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 JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from...............to...............
Commission file number 1-225
KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 39-0394230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 619100
DALLAS, TEXAS
75261-9100
(Address of principal executive offices)
(Zip Code)
(972) 281-1200
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
----- -----
AS OF AUGUST 2, 2002, THERE WERE 516,827,252 SHARES OF THE CORPORATION'S COMMON
STOCK OUTSTANDING.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED INCOME STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Second Quarter Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
(Millions of dollars except per share amounts) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
NET SALES .................................................. $3,408.9 $3,245.3 $6,739.8 $6,568.5
Cost of products sold .................................... 2,166.1 2,104.5 4,284.6 4,257.0
-------- -------- -------- --------
GROSS PROFIT ............................................... 1,242.8 1,140.8 2,455.2 2,311.5
Marketing, research and general expenses ................. 587.3 519.7 1,153.5 1,035.3
Goodwill amortization .................................... - 22.5 - 44.3
Other (income) expense, net .............................. 31.2 8.0 12.5 10.2
-------- -------- -------- --------
OPERATING PROFIT ........................................... 624.3 590.6 1,289.2 1,221.7
Interest income .......................................... 3.5 4.0 7.2 8.7
Interest expense ......................................... (45.1) (48.4) (91.8) (98.9)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ................................. 582.7 546.2 1,204.6 1,131.5
Provision for income taxes ............................... 163.2 164.3 348.3 339.2
-------- -------- -------- --------
INCOME BEFORE EQUITY INTERESTS ............................. 419.5 381.9 856.3 792.3
Share of net income of equity companies .................. 21.5 52.6 53.9 92.1
Minority owners' share of subsidiaries' net income ....... (16.4) (19.1) (35.0) (35.6)
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE ........................................ 424.6 415.4 875.2 848.8
Cumulative effect of accounting change,
net of income taxes .................................. - - (11.4) -
-------- -------- -------- --------
NET INCOME ................................................. $ 424.6 $ 415.4 $ 863.8 $ 848.8
======== ======== ======== ========
PER SHARE BASIS:
BASIC
Income before cumulative effect of
accounting change .................................... $ .82 $ .78 $ 1.69 $ 1.59
======== ======== ======== ========
Net income ............................................. $ .82 $ .78 $ 1.66 $ 1.59
======== ======== ======== ========
DILUTED
Income before cumulative effect of
accounting change .................................... $ .81 $ .78 $ 1.67 $ 1.58
======== ======== ======== ========
Net income ............................................. $ .81 $ .78 $ 1.65 $ 1.58
======== ======== ======== ========
CASH DIVIDENDS DECLARED .................................... $ .30 $ .28 $ .60 $ .56
======== ======== ======== ========
Unaudited
See Notes to Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEET
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
JUNE 30, December 31,
(Millions of dollars) 2002 2001
- ----------------------------------------------------------------------------------------------------
<s> <c> <c>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................................... $ 380.4 $ 405.2
Accounts receivable ..................................................... 1,806.6 1,672.4
Inventories ............................................................. 1,472.6 1,494.1
Other current assets .................................................... 337.3 350.5
--------- ---------
TOTAL CURRENT ASSETS .................................................. 3,996.9 3,922.2
PROPERTY .................................................................. 13,203.5 12,714.7
Less accumulated depreciation ........................................... 5,707.0 5,388.2
--------- ---------
NET PROPERTY .......................................................... 7,496.5 7,326.5
INVESTMENTS IN EQUITY COMPANIES ........................................... 649.3 705.3
GOODWILL .................................................................. 2,266.4 1,950.3
OTHER ASSETS .............................................................. 1,120.7 1,103.3
--------- ---------
$15,529.8 $15,007.6
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt payable within one year ............................................ $ 895.7 $ 1,236.1
Accounts payable ........................................................ 1,085.3 1,104.2
Accrued expenses ........................................................ 1,292.1 1,225.3
Other current liabilities ............................................... 641.1 602.7
--------- ---------
TOTAL CURRENT LIABILITIES ............................................. 3,914.2 4,168.3
LONG-TERM DEBT ............................................................ 2,815.9 2,424.0
NONCURRENT EMPLOYEE BENEFIT AND OTHER OBLIGATIONS ......................... 942.3 916.0
DEFERRED INCOME TAXES ..................................................... 1,078.5 1,004.6
MINORITY OWNERS' INTERESTS IN SUBSIDIARIES ................................ 242.3 309.4
PREFERRED SECURITIES OF SUBSIDIARY ........................................ 546.0 538.4
STOCKHOLDERS' EQUITY ...................................................... 5,990.6 5,646.9
--------- ---------
$15,529.8 $15,007.6
========= =========
Unaudited
See Notes to Consolidated Financial Statements.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Six Months
Ended June 30
-------------------
(Millions of dollars) 2002 2001
- ----------------------------------------------------------------------------------------------------
<s> <c> <c>
OPERATIONS
Net income .................................................................. $ 863.8 $848.8
Cumulative effect of accounting change, net of income taxes ................. 11.4 -
Depreciation ................................................................ 341.1 314.8
Goodwill amortization ....................................................... - 44.3
