EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Kimberly-Clark Corporation and Subsidiaries
Management believes that the following commentary and tables
appropriately discuss and analyze the comparative results of operations and
the financial condition of the Corporation for the periods covered.
Certain matters which have occurred in two of the last three years
represent major unusual items. These matters and their effect on the
comparability of financial data presented in this Management's Discussion
and Analysis are discussed below.
1995 Business Combination, Worldwide Integration Plan, and Restructuring
and Other Unusual Charges
. On December 12, 1995, Kimberly-Clark merged with Scott Paper Company
(``Scott''), a worldwide producer of sanitary tissue products, and issued
.78 of a share of its common stock for each share of Scott common stock.
The $9.4 billion transaction qualified as a tax-free reorganization for
income tax purposes and was accounted for as a pooling of interests for
financial reporting purposes.
. At the time of the merger, the Corporation implemented a comprehensive
plan to integrate its operations with those of Scott. In conjunction
with the integration plan, a one-time pretax charge of $1,440.0 million
was recorded in the fourth quarter of 1995 for the estimated costs of
the merger, for restructuring the combined operations and for other
unusual charges (``one-time charge''). The details of the items
comprising the 1995 one-time charge are set forth in Note 3 to the
Financial Statements. Of the one-time charge, $1,016.9 million has been
utilized through December 31, 1996, and the balance of $423.1 million is
expected to be utilized in 1997. At December 31, 1996, the remaining
reserves related to the one-time charge are estimated to be adequate to
cover the balance of the planned actions.
. The one-time charge decreased 1995 business segment and geographic
operating profit as follows:
1995 ONE-TIME CHARGE
Outside
North North
America America Total
($ Millions)
- --------------------------------------------------------------------------------------
Personal Care Products ....................... $ (92.3) $ (138.0) $ (230.3)
Tissue-Based Products ....................... (609.8) (371.4) (981.2)
Newsprint, Paper and Other .................. (35.0) - (35.0)
-------- -------- ----------
$ (737.1) $ (509.4) (1,246.5)
======== ========
Unallocated ................................. (193.5)
----------
Total ....................................... $ (1,440.0)
==========
The income tax benefit of the 1995 one-time charge is estimated at
$360.0 million, or 25 percent of the pretax charge. The income tax
benefit is lower than the statutory income tax rate because certain costs
and fees are nondeductible and other costs relate to operations in
countries in which the Corporation has income tax loss carryforwards. The
1995 one-time charge, net of applicable income taxes and minority
interests, reduced 1995 net income by $1,070.9 million, or $3.83 per
share.
Modification and Acceleration of the 1993 Scott Restructuring and the 1994
Scott Discontinued Operation
. In August 1994, Scott modified its 1993 restructuring plan to
accelerate the timing and to increase total workforce reductions. This
modified plan was completed by year-end 1994 and no additional charges
were needed to achieve the restructuring. In December 1994, Scott
completed the sale of S.D. Warren Company (``S.D. Warren''), its former
printing and publishing papers subsidiary, for approximately $1.6
billion, including the assumption by the buyer of approximately $120
million in debt. The operating results of S.D. Warren prior to the
sale have been segregated and reported as a discontinued operation in
the income statement.
For purposes of this Management's Discussion and Analysis, the 1995
one-time charge has been segregated in the following business segment and
geographic presentations to facilitate a meaningful discussion of ongoing
operations. For a description of the Corporation's business segments and
a summary of the business segment and geographic data that include the
1995 one-time charge, see Note 16 to the Financial Statements.
ANALYSIS OF CONSOLIDATED OPERATING RESULTS - 1996 COMPARED WITH 1995
By Business Segment
Net Sales Operating Profit
--------------------------------------------- -------------------------------------------------
% Change % OF 1996 % Change % Return on Sales
($ Millions) 1996 1995 vs. 1995 CONSOLIDATED 1996 1995 vs. 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------
Personal Care
Products .. $ 4,837.8 $ 4,384.2 +10.3% 36.8% $ 791.3 $ 570.1 + 38.8% 16.4% 13.0%
Tissue-Based
Products .. 7,372.8 7,524.3 - 2.0 56.1 1,085.2 942.8 + 15.1 14.7 12.5
Newsprint, Paper
and Other . 1,015.4 1,584.3 -35.9 7.7 211.8 259.6 - 18.4 20.9 16.4
1995 one-time
charge .... - - - - (1,440.0)
Adjustments . ( 76.9) (119.8) (.6) (34.6) (119.5)
----------- ---------- ----- --------- ---------
Consolidated $ 13,149.1 $ 13,373.0 - 1.7% 100.0% $ 2,053.7 $ 213.0 +864.2% 15.6% 1.6%
=========== ========== ===== ========= =========
By Geography
Net Sales Operating Profit
------------------------------------------------- ----------------------------------------------------
% Change % OF 1996 % Change % Return on Sales
($ Millions) 1996 1995 vs. 1995 CONSOLIDATED 1996 1995 vs. 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
North America $ 9,001.8 $ 9,439.8 - 4.6% 68.5% $1,710.4 $1,420.9 + 20.4% 19.0% 15.1%
Outside North
America ... 4,485.3 4,205.0 + 6.7 34.1 377.9 351.6 + 7.5 8.4 8.4
1995 one-time
charge .... - - - - (1,440.0)
Adjustments . (338.0) (271.8) (2.6) (34.6) (119.5)
---------- ---------- ----- -------- --------
Consolidated $ 13,149.1 $ 13,373.0 - 1.7% 100.0% $2,053.7 $ 213.0 +864.2% 15.6% 1.6%
========== ========== ===== ======== ========
Notes:
Adjustments to net sales shown in the preceding tables consist of
intercompany sales of products between business segments or geographic
areas. Adjustments to operating profit consist of expenses not associated
with business segments or geographic areas.
Commentary:
Net sales declined 1.7 percent principally because of the loss of revenues
from businesses that were divested in 1995 -- Schweitzer-Mauduit International,
Inc. (`SMI'') and Midwest Express Airlines, Inc. (``Midwest'') -- and
businesses that were sold in 1996 to satisfy U.S. and European regulatory
requirements associated with the Scott merger -- the former Scott baby wipes
business and certain consumer tissue businesses in the U.S., the United Kingdom
and Ireland. Excluding the net sales of these businesses in both years,
consolidated net sales increased 4.6 percent and sales volumes increased 6.0
percent.
. On a worldwide basis, consolidated sales volumes of personal care products
increased more than 14 percent. Partially offsetting the sales volume
improvement were lower selling prices for training and youth pants in the
U.S. and diapers in Europe.
. In North America, sales volumes increased for disposable diapers, training
and youth pants, wet wipes and professional health care products, while sales
volumes for tissue-based products were lower compared with year-ago levels.
. In Europe, sales volumes were higher for disposable diapers and household
tissue products.
. Sales volumes for personal care products and tissue-based products improved
in the Asia/Pacific region and in Latin/South America, due in part to
business expansion in Brazil.
. Despite a second quarter decline, 1996 selling prices were, on average,
higher for consumer tissue products in North America and Europe.
. Excluding the sales of businesses that were divested in 1995, net sales in
North America for the Newsprint, Paper and Other business segment increased
5.2 percent.
. Changes in currency exchange rates are estimated to have decreased
consolidated net sales by less than one percent.
