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, 1995
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)
(214) 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, 1995, 160,375,740 shares of the Corporation's
common stock were outstanding.
PART I - FINANCIAL INFORMATION.
Item 1. Financial Statements.
CONSOLIDATED INCOME STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Three Months Six Months
Ended June 30 Ended June 30
-------------- --------------
(Millions of dollars except per share amounts) 1995 1994 1995 1994
-------------------------------------------------------------------------------------
Net Sales ................................. $2,152.0 $1,838.5 $4,166.6 $3,623.3
Cost of products sold ..................... 1,419.1 1,209.9 2,768.7 2,381.0
-------- -------- -------- --------
Gross Profit .............................. 732.9 628.6 1,397.9 1,242.3
Advertising, promotion and selling
expenses ................................. 321.2 270.6 625.2 539.2
Research expense .......................... 43.7 41.1 86.2 79.8
General expense ........................... 110.5 92.4 205.7 178.3
-------- -------- -------- --------
Operating Profit .......................... 257.5 224.5 480.8 445.0
Interest expense .......................... (38.3) (32.3) (73.0) (63.4)
Other income (expense), net ............... (5.5) (1.8) (8.1) (7.6)
-------- -------- -------- --------
Income Before Income Taxes ................ 213.7 190.4 399.7 374.0
Provision for income taxes ................ 80.2 75.2 149.9 144.0
-------- -------- -------- --------
Income Before Equity Interests ............ 133.5 115.2 249.8 230.0
Share of net income of equity companies ... 35.8 38.6 33.0 63.5
Minority owners' share of subsidiaries'
net income .............................. (6.0) (2.3) (10.8) (5.8)
-------- -------- -------- --------
Net Income ................................ $ 163.3 $ 151.5 $ 272.0 $ 287.7
======== ======== ======== ========
Per Share Basis:
Net Income ................................ $ 1.02 $ .94 $ 1.70 $ 1.79
======== ======== ======== ========
Cash Dividends Declared ................... $ .45 $ .44 $ .90 $ .88
======== ======== ======== ========
Unaudited
See Notes to Financial Statements.
CONSOLIDATED BALANCE SHEET
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
June 30, December 31,
(Millions of dollars) 1995 1994
-------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents ........................... $ 31.5 $ 23.8
Accounts receivable ................................. 1,060.9 847.5
Inventories ......................................... 918.6 804.2
Other current assets ................................ 142.9 134.4
-------- --------
Total Current Assets .............................. 2,153.9 1,809.9
-------- --------
Property .............................................. 7,074.2 6,604.0
Less accumulated depreciation ....................... 2,624.3 2,404.6
-------- --------
Net Property ...................................... 4,449.9 4,199.4
Investments in Equity Companies ....................... 295.6 376.2
Deferred Charges and Other Assets ..................... 356.2 330.2
-------- --------
$7,255.6 $6,715.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Debt payable within one year ........................ $ 877.8 $ 771.8
Accounts payable .................................... 571.8 495.6
Other current liabilities ........................... 867.4 791.4
-------- --------
Total Current Liabilities ......................... 2,317.0 2,058.8
Long-Term Debt ........................................ 965.9 929.5
Noncurrent Employee Benefit Obligations ............... 453.1 438.7
Deferred Income Taxes ................................. 637.9 612.8
Minority Owners' Interests in Subsidiaries ............ 144.1 80.1
Stockholders' Equity .................................. 2,737.6 2,595.8
-------- --------
$7,255.6 $6,715.7
======== ========
Unaudited
See Notes to Financial Statements.