Changes in operating working capital ........................................ (55.6) (235.7)
Deferred income tax provision ............................................... 77.7 38.4
Equity companies' earnings in excess of dividends paid ...................... (25.1) (54.3)
Postretirement benefits ..................................................... 6.7 (19.5)
Other ....................................................................... 97.9 61.4
-------- ------
CASH PROVIDED BY OPERATIONS ............................................... 1,317.9 998.2
-------- ------
INVESTING
Capital spending ............................................................ (382.0) (547.7)
Acquisitions of businesses, net of cash acquired ............................ (405.1) (61.7)
Proceeds from investments ................................................... 26.2 14.9
Other ....................................................................... (4.2) (26.9)
-------- ------
CASH USED FOR INVESTING ................................................... (765.1) (621.4)
-------- ------
FINANCING
Cash dividends paid ......................................................... (302.5) (293.5)
Net decrease in short-term debt ............................................. (638.3) (61.2)
Proceeds from issuance of long-term debt .................................... 801.0 50.4
Repayments of long-term debt ................................................ (127.9) (238.5)
Issuance of preferred securities of subsidiary .............................. - 516.5
Proceeds from exercise of stock options ..................................... 53.5 79.9
Acquisitions of common stock for the treasury ............................... (331.6) (295.8)
Other ....................................................................... (31.8) (20.2)
-------- ------
CASH USED FOR FINANCING ................................................... (577.6) (262.4)
-------- ------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .............................. $ (24.8) $114.4
======== ======
Unaudited
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
1. The unaudited consolidated financial statements of Kimberly-Clark
Corporation (the "Corporation") have been prepared on a basis consistent
with that used in the Annual Report on Form 10-K for the year ended
December 31, 2001, and include all normal recurring adjustments necessary
to present fairly the condensed consolidated balance sheet, consolidated
income statement and condensed consolidated cash flow statement for the
periods indicated. Certain reclassifications have been made to conform
prior year data to the current year presentation. Net sales in both
years are stated net of the cost of trade promotions and both the face
value of consumer coupons and other applicable promotional activities
as required under an accounting pronouncement issued by the Financial
Accounting Standards Board ("FASB") in Emerging Issues Task Force
("EITF") Issue 01-9.
- Effective June 30, 2002, the Corporation purchased the remaining
45 percent ownership in its Australian subsidiary, Kimberly-Clark
Australia Pty. Ltd. from Amcor Limited for A$697.6 million
(approximately US$390 million).
- On January 1, 2002, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") 142, "Goodwill and Other Intangible
Assets". In accordance with SFAS 142, the Corporation discontinued
amortization of goodwill and also determined that it has no
identified intangible assets with indefinite useful lives. The
Corporation has completed the required testing of goodwill for
impairment and has determined that none of its goodwill is impaired.
Also as required, results for periods prior to the adoption of
SFAS 142 have not been restated to reflect the effect of
discontinuing goodwill amortization. The following table reconciles
reported net income and earnings per share to results that would
have been reported if SFAS 142 had been adopted as of
January 1, 2001:
Second Quarter Six Months
Ended June 30 Ended June 30
----------------- -----------------
(Millions of dollars) 2002 2001 2002 2001
-----------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Reported net income ............................ $424.6 $415.4 $863.8 $848.8
Goodwill amortization, net of income taxes ..... - 24.0 - 47.3
------ ------ ------ ------
Adjusted net income ............................ $424.6 $439.4 $863.8 $896.1
====== ====== ====== ======
Earnings Per Share - Basic
--------------------------
Reported net income ............................ $ .82 $ .78 $ 1.66 $ 1.59
Goodwill amortization, net of income taxes ..... - .05 - .09
------ ------ ------ ------
Adjusted net income ............................ $ .82 $ .83 $ 1.66 $ 1.68
====== ====== ====== ======
Earnings Per Share - Diluted
----------------------------
Reported net income ............................ $ .81 $ .78 $ 1.65 $ 1.58
Goodwill amortization, net of income taxes ..... - .04 - .09
------ ------ ------ ------
Adjusted net income ............................ $ .81 $ .82 $ 1.65 $ 1.67
====== ====== ====== ======
Intangible assets subject to amortization are included in Other
Assets and consist of the following:
June 30, 2002 March 31, 2002
------------------------- ------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
(Millions of dollars) Amount Amortization Amount Amortization
-----------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Trademarks ....................... $187.3 $32.7 $180.4 $28.4
Patents .......................... 38.6 14.7 38.7 13.8
Other ............................ 10.1 2.6 10.1 2.5
------ ----- ------ -----
Total ....................... $236.0 $50.0 $229.2 $44.7
====== ===== ====== =====
Amortization expense for intangible assets for the second quarter
and six months ended June 30, 2002 was $3.0 million and $6.0 million,
respectively. Amortization expense of the current gross carrying
amount for the next five years is estimated to be as follows
(millions of dollars):
Year Ended
December 31 Amount
----------- ------
<s> <c>
2002 $12
2003 12
2004 11
2005 11
2006 11
- In June 2002, the FASB issued SFAS 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This new standard
addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies EITF Issue 94-3,
"Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in
a Restructuring)". The Corporation will adopt SFAS 146 for all
covered transactions consummated after its effective date of
December 31, 2002.