Despite the loss of earnings of the divested businesses, gross profit
improved 8.0 percent in absolute terms and from 34.0 percent to 37.3 percent as
a percentage of sales, primarily due to the higher sales volumes, merger
synergies, manufacturing efficiencies for personal care products and lower pulp
costs worldwide. Excluding the 1995 one-time charge, operating profit improved
24.2 percent in absolute terms, and from 12.4 percent to 15.6 percent as a
percentage of net sales, due to the higher gross margin coupled with
merger synergies.
. Excluding the divested businesses, 1996 operating profit increased more than
30 percent.
. Management estimates that the synergies from the merger benefited
consolidated operating profit by approximately $280 million in 1996.
. Operating losses in the infant and child care business in Europe declined in
1996 as a result of higher sales volumes and improved operations. Partially
offsetting these improvements were the lower selling prices and higher
promotion costs to support the growth in sales volumes and to respond to
competitive activity.
. Operating profit for the Tissue-Based Products business segment improved from
1995 due primarily to lower pulp costs and merger synergies.
. The decline in expenses not associated with business segments and geographic
areas was due primarily to merger synergies resulting from elimination of
Scott corporate expenses.
. Changes in currency exchange rates had no significant effect on consolidated
operating profit in 1996.
Additional Income Statement Commentary:
. Interest expense declined primarily as a result of lower average debt levels.
. During 1996, U.S. and European regulatory divestitures and the sale of the
Corporation's remaining 20 percent interest in Midwest resulted in a net gain
of $.26 per share.
. During 1995, the sale of 80 percent of the Corporation's interest in Midwest,
other asset dispositions and expenses of the SMI spin-off resulted in a net
gain of $.23 per share.
. The Corporation's effective income tax rate for the full year was 35.0
percent in 1996 compared with 147.0 percent in 1995. Excluding the 1995 one-
time charge, the effective tax rate for 1995 was 33.2 percent. The increase
in the effective tax rate was attributable primarily to a reduction in 1996
taxable income in jurisdictions in which net operating loss carryforwards
were available.
. The Corporation's share of equity company net income improved by $39.1
million. The largest contributors to the increase were Kimberly-Clark de
Mexico, S.A. de C.V. (``K-C de Mexico'') and Kimberly-Clark Australia Pty.
Limited (``K-C Australia'').
. The Corporation's share of earnings from K-C de Mexico increased $28.5
million from the prior year. The translation of the net exposure of
U.S. dollar-denominated liabilities into pesos at K-C de Mexico reduced
equity company net income $2.3 million in 1996 and $38.5 million in
1995; these translation losses reduced earnings by $.01 per share in
1996 and $.14 per share in 1995.
. In 1996, K-C de Mexico acquired the publicly-held shares of the
Corporation's other Mexican affiliate, Compania Industrial de San
Cristobal, S.A. de C.V. (`Cristobal''), and the two affiliates merged.
The merger was accounted for as a pooling of interests. Also in 1996, the
operations of Cristobal were restructured to, among other things, eliminate
duplicate capacity and to comply with merger regulatory requirements of the
Mexican Federal Commission of Competition. The Corporation's share of the
after-tax effects of the Mexican restructuring plan reduced earnings $5.5
million, or $.02 per share, in 1996.
. Excluding the peso translation losses and the costs of the Mexican
restructuring plan, the Corporation's share of earnings of K-C de Mexico
was essentially unchanged from the prior year, as the effects of adverse
economic conditions at the affiliate were offset by selling price
increases, merger-related savings, higher interest income and a lower
effective income tax rate.
. Earnings at K-C Australia improved primarily due to higher selling prices
for most consumer products.
. Excluding the effects of the peso losses, the Mexican restructuring charge,
asset dispositions, expenses of the SMI spin-off and the 1995 one-time
charge, Kimberly-Clark's net income per share for 1996 increased 23.1 percent
to $4.75 from $3.86 in 1995.
CHANGES IN 1995 NET SALES AND EARNINGS VERSUS 1994
1995 vs. 1994
-----------------------
Excluding 1995
One-Time
Reported Charge
- -----------------------------------------------------------------------------------------
Net sales ........................................................ + 15.0% +15.0%
Gross profit ..................................................... + 18.5 +18.5
Operating profit ................................................. - 83.3 +29.4
Income from continuing
operations ...................................................... - 95.7 +44.0
Income per share from
continuing operations .......................................... - 95.7 +43.1
. The net sales increase in 1995 was a result of higher selling prices,
increased sales volumes and improved product mix in many of the Corporation's
worldwide businesses. About one-third of the net sales increase was due to
higher sales volumes and improved product mix.
. Gross profit improved 18.5 percent primarily because of higher selling prices
and improved product mix which more than offset increased fiber costs.
. Excluding the 1995 one-time charge, operating profit improved 29.4 percent
due to the higher gross margin coupled with the savings from acceleration of
the 1993 restructuring plan. Management estimates that the accelerated plan
improved consolidated operating profit by more than $175 million in 1995
compared to 1994.
. Income from continuing operations improved faster than operating profit,
excluding the 1995 one-time charge, primarily because of reduced interest
expense due to lower average debt levels, partially offset by lower gains on
asset sale transactions in 1995. Also contributing significantly to the
improvement was a lower effective income tax rate in 1995 versus 1994 (after
excluding the effects of the 1995 one-time charge) primarily as a result of
higher earnings in countries where net operating loss carryforwards were
realized, tax law changes in the Netherlands that caused deferred tax assets
to be recognized and tax credits. The 1994 effective income tax rate was
abnormally high due to recording the 1994 effect of a conforming accounting
adjustment for Scott's income tax liabilities.
TRENDS IN THE LAST THREE YEARS
NET SALES
($ Billions) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
Principal products:
Tissue ......................................................... $ 6.9 $ 6.9 $ 5.9
Diapers ........................................................ 2.3 2.1 1.7
All other ...................................................... 3.9 4.4 4.0
------- ------- -------
Consolidated ..................................................... $ 13.1 $ 13.4 $ 11.6
======= ======= =======
. Consolidated net sales have grown $1.8 billion, or 15.9 percent, since 1993.
The decline from 1995 to 1996 is due to the loss of revenues from businesses
that were divested in 1995 and those that were sold in 1996 to satisfy
regulatory requirements associated with the Scott merger. Excluding these
sales, net sales increased $.6 billion in 1996 primarily as a result of
higher sales volumes for personal care products worldwide.
. The increase in sales from 1994 to 1995 is attributable primarily to improved
selling prices for tissue products, pulp and newsprint, a better product mix
and the effects of currency translation.
ANALYSIS OF OPERATING PROFIT AS A PERCENTAGE OF NET SALES
1996 1995 1994
- ------------------------------------------------------------------------------
Net sales ......................................... 100.0% 100.0% 100.0%
Less:
Cost of products sold ........................... 62.7 66.0 67.0
Marketing expense ............................... 15.4 15.6 15.4
Research expense ................................ 1.6 1.5 1.8
General expense ................................. 4.7 4.5 4.8
1995 one-time charge ............................. - 10.8 -
---- ---- ----
Operating profit .................................. 15.6% 1.6% 11.0%
==== ==== ====
. Excluding the 1995 one-time charge, operating profit margins have improved
during each of the last two years.
. As discussed previously, the 1996 improvement in operating profit margin was
caused principally by higher sales volumes, merger synergies, manufacturing
efficiencies for personal care products and lower pulp costs worldwide.