CONSOLIDATED CASH FLOW STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Six Months
Ended June 30
-------------------
(Millions of dollars) 1995 1994
-------------------------------------------------------------------------------------
Operations
Net income .................................................. $272.0 $287.7
Depreciation ................................................ 179.4 162.4
Changes in operating working capital ........................ (141.2) (173.0)
Pension funding less than (in excess of) expense ............ 18.7 (37.0)
Other ....................................................... 38.2 (6.8)
------ ------
Cash Provided by Operations ............................... 367.1 233.3
------ ------
Investing
Capital spending ............................................ (224.6) (201.9)
Acquisitions of businesses, net of cash acquired ............ (62.6) -
Other ....................................................... (3.7) 24.1
------ ------
Cash Used for Investing ................................... (290.9) (177.8)
------ ------
Financing
Cash dividends paid ......................................... (142.6) (140.0)
Changes in debt payable within one year ..................... 69.0 83.5
Increases in long-term debt ................................. 40.5 152.3
Decreases in long-term debt ................................. (20.6) (152.4)
Other ....................................................... (14.8) (6.6)
------ ------
Cash Used for Financing ................................... (68.5) (63.2)
------ ------
Increase (Decrease) in Cash and Cash Equivalents .............. $ 7.7 $ (7.7)
====== ======
Unaudited
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
1. The unaudited consolidated financial statements of Kimberly-
Clark Corporation ("Kimberly-Clark" or the "Corporation")
generally have been prepared on the same basis as those in
the 1994 Annual Report to Stockholders and include all
adjustments necessary to present fairly the condensed
consolidated balance sheet and consolidated income and con-
densed cash flow statements for the periods indicated.
Certain reclassifications have been made to conform 1994
data to the current period presentation.
2. The average number of common shares outstanding used in the
calculation of net income per share for the six months ended
June 30, 1995 and 1994, was 160.3 million and 161.0 million,
respectively. There were 160.4 million shares outstanding
at June 30, 1995.
3. Share of net income of equity companies and net income, for
the second quarter and six months ended June 30, 1995,
include a benefit of $8.4 million, or $.05 per share, and a
charge of $18.4 million, or $.12 per share, respectively.
These effects are related to the translation of U.S. dollar-
denominated liabilities into pesos at the Company's Mexican
affiliate which have been incurred as a result of fluctua-
tions in the value of the Mexican peso.
4. The following schedule details inventories by major class as
of June 30, 1995 and December 31, 1994:
June 30, December 31,
(Millions of dollars) 1995 1994
--------------------------------------------------------------------------
At lower of cost on the First-In,
First-Out (FIFO) method or market:
Raw materials ......................... $ 235.5 $180.8
Work in process ....................... 167.3 143.3
Finished goods ........................ 557.9 495.0
Supplies and other .................... 142.6 132.8
-------- ------
1,103.3 951.9
Excess of FIFO cost over Last-In,
First-Out (LIFO) cost ................... (184.7) (147.7)
-------- ------
Total ............................... $ 918.6 $804.2
======== ======
5. On May 9, 1995, the Corporation announced its plans for a
spin-off of its tobacco industry papers business in the U.S.
and France. The transaction is expected to be completed in
late 1995 and is subject to receipt of a favorable tax
ruling from the Internal Revenue Service, or a favorable tax
opinion from outside counsel, and approval by the Corpora-
tion's board of directors. In 1994, these operations had
net sales of $404 million.
6. On July 17, 1995, the Corporation and Scott Paper Company
("Scott") announced that they had signed a definitive merger
agreement. The combined company will operate under the
Kimberly-Clark name.
Under the merger agreement, Scott shareholders will receive
.765 of a share of newly issued Kimberly-Clark common stock
for each share of Scott common stock. This would result in
Kimberly-Clark issuing approximately 116.0 million new
shares. However, if the record date for the spin-off of
Kimberly-Clark's tobacco industry papers business precedes
the merger date, the exchange ratio will be adjusted upward
to .780 to compensate Scott shareholders for not receiving
shares of the spun-off company. In this event, Kimberly-
Clark would issue approximately 118.2 million new shares.
The transaction is intended to qualify as a tax-free reor-
ganization and to be accounted for as a pooling of inter-
ests. The merger is expected to be completed in late 1995
and is subject to certain conditions, including regulatory
clearances and approval by the shareholders of both com-
panies.
On a pro forma basis, the combined operations would have had
net sales of approximately $11 billion for the year ended
December 31, 1994. To cover the costs of combining the two
companies, Kimberly-Clark will take a one-time charge in an
amount yet to be determined in the quarter the merger is
completed.
7. On August 1, 1995, Midwest Express Holdings, Inc. ("Midwest
Holdings") announced that it had filed a registration
statement with the Securities and Exchange Commission
("SEC") for an initial public offering of its common stock.