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
------------------------------------
Second Quarter Six Months
Ended June 30 Ended June 30
--------------- ---------------
(Millions of shares) 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Basic .................................................... 518.5 531.9 519.4 532.5
Dilutive effect of stock options ....................... 3.8 3.2 3.4 4.1
Dilutive effect of deferred compensation plan
shares ............................................... .3 .2 .3 .2
----- ----- ----- -----
Diluted .................................................. 522.6 535.3 523.1 536.8
===== ===== ===== =====
Options outstanding during the second quarter and six months ended June 30,
2002 to purchase 11.4 million and 5.8 million shares of common stock,
respectively, were not included in the computation of diluted EPS
because the exercise prices of the options were greater than the average
market price of the common shares.
Options outstanding during the second quarter and six months ended June 30,
2001 to purchase 5.9 million and 4.3 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 June 30, 2002 and 2001 was
517.2 million and 530.4 million, respectively.
3. The following schedule presents inventories by major class as of June 30,
2002 and December 31, 2001:
JUNE 30, December 31,
(Millions of dollars) 2002 2001
-----------------------------------------------------------------------------------------------
<s> <c> <c>
At lower of cost on the First-In,
First-Out (FIFO) method or market:
Raw materials .................................................. $ 344.4 $ 366.1
Work in process ................................................ 187.0 179.5
Finished goods ................................................. 891.7 898.4
Supplies and other ............................................. 214.2 217.5
-------- --------
1,637.3 1,661.5
Excess of FIFO cost over Last-In, First-Out (LIFO) cost .......... (164.7) (167.4)
-------- --------
Total .......................................................... $1,472.6 $1,494.1
======== ========
FIFO cost of total inventories on the LIFO method was $649.3 million and
$715.2 million at June 30, 2002 and December 31, 2001, respectively.
4. The following schedule presents the components of comprehensive income:
Six Months
Ended June 30
-----------------
(Millions of dollars) 2002 2001
-----------------------------------------------------------------------------------------------
<s> <c> <c>
Net Income ................................................................. $863.8 $848.8
Unrealized currency translation adjustments, net of tax .................... 50.9 (213.9)
Deferred (losses) gains on cash flow hedges, net of tax .................... (5.1) .2
------ ------
Comprehensive income ....................................................... $909.6 $635.1
====== ======
5. The following schedule presents information concerning consolidated
operations by business segment:
Second Quarter Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
(Millions of dollars) 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
NET SALES:
Personal Care ................................ $1,329.1 $1,282.6 $2,586.3 $2,541.7
Consumer Tissue .............................. 1,215.2 1,106.4 2,470.0 2,337.9
Business-to-Business ......................... 898.4 894.2 1,751.3 1,775.9
Intersegment sales ........................... (33.8) (37.9) (67.8) (87.0)
-------- -------- -------- --------
Consolidated ................................. $3,408.9 $3,245.3 $6,739.8 $6,568.5
======== ======== ======== ========
Second Quarter Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
(Millions of dollars) 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------
OPERATING PROFIT (reconciled to income before taxes):
<s> <c> <c> <c> <c>
Personal Care ................................ $ 293.3 $ 264.2 $ 557.4 $ 527.8
Consumer Tissue .............................. 221.0 195.1 466.2 429.8
Business-to-Business ......................... 171.1 158.8 331.0 309.6
Other income (expense), net .................. (31.2) (8.0) (12.5) (10.2)
Unallocated items - net ...................... (29.9) (19.5) (52.9) (35.3)
-------- -------- -------- --------
Total Operating Profit ....................... 624.3 590.6 1,289.2 1,221.7
Interest income ............................ 3.5 4.0 7.2 8.7
Interest expense ........................... (45.1) (48.4) (91.8) (98.9)
-------- -------- -------- --------
Income Before Income Taxes ................... $ 582.7 $ 546.2 $1,204.6 $1,131.5
======== ======== ======== ========
Goodwill amortization was included in operating profit of the business
segments as follows:
Second Quarter Six Months
Ended June 30 Ended June 30
-------------- -------------
(Millions of dollars) 2001 2001
-----------------------------------------------------------------------------------------------
<s> <c> <c>
Personal Care .................................................... $ 4.2 $ 8.1
Consumer Tissue .................................................. 3.7 7.4
Business-to-Business ............................................. 14.6 28.8
----- -----
Consolidated ..................................................... $22.5 $44.3
===== =====
Description of Business Segments:
The Personal Care segment manufactures and markets disposable diapers, training
and youth pants and swimpants; feminine and incontinence care products; and
related products. Products in this segment are primarily for household use and
are sold under a variety of well-known brand names, including Huggies,
Pull-Ups, Little Swimmers, GoodNites, Kotex, Lightdays, Depend, Poise and other
brand names.