. The improvement in operating profit margin in 1995 was attributable
principally to higher selling prices, which more than offset the industry-
wide increase in fiber costs, and to the savings from the acceleration of the
1993 restructuring plan. Offsetting some of the 1995 improvements were
higher marketing expenses for the support of Viva Ultra towels and Cottonelle
bathroom tissue in the U.S. and Huggies disposable diapers in Europe.
LIQUIDITY AND CAPITAL RESOURCES
Year Ended
December 31
-------------------
($ Millions) 1996 1995
- --------------------------------------------------------------------------------------------
Cash provided by operations ......................................... $ 1,674.2 $931.6
Capital spending .................................................... 883.7 817.6
Proceeds from disposition of property and businesses ................ 455.4 336.1
Ratio of total debt to capital ...................................... 32.9% 41.9%
Pretax interest coverage - times .................................... 11.2 1.6
Commentary:
. Cash provided from operations increased $742.6 million in 1996 compared to
1995. Excluding the effect of the 1995 one-time charge, the cash flow
improvement is attributable, in large part, to the increase in net income,
the timing of income tax payments and lower investments in accounts
receivable and inventories. Excluding businesses acquired or disposed of,
the Corporation was able to manage its sales growth without higher
investments in accounts receivable and inventories. Partially offsetting
these sources of cash from operations were decreases in accounts payable and
in accrued liabilities, attributable, in large part, to cash payments related
to the 1995 restructuring and other unusual accruals.
. During 1995 and 1996, $86.2 million and $300.8 million, respectively, of cash
payments were charged to the reserves related to the one-time charge. The
Corporation expects payments of approximately $340 million will be charged to
these reserves in 1997.
. The ratio of total debt to capital decreased to 32.9 percent in 1996 from
41.9 percent as a consequence of the higher earnings, strong cash flow and
reduction in total debt.
. The improvement in the pretax interest coverage to 11.2 times from 1.6 times
is due to the lower debt levels, the higher earnings and the effect of the
1995 one-time charge. Excluding the effect of such charge, the 1995 pretax
interest coverage was 5.8 times.
. Cash proceeds received in 1996 in connection with the regulatory disposals,
the sale of the Corporation's remaining 20 percent interest in Midwest and
other asset sales totaled $455.4 million.
. In 1996, the Corporation purchased 4.1 million shares of its common stock for
the treasury at a total cost of approximately $320 million in connection with
its 6.5 million share reacquisition program announced in April 1996 and the
remaining authority of a 1994 program. An additional 3.7 million shares
remain to be acquired under the 1996 authority. The shares will be used
primarily for certain of the Corporation's employee benefit and compensation
programs.
. Total debt decreased more than $485 million during 1996.
. During 1996, the Corporation:
. Purchased the Peaudouce diaper business in France, thereby making the
Corporation the second largest diaper company in Europe;
. Entered the Brazilian personal care market with the purchase of 51 percent
of Kenko do Brasil;
. Increased its ownership of Kimberly-Clark Argentina to 100 percent;
. Formed a joint venture company in Israel, Hogla-Kimberly Ltd., by
purchasing 49.9 percent of the country's leading consumer products company;
. Increased ownership interest to 100 percent in Kimberly-Clark de Centro
America;
. Purchased 51 percent of Papelera Guaicaipuro, marking the Corporation's
first entry into the Venezuelan tissue market;
. Acquired an additional 49 percent interest in Kimberly-Clark Malaysia,
thereby increasing the Corporation's ownership to 100 percent; and
. Acquired Zisoft-Bobi, a leading producer of diapers and incontinence care
products in the Czech Republic.
These acquisitions were made for cash of $223.6 million and debt of $106.8
million.
. The Corporation has agreed to sell its pulp and newsprint mill, inventories
and related woodlands at Coosa Pines, Alabama, for approximately $600
million in cash to Alliance Forest Products (`Alliance''), a Montreal-
based company. The transaction, which is subject to completion of financing
by Alliance and other customary conditions, is expected to close in late
March 1997. The companies also agreed to a five-year supply contract under
which the Corporation will purchase a significant portion of the pulp
produced at the Coosa mill for use in its consumer products. The
Corporation intends to use the proceeds from the sale primarily to fund its
ongoing program of share repurchases and to continue to make global
acquisitions.
. A shelf registration for $200 million of debt securities is on file with the
Securities and Exchange Commission. The filing provides flexibility to issue
debt promptly if the Corporation's needs and market conditions warrant.
. Revolving credit facilities of $1.0 billion are in place for general
corporate purposes and to back up commercial paper borrowings.
. The Corporation's long-term debt securities have a Double-A rating, and its
commercial paper is rated in the top category.
. Management believes that the Corporation's ability to generate cash from
operations and its capacity to issue short-term and long-term debt are
adequate to fund working capital, capital spending and other needs in the
foreseeable future.
CONTINGENCIES
As more fully described in Note 13 to the Financial Statements, the
Corporation is a defendant in asbestos litigation involving no specific amount
of damages demanded. In addition, a subsidiary of the Corporation is a
defendant in numerous actions in state and federal courts seeking damages
relating to breast implants allegedly covered by polyurethane foam manufactured
by a former division of Scott. The Corporation believes that it has meritorious
defenses against the asbestos and breast implant actions and that the final
results of such claims, while they cannot be predicted with certainty, will not
have a material adverse effect on the Corporation's business or results of
operations.
The Corporation has been served with complaints 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 has
spent or will spend on medical care of its citizens with alleged tobacco-related
illnesses. The Corporation has filed a motion to dismiss the complaints on
several grounds and believes that the Attorney General's claims are without
merit.
The Corporation also is subject to routine litigation from time to time which
individually, or in the aggregate, is not expected to have a material adverse
effect on the Corporation's business or results of operations.
ENVIRONMENTAL MATTERS
The Corporation is subject to federal, state and local environmental
protection laws and regulations with respect to its business operations and is
operating in compliance with, or taking action aimed at ensuring compliance
with, such laws and regulations. Compliance with these laws and regulations is
not expected to materially affect the Corporation's business or results of
operations. The Corporation has been named as a potentially responsible party
at a number of waste disposal sites, none of which individually, or in the
aggregate, in management's opinion, is likely to have a material adverse effect
on the Corporation's business or results of operations. Additional information
concerning environmental matters is disclosed in the Corporation's annual report
to the Securities and Exchange Commission on Form 10-K for the year ended
December 31, 1996 under the `Business'' and ``Legal Proceedings'' sections.
FOREIGN CURRENCY RISKS, HEDGING ACTIVITIES AND INFLATION RISKS
The Corporation's foreign currency risks and hedging activities are discussed
in Notes 7 and 8 to the Financial Statements. As previously discussed, the
fluctuations in the value of the Mexican peso have resulted in foreign currency
losses at K-C de Mexico in each of the last three years. The Corporation's
share of the 1996 peso loss was $2.3 million, compared with $38.5 million in
1995 and $39.2 million in 1994. After excluding the peso losses and the 1996
Mexican restructuring costs, K-C de Mexico's earnings have remained relatively
stable during the last three years. Historically, K-C de Mexico has been able
to increase both selling prices and sales volumes to recover, over time, the
effect of changes in currency exchange rates, as well as cost increases.
Nevertheless, management believes the peso foreign currency risk will remain in
the foreseeable future.
