inventories. . . . . . . . . . . . . . . . . . . . 1,356.9 1,390.4
Other current assets . . . . . . . . . . . . . . . 368.3 383.4
--------- ---------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . 3,721.9 3,789.9
PROPERTY . . . . . . . . . . . . . . . . . . . . . 12,049.2 12,014.8
Less accumulated depreciation. . . . . . . . . . . 5,137.6 5,096.3
--------- ---------
NET PROPERTY . . . . . . . . . . . . . . . . . . . 6,911.6 6,918.5
INVESTMENTS IN EQUITY COMPANIES. . . . . . . . . . 811.0 798.8
GOODWILL, NET OF ACCUMULATED AMORTIZATION. . . . . 2,028.9 2,009.9
OTHER ASSETS . . . . . . . . . . . . . . . . . . . 1,000.8 962.7
--------- ---------
$14,474.2 $14,479.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt payable within one year . . . . . . . . . . . $ 1,106.0 $ 1,490.5
Accounts payable . . . . . . . . . . . . . . . . . 1,052.6 1,175.9
Accrued expenses . . . . . . . . . . . . . . . . . 1,096.0 1,239.8
Other current liabilities. . . . . . . . . . . . . 686.5 667.7
--------- ---------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . 3,941.1 4,573.9
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . 2,010.0 2,000.6
NONCURRENT EMPLOYEE BENEFIT AND OTHER OBLIGATIONS. 866.3 869.2
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . 997.8 987.5
MINORITY OWNERS' INTERESTS IN SUBSIDIARIES . . . . 276.4 281.3
PREFERRED SECURITIES OF SUBSIDIARY . . . . . . . . 519.9 -
STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . 5,862.7 5,767.3
--------- ---------
$14,474.2 $14,479.8
========= =========
Unaudited
See Notes to Consolidated Financial Statements.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Three Months
Ended March 31
-----------------
(Millions of dollars) 2001 2000
- ----------------------- ---- ----
OPERATIONS
Net income. . . . . . . . . . . . . . . . . . . . . . $ 433.4 $ 470.2
Depreciation. . . . . . . . . . . . . . . . . . . . . 155.5 153.1
Goodwill amortization . . . . . . . . . . . . . . . . 21.8 18.3
Changes in operating working capital. . . . . . . . . (147.6) (62.6)
Other . . . . . . . . . . . . . . . . . . . . . . . . (5.5) 3.2
------- -------
CASH PROVIDED BY OPERATIONS . . . . . . . . . . . . . 457.6 582.2
------- -------
INVESTING
Capital spending. . . . . . . . . . . . . . . . . . . (258.7) (235.5)
Acquisitions of businesses, net of cash acquired. . . (39.8) 7.3
Disposals of property and businesses. . . . . . . . . 1.9 1.0
Proceeds from investments . . . . . . . . . . . . . . 12.6 32.3
Other . . . . . . . . . . . . . . . . . . . . . . . . (23.0) (26.5)
------- -------
CASH USED FOR INVESTING (307.0) (221.4)
------- -------
FINANCING
Cash dividends paid . . . . . . . . . . . . . . . . . (144.2) (141.0)
Changes in debt payable within one year . . . . . . . (361.2) 176.5
Increases in long-term debt . . . . . . . . . . . . . 11.8 23.5
Decreases in long-term debt . . . . . . . . . . . . . (25.0) (145.3)
Issuances of preferred securities of subsidiary . . . 516.5 -
Proceeds from exercise of stock options . . . . . . . 70.2 10.1
Acquisitions of common stock for the treasury . . . . (144.6) (387.4)
Other . . . . . . . . . . . . . . . . . . . . . . . . (3.1) (7.1)
------- -------
CASH USED FOR FINANCING . . . . . . . . . . . . . . . (79.6) (470.7)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . $ 71.0 $(109.9)
======= =======
Unaudited
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
1. The unaudited consolidated financial statements of Kimberly-Clark
Corporation (the "Corporation") have been prepared on a basis consistent
with that used in the Annual Report on Form 10-K for the year ended
December 31, 2000, and include all normal recurring adjustments necessary
to present fairly the condensed consolidated balance sheet, consolidated
results of operations and condensed consolidated cash flow statement
for the periods indicated.