Midwest Holdings is a newly formed corporation that will own
Midwest Express Airlines, Inc. ("Midwest Airlines"), the
Corporation's commercial air transportation operation,
immediately prior to consummation of the offering. All of
the shares in the offering will be sold by an indirect,
wholly owned subsidiary of the Corporation that will own all
of the stock of Midwest Holdings immediately prior to
consummation of the offering. The initial offering will
result in up to 5.14 million shares of common stock being
issued with Kimberly-Clark retaining approximately 20-30
percent ownership of Midwest Holdings. The offering is
subject to customary approvals and market conditions and is
expected to be completed early in the fourth quarter. In
1994, Midwest Airlines had net sales of $204 million.
Unaudited
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Management believes that the following tables and commentary
appropriately discuss and analyze the comparative results of
operations for the periods covered.
Product Classes referred to in the following discussion and
analysis are:
- Class I includes tissue products for household,
commercial, institutional and industrial uses; infant,
child, feminine and incontinence care products;
industrial and commercial wipers; health care products;
and related products.
- Class II includes newsprint, printing papers, premium
business and correspondence papers, tobacco industry
papers and products, technical papers, and related
products.
- Class III includes aircraft services, commercial air
transportation and other products and services.
Adjustments:
- Adjustments to sales shown in the following tables
consist of intercompany sales of products between
product classes or geographic areas. Adjustments to
operating profit consist of expenses not associated with
product classes or geographic areas.
- Certain reclassifications have been made to conform 1994
data to the current period presentation.
RESULTS OF OPERATIONS:
Second Quarter 1995 Compared With Second Quarter 1994
By Product Class
($ Millions)
% Change % of 1995
Net Sales 1995 vs. 1994 Consolidated
-----------------------------------------------------------------------
Class I ........................ $1,745.0 + 17.4% 81.1%
Class II ....................... 296.6 + 9.1 13.8
Class III ...................... 129.0 + 38.6 6.0
Adjustments .................... (18.6) ( .9)
-------- -----
Consolidated ................... $2,152.0 + 17.1% 100.0%
======== =====
% Change % of 1995 % Return on Sales
Operating Profit 1995 vs. 1994 Consolidated 1995 1994
-------------------------------------------------------------------------------------------
Class I ........................ $206.9 + 10.8% 80.4% 11.9% 12.6%
Class II ....................... 48.0 + 4.6 18.6 16.2 16.9
Class III ...................... 19.6 +292.0 7.6 15.2 5.4
Adjustments .................... (17.0) (6.6)
------ -----
Consolidated ................... $257.5 + 14.7% 100.0% 12.0% 12.2%
====== =====
Commentary:
Net sales increased as a result of higher sales volumes in most
product lines and higher selling prices worldwide for tissue
products, pulp and newsprint. Increased sales volumes were
responsible for almost half of the revenue improvement compared
with the second quarter of 1994.
- Sales volumes were higher in North America. Noteworthy
contributors included Huggies baby wipes, Depend and
Poise incontinence care products, Huggies disposable
diapers, Kleenex premium bathroom tissue, professional
health care products, service and industrial products,
technical papers, aircraft services, and Midwest Express
Airlines, Inc.
- Sales volumes for consumer products increased more than
20 percent in Europe. Noteworthy contributors included
feminine care products, Huggies disposable diapers,
which were launched in France and Belgium in 1995, and
tissue products.
- Sales volumes also increased for tobacco industry papers
and for consumer products in Latin America, primarily
Argentina, and in Asia.
- Selling prices increased in North America, primarily for
pulp, newsprint, facial tissue and Neenah Paper's
premium business and correspondence products, but
declined for diapers and training pants.
- Outside North America, selling prices were higher in
Europe and Korea, primarily for tissue products.
- Changes in currency exchange rates are estimated to have
increased consolidated net sales by $45 million.
Gross profit, which benefited from the higher selling prices
and sales volumes, increased 16.6 percent in absolute terms,
but declined slightly as a percentage of sales, primarily
because of higher worldwide costs for fiber and other raw
materials.
- Cost reductions and manufacturing efficiencies were
achieved in the North American disposable diaper
business and at the European tissue mill at Villey-
Saint-Etienne, France.