Beginning in 1997, the Mexican economy has been determined to be
hyperinflationary because that country's cumulative inflation rate for the last
three years has exceeded 100 percent. For accounting purposes,
the functional currency of K-C de Mexico will become the U.S. dollar
rather than the Mexican peso. The change in functional currency may negatively
affect earnings reported by that affiliate in 1997. On a pro forma basis, if
the U.S. dollar had been the functional currency for the entire year 1996, the
Corporation's 1996 earnings would not have been significantly affected.
The Corporation's inflation risks are managed on an entity-by-entity basis
through selective price increases, productivity increases and cost-containment
measures.
OUTLOOK - 1997
Effective April 2, 1997, the Corporation's quarterly dividend will increase
4.3 percent and its common stock will split 2-for-1. The moves reflect the
Corporation's record earnings, its strong balance sheet and management's
confidence in the future.
The Corporation plans divestitures as part of its strategy to exit the
cyclical pulp business. Pulp manufacturing is a capital-intensive business
given to price and profit uncertainties and no longer fits with the
Corporation's goals as a consumer products company. Internal pulp operations
have been meeting approximately 80 percent of the Corporation's worldwide virgin
fiber needs. Over the next 18 months, that number is expected to be reduced to
below 30 percent. The Corporation will retain sufficient pulp and recycled
fiber capacity in North America to support its away-from-home products and its
consumer tissue products in the value segment because these products are fiber-
intensive and compete with products from fiber-integrated manufacturers. The
Corporation plans to purchase market pulp for its premium brands.
The sale of the Corporation's pulp and newsprint mill in Coosa Pines,
Alabama, is expected to be completed in late March 1997 for approximately $600
million in cash. By mid-year 1998, the Corporation plans to sell mills in
the following additional locations: Terrace Bay, Ontario; New Glasgow,
Nova Scotia; and Miranda, Spain. These facilities will be sold only at
a fair price. Management intends to redeploy the capital from its pulp
operations into higher-returning investments for the Corporation's
shareholders.
In recognition of the Corporation's significant growth prospects, management
has set two aggressive, `stretch'' financial goals. First, management is
committed to doubling earnings per share from operations for the five-year
period from 1995 to the year 2000. To accomplish this, the Corporation must add
$1.1 billion in net earnings or the equivalent of $1.8 billion in operating
earnings. Approximately one-third of these earnings are expected to come from
volume growth and half from margin improvements, including benefits of the Scott
merger. Acquisitions are expected to provide the balance, more than replacing
any loss of earnings from divested businesses. The second goal is to deliver
total return to shareholders consistently in excess of the Standard & Poor's 500
Index.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report concerning the business outlook,
anticipated financial results, contingencies and contemplated transactions of
the Corporation and the adequacy of the 1995 one-time charge constitute forward-
looking statements and are based upon management's expectations and beliefs
concerning future events impacting the Corporation. There can be no assurance
that these events will occur or that the Corporation's results will be as
estimated.
The assumptions used as a basis for the forward-looking statements include
many estimates which, among other things, depend on the achievement of future
cost savings, including cost savings as a result of the Corporation's merger
with Scott, the achievement of projected volume increases, the consummation of
projected divestitures on terms advantageous to the Corporation and the
availability of suitable acquisition candidates. In addition, many factors
outside the control of the Corporation, including the prices of the
Corporation's raw materials, potential competitive pressures on selling prices
or advertising and promotion expenses for the Corporation's products,
fluctuations in foreign currency exchange rates, as well as general economic
conditions in the markets in which the Corporation does business, also could
impact the realization of such estimates.
CONSOLIDATED INCOME STATEMENT
Kimberly-Clark Corporation and Subsidiaries
Year Ended December 31
-----------------------------------------------
(Millions of dollars, except per share amounts) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
NET SALES ............................................ $ 13,149.1 $ 13,373.0 $ 11,627.9
Cost of products sold ............................... 8,241.4 8,828.1 7,793.7
----------- ----------- ----------
GROSS PROFIT ......................................... 4,907.7 4,544.9 3,834.2
Advertising, promotion and selling expenses ........ 2,029.7 2,080.9 1,792.7
Research expense ................................... 207.9 207.2 208.8
General expense .................................... 616.4 603.8 555.6
Restructuring and other unusual charges ............ - 1,440.0 -
----------- ----------- ---------
OPERATING PROFIT ..................................... 2,053.7 213.0 1,277.1
Interest income .................................... 28.1 33.3 24.1
Interest expense ................................... (186.7) (245.5) (270.5)
Other income (expense), net ........................ 107.2 103.6 117.2
----------- ----------- ---------
INCOME BEFORE INCOME TAXES ........................... 2,002.3 104.4 1,147.9
Provision for income taxes ......................... 700.8 153.5 464.9
----------- ----------- ---------
INCOME (LOSS) BEFORE EQUITY INTERESTS ................ 1,301.5 (49.1) 683.0
Share of net income of equity companies ............ 152.4 113.3 110.5
Minority owners' share of subsidiaries' net income . (50.1) (31.0) (27.0)
----------- ----------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY LOSS ................................... 1,403.8 33.2 766.5
Income of discontinued operation, net of income taxes - - 48.4
----------- ----------- ---------
INCOME BEFORE EXTRAORDINARY LOSS ..................... 1,403.8 33.2 814.9
Extraordinary loss, net of income taxes ............ - - (61.1)
----------- ----------- ---------
NET INCOME ........................................... $ 1,403.8 $ 33.2 $ 753.8
=========== =========== =========
PER SHARE BASIS
Income from continuing operations before
extraordinary loss ................................ $ 4.98 $ .12 $ 2.76
Income from discontinued operation ................. - - .17
Extraordinary loss ................................. - - (.22)
----------- ------------ ------------
NET INCOME ......................................... $ 4.98 $ .12 $ 2.71
=========== ============ ============
See Notes to Financial Statements.
CONSOLIDATED BALANCE SHEET
Kimberly-Clark Corporation and Subsidiaries
December 31
-------------------------
(Millions of dollars) ASSETS 1996 1995
- ---------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents .................................. $ 83.2 $ 221.6
Accounts receivable ........................................ 1,660.9 1,678.0
Inventories ................................................ 1,348.3 1,426.1
Deferred income tax benefits ............................... 327.4 335.3
Prepaid expenses and other ................................. 119.4 152.8
-------- ----------
TOTAL CURRENT ASSETS ....................................... 3,539.2 3,813.8
PROPERTY
Land and timberlands ....................................... 291.9 289.1
Buildings .................................................. 1,807.8 1,728.6
Machinery and equipment .................................... 9,234.0 8,601.1
Construction in progress ................................... 593.5 301.1
-------- ---------
11,927.2 10,919.9
Less accumulated depreciation .............................. 5,113.9 4,866.6
-------- ---------
NET PROPERTY .............................................. 6,813.3 6,053.3
INVESTMENTS IN EQUITY COMPANIES .............................. 551.1 413.4
ASSETS HELD FOR SALE.......................................... - 330.2
GOODWILL, DEFERRED CHARGES AND OTHER ASSETS .................. 942.1 828.5
--------- -----------
$11,845.7 $ 11,439.2
========= ===========
See Notes to Financial Statements.