On January 1, 2001, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") 133, Accounting for Derivative Instruments
and Hedging Activities. Upon adoption of SFAS 133, the Corporation
recognized a cumulative effect of a change in accounting as a pretax loss
of $.5 million in other income (expense), net. It also recorded an
after-tax gain of $1.5 million in other comprehensive income related
to cash flow hedges of forecasted transfers of pulp. As of March 31, 2001,
the balance of other comprehensive income related to derivative instruments
is an after-tax loss of $1.0 million. The deferred loss will gradually be
recognized in earnings on a monthly basis during 2001 as the first $7.3
million of hedged pulp transfers are made each month.
In April 2001, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board issued EITF 00-25, Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase
or Promotion of the Vendor's Products. Under EITF 00-25, the cost of
promotion activities offered to customers will be required to be classified
as a reduction in sales revenue. The Corporation is currently reviewing
the rule and plans to adopt EITF 00-25, as required, in the first
quarter of 2002. Adoption is not expected to change reported earnings.
Also in April 2001, the EITF delayed implementation of EITF 00-14,
Accounting for Certain Sales Incentives, to coincide with the
implementation date for EITF 00-25. Under EITF 00-14, the estimated
redemption value of consumer coupons must be recorded at the time the
coupons are issued and classified as a reduction in sales revenue. The
Corporation will adopt EITF 00-14 in the first quarter of 2002 and
will reclassify the face value of coupons and similar discounts
("Discounts") as a reduction in revenue for all periods presented.
Discounts recorded as promotion expense were approximately $50 million
and $49 million in the first quarter of 2001 and 2000, respectively.
Upon adoption of EITF 00-14, the Corporation will report a cumulative
effect of a change in accounting principle, which at December 31, 2000 was
estimated to be an after-tax charge equal to approximately $.02
per share.
2. There are no adjustments required to be made to net income for purposes
of computing basic and diluted earnings per share ("EPS"). The average
number of common shares outstanding used in the basic EPS computations
is reconciled to those used in the diluted EPS computation as
follows:
Average Common Shares
Outstanding For the Three
Months Ended March 31
-------------------------
(Millions) 2001 2000
- ---------- ---- ----
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533.2 545.3
Dilutive effect of stock options . . . . . . . . . . . . . . . . . . 4.8 3.7
Dilutive effect of deferred compensation plan shares . . . . . . . . .2 .1
Dilutive effect of shares issued for participation share awards. . . - .8
----- -----
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538.2 549.9
===== =====
Options outstanding during the first quarter ended March 31, 2001 and
2000 to purchase 2.7 million and .7 million shares of common stock,
respectively, were not included in the computation of diluted EPS
because the exercise prices of the options were greater than the
average market price of the common shares.
The number of common shares outstanding as of March 31, 2001 and
2000 was 532.9 million and 544.1 million, respectively.