The Consumer Tissue segment manufactures and markets facial and bathroom
tissue, paper towels and napkins for household use; wet wipes; and related
products. Products in this segment are sold under the Kleenex, Scott,
Cottonelle, Viva, Andrex, Scottex, Page, Huggies and other brand names.
The Business-to-Business segment manufactures and markets facial and bathroom
tissue, paper towels, wipers and napkins for away-from-home use; health care
products such as surgical gowns, drapes, infection control products,
sterilization wraps, disposable face masks and exam gloves, respiratory
products, and other disposable medical products; printing, premium business
and correspondence papers; specialty and technical papers; and other products.
Products in this segment are sold under the Kimberly-Clark, Kleenex, Scott,
Kimwipes, WypAll, Surpass, Safeskin, Tecnol, Ballard and other brand names.
Unaudited
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
SECOND QUARTER OF 2002 COMPARED WITH SECOND QUARTER OF 2001
By Business Segment
(Millions of dollars)
Net Sales 2002 2001
- ----------------------------------------------------------------------------------------------------
<s> <c> <c>
Personal Care ............................................................... $1,329.1 $1,282.6
Consumer Tissue ............................................................. 1,215.2 1,106.4
Business-to-Business ........................................................ 898.4 894.2
Intersegment sales .......................................................... (33.8) (37.9)
-------- --------
Consolidated ................................................................ $3,408.9 $3,245.3
======== ========
Commentary:
Consolidated net sales for the second quarter of 2002 were approximately
$3.4 billion, 5 percent higher than 2001. Excluding currency effects, net
sales rose about 6 percent, mainly driven by higher worldwide sales volumes of
consumer tissue and personal care products. Overall sales volumes were
8 percent higher, including approximately 3 percent from the consolidation of
Kimberly-Clark Australia Pty. Ltd. ("KCA") net of divestitures in the
business-to-business segment in 2001. Competitive pricing and promotional
activity reduced net sales by approximately 2 percent. Net sales in both years
are stated net of the cost of trade promotions and both the face value of
consumer coupons and other applicable promotional activities as required under
an accounting pronouncement issued by the Financial Accounting Standards Board
("FASB") in Emerging Issues Task Force ("EITF") Issue 01-9.
Net sales in the second quarter of 2002 increased approximately $105 million
(by segment: $48 million for personal care, $43 million for consumer tissue
and $14 million for business-to-business) as a result of the acquisition last
year of an additional 5 percent ownership of KCA, net of the divestitures.
Effective July 1, 2001, the Corporation began consolidating KCA operating
results.
- - Net sales of personal care products increased 3.6 percent over the second
quarter of 2001 despite a decline in sales in Latin America mainly
resulting from the recession in Argentina. Segment net sales were about
6 percent higher before currency effects. Global sales volumes rose more
than 8 percent, partially offset by lower net selling prices and product
mix, each down about 1 percent. In North America, sales volumes rose more
than 7 percent, highlighted by a double-digit gain in shipments of Depend
and Poise adult incontinence care products. Huggies diapers, Pull-Ups
training pants and Huggies Little Swimmers swimpants also posted increases
in sales volumes. Net selling prices declined nearly 5 percent in
response to competitive pricing and promotional actions and due to
selected package count increases. Sales of personal care products in
Europe grew more than 6 percent, driven by double-digit growth in training
and youth pants and an increase in sales volumes of diapers in highly
competitive market conditions. In the Asia/Pacific region, sales
increased about 1 percent excluding KCA, with double-digit growth in Korea
being partially offset by lower sales in Taiwan and China.
- - Consumer tissue net sales climbed 9.8 percent compared with the second
quarter of 2001, with increases in every region of the world. Before
positive currency effects, the gain was about 10 percent. Sales volumes
were up about 13 percent while net selling prices were approximately
3 percent lower, primarily due to promotional activity. In North
America, sales volumes were nearly 12 percent higher, driven by rising
sales of Cottonelle and Scott bathroom tissue, Scott towels and
Huggies baby wipes. Net selling prices in North America dropped more than
2 percent due to competitive promotional activity. In Europe, sales of
consumer tissue products increased nearly 7 percent, or 4 percent before
currency effects. Sales volumes rose approximately 6 percent, led by
higher shipments of Andrex bathroom tissue in the U.K. and Scottex bathroom
tissue in Spain, while net selling prices were about 3 percent lower. In
Latin America, volume gains of more than 11 percent were mainly responsible
for improved sales in the region.
- - Net sales of business-to-business products rose slightly in the second
quarter. Higher sales volumes, up 2 percent, and an improvement in product
mix were mostly offset by a decline in selling prices of almost 2 percent.
Sales of K-C Professional's away-from-home products in North America
continued to improve, as sales volumes increased about 2 percent versus the
second quarter of last year. In addition, sales of health care products
increased approximately 5 percent. However, sales of other business-to-
business operations in North America decreased due to the divestitures and
because demand in many end-user markets remained soft.