December 31
-----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ----------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Debt payable within one year ............................... $ 576.5 $ 817.8
Trade accounts payable ..................................... 849.8 888.3
Other payables ............................................. 269.5 215.3
Accrued expenses ........................................... 1,460.1 1,555.3
Accrued income taxes ....................................... 401.3 320.7
Dividends payable .......................................... 129.7 72.2
----------- -----------
TOTAL CURRENT LIABILITIES ................................. 3,686.9 3,869.6
LONG-TERM DEBT ............................................... 1,738.6 1,984.7
NONCURRENT EMPLOYEE BENEFIT AND OTHER OBLIGATIONS ............ 926.1 974.9
DEFERRED INCOME TAXES ........................................ 762.3 723.1
MINORITY OWNERS' INTERESTS IN SUBSIDIARIES ................... 248.7 236.5
STOCKHOLDERS' EQUITY
Preferred stock - no par value - authorized 20.0 million shares,
none issued ............................................... - -
Common stock - $1.25 par value - authorized 600.0 million shares;
issued 284.3 million and 282.3 million at December 31, 1996 and
1995, respectively ....................................... 355.4 352.9
Additional paid-in capital ................................. 492.1 419.0
Common stock held in treasury, at cost - 2.6 million and 1.5 million
shares at December 31, 1996 and 1995, respectively ........ (214.4) (74.9)
Unrealized currency translation adjustments ................ (656.8) (640.5)
Retained earnings .......................................... 4,506.8 3,593.9
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ................................ 4,483.1 3,650.4
----------- -----------
$ 11,845.7 $ 11,439.2
=========== ===========
CONSOLIDATED CASH FLOW STATEMENT
Kimberly-Clark Corporation and Subsidiaries
Year Ended December 31
---------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
OPERATIONS
Net income ....................................... $1,403.8 $ 33.2 $ 753.8
Restructuring and other unusual charges, net of cash
expended ....................................... - 1,353.8 -
Extraordinary loss on early extinguishment of debt,
net of income taxes ............................. - - 61.1
Depreciation ..................................... 561.0 581.7 635.9
Deferred income tax provision (benefit) .......... 40.5 (330.0) (78.6)
Gains on asset sales ............................. (75.1) (118.5) (107.9)
Equity companies' earnings in excess of dividends paid (100.2) (57.6) (60.5)
Minority owners' share of subsidiaries' net income 50.1 31.0 27.0
Changes in operating working capital ............. (141.6) (527.9) (215.9)
Pension funding in excess of expense ............. (28.2) (89.0) (101.0)
Other ............................................ (36.1) 54.9 (.2)
-------- --------- ----------
CASH PROVIDED BY OPERATIONS ................... 1,674.2 931.6 913.7
-------- --------- ----------
INVESTING
Capital spending ................................. (883.7) (817.6) (857.3)
Acquisitions of businesses ....................... (223.6) (76.1) (118.0)
Proceeds from disposition of property and businesses 455.4 336.1 1,936.4
Other ............................................ 18.9 3.8 (2.4)
-------- --------- ----------
CASH PROVIDED BY (USED FOR) INVESTING ......... (633.0) (553.8) 958.7
-------- --------- ----------
FINANCING
Cash dividends paid .............................. (461.5) (348.2) (341.8)
Changes in short-term debt ....................... (348.8) (25.2) (111.9)
Increases in long-term debt ...................... 75.8 80.7 226.6
Decreases in long-term debt ...................... (321.2) (944.0) (586.7)
Premiums paid on early extinguishment of debt and interest
rate swaps ...................................... - - (59.3)
Proceeds from exercise of stock options .......... 207.9 121.4 53.4
Acquisition of common stock for the treasury ..... (348.8) (137.8) (52.2)
Other ............................................ 17.0 (40.9) (31.1)
-------- --------- ----------
CASH USED FOR FINANCING ....................... (1,179.6) (1,294.0) (903.0)
-------- --------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ... $ (138.4) $ (916.2) $ 969.4
======== ========= ==========
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Kimberly-Clark Corporation and Subsidiaries
NOTE 1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Kimberly-Clark
Corporation and all subsidiaries which are more than 50 percent owned.
Investments in significant nonconsolidated companies which are at least 20
percent owned are stated at cost plus equity in undistributed net income. These
latter companies are referred to as equity companies.
All financial information includes the results of Scott Paper Company
(`Scott'') for all periods presented prior to the merger on December 12, 1995
(see Note 2). The merger was accounted for as a pooling of interests. In 1995
and 1994, certain of Scott's international subsidiaries had a fiscal year based
on the twelve months ending November 30. In 1996, these international
subsidiaries adopted a fiscal year ending December 31. The effect of the fiscal
year change was not significant. Additionally, certain reclassifications have
been made to conform prior years' data to the current year presentation.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingencies at the date of the financial statements and the
reported amounts of net sales and expenses during the reporting period.
Differences from those estimates are recorded in the period they become known.
PER SHARE DATA
Per share data are based on the average number of common shares outstanding
during the period. The average and year-end number of common shares outstanding
were as follows:
Common Shares Outstanding
(Millions) 1996 1995 1994
-----------------------------------------------
Average 282.0 279.5 278.2
December 31 281.7 280.8 278.1
INVENTORIES
Most U.S. inventories are valued at cost on the Last-In, First-Out (LIFO)
method for U.S. income tax purposes and for financial reporting purposes. The
balance of the U.S. inventories and inventories of consolidated operations
outside the U.S. are valued at the lower of cost, generally using the First-In,
First-Out (FIFO) method, or market.
PROPERTY AND DEPRECIATION
Property, plant and equipment are stated at cost. Depreciable property is
depreciated on the straight-line or units-of-production method for financial
reporting purposes and generally on an accelerated method for income tax
purposes. When property is sold or retired, the cost of the property and the
related accumulated depreciation are removed from the balance sheet and any gain
or loss on the transaction is included in income.
GOODWILL, DEFERRED CHARGES AND OTHER ASSETS
Goodwill is amortized on the straight-line method over various periods not
exceeding 40 years. The realizability of goodwill is evaluated periodically to
assess recoverability and, if warranted, impairment would be recognized.
Costs of bringing significant new or expanded facilities into operation are
recorded as deferred charges and amortized to income over periods of not more
than five years.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures related to current operations which qualify as
property, plant and equipment or which substantially increase the economic value
or extend the useful life of an asset are capitalized, and all other
expenditures are expensed as incurred. Environmental expenditures that relate
to an existing condition caused by past operations are expensed. Liabilities
are recorded when environmental assessments and/or remedial efforts are
probable, and the costs can be reasonably estimated. Generally, the timing of
these accruals coincides with completion of a feasibility study or a commitment
to a formal plan of action.
ACCOUNTING STANDARDS CHANGE
The Corporation adopted Statement of Financial Accounting Standards (``SFAS'')
123, `Accounting for Stock-Based Compensation,'' effective January 1, 1996, and
has elected to continue to measure compensation cost for stock options and
awards based on intrinsic value under Accounting Principles Board Opinion 25,
`Accounting for Stock Issued to Employees.'' See Note 9.
NOTE 2. BUSINESS COMBINATION
Effective December 12, 1995, the Corporation issued 119.7 million shares of
its common stock for all of the outstanding common stock of Scott, a worldwide
producer of sanitary tissue products. Scott shareholders received .78 of a
share of the Corporation's common stock for each share of Scott's common stock,
for a total value of $9.4 billion. The merger qualified as a tax-free
reorganization and was accounted for as a pooling of interests. Accordingly,
the Corporation's consolidated financial statements were restated for all
periods prior to the business combination to include the results of operations,
financial positions and cash flows of Scott. In conjunction with the
restatement, accounting practices of Scott were conformed to those of Kimberly-
Clark.