3. The following schedule details inventories by major class as of March 31,
2001 and December 31, 2000:
MARCH 31, December 31,
(Millions of dollars) 2001 2000
- -----------------------------------------------------------------------------------------
At lower of cost on the First-In,
First-Out (FIFO) method or market:
Raw materials. . . . . . . . . . . . . . . . . . . . . $ 375.0 $ 387.2
Work in process. . . . . . . . . . . . . . . . . . . . 142.9 159.1
Finished goods . . . . . . . . . . . . . . . . . . . . 820.0 840.1
Supplies and other . . . . . . . . . . . . . . . . . . 222.0 220.0
-------- --------
1,559.9 1,606.4
Excess of FIFO cost over Last-In, First-Out (LIFO) cost. . (203.0) (216.0)
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $1,356.9 $1,390.4
======== ========
4. The following schedule provides the detail of accrued consumer coupon
redemption costs:
March 31
-------------------
(Millions of dollars) 2001 2000
- ------------------------------------------------------------------------------------
Beginning balance. . . . . . . . . . . . . . . . . . . . . . . $ 54.0 $ 58.7
Additions charged to expense . . . . . . . . . . . . . . . . . 38.8 35.7
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . (41.4) (39.0)
Changes in estimates . . . . . . . . . . . . . . . . . . . . . 1.0 (.2)
Currency rate changes. . . . . . . . . . . . . . . . . . . . . (.3) (.2)
------ ------
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . $ 52.1 $ 55.0
====== ======
5. Preferred Securities of Subsidiary
In February 2001, a newly formed consolidated foreign financing subsidiary
of the Corporation issued $516.5 million of preferred securities
(the "Securities") to a nonaffiliated entity. The Securities are entitled
to 98 percent of the combined voting power of all voting equity securities
of the subsidiary and pay no dividends. The Securities accrue a
variable rate of return based on three-month LIBOR plus a fixed spread.
The Securities are in substance perpetual and are callable by the
subsidiary at par value plus any accrued but unpaid return on the
Securities in November 2008 and each 20-year anniversary thereafter. The
common equity securities, all of which are owned by the Corporation,
are entitled to two percent of the vote and all of the residual equity
after satisfaction of the preferred interest in the subsidiary.
Approximately 97 percent of the subsidiary's funds are invested in
long-term, variable rate loans to the Corporation or its consolidated
subsidiaries on terms that would be substantially similar to other
such borrowings by the Corporation or its consolidated subsidiaries. The
balance is invested in other financial assets. The Securities, including
any accrued but unpaid return, are reflected as Preferred Securities of
Subsidiary in the consolidated balance sheet, and the return on the
Securities is included in Minority Owners' Share of Subsidiaries net
income in the Corporation's consolidated income statement.
6. The following schedule provides the detail of comprehensive income:
Three Months
Ended March 31
-------------------
(Millions of dollars) 2001 2000
- -----------------------------------------------------------------------------------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 433.4 $ 470.2
Unrealized currency translation adjustments . . . . . . . . . (123.8) (42.3)
Deferred losses on cash flow hedges, net of tax . . . . . . . (1.0) -
------- -------
Comprehensive income. . . . . . . . . . . . . . . . . . . . . $ 308.6 $ 427.9
======= =======
7. The following schedule presents information concerning consolidated
operations by business segment:
First Quarter
Ended March 31
---------------------
(Millions of dollars) 2001 2000
- --------------------------------------------------------------------------------------
NET SALES:
Tissue. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,909.3 $ 1,793.9
Personal Care . . . . . . . . . . . . . . . . . . . . . . . . 1,377.1 1,298.3
Health Care and Other . . . . . . . . . . . . . . . . . . . . 334.6 306.3
Intersegment Sales. . . . . . . . . . . . . . . . . . . . . . (12.6) (11.3)
--------- ---------
Consolidated. . . . . . . . . . . . . . . . . . . . . . . . . $ 3,608.4 $ 3,387.2
========= =========
OPERATING PROFIT (reconciled to income before taxes):
Tissue. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 338.5 $305.3
Personal Care . . . . . . . . . . . . . . . . . . . . . . . . 263.6 269.5
Health Care and Other . . . . . . . . . . . . . . . . . . . . 47.0 44.7
Other income (expense), net . . . . . . . . . . . . . . . . . (2.2) 87.2
Unallocated items - net . . . . . . . . . . . . . . . . . . . (15.8) (28.0)
--------- ---------
Total Operating Profit. . . . . . . . . . . . . . . . . . . . 631.1 678.7
Interest income . . . . . . . . . . . . . . . . . . . . . . . 4.7 7.8
Interest expense. . . . . . . . . . . . . . . . . . . . . . . (50.5) (49.4)
--------- ---------
Income Before Income Taxes. . . . . . . . . . . . . . . . . . $ 585.3 $ 637.1
========= =========
Description of Business Segments:
The Tissue segment manufactures and markets facial and bathroom tissue, paper
towels, wipers and napkins for household and away-from-home use; wet wipes;
printing, premium business and correspondence papers; and related products.