The increase in operating profit of 14.7 percent was primarily
attributable to the higher selling prices and sales volumes.
Operating profit declined slightly as a percentage of sales,
primarily because of higher marketing costs and general
expenses.
- Product introduction costs and promotional expenses were
higher in Europe to support the previously mentioned
launch of disposable diapers and in response to intense
competitive activity.
- The increase in general expense is primarily
attributable to business expansion worldwide.
- Changes in currency exchange rates had no significant
effect on consolidated operating profit in the second
quarter of 1995.
By Geography
($ Millions)
% Change % of 1995
Net Sales 1995 vs. 1994 Consolidated
----------------------------------------------------------------------
North America .............. $1,567.0 + 6.3% 72.8%
Outside North America ...... 600.5 + 54.4 27.9
Adjustments ................ (15.5) ( .7)
-------- -----
Consolidated ............... $2,152.0 + 17.1% 100.0%
======== =====
% Change % of 1995 % Return on Sales
Operating Profit 1995 vs. 1994 Consolidated 1995 1994
------------------------------------------------------------------------------------------
North America .............. $253.9 + 10.1% 98.6% 16.2% 15.6%
Outside North America ...... 20.6 +190.1 8.0 3.4 1.8
Adjustments ................ (17.0) (6.6)
------ ----
Consolidated ............... $257.5 + 14.7% 100.0% 12.0% 12.2%
====== =====
% Change % of 1995
Net Income 1995 vs. 1994 Consolidated
--------------------------------------------------------------------
North America .............. $130.1 + 2.9% 79.7%
Outside North America ...... 33.2 + 32.3 20.3
------ -----
Consolidated ............... $163.3 + 7.8% 100.0%
====== =====
Additional commentary:
- Operating profit improved in Latin America and Asia, and
operating losses declined slightly in Europe.
- Interest expense was higher primarily as a result of
higher debt levels.
- Other income (expense), net, included a $6.0 million
charge related to the disposition of the Corporation's
trucking operation, Kimberly-Clark Integrated Services
Corporation. On an after-tax basis, the disposition
reduced 1995 net income $3.8 million, or $.02 per share.
- The $2.8 million decline in the Corporations's share of
net income from equity companies was primarily
attributable to the following factors:
- In the second quarter of 1994, the equity method of
accounting was readopted for the Corporation's
investment in its South African affiliate, Carlton
Paper Corporation Limited ("Carlton"). This change
increased 1994 equity company earnings by
$10.0 million and net income by $6.3 million, or $.04
per share. The Corporation increased its ownership in
Carlton in the first quarter of 1995, and it became a
consolidated subsidiary.
- In the second quarter of 1995, the Mexican peso
regained a portion of its value versus the U.S. dollar
that had been lost in the last two quarters. Because
Kimberly-Clark's Mexican affiliate, Kimberly-Clark de
Mexico, S.A. de C.V. ("K-C de Mexico"), has financed a
portion of its operations with U.S. dollar-denominated
liabilities, the remeasurement of these liabilities by
the affiliate resulted in an after-tax gain in the
second quarter, of which Kimberly-Clark's share was
$8.4 million, or $.05 per share.
- The U.S. dollar exposure at K-C de Mexico was
approximately $425 million and approximately $330
million at June 30, 1995 and December 31, 1994,
respectively. These liabilities include the
affiliate's short-term debt for the continued
expansion of manufacturing facilities in that country.
- Higher net income was earned at the Corporation's
Australian affiliate, Kimberly-Clark Australia Pty.
Limited, and net income was flat at K-C de Mexico,
after excluding the peso gain. While second quarter
results at the Mexican affiliate were adversely
affected by the overall peso devaluation and higher
raw material costs, sales volumes and selling prices
for consumer products increased.
- Other factors affecting equity company earnings in the
quarter were costs associated with business expansions
in Saudi Arabia and India.
- The effective tax rate declined to 37.5 percent from
39.5 percent a year ago. The prior year rate was
affected by income taxes provided on unremitted earnings
of Carlton due to the readoption of the equity method of
accounting for that entity in 1994.