Unusual Items
For purposes of this Management's Discussion and Analysis, the items summarized
in the following table are considered to be unusual items ("Unusual Items").
Second Quarter Six Months
Ended June 30 Ended June 30
--------------- ---------------
(Millions of dollars) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Charges to operating profit:
Latin American tax credits .................................. $26.5 $ - $26.5 $ -
Business improvement and other programs ..................... 15.1 24.9 24.0 46.2
Business integration and other costs ........................ - 3.6 - 10.4
----- ----- ----- -----
Total pretax charge ....................................... $41.6 $28.5 $50.5 $56.6
===== ===== ===== =====
Income Statement Classification of Unusual Items:
- ------------------------------------------------
Second Quarter Six Months
Ended June 30 Ended June 30
--------------- ---------------
(Millions of dollars) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Cost of products sold .................................... $ 6.6 $22.2 $14.1 $43.8
Marketing, research and general expenses ................. 8.5 6.3 9.9 12.3
Other (income) expense, net .............................. 26.5 - 26.5 .5
----- ----- ----- -----
Total pretax charge ...................................... $41.6 $28.5 $50.5 $56.6
===== ===== ===== =====
- - Unusual Items in the second quarter of 2002 included a pretax charge of
$26.5 million, or 3 cents per share, related to tax credits in Latin
America. The Corporation recently determined that tax credits used to
offset sales and other taxes payable from 1999 through 2001 had been
misrepresented to the Corporation and improperly purchased by local
management. These credits were not valid and all have been written off.
Claims against parties involved in the transactions and other recovery
efforts are being pursued. The Corporation also recorded unusual pretax
charges totaling $15.1 million, or 2 cents per share, primarily for
costs associated with the previously announced plans to streamline
manufacturing and administrative operations in Latin America and Europe.
Charges related to these plans are also the primary costs included in the
six months of 2002.
- - In the second quarter of 2001, Unusual Items of $28.5 million before tax
reduced net income by 3 cents per share. The Unusual Items, in both the
second quarter and six months of 2001, included charges for business
improvement and other programs primarily to streamline personal care
operations in North America and China as well as costs to integrate
acquired businesses into the Corporation's existing operations.
These Unusual Items have been excluded from operating profit in the "Before
Unusual Items" column in the following tables:
2002 2001
-------------------------- --------------------------
AS BEFORE As Before
Operating Profit REPORTED UNUSUAL ITEMS Reported Unusual Items
- ----------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Personal Care ............................ $293.3 $297.9 $264.2 $281.7
Consumer Tissue .......................... 221.0 228.3 195.1 198.9
Business-to-Business ..................... 171.1 174.3 158.8 166.0
Other income (expense), net .............. (31.2) (4.7) (8.0) (8.0)
Unallocated items - net .................. (29.9) (29.9) (19.5) (19.5)
------ ------ ------ ------
Consolidated ............................. $624.3 $665.9 $590.6 $619.1
====== ====== ====== ======
Note: Unallocated items - net, consists of expenses not associated with the
business segments.
Commentary:
Before Unusual Items, operating profit increased 7.6 percent to $665.9 million
in the second quarter of 2002 compared with $619.1 million in 2001. The higher
sales volumes along with lower raw material costs, productivity gains and other
cost reductions were the major positive factors contributing to the increase,
overcoming a step-up in the level of promotional activities and advertising
expense. In addition, the elimination of goodwill amortization was partially
offset by a rise in pension expense. The following commentary is before
Unusual Items.
- - Personal care segment operating profit improvement was driven by higher
sales volumes, lower manufacturing costs, including raw material prices,
and the consolidation of KCA. These benefits more than offset the
impacts of actions to counter aggressive competition in the diaper and
training pants markets in the U.S. and Europe. The Asia/Pacific personal
care business had growth in operating profit of more than 15 percent,
excluding KCA, and Latin America had higher profit versus a soft quarter
last year.
- - Consumer tissue segment operating profit increased due to the higher sales
volumes and lower pulp costs and the consolidation of KCA. These positive
factors more than offset higher promotional and advertising spending.
North America led the improvement with strong double-digit growth. Europe
also delivered an increase in operating profit, primarily due to lower
pulp cost. Asia/Pacific operating profit, excluding KCA, was below last
year primarily due to the competitive environment in Taiwan, while Latin
American results improved from last year.
- - Business-to-business segment operating profit increased 5.0 percent from
the prior year, but excluding goodwill amortization in 2001, declined more
than 3 percent. Higher K-C Professional and health care sales volumes
were not sufficient to overcome lower prices across the segment.
- - The change in other income (expense), net is primarily due to currency
transactions that resulted in gains in 2002, including $3.6 million related
to forward exchange contracts that hedged the currency exposure for the
anticipated acquisition of the remaining 45 percent ownership of KCA,
compared with losses last year.