Products in this segment are sold under the Kleenex, Scott, Kimberly-Clark,
Kleenex Cottonelle, Kleenex Viva, Huggies, Kimwipes, WypAll, Surpass and other
brand names.
The Personal Care segment manufactures and markets disposable diapers,
training and youth pants and swimpants; feminine and incontinence care
products; and related products. Products in this segment are primarily for
household use and are sold under a variety of well-known brand names,
including Huggies, Pull-Ups, Little Swimmers, GoodNites, Kotex, Lightdays,
Depend, Poise and other brand names.
The Health Care and Other segment manufactures and markets health care
products such as surgical gowns, drapes, infection control products,
sterilization wraps, disposable face masks and exam gloves, respiratory
products and other disposable medical products; specialty and technical
papers; and other products. Products in this segment are sold under the
Kimberly-Clark, Safeskin, Tecnol, Ballard and other brand names.
Unaudited
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
FIRST QUARTER OF 2001 COMPARED WITH FIRST QUARTER OF 2000
By Business Segment
(Millions of dollars)
NET SALES 2001 2000
- -------------------------------------------------------------------------------------
Tissue. . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,909.3 $1,793.9
Personal Care 1,377.1 1,298.3
Health Care and Other . . . . . . . . . . . . . . . . . . . . 334.6 306.3
Intersegment sales. . . . . . . . . . . . . . . . . . . . . . (12.6) (11.3)
-------- --------
Consolidated. . . . . . . . . . . . . . . . . . . . . . . . . $3,608.4 $3,387.2
======== ========
Commentary:
Consolidated net sales for the quarter were 6.5 percent higher than in 2000.
Excluding currency effects, net sales increased more than 9 percent, with
improvement in each of the Corporation's business segments and in every region
of the world. Sales volumes were more than 5 percent higher, while selling
prices increased approximately 4 percent.
- - Worldwide sales for tissue products were 6.4 percent greater than in the
first quarter of 2000. Excluding currency effects, net sales increased
more than 9 percent, as higher sales volumes and selling prices both
contributed to the improvement. Sales volumes rose approximately
4 percent, driven by increased sales of Kleenex Cottonelle and Scott
bathroom tissue and Huggies baby wipes in North America and continued
double-digit growth in Latin America. Selling prices were up 5 percent,
primarily due to increases implemented in 2000.
- - Worldwide sales of personal care products rose 6.1 percent compared with
the first quarter of 2000, and were also up over 9 percent before
currency effects. Sales volumes increased approximately 7 percent and
selling prices were 3 percent higher. All geographic regions contributed
to the improvement in sales volumes, highlighted by continued strong
growth in sales of Huggies diapers, Pull-Ups training pants and DryNites
youth pants in Europe, along with double-digit sales volume growth in
Asia.
- - Worldwide sales of health care and other products increased 9.2 percent,
due mainly to higher sales volumes of surgical and respiratory products
and the acquisition of Safeskin Corporation in February 2000.
During the first quarter of 2001 and 2000, the Corporation recorded the
following unusual items ("Unusual Items"), which for the purpose of
facilitating a meaningful discussion of ongoing operations have been excluded
from operating profit in the "Excluding Unusual Items" columns in the
following Operating Profit tables.