NOTE 3. RESTRUCTURING AND OTHER UNUSUAL CHARGES
In the fourth quarter of 1995, the Corporation recorded a one-time pretax
charge of $1,440.0 million (`one-time charge''), $1,070.9 million after income
taxes and minority interests, or $3.83 per share, for the estimated costs of the
merger with Scott, for restructuring the combined operations and for other
unusual charges. The charges included: (i) the costs of plant rationalizations
and employee terminations to eliminate duplicate facilities and excess capacity;
(ii) losses in connection with compliance with decrees of the U.S. Justice
Department and the European Commission; (iii) costs of terminating leases,
contracts and other long-term agreements; (iv) the direct costs of the merger,
including fees of investment bankers, outside legal counsel and independent
auditors; (v) impaired asset charges; and (vi) other unusual charges.
The one-time charge was based on management's announced plans and information
available at the time the decision was made to undertake the restructuring and
other planned actions, and the majority of these actions have been accomplished.
However, based on events occurring in 1996, certain aspects of the Corporation's
original plans for integrating the two organizations and accomplishing the
objectives of the merger have, of necessity, been reassessed. Although certain
specific actions originally contemplated in the 1995 one-time charge have been
modified, management still believes that the overall plan for restructuring the
Corporation following the merger and accomplishing the other matters included in
the one-time charge will be completed at a total cost of approximately $1,440.0
million.
Major categories of the one-time charge and their subsequent utilization are
summarized below:
Amounts Charged Amounts Amounts to be
to Earnings Utilized through Utilized in
(Millions of dollars) in 1995 December 31, 1996(a) 1997(b)
- -------------------------------------------------------------------------------------------------
Workforce related .................... $ 220.2 $ 142.0 $ 78.2
Mill and facility disposals .......... 293.6 293.6 -
Excess capacity, restructured facilities and
other assets ........................ 449.1 289.9 159.2
Contract settlements, lease terminations,
merger fees and expenses and other. 318.8 133.1 185.7
Asset impairments .................... 158.3 158.3 -
--------- ---------- ----------
$ 1,440.0 $ 1,016.9 $ 423.1
========= ========== ==========
(a) Includes reclassifications between categories as explained below.
(b) As of December 31, 1996, $339.7 million is included in accrued expenses and
the remainder is carried as a reduction in the carrying amount of related
assets.
At December 31, 1996, the remaining reserves for restructuring and other
unusual charges are estimated to be adequate to cover the planned actions
contemplated in the one-time charge, and the reserves are expected to be
substantially utilized by December 31, 1997.
The Corporation considers the amounts included in the one-time charge to be
utilized when the following specific criteria are met. Workforce related
reserves are considered utilized when severance payments and related costs are
paid. The reserves for mill and facility disposals are considered
utilized when a formal agreement has been reached to sell such facilities.
Reserves for excess capacity, restructured facilities and other assets are
considered utilized at the occurrence of one of the following events: management
(i) enters into specific planned actions to close such facilities;
(ii) disposes of such facilities, or (iii) elects to write off such assets
because there are no plans for any future recovery. Costs for contract
settlements, lease terminations, and merger fees and expenses are considered
utilized when such agreements are settled and required payments are made.
Provisions for asset impairments were based on discounted cash flow
projections in accordance with SFAS 121, `Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,' and such
assets were written down to their estimated fair values at December 31, 1995.
The operating costs of mills and facilities targeted for disposal were
charged to operating profit during the period such facilities remained in use.
Salaries, wages and benefits of employees affected by planned workforce and
staff reductions were charged to operations during the time such employees were
employed in operations.
During the negotiations with regulatory authorities responsible for
approval of the merger and as a consequence of more in-depth studies of
certain facilities, several strategic changes were made to the planned
restructuring of the Corporation in 1996 as outlined below.
A decision by the European Commission required the sale of the
Corporation's tissue mill in Prudhoe, England, and certain consumer tissue
businesses in the United Kingdom and Ireland. These disposals were completed
in September. While the Prudhoe facility and these businesses were being
marketed, management conducted more in-depth studies and evaluations of a
number of the European facilities it had originally planned to close or
divest. Based on these studies and evaluations, management decided to
restructure certain operations. It was decided to consolidate the
Corporation's feminine care production at its Forchheim mill in Germany and
close its feminine care products mill in Veenendaal, Netherlands. In
addition, the Corporation restructured its tissue mill in Larkfield, England,
and expects to downsize other facilities in Flensburg and Koblenz, Germany,
and Gennep, Netherlands. Although certain planned actions for individual mills
and facilities were modified in 1996, management believes that the revised
plans remain consistent with its overall plan for restructuring the
Corporation's operations in Europe and that the costs of such revised plans
approximate those estimated in 1995.
The consent decree of the U.S. Justice Department required the sale of the
Scott baby wipes business and the related Dover, Delaware, production
facility, the licensing of the Scotties facial tissue brand name and the sale
of two of four tissue mills located in the U.S. In June, the Corporation sold
the baby wipes business previously conducted by Scott and the Dover production
facility. In July, the Corporation sold the Fort Edward, New York, tissue
mill and licensed the Scotties facial tissue brand and, in November, it sold
the Lakeview tissue mill in Neenah, Wisconsin.
The regulatory disposals above resulted in total cash proceeds of
approximately $400 million and a net gain of $.19 per share. These
transactions completed all disposals required to comply with the decrees of
the European Commission and the U.S. Justice Department.
The planned actions related to the reserve for write-downs of the carrying
amounts of excess capacity, duplicate facilities and other assets were revised
due to a fundamental change in plans in 1996 with respect to disposal of a
Canadian tissue facility owned by Scott Paper Limited (`SPL''), a 50.1
percent-owned subsidiary. Prior to the merger with Scott, the Corporation
entered into an agreement with the Canadian Bureau of Competition Policy in
which the Corporation agreed not to manage SPL and to hold SPL separate until
agreement was reached on divestitures in Canada. The Corporation originally
planned to acquire the remaining interest in SPL and to eliminate excess
Canadian tissue-making capacity. However, after due diligence and
consideration of the cost and unfavorable impact of the divestitures required
to merge the Corporation's Canadian operations, management decided to sell its
interest in SPL. Because the SPL sale is expected to result in a gain, the
reserve to eliminate excess capacity was no longer needed. Also included in
this category of reserves were accrued costs to facilitate an orderly and
satisfactory transfer of customer relationships. In 1996, these accrued costs
were determined to be underestimated and, consequently, a portion of the
excess capacity reserve was reassigned to cover these additional costs.
The Corporation's original plan included a total workforce reduction of
6,000 employees from elimination of duplicate staff and sales positions and the
sale of facilities to eliminate duplicate or excess capacity or to satisfy
regulatory requirements associated with the merger. As previously mentioned,
several modifications to the regulatory disposal program were made during the
year. During 1995 and 1996, 4,200 employees left the Corporation under these
programs. An additional 1,800 employees, primarily at SPL, will no longer be
employed by the Corporation after that subsidiary is sold.