By Geography
(Millions of dollars)
Net Sales 2002 2001
- ----------------------------------------------------------------------------------------------------
<s> <c> <c>
North America ............................................................... $2,252.4 $2,203.8
Outside North America ....................................................... 1,293.5 1,177.1
Intergeographic sales ....................................................... (137.0) (135.6)
-------- --------
Consolidated ................................................................ $3,408.9 $3,245.3
======== ========
2002 2001
-------------------------- --------------------------
AS BEFORE As Before
Operating Profit REPORTED UNUSUAL ITEMS Reported Unusual Items
- ----------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
North America ............................ $554.7 $558.8 $534.0 $548.8
Outside North America .................... 130.7 141.7 84.1 97.8
Other income (expense), net .............. (31.2) (4.7) (8.0) (8.0)
Unallocated items - net .................. (29.9) (29.9) (19.5) (19.5)
------ ------ ------ ------
Consolidated ............................. $624.3 $665.9 $590.6 $619.1
====== ====== ====== ======
Note: Unallocated items - net, consists of expenses not associated with the
geographic areas.
Commentary:
- - The increase in net sales in North America was due to the higher sales
volumes in personal care and consumer tissue that more than offset the
higher levels of promotional activity and the lower business-to-business
net sales.
- - Net sales outside of North America increased primarily due to the
consolidation of KCA, partially offset by the lower sales in Argentina
and Taiwan.
- - Excluding goodwill amortization in 2001, operating profit before Unusual
Items in North America declined less than 1 percent as the higher
marketing related activities, including lower net selling prices and higher
advertising expenses, and other factors more than offset the increased
sales volumes and lower pulp cost.
- - Operating profit before Unusual Items outside North America increased due
to the consolidation of KCA and the improved earnings in Europe and Latin
America.
Additional Income Statement Commentary:
- - Interest expense decreased primarily due to lower interest rates.
- - The effective tax rate, before Unusual Items, was 28.3 percent in 2002
compared with 30.2 percent in 2001. The lower effective tax rate
was primarily due to the discontinuation, for financial reporting purposes,
of amortizing goodwill that had not been deductible for income tax
purposes. The lower effective rate was also affected by progress toward
resolving prior years' tax matters.
- - The Corporation's share of net income of equity companies in the second
quarter decreased from $52.6 million in 2001 to $21.5 million in 2002
primarily due to lower net income at Kimberly-Clark de Mexico, S.A. de
C.V. ("KCM"). The decline was mainly due to the change in the value of the
Mexican peso, which resulted in additional expense in 2002, versus a
benefit last year, to reflect the impact of the change on KCM's U.S.
dollar-denominated debt, as well as a higher tax rate stemming from changes
in Mexican tax law. KCM's market positions and operating profit margin
remained strong in a highly competitive marketplace. The consolidation of
KCA in July 2001 also contributed to the decrease in the Corporation's
share of net income of its equity affiliates.
- - On a diluted basis, net income was $.81 per share in 2002 compared with
$.78 per share in 2001. Second quarter earnings before Unusual Items were
$.86 per share in 2002, up 6.2 percent from $.81 per share in 2001.
FIRST SIX MONTHS OF 2002 COMPARED WITH FIRST SIX MONTHS OF 2001
By Business Segment
(Millions of dollars)
Net Sales 2002 2001
- ----------------------------------------------------------------------------------------------------
<s> <c> <c>
Personal Care ............................................................... $2,586.3 $2,541.7
Consumer Tissue ............................................................. 2,470.0 2,337.9
Business-to-Business ........................................................ 1,751.3 1,775.9
Intersegment sales .......................................................... (67.8) (87.0)
-------- --------
Consolidated ................................................................ $6,739.8 $6,568.5
======== ========
2002 2001
-------------------------- --------------------------
AS BEFORE As Before
Operating Profit REPORTED UNUSUAL ITEMS Reported Unusual Items
- ----------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Personal Care ........................... $ 557.4 $ 565.4 $ 527.8 $ 566.7
Consumer Tissue ......................... 466.2 477.7 429.8 433.8
Business-to-Business .................... 331.0 335.5 309.6 322.8
Other income (expense), net ............. (12.5) 14.0 (10.2) (9.7)
Unallocated items - net ................. (52.9) (52.9) (35.3) (35.3)
-------- -------- -------- --------
Consolidated ............................ $1,289.2 $1,339.7 $1,221.7 $1,278.3
======== ======== ======== ========
Note: Unallocated items - net, consists of expenses not associated with the
business segments.
Commentary:
Consolidated net sales for the first six months of 2002 were 2.6 percent higher
than in the prior year. Excluding currency effects, net sales were more than
4 percent higher. Excluding the consolidation of KCA, net of the business-to-
business divestitures, net sales were essentially even as the higher sales
volumes were offset by the effect of the increased promotional activity and
unfavorable currency effects primarily related to the recession in Argentina.
- - Net sales of personal care products, excluding currency effects, were
about 5 percent higher. While sales volumes increased nearly 7 percent,
including about 4 percent for KCA, net selling prices declined more than
1 percent.