Unusual Items
First Quarter
Ended March 31
----------------
(Millions of dollars) 2001 2000
- ---------------------------------------------------------------------------------
Charges (credits) to operating profit:
Business Improvement and Other Programs. . . . . . . . . . . . $21.2 $ 9.5
Business integration and other costs . . . . . . . . . . . . . 6.9 12.2
Patent settlement and accrued liability reversal . . . . . . . - (75.8)
----- ------
Total charges (credits). . . . . . . . . . . . . . . . . . . . $28.1 $(54.1)
===== ======
Income statement classification
- ---------------------------------------------------------------------------------
Cost of products sold. . . . . . . . . . . . . . . . . . . . . $21.6 $14.3
Advertising, promotion and selling expense . . . . . . . . . . .7 2.5
General expense. . . . . . . . . . . . . . . . . . . . . . . . 5.3 4.9
Other (income) expense, net. . . . . . . . . . . . . . . . . . .5 (75.8)
----- ------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28.1 $(54.1)
===== ======
- - The 2001 business improvement charges relate to a workforce severance
and asset consolidation program to streamline feminine and adult
care operations in North America, and the 2000 charges primarily
were for accelerated depreciation stemming from business improvement plans
announced in 1998.
- - Costs to integrate acquired businesses into the existing operations of
the Corporation were recorded in both 2001 and 2000. Also, the write-down
of certain non-productive assets related to the 1999 shut down of the
Mobile, Alabama pulp mill were revised in 2000 based on a downward
revision in the estimated market value of such assets.
- - In 2000, as part of a patent settlement, the Corporation was compensated
for royalty income related to prior years. The settlement, together
with reversal of certain estimated accrued liabilities related to the 1997
sale of a pulp and newsprint business that ceased to be required, were
recorded in other income.
2001 2000
-------------------------- ------------------------
AS EXCLUDING As Excluding
OPERATING PROFIT REPORTED UNUSUAL ITEMS Reported Unusual Items
- -------------------------------------------------------------------------------------------
Tissue. . . . . . . . . . . . . . . $338.5 $340.0 $305.3 $318.6
Personal Care . . . . . . . . . . . 263.6 285.0 269.5 272.3
Health Care and Other . . . . . . . 47.0 51.7 44.7 50.3
Other income (expense), net . . . . (2.2) (1.7) 87.2 11.4
Unallocated items - net . . . . . . (15.8) (15.8) (28.0) (28.0)
------ ------ ------ ------
Consolidated. . . . . . . . . . . . $631.1 $659.2 $678.7 $624.6
====== ====== ====== ======
Note: Unallocated items - net, consists of expenses not associated with the
business segments.
Commentary:
Excluding the Unusual Items, operating profit rose 5.5 percent to $659.2
million in the first quarter of 2001 compared with $624.6 million in 2000.
Operating profit as a percentage of net sales was 18.3 percent in 2001
compared with 18.4 percent in 2000.
- - The increase in operating profit for the worldwide tissue segment was
achieved despite significantly higher energy costs in North America and
higher fiber and start-up costs, primarily related to the planned July
2001 North American launch of Cottonelle Fresh rollwipes, that were more
than offset by the benefit of increased selling prices.
- - The increase in operating profit for the worldwide personal care segment
was principally due to the higher sales volumes and selling prices.
- - The increase in the health care and other segment resulted from the
higher sales volumes of health care products, partially offset by
the negative impact of the current economic downturn on the technical paper
products included in this segment.
- - Other income in 2000 was primarily gains on minor asset sales.
By Geography
(Millions of dollars)
NET SALES 2001 2000
- -------------------------------------------------------------------------------------
North America. . . . . . . . . . . . . . . . . . . . . . . . . $2,393.6 $2,259.4
Outside North America. . . . . . . . . . . . . . . . . . . . . 1,338.4 1,214.6
Intergeographic sales. . . . . . . . . . . . . . . . . . . . . (123.6) (86.8)
-------- --------
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . $3,608.4 $3,387.2
======== ========
2001 2000
-------------------------- ------------------------
AS EXCLUDING As Excluding
OPERATING PROFIT REPORTED UNUSUAL ITEMS Reported Unusual Items
- -------------------------------------------------------------------------------------------
North America. . . . . . . . . . . $534.8 $561.7 $516.0 $532.5
Outside North America. . . . . . . 114.3 115.0 103.5 108.7
Other income (expense), net. . . . (2.2) (1.7) 87.2 11.4
Unallocated items - net. . . . . . (15.8) (15.8) (28.0) (28.0)
------ ------ ------ ------
Consolidated . . . . . . . . . . . $631.1 $659.2 $678.7 $624.6
====== ====== ====== ======
Note: Unallocated items - net, consists of expenses not associated with
the geographic areas.