NOTE 4. INCOME TAXES
An analysis of the provision for income taxes follows:
Year Ended December 31
--------------------------------------------
(Millions of dollars) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
Current income taxes:
United States ....................................... $ 474.4 $ 280.3 $ 429.0
State ............................................... 67.6 43.7 44.6
Other countries ..................................... 118.3 159.5 62.6
--------- ---------- ---------
Total .............................................. 660.3 483.5 536.2
--------- ---------- ---------
Deferred income taxes:
United States ....................................... 38.8 (133.2) (74.2)
State ............................................... (10.1) (48.2) (6.6)
Other countries ..................................... 11.8 (148.6) 2.2
--------- ---------- ---------
Total 40.5 (330.0) (78.6)
--------- ---------- ---------
Total provision for income taxes....................... 700.8 153.5 457.6
Less income taxes related to:
Discontinued operation ............................... - - 28.5
Extraordinary loss .................................. - - (35.8)
--------- ---------- ---------
Total provision for income taxes - continuing operations $ 700.8 $ 153.5 $ 464.9
========= ========== =========
Income (loss) before income taxes is included in the financial statements as
follows:
(Millions of dollars) 1996 1995 1994
- -----------------------------------------------------------------------------------------
Continuing Operations:
United States ....................................... $1,624.9 $ 42.5 $ 976.0
Other countries ..................................... 377.4 61.9 171.9
-------- ----------- ---------
$2,002.3 $ 104.4 $ 1,147.9
======== =========== =========
Discontinued Operation:
United States ....................................... $ - $ - $ 71.6
Other countries ..................................... - - 5.3
-------- ----------- ---------
$ - $ - $ 76.9
======== =========== =========
Extraordinary Loss - United States .................... $ - $ - $ (96.9)
======== =========== =========
Deferred income tax assets (liabilities) as of December 31, 1996 and 1995 are
comprised of the following:
(Millions of dollars) 1996 1995
- ---------------------------------------------------------------------------------------------
Current deferred income tax assets attributable to:
Advertising and promotion accruals .......................... $ 41.4 $ 32.8
Pension, postretirement and other employee benefits ........ 83.4 64.9
Other accrued liabilities, including restructuring and
other unusual charges ..................................... 186.3 250.0
Other ...................................................... 33.2 39.3
Valuation allowances ....................................... (16.9) (51.7)
----------- ---------
Net current deferred income tax asset ..................... $ 327.4 $ 335.3
=========== =========
Noncurrent deferred income tax assets (liabilities)
attributable to:
Accumulated depreciation ................................... $ (1,016.2) $ (950.2)
Operating loss carryforwards ............................... 260.7 289.6
Other postretirement benefits .............................. 320.8 298.0
Installment sales .......................................... (137.9) (137.9)
Other ...................................................... - (13.6)
Valuation allowances ....................................... (189.7) (209.0)
----------- ---------
Net noncurrent deferred income tax liability .............. $ (762.3) $ (723.1)
=========== =========
The valuation allowances for deferred income tax assets decreased by $54.1
million in 1996 and increased by $34.1 million in 1995. Valuation allowances
relate to the potentially unusable portion of tax loss carryforwards of $712.3
million which are in jurisdictions outside the United States. If not utilized
against taxable income, $277.3 million of this amount will expire from 1997
through 2001. The remaining $435.0 million has no expiration date.
Realization of deferred tax assets is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax assets, net of applicable valuation allowances, will be
realized. The amount of the deferred tax assets considered realizable could be
reduced or increased if estimates of future taxable income during the
carryforward period are reduced or increased.
A reconciliation of the income tax provision computed at the U.S. federal
statutory tax rate to the provision for income taxes applicable to continuing
operations is as follows:
1996 1995 1994
----------------- ----------------------- --------------------
(Millions of dollars) AMOUNT PERCENT Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------------------------
Income before income taxes:
As reported ................. $2,002.3 $ 104.4 $1,147.9
Add back restructuring and other
unusual charges ............ - 1,440.0 -
-------- ---------- --------
Income before income taxes
excluding restructuring and
other unusual charges ... $2,002.3 $ 1,544.4 $1,147.9
======== ========== ========
Tax at U.S. statutory rate(a) . $ 700.8 35.0% $ 540.5 35.0% $ 401.8 35.0%
State income taxes, net of federal
tax benefit .................. 37.3 1.9 34.2 2.2 28.2 2.5
Operating losses for which no tax
benefit was recognized ....... 22.6 1.1 10.9 .7 53.6 4.7
Net operating losses realized . (12.6) (.6) (70.6) (4.6) (21.7) (1.9)
Increase in income tax liabilities
for Scott .................... - - - - 42.4 3.7
Other - net ................... (47.3) (2.4) (1.5) (.1) (39.4) (3.5)
-------- ---- ---------- ----- -------- ----
700.8 35.0% 513.5 33.2% 464.9 40.5%
==== ===== ====
Tax benefit of restructuring and
other unusual charges(b) .... - (360.0) 25.0% -
--------- ----------- --------
Provision for income taxes ... $ 700.8 35.0% $ 153.5 147.0% $ 464.9 40.5%
========= =========== ========
(a) Tax at U.S. statutory rate is based on income before income taxes excluding
restructuring and other unusual charges of $1,440 million in 1995. The tax
benefit of such items is shown elsewhere in the table.
(b) The effective rate for the tax benefit attributable to the restructuring
and other unusual charges in 1995 is lower than the statutory rate of 35.0
percent because certain costs and fees are not deductible and others relate
to operations in countries in which the Corporation has income tax loss
carryforwards for which valuation allowances have been recorded.
At December 31, 1996, income taxes have not been provided on approximately
$1.7 billion of unremitted earnings of subsidiaries operating outside the U.S.
These earnings, which are considered to be indefinitely invested, would become
subject to income tax if they were remitted as dividends, were lent to the
Corporation or a U.S. affiliate, or if the Corporation were to sell its stock in
the subsidiaries. Determination of the amount of unrecognized deferred U.S.
income tax liability on these unremitted earnings is not practicable because of
the complexities associated with its hypothetical calculation; however,
unrecognized foreign tax credit carryforwards would be available to reduce some
portion of the U.S. liability. Withholding taxes of approximately $100 million
would be payable upon remittance of all previously unremitted earnings at
December 31, 1996.
NOTE 5. POSTRETIREMENT AND OTHER BENEFITS
DEFINED-BENEFIT RETIREMENT PLANS
The Corporation and its subsidiaries in North America and the United Kingdom
have defined-benefit retirement plans covering substantially all full-time
employees. Plans covering U.S. salaried employees provide pension benefits
based on years of service (only through December 31, 1994 for certain employees
participating in the defined-contribution retirement plan discussed later in
this note) and compensation during the final years of employment. Plans
covering U.S. hourly employees provide benefits of stated amounts for each year
of service or benefits based on years of service and compensation during the
final years of employment. For plans in North America and the United Kingdom,
the funding policy is to contribute assets that, at a minimum, fully fund the
accumulated benefit obligation, subject to regulatory and tax deductibility
limits. The policy for the remaining plans, which are comprised primarily of
pension or termination pay plans outside North America and nonqualified U.S.
plans providing pension benefits in excess of limitations imposed by the U.S.
income tax code, is to fund them based on legal requirements, tax
considerations, customary business practices in such countries and investment
opportunities. Assets held in the pension trusts are comprised principally of
common stocks, high-grade corporate and government bonds, real estate funds and
various short-term investments.
Most other subsidiaries outside the U.S. have pension plans or, in certain
countries, termination pay plans covering substantially all full-time employees.
Obligations under such plans are provided for by contributing to trusts,
purchasing insurance policies, or recording liabilities.