- - Consumer tissue net sales, excluding currency effects, increased nearly
7 percent. Sales volume increases of nearly 9 percent, including nearly
4 percent for KCA, were partially offset by about 2 percent lower net
selling prices.
- - Excluding currency effects, business-to-business net sales decreased
approximately 1 percent as sales volume increases did not offset lower
selling prices.
Before Unusual Items, operating profit increased 4.8 percent from the prior
year.
- - Despite the improvement in personal care operating profit in the second
quarter 2002, operating profit for the first six months of 2002 was
slightly below the prior year. This decline reflects the effect of
promotional activity and difficult business conditions in Argentina that
more than offset increased sales volumes.
- - The increased operating profit for consumer tissue was due to the higher
sales volumes, lower pulp costs and the consolidation of KCA which more
than offset increased promotional and marketing spending.
- - Business-to-business operating profit excluding goodwill amortization in
2001 decreased nearly 5 percent because lower selling prices more than
offset the increased sales volumes and lower pulp costs.
- - Other income (expense), net includes currency transaction gains in 2002,
including $17.3 million related to the Australian dollar forward exchange
contracts, compared with losses in 2001.
By Geography
(Millions of dollars)
Net Sales 2002 2001
- ----------------------------------------------------------------------------------------------------
<s> <c> <c>
North America ............................................................... $4,463.2 $4,426.4
Outside North America ....................................................... 2,545.4 2,401.3
Intergeographic sales ....................................................... (268.8) (259.2)
-------- --------
Consolidated ................................................................ $6,739.8 $6,568.5
======== ========
2002 2001
-------------------------- --------------------------
AS BEFORE As Before
Operating Profit REPORTED UNUSUAL ITEMS Reported Unusual Items
- ----------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
North America ........................... $1,092.8 $1,098.0 $1,068.8 $1,110.5
Outside North America ................... 261.8 280.6 198.4 212.8
Other income (expense), net ............. (12.5) 14.0 (10.2) (9.7)
Unallocated items - net ................. (52.9) (52.9) (35.3) (35.3)
-------- -------- -------- --------
Consolidated ............................ $1,289.2 $1,339.7 $1,221.7 $1,278.3
======== ======== ======== ========
Note: Unallocated items - net, consists of expenses not associated with the
geographic areas.
Commentary:
- - Net sales in North America increased due to the higher sales volumes
for personal care and consumer tissue products tempered by the lower sales
in the business-to-business segment.
- - Net sales outside of North America, excluding KCA, declined about 3 percent
primarily due to lower net sales in Argentina, Brazil and Taiwan.
- - Before Unusual Items in both years, operating profit in North America
decreased because higher promotional spending, increased pension expense
and other factors more than offset the increased sales volumes and lower
pulp costs.
- - Before Unusual Items in both years, operating profit outside North America
increased due to the consolidation of KCA and lower pulp costs, partially
offset by higher marketing costs.
Additional Income Statement Commentary:
- - Interest expense decreased primarily due to lower interest rates.
- - The effective tax rate, before Unusual Items, was 29.0 percent in 2002
compared with 30.2 percent in 2001. The lower effective tax rate was
primarily due to the discontinuation, for financial reporting purposes, of
amortizing goodwill that had not been deductible for income tax purposes.
- - The Corporation's share of net income of equity companies decreased in
2002 primarily due to the lower net income at KCM due to unfavorable
currency effects and the effect of the new tax law and the consolidation
of KCA.
- - On a diluted basis, net income was $1.65 per share, including a charge
of $.02 per share for the cumulative effect of an accounting change
related to the adoption of EITF 01-9 in 2002. For the first six months of
2001, on a diluted basis, net income was $1.58 per share. Earnings
before Unusual Items and the cumulative effect of the accounting change
were $1.73 per share in 2002, up 4.8 percent from $1.65 per share in 2001.
LIQUIDITY AND CAPITAL RESOURCES
- - Cash provided by operations for the first six months of 2002 increased
$319.7 million, or 32 percent, compared with the first six months of 2001.
Lower U.S. tax payments of approximately $110 million and higher payables
contributed to the increase.
- - During the first six months of 2002, the Corporation repurchased
5.0 million shares of its common stock at a cost of approximately
$317 million, including 2.5 million repurchased in the second quarter for
$162 million.
- - At June 30, 2002, the Corporation's total debt and preferred securities
was $4.3 billion compared with $4.2 billion at December 31, 2001. Net
debt (total debt net of cash and cash equivalents) was $3.9 billion
compared with $3.8 billion at December 31, 2001. The Corporation's ratio
of net debt and preferred securities to capital was 38.3 percent at
June 30, 2002, which was within its target range of 35 percent to
45 percent.
- - Effective June 30, 2002, the Corporation purchased the remaining
45 percent ownership of KCA at a cost of approximately $390 million.
The allocation of any excess purchase price is expected to be completed
during the third quarter 2002.