Commentary:
- - Net sales in North America increased 5.9 percent compared with 2000 due
to higher sales volumes for tissue and health care products, and
higher selling prices for tissue and personal care products.
- - Net sales outside of North America increased 10.2 percent compared with
2000 due to higher sales volumes and increased selling prices that more
than offset the unfavorable currency effects. The sales volume increase
benefited from the acquisitions of Linostar Spa in Italy in January 2001
and S-K Corporation ("S-K") in Taiwan in mid-2000 and the
consolidation of Hogla-Kimberly, Limited, ("Hogla") beginning in the
second quarter of 2000. The Corporation had made an additional investment
in Hogla to gain majority control.
- - Excluding the Unusual Items in both years, operating profit in North
America increased 5.5 percent due to the increased selling prices and
higher sales volumes, partially offset by the higher energy and raw
materials costs and the start-up costs. The effect of lower fringe
benefit costs, primarily
due to favorable returns on pension assets, was less significant
in 2001 compared with the prior year.
- - Excluding the Unusual Items in both years, operating profit outside
North America increased 5.8 percent due to the increased selling prices
and sales volumes, including S-K and Hogla, partially offset by
unfavorable currency effects, particularly in Europe and Asia, and
higher marketing expenses.
Additional Income Statement Commentary:
- - Interest expense increased due to a higher average debt level, partially
offset by lower interest rates.
- - Excluding the Unusual Items from both years, the effective tax rate was
30.2 percent in the first quarter of 2001 compared with 31.0 percent in
2000. The lower effective tax rate was primarily because the mix
of the Corporation's income continues to shift to jurisdictions with
lower tax rates.
- - The Corporation's share of net income of equity affiliates declined 17.0
percent from 2000 primarily due to lower earnings at the Corporation's
affiliates in Mexico, Brazil and Australia and the consolidation of Hogla.
- - On a diluted basis, net income was $.81 per share in 2001 compared to
$.86 per share in 2000, a decrease of 5.8 percent. Excluding the Unusual
Items, earnings from operations were $.84 per share compared to $.80
per share, an increase of 5.0 percent.
LIQUIDITY AND CAPITAL RESOURCES
- - Cash provided by operations in the first quarter of 2001 decreased by
$124.6 million compared with the first quarter of 2000. Two items
accounted for the entire decline. In 2000, cash inflows included
approximately $55 million from the settlement of a patent dispute.
In 2001, there was a reduction of accrued expenses of nearly $70
million due to the payout of long-term incentive compensation, which will
not recur in subsequent quarters of the year.
- - During the first quarter of 2001 the Corporation repurchased 2 million
shares of its common stock at of cost of approximately $136 million.
- - At March 31, 2001, total debt and preferred securities was $3.6 billion
compared with $3.5 billion at December 31, 2000. Net debt (total debt net
of cash and cash equivalents) and preferred securities was $3.4 billion
compared with $3.3 billion at December 31, 2000. The Corporation's ratio
of net debt and preferred securities to capital was 35.4 percent, which
was within the target range of 30 percent to 40 percent.
- - On May 7, 2001, the Corporation announced that it had signed an
agreement to purchase an additional 5 percent ownership in its 50
percent-owned Australian joint venture, Kimberly-Clark Australia, for
approximately $39 million. The Corporation and its joint venture partner,
Amcor Limited, will also exchange options for the purchase by the
Corporation of the remaining 45 percent ownership interest for
approximately $355 million within the next four years. The transaction,
which is subject to approval by the Australia Foreign Investment Review
Board, is expected to close effective June 30, 2001. On closing, the
Corporation will begin consolidating Kimberly-Clark Australia's financial
results.