RESULTS OF OPERATIONS:
First Six Months of 1995 Compared with First Six Months of 1994
By Product Class
($ Millions)
% Change % of 1995
Net Sales 1995 vs. 1994 Consolidated
------------------------------------------------------------------------
Class I ........................ $3,388.3 + 15.8% 81.3%
Class II ....................... 581.9 + 8.4 14.0
Class III ...................... 234.6 + 26.5 5.6
Adjustments .................... (38.2) (.9)
-------- -----
Consolidated ................... $4,166.6 + 15.0% 100.0%
======== =====
% Change % of 1995 % Return on Sales
Operating Profit 1995 vs. 1994 Consolidated 1995 1994
------------------------------------------------------------------------------------------
Class I ........................ $376.0 + 4.9% 78.2% 11.1% 12.3%
Class II ....................... 102.6 + 9.4 21.3 17.6 17.5
Class III ...................... 24.0 +137.6 5.0 10.2 5.5
Adjustments .................... (21.8) (4.5)
------ -----
Consolidated ................... $480.8 + 8.0% 100.0% 11.5% 12.3%
====== =====
Commentary:
Net sales increased as a result of higher sales volumes in most
product lines and higher selling prices worldwide for tissue
products, pulp, newsprint, and business and correspondence
papers. More than half of the revenue increase was
attributable to increased sales volumes.
- Sales volumes were higher in North America.
Noteworthy contributors included Kleenex premium
bathroom tissue, Huggies disposable diapers, Huggies
baby wipes, Depend and Poise incontinence care
products, professional health care products, Kleenex
facial tissue, service and industrial products,
technical papers and related products, aircraft
services, and Midwest Express Airlines, Inc.
- Sales volumes for consumer products increased more
than 17 percent in Europe. Noteworthy contributors
included feminine care products, Huggies disposable
diapers, which were launched in France and Belgium in
1995, and tissue products.
- Sales volumes also increased for tobacco industry
papers and for consumer products in Latin America,
primarily Argentina, and in Asia.
- Selling prices increased in North America, primarily
for pulp, newsprint, Neenah Paper's premium business
and correspondence papers, and facial tissue, but
declined for diapers and training pants.
- Outside North America, selling prices were higher in
Europe and Korea, primarily for tissue products.
- Changes in currency exchange rates are estimated to
have increased consolidated net sales by $70 million.
Operating profit, which benefited from the higher selling
prices and sales volumes, increased 8.0 percent in absolute
terms, but declined as a percentage of sales, primarily because
of higher worldwide costs for fiber and other raw materials and
increased marketing costs and general expenses.
- Product introduction costs and promotional expenses
were higher in Europe to support the previously
mentioned launch of diapers and in response to intense
competitive activity.
- Higher marketing costs were incurred in the U.S. in
response to strong competitive activity for consumer
products and the costs of matching a competitor's
price and count reductions on diapers.
- The North American disposable diaper and training
pants businesses were adversely affected by the
previously mentioned costs of matching price and count
reductions, the costs of product improvements,
primarily those associated with the introduction of
stretchable side panels on Huggies diapers, and higher
fiber costs.
- The North American tissue businesses were adversely
affected by higher fiber costs.
- The tobacco industry papers business benefited from
higher selling prices, increased sales volumes and
improved productivity which more than offset higher
fiber costs.
- Research and general expenses were higher largely due
to the development of new and improved products and
business expansions but were virtually unchanged as a
percentage of sales.
- Changes in currency exchange rates had no significant
effect on consolidated operating profit in the first
six months of 1995.
By Geography
($ Millions)
% Change % of 1995
Net Sales 1995 vs. 1994 Consolidated
---------------------------------------------------------------------
North America .............. $3,086.7 + 6.5% 74.1%
Outside North America ...... 1,112.1 + 44.1 26.7
Adjustments ................ (32.2) ( .8)
-------- -----
Consolidated ............... $4,166.6 + 15.0% 100.0%
======== =====
% Change % of 1995 % Return on Sales
Operating Profit 1995 vs. 1994 Consolidated 1995 1994
------------------------------------------------------------------------------------------
North America .............. $465.9 + 2.9% 96.9% 15.1% 15.6%
Outside North America ...... 36.7 +282.3 7.6 3.3 1.2
Adjustments ................ (21.8) (4.5)
------ -----
Consolidated ............... $480.8 + 8.0% 100.0% 11.5% 12.3%
====== =====
% Change % of 1995
Net Income 1995 vs. 1994 Consolidated
---------------------------------------------------------------------
North America .............. $245.4 - 2.7% 90.2%
Outside North America ...... 26.6 - 25.1 9.8
------ -----
Consolidated ............... $272.0 - 5.5% 100.0%
====== =====
Additional commentary:
- Operating profit improved in Latin America and Asia, and
operating losses were lower in Europe.