- - Management believes that capital spending for 2002 will approximate
$900 million rather than its previous assumption of $1 billion for the
year.
- - Management believes that the Corporation's ability to generate cash from
operations and its capacity to issue short-term and long-term debt
are adequate to fund working capital, capital spending and other needs of
the business in the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Corporation adopted Statement of Financial Accounting
Standards ("SFAS") 142, "Goodwill and Other Intangible Assets". In accordance
with SFAS 142 the Corporation discontinued amortization of goodwill and also
determined that it has no identified intangible assets with indefinite useful
lives. The Corporation has completed the required testing of goodwill for
impairment and has determined that none of its goodwill is impaired.
Also as required, results for periods prior to the adoption of SFAS 142 have not
been restated to reflect the effect of discontinuing goodwill amortization. The
following table reconciles reported net income and earnings per share to results
that would have been reported if SFAS 142 had been adopted as of
January 1, 2001:
Second Quarter Six Months
Ended June 30 Ended June 30
----------------- -----------------
(Millions of dollars) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Reported net income ....................................... $424.6 $415.4 $863.8 $848.8
Goodwill amortization, net of income taxes ................ - 24.0 - 47.3
------ ------ ------ ------
Adjusted net income ....................................... $424.6 $439.4 $863.8 $896.1
====== ====== ====== ======
Earnings Per Share - Basic
- --------------------------
Reported net income ....................................... $ .82 $ .78 $ 1.66 $ 1.59
Goodwill amortization, net of income taxes ................ - .05 - .09
------ ------ ------ ------
Adjusted net income ....................................... $ .82 $ .83 $ 1.66 $ 1.68
====== ====== ====== ======
Earnings Per Share - Diluted
- ----------------------------
Reported net income ....................................... $ .81 $ .78 $ 1.65 $ 1.58
Goodwill amortization, net of income taxes ................ - .04 - .09
------ ------ ------ ------
Adjusted net income ....................................... $ .81 $ .82 $ 1.65 $ 1.67
====== ====== ====== ======
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities". This new standard addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". The Corporation will adopt SFAS 146 for
all covered transactions consummated after its effective date of December 31,
2002.
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 it is on track to deliver improved earnings this
year compared with last year. The Corporation has excellent market positions
and believes that it should be able to continue to drive sales growth through
new product introductions. Additionally, the business-to-business operations
in North America should benefit as the economy recovers.
Compared with the planning assumptions the Corporation announced last November,
raw materials costs, although moving up recently, are still expected to be
lower than last year. Competitive activity in the personal care and consumer
tissue businesses will likely remain intense in the near-term and the
business environments in Mexico, Argentina and Brazil are expected to continue
to be challenging throughout the second half of 2002. On an overall basis,
the Corporation expects the results for the year to be consistent with its
November 2001 planning assumptions and its previous expectations.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain information contained in this report is forward-looking and is based
on various assumptions. Such information includes, without limitation, the
business outlook, including new product introductions, cost savings and
acquisitions, anticipated financial and operating results, strategies,
contingencies and contemplated transactions of the Corporation. These
forward-looking statements are based upon management's expectations and beliefs
concerning future events impacting the Corporation. There can be no assurance
that such events will occur or that their effects on the Corporation will be as
currently expected. For a description of certain factors that could cause the
Corporation's future results to differ materially from those expressed in any
such forward-looking statements, see the section of Part I, Item 1 of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2001
entitled "Factors That May Affect Future Results."
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(3)a Restated Certificate of Incorporation, dated June 12, 1997,
incorporated by reference to Exhibit No.(3)a of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1999.
(3)b By-Laws, as amended November 22, 1996, incorporated by reference
to Exhibit No. 4.2 of the Corporation's Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on
December 6, 1996 (File No. 33-17367).
(4) Copies of instruments defining the rights of holders of long-term
debt will be furnished to the Securities and Exchange Commission
upon request.
(10) Executive Officer Achievement Award Program, adopted
April 25, 2002.
(99.1)Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
(99.2)Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
(b) Reports on Form 8-K
The Corporation filed the following Current Reports on or after April 1, 2002
and prior to the date of this Form 10-Q:
1. Current Report on Form 8-K, dated April 12, 2002, to report the
reclassification of certain financial information of the Corporation for
1998, 1999, 2000 and 2001, and for each quarter in 2001, in accordance
with Emerging Issues Task Force ("EITF") Issue No. 00-14 (Accounting for
Certain Sales Incentives) and Issue No. 00-25 (Accounting for
Consideration from a Vendor to a Retailer in Connection with the
Purchase or Promotion of the Vendor's Products).
2. Current Report on Form 8-K, dated May 7, 2002, to report an update on
the Corporation's plans to purchase the remaining 45% interest in
Kimberly-Clark Australia Pty. Ltd. on June 28, 2002.
3. Current Report on Form 8-K, dated May 9, 2002, to report and provide a
corrected version of the Corporation's Officer Achievement Award
Program, which was adopted by the stockholders on April 25, 2002.
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)
August 8, 2002