- - 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.
ACCOUNTING STANDARDS CHANGE
On January 1, 2001, the Corporation adopted Statement of Financial Accounting
Standards ("SFAS") 133, Accounting for Derivative Instruments and Hedging
Activities. Upon adoption of SFAS 133, the Corporation recognized a
cumulative effect of a change in accounting as a pretax loss of $.5 million in
other income (expense), net. It also recorded an after-tax gain of $1.5
million in other comprehensive income related to cash flow hedges of
forecasted transfers of pulp. As of March 31, 2001, the balance of other
comprehensive income related to derivative instruments is an after-tax loss of
$1.0 million. The deferred loss will gradually be recognized in earnings on a
monthly basis during 2001 as the first $7.3 million of hedged pulp transfers
are made each month.
NEW PRONOUNCEMENTS
In April 2001, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board issued EITF 00-25, Accounting for Consideration
from a Vendor to a Retailer in Connection with the Purchase or Promotion of
the Vendor's Products. Under EITF 00-25, the cost of promotion activities
offered to customers will be required to be classified as a reduction in sales
revenue. The Corporation is currently reviewing the rule and plans to adopt
EITF 00-25, as required, in the first quarter of 2002. Adoption is not
expected to change reported earnings.
Also in April 2001, the EITF delayed implementation of EITF 00-14, Accounting
for Certain Sales Incentives, to coincide with the implementation date for
EITF 00-25. Under EITF 00-14, the estimated redemption value of consumer
coupons must be recorded at the time the coupons are issued and classified as
a reduction in sales revenue. The Corporation will adopt EITF 00-14 in the
first quarter of 2002 and will reclassify the face value of coupons and
similar discounts ("Discounts") as a reduction in revenue for all periods
presented. Discounts recorded as promotion expense were approximately $50
million and $49 million in the first quarter of 2001 and 2000, respectively.
Upon adoption of EITF 00-14, the Corporation will report a cumulative effect
of a change in accounting principle, which at December 31, 2000 was estimated
to be an after-tax charge equal to approximately $.02 per share.
ENVIRONMENTAL MATTERS
The Corporation has been named as a potentially responsible party at a number
of waste disposal sites, none of which individually or in the aggregate, in
management's opinion, is likely to have a material adverse effect on its
business, financial condition or results of operations.
OUTLOOK
The Corporation believes that new and improved products will continue to drive
increased sales and build its global franchises. The Corporation intends to
remain focused on translating its top-line growth into solid and sustainable
improvement on the bottom line. The Corporation does not intend to reduce key
strategic investments to offset the near-term challenges from external
factors. Its investments in 2001 to launch Cottonelle Fresh rollwipes and to
expand its proprietary uncreped through air dried tissue technology are
expected to support future growth and generate outstanding return on
investment.
Currency exchange rates are expected to remain a challenge over the balance of
2001. While the Corporation expects energy costs in North America to moderate
from first quarter levels, it believes these costs will still be higher than
last year. As a result, the Corporation expects that earnings per share from
operations in the second quarter of 2001 will be similar to the first quarter,
followed by
sequentially improved results in the third and fourth quarters as
it realizes more benefit from lower fiber costs and cost savings programs.