- Interest expense was higher primarily as a result of
higher debt levels.
- The $30.5 million decline in the Corporation's share of
net income from equity companies was primarily
attributable to the following factors:
- The devaluation of the Mexican peso which reduced the
Corporation's share of its Mexican affiliate's 1995
net income by $18.4 million, or $.12 per share.
- The previously discussed adoption of equity accounting
for Carlton which increased 1994 equity company
earnings by $10.0 million and net income by $6.3
million, or $.04 per share.
- The effective income tax rate declined to 37.5 percent
for the first six months of 1995 from 38.5 percent a
year ago, primarily as a result of recording income
taxes on the unremitted earnings of Carlton in 1994, as
previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
- Despite lower net income, cash provided by operations
increased primarily as a result of the timing of
pension funding, dividends received from equity
companies in excess of their earnings, and the timing
of income tax payments. Partially offsetting these
sources of operating cash flow was an increase in
accounts receivable due, in part, to increased sales,
and increased inventories primarily related to business
expansions.
- In March 1995, the Corporation purchased a 51 percent
interest in the tissue and feminine care assets of
Peru-based Unicel S.A., a Kimberly-Clark licensee since
1985. The new company, Kimperu S.A., operates
manufacturing facilities in Lima.
- During the first quarter of 1995, the Corporation
increased its investment in Carlton from 38.7 percent
to more than 50 percent and in Kimberly-Clark Argentina
S.A. from 33.3 percent to 51 percent. As a result,
these entities became consolidated subsidiaries.
- In May 1995, the Corporation acquired CPM Inc., a
manufacturer of specialty paper located in East
Ryegate, Vt.
- In May 1995, the Corporation announced its plans for a
spin-off of its tobacco industry papers business in the
U.S. and France. The transaction is expected to be
completed in late 1995 and is subject to receipt of a
favorable tax ruling from the Internal Revenue Service,
or a favorable tax opinion from outside counsel, and
approval by the Corporation's board of directors. In
1994, these operations had net sales of $404 million.
- In July 1995, the Corporation and Scott announced that
they had signed a definitive merger agreement. The
combined company will operate under the Kimberly-Clark
name.
Under the merger agreement, Scott shareholders will
receive .765 of a share of newly issued Kimberly-Clark
common stock for each share of Scott common stock.
This would result in Kimberly-Clark issuing
approximately 116.0 million new shares. However, if
the record date for the spin-off of Kimberly-Clark's
tobacco industry papers business precedes the merger
date, the exchange ratio will be adjusted upward to
.780 to compensate Scott shareholders for not receiving
shares of the spun-off company. In this event,
Kimberly-Clark would issue approximately 118.2 million
new shares.
The transaction is intended to qualify as a tax-free
reorganization and to be accounted for as a pooling of
interests. The merger is expected to be completed in
late 1995 and is subject to certain conditions,
including regulatory clearances and approval by the
shareholders of both companies.
On a pro forma basis, the combined operations would
have had net sales of approximately $11 billion for the
year ended December 31, 1994. To cover the costs of
combining the two companies, Kimberly-Clark will take a
one-time charge in an amount yet to be determined in
the quarter the merger is completed.
- In August 1995, Midwest Holdings announced that it had
filed a registration statement with the SEC for an
initial public offering of its common stock. Midwest
Holdings is a newly formed corporation that will own
Midwest Airlines, the Corporation's commercial air
transportation operation, immediately prior to
consummation of the offering. All of the shares in the
offering will be sold by an indirect, wholly owned
subsidiary of the Corporation that will own all of the
stock of Midwest Holdings immediately prior to
consummation of the offering. The initial offering
will result in up to 5.14 million shares of common
stock being issued with Kimberly-Clark retaining
approximately 20-30 percent ownership of Midwest
Holdings. The offering is subject to customary
approvals and market conditions and is expected to be
completed early in the fourth quarter. In 1994,
Midwest Airlines had net sales of $204 million.
- The effect of the Scott merger on the Corporation's
overall liquidity and capital resources has not yet
been determined. The effect of the other previously
mentioned acquisitions and dispositions on the
Corporation's overall liquidity and capital resources
is not expected to be significant.
ENVIRONMENTAL MATTERS
The Corporation has not been identified as a potentially
responsible party ("PRP") at any Environmental Protection
Agency designated cleanup site which, in management's opinion,
could have a material adverse effect on its business or results
of operations. See "Legal Proceedings."
OUTLOOK
Kimberly-Clark expects to meet its stated objective of earnings
per share growth of at least 10 percent for 1995, excluding an
anticipated fourth quarter restructuring charge related to the
proposed merger of Kimberly-Clark and Scott. Kimberly-Clark
therefore expects earnings for the remainder of 1995 to improve
significantly over the same period last year.
Management believes that combining Kimberly-Clark and Scott -
two financially sound companies with complementary strengths -
will broaden the Corporation's product lines, strengthen its
global distribution, dramatically reduce costs and result in an
exceptionally strong balance sheet.
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings.
Litigation
- On June 6, 1995, the Circuit Court of Kanawha County,
West Virginia, granted the Corporation's motion to
dismiss eight of the ten counts of the complaint filed
on September 20, 1994 by the Attorney General of the
State of West Virginia seeking to recover from certain
tobacco companies and other defendants, including the
Corporation, monies which West Virginia allegedly has
spent and will spend in providing medical care for its
citizens whose illnesses are alleged to be tobacco-
related. There remains for decision the Corporation's
motion to dismiss the two remaining counts of the
complaint which relate to alleged antitrust and unfair
trade practice violations. The Corporation believes the
claims are without merit. The subject matter of this
litigation was previously reported in Item 3.A. of the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994 (the "1994 Form 10-K").
- Since September 28, 1990, numerous lawsuits currently
consolidated into seven actions in state and federal
courts have been filed against numerous defendants,
including the Corporation, by over 8,000 plaintiffs of
whom at least 272 have identified their claims as based,
in whole or in part, on having worked at the
Corporation's Coosa Pines, Ala. mill as employees of
independent contractors at various times since the
mill's construction. The plaintiffs allege, with
respect to the Corporation, that they sustained personal
injuries and/or emotional distress from alleged exposure
to asbestos-containing materials while working at the
mill and that, in its capacity as a premises owner, the
Corporation is responsible in part for these injuries.
The complaints do not specify the amount of damages
demanded. The Corporation believes the claims are
without merit.
The counsel for parties to four of these actions,
representing approximately 4,200 plaintiffs, have signed
a settlement agreement and provided releases from
claimants. Pursuant to this agreement with defendant
premises owners, including the Corporation, the
plaintiffs have filed a motion to dismiss all but two
pending claims in these four actions and the judge has
executed an order granting the dismissals. The amount
to be paid by the Corporation is not considered to be
material. Since these actions are not part of a
mandatory class action, there remains the possibility
that similar additional suits may be filed against the
Corporation.
The subject matter of this litigation was previously
reported in Item 3.B. of the 1994 Form 10-K.
- In July 1995, the Corporation was named a defendant in
the following actions related to the Corporation's
pending merger transaction with Scott: Edith Citron and
Lynn Robbins, et al. v. Scott Paper Co., et al., filed
in the Court of Common Pleas, Philadelphia County,
Pennsylvania, Case No. 95-07-SD-0080; Harry Lewis and
Albert Ominsky, Trustee, et al. v. Scott Paper Co., et
al., filed in the Court of Common Pleas, Philadelphia
County, Pennsylvania, Case No. 95-07-SD-0079; and Louis
Agnes, et al. v. Scott Paper Co., et al., filed in the
Circuit Court for the 15th Judicial Circuit in and for
Palm Beach County, Florida, Case No. CL 95-5757 AH.