For the full year of 2001, the Corporation expects solid growth in earnings
per share from operations, in line with its objective of 6 percent to 8
percent growth in sales. With a boost from this year's major investments, the
Corporation expects its sales momentum will continue in 2002 and that it will
return to its targeted double-digit rate of growth in earnings per share from
operations.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain information contained in this report is forward-looking and is based
on various assumptions. Such information includes, without limitation,
anticipated financial and operating results, strategies, contingencies and
contemplated transactions of the Corporation. These forward-looking
statements are based upon management's expectations and beliefs concerning
future events impacting the Corporation. There can be no assurance that such
events will occur or that their effects on the Corporation will be as
currently expected. For a description of certain factors that could cause the
Corporation's future results to differ materially from those expressed in any
such forward-looking statements, see the section of Part I, Item 1 of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2000
entitled "Factors That May Affect Future Results."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the Mobile Energy Services Company L.L.C. ("MESC") litigation
described in Part I, Item 3 of the Corporation's Annual Report on Form 10-K
for the year ended December 31, 2000, the settlement agreement that had been
approved by the Bankruptcy Court was terminated because MESC failed to satisfy
several conditions to the effectiveness of the final settlement. As a result,
an Arbitrator's decision (that had been made and sealed since August 18, 1999
pending the outcome of the settlement agreement) was released to the parties.
The Arbitrator found in favor of the Corporation on all claims asserted
against the Corporation, with the exception of MESC's claims of fraudulent
conveyance which were not referred to arbitration and remain pending before
the Bankruptcy Court.
Other disputes between MESC and the Corporation that had been resolved by the
settlement agreement, have resumed. In addition, the decision of the
Arbitrator indicated that MESC may have certain undefined rights to reinstate
a portion of the Pulp Mill Energy Services Agreement. MESC has asserted an
arbitration claim to collect demand charges based on the purported
reinstatement of the Pulp Mill Energy Services Agreement effective
September 1, 1999 and assessment of the maximum possible demand charge through
December 31, 2001.
The outcome of the MESC litigation and arbitration is not expected to have a
material adverse effect on the Corporation's business, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2001 Annual Meeting of Stockholders was convened at 11:00 a.m. on
Thursday, April 26, 2001, at the Corporation's World Headquarters, 351 Phelps
Drive, Irving, Texas. Represented at the meeting in person or by proxy were
480,698,408 shares of common stock or 90.1% of all shares of common stock
outstanding.
The following directors were elected to three-year terms expiring in 2004:
Pastora San Juan Cafferty; Claudio X. Gonzalez; Linda Johnson Rice; and Marc
J. Shapiro. Of the shares represented at the meeting, at least 97.8% voted
for each nominee, and 1.0% withheld authority to vote. The Corporation's
other directors are John F. Bergstrom, Paul J. Collins, Robert W. Decherd,
Thomas J. Falk, William O. Fifield, Wayne R. Sanders, Wolfgang R. Schmitt and
Randall L. Tobias. Mr. Frank A. McPherson retired from the board on
April 29, 2001, following his 68th birthday.
The stockholders also approved the adoption of the Corporation's 2001 Equity
Participation Plan. Of the shares represented at the meeting, 94.6% voted for
such adoption, 4.4% voted against and 1.0% abstained or did not vote.
In addition to the election of directors and the adoption of the 2001 Equity
Participation Plan, the stockholders approved the selection of Deloitte &
Touche LLP as the principal independent auditors for the Corporation. Of the
shares represented at the meeting, 98.7% voted for such selection, 0.6% voted
against and 0.7% abstained or did not vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(3)a Restated Certificate of Incorporation, dated June 12, 1997,
incorporated by reference to Exhibit No. (3)a of the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1999.
(3)b By-Laws, as amended November 22, 1996, incorporated by reference
to Exhibit No. 4.2 of the Corporation's Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on
December 6, 1996 (File No. 33-17367).
(4) Copies of instruments defining the rights of holders of long-term
debt will be furnished to the Securities and Exchange Commission
upon request.
(10) 2001 Equity Participation Plan, adopted April 26, 2001,
incorporated by reference to the copy of such plan filed with
the Corporation's 2001 Proxy Statement, which was filed with
the Securities and Exchange Commission on March 15, 2001.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ending
March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIMBERLY-CLARK CORPORATION
(Registrant)
By: /s/ John W. Donehower
------------------------
John W. Donehower
Senior Vice President and
Chief Financial Officer
(principal financial officer)
By: /s/ Randy J. Vest
--------------------
Randy J. Vest
Vice President and Controller
(principal accounting officer)
May 9, 2001