These actions allege, among other things, that the Scott
board of directors breached its fiduciary duty to Scott
and its shareholders in approving the merger transaction
and that the Corporation aided and abetted such breach.
The actions purport to be class actions and seek
unspecified damages and injunctive relief.
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 business or results of
operations of the Corporation.
Environmental Matters
The Corporation has been named a PRP under the provisions of
the federal Comprehensive Environmental Response, Compensation
and Liability Act, or analogous state statute, at 29 waste
disposal sites, none of which, in management's opinion, could
have a material adverse effect on the Corporation's business or
results of operations. Notwithstanding its opinion, management
believes it appropriate to disclose the following recent
development concerning one of these sites:
- In April 1995, the Corporation received a letter from
the Industrial Solvents and Chemical Company Site PRP
Steering Committee stating that the Corporation had been
identified by the Pennsylvania Department of
Environmental Resources as a generator of waste at the
site located in Newberry Township, York County,
Pennsylvania. The Corporation's estimated share of the
total site remediation cost, if any, cannot be
established on the basis of currently available
information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(3) By-Laws of Kimberly-Clark Corporation, as
amended June 8, 1995.
(4) Copies of instruments defining the rights of
holders of long-term debt will be furnished to
the Securities and Exchange Commission upon
request.
(11) The following statement is filed as an exhibit
to Part I of this Form 10-Q:
The net income per common share computations
included in the Consolidated Income Statement in
Part 1, Item I, of this Form 10-Q are based on
average number of shares of common stock
outstanding. The only "common stock
equivalents" or other potentially dilutive
securities or agreements (as defined in
Accounting Principles Board Opinion No. 15)
which were contained in the Corporation's
capital structure during the periods presented
were options outstanding under the Corporation's
Equity Participation Plans.
Alternative computations of "primary" and "fully
diluted" net income per share amounts for 1995
and 1994 assume the exercise of outstanding
stock options using the "treasury stock method."
There is no significant difference between net
income per share presented in Item 1 and net
income per share calculated on a "primary" and
"fully diluted" basis for the second quarter and
first six months of 1995 and 1994.
(12) The following computation is filed as an exhibit to Part I of
this Form 10-Q:
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
($ Millions)
Six Months Ended June 30
--------------------------
1995 1994
-----------------------------------------------------------------------------------
Consolidated Companies
Income before income taxes ........................... $399.7 $374.0
Interest expense ..................................... 73.0 63.4
Interest factor in rent expense ...................... 13.2 12.4
Amortization of capitalized interest ................. 3.6 3.0
Equity Affiliates
Share of 50%-owned:
Income before income taxes ......................... 22.4 20.0
Interest expense ................................... 4.0 3.8
Interest factor in rent expense .................... 0.3 0.3
Amortization of capitalized interest ............... 0.3 0.3
Distributed income of less than 50%-owned ............ 6.8 10.9
------ ------
Earnings ............................................... $523.3 $488.1
====== ======
Consolidated Companies
Interest expense ..................................... $ 73.0 $ 63.4
Capitalized interest ................................. 2.9 5.1
Interest factor in rent expense ...................... 13.2 12.4
Equity Affiliates
Share of 50%-owned:
Interest expense and capitalized interest .......... 4.3 3.9
Interest factor in rent expense .................... 0.3 0.3
------ ------
Fixed charges .......................................... $ 93.7 $ 85.1
====== ======
Ratio of earnings to fixed charges ............... 5.58 5.74
====== ======
(27) The Financial Data Schedule required by Item
601(b)(27) of Regulation S-K has been included
with the electronic filing of this Form 10-Q.
(b) Reports on Form 8-K
(i) The Corporation filed a Current Report on Form
8-K dated May 9, 1995, which reported the
Corporation's plans to spin off its tobacco-
related businesses in the U.S. and France and to
cut costs by $100 million annually on a pretax
basis beginning in 1996.
(ii) The Corporation filed a Current Report on Form
8-K dated June 13, 1995, which reported an
amendment and restatement of its Rights
Agreement, dated as of June 21, 1988, with The
First National Bank of Boston.
(iii) The Corporation filed a Current Report on Form
8-K dated July 16, 1995, which reported the
Corporation's agreement to merge with Scott in a
tax-free transaction.
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 10, 1995