The components of net pension cost were as follows:
Year Ended December 31
-----------------------------
(Millions of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
Benefits earned .......................................... $ 86.0 $ 78.0 $ 103.7
Interest on projected benefit obligation ................. 243.9 249.8 225.8
Amortization and other ................................... 13.4 4.0 12.7
------- ------- --------
343.3 331.8 342.2
Less expected return on plan assets (actual returns on plan assets
were gains of $446.1 million in 1996 and $521.7 million in 1995
and a loss of $3.4 million in 1994) .................... 283.2 276.1 258.7
------- ------- --------
Net pension cost ......................................... $ 60.1 $ 55.7 $ 83.5
======= ======= ========
The weighted-average assumptions used to determine net pension costs were as
follows:
1996 1995 1994
- -----------------------------------------------------------------------------------
Expected long-term rate of return on plan assets 9.6% 10.2% 9.8%
Discount rate .................................. 7.5% 8.7% 7.4%
Assumed rate of increase in compensation ....... 4.4% 5.4% 4.3%
Transition adjustments are being amortized on the straight-line method over
14 to 21 years. Prior service cost is being amortized on a straight-line basis
over the participants' average remaining service period for plans with
compensation-related benefit formulas and over seven years for certain other
plans.
The funded status of the defined-benefit plans is presented below as of
December 31:
1996 PLANS WHERE 1995 Plans Where
---------------------------- ---------------------
ASSETS ABO Assets ABO
EXCEED EXCEEDS Exceed Exceeds
(Millions of dollars) ABO ASSETS(a) ABO Assets(a)
- --------------------------------------------------------------------------------------------------------------
Actuarial present value of plan benefits:
Accumulated benefit obligation (ABO):
Vested ................................. $2,834.5 $ 132.7 $1,638.5 $1,289.8
Nonvested .............................. 48.4 3.4 36.9 40.1
-------- --------- -------- --------
Total ................................ $2,882.9 $ 136.1 $1,675.4 $1,329.9
======== ========= ======== ========
Projected benefit obligation .............. $3,233.7 $ 161.0 $1,974.0 $1,398.9
Plan assets at fair value ................. 3,318.7 24.5 1,832.6 1,193.5
-------- --------- -------- --------
Projected benefit obligation less than (in excess of)
plan assets ............................. $ 85.0 $ (136.5) $ (141.4) $ (205.4)
======== ========= ======== ========
Consisting of:
Unfavorable actuarial experience ....... $ (48.8) $ (32.9) $ (261.5) $ (94.2)
Unamortized transition adjustments ..... 26.6 (4.2) 4.0 21.9
Unamortized prior service costs ........ (42.9) (7.3) (20.7) (19.3)
Net prepaid (accrued) pension costs .... 150.1 (119.4) 136.8 (175.1)
Adjustment for minimum liability ....... - 27.3 - 61.3
-------- --------- -------- --------
Total ................................ $ 85.0 $ (136.5) $ (141.4) $(205.4)
======== ========= ======== ========
(a)In 1996, plans with accumulated benefit obligations that exceed plan assets
are comprised primarily of pension or termination pay plans outside North
America and nonqualified U.S. plans providing pension benefits in excess of
limitations imposed by the U.S. income tax code. Benefits under these
arrangements are paid directly by the sponsoring entity. In addition, in the
case of the nonqualified U.S. benefit plans, assets held in Rabbi trusts are
available to pay a portion of such benefits. At December 31, 1995, the Scott
pension plans were also included in this category. In 1996, as a result of
funding by the Corporation, asset performance during the year and current
actuarial assumptions, those plans' assets exceed their accumulated benefit
obligations at December 31, 1996.
The weighted-average assumptions used to determine the projected benefit
obligation were as follows:
December 31
----------------------------
1996 1995
- --------------------------------------------------------------------------------------------
Discount rate(a) ......................................... 7.9% 7.5%
Assumed rate of increase in compensation ................. 4.9% 4.4%
(a) Weighted-average discount rates for U.S. plans were 7.75% and 7.25% at
December 31, 1996 and 1995, respectively.
The Corporation's 1995 one-time charge included $18.1 million of costs for
enhanced termination pension benefits and curtailment losses. This charge
increased the Corporation's accrued pension liability.
DEFINED CONTRIBUTION RETIREMENT PLANS
Effective January 1, 1995, certain U.S. salaried employees became covered by
a defined contribution retirement plan. The Corporation's contribution to the
plan is based on the covered employees' age and compensation. The Corporation's
contribution charged to expense was $8.5 million and $9.7 million in 1996 and
1995, respectively.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Substantially all retired employees of the Corporation and its North American
subsidiaries and certain international employees are covered by health care and
life insurance benefit plans. Benefits are based on years of service and age at
retirement. The plans are principally noncontributory for retirees prior to
1993, and are contributory for most future retirees. Certain U.S. plans place a
limit on the Corporation's cost of future annual per capita retiree medical
benefits at no more than 200 percent of the 1992 annual per capita cost.
Certain other U.S. plans place a limit on the Corporation's future cost for
retiree medical benefits to a defined annual per capita medical cost.
The components of postretirement health care and life insurance benefit costs
were as follows:
Year Ended December 31
------------------------------
(Millions of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Benefits earned ........................................... $ 12.0 $ 10.3 $ 17.5
Interest on accumulated postretirement benefit obligation . 48.0 54.6 47.3
Amortization .............................................. (4.4) (.8) (.4)
-------- ------- --------
Net postretirement benefit costs (of which $54.3 million, $49.9 million,
and $48.5 million were paid in 1996, 1995 and 1994, respectively) $ 55.6 $ 64.1 $ 64.4
======== ======= ========
The components of the postretirement health care and life insurance benefit
obligation are presented below:
<CAPTON>
December 31
-----------------
(Millions of dollars) 1996 1995
- ---------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees ............................................. $438.7 $503.1
Fully eligible active plan participants .............. 62.2 76.1
Other active plan participants ....................... 130.9 144.3
------ ------
Total ............................................... 631.8 723.5
Favorable actuarial experience ......................... 119.0 23.2
Unrecognized prior service gain ........................ 22.3 26.9
------ ------
Total accrued postretirement benefit liability ......... 773.1 773.6
Less current portion ................................... 56.5 59.7
------ ------
Noncurrent portion ..................................... $716.6 $713.9
====== ======
Weighted-average discount rates used to determine the accumulated
postretirement benefit obligation for all plans were 7.8% and 7.3% at December
31, 1996 and 1995, respectively. The rates used for the U.S. plans were 7.75%
and 7.25% at December 31, 1996 and 1995, respectively.
The December 31, 1996 accumulated postretirement benefit obligation for the
Kimberly-Clark U.S. plans was determined using an assumed health care cost trend
rate of 9.2% in 1997, declining to zero in 2007 and thereafter, which reflects
the previously described limit on the Corporation's cost of annual per capita
retiree medical benefits. The December 31, 1995 accumulated postretirement
benefit obligation was determined using a trend rate of 9.8% in 1996, declining
to zero in 2002 and thereafter.
The December 31, 1996 accumulated postretirement benefit obligation for the
Scott U.S. plans was determined using an assumed health care cost trend rate of
9.2% in 1997, declining gradually to an ultimate rate of 6.0% for certain plans
and to zero in 2003 and thereafter for others. The December 31, 1995
accumulated postretirement benefit obligation was determined using an assumed
health care cost trend rate of 9.0% in 1996, declining gradually to an ultimate
rate of 6.0% for certain plans and to zero for others.
A one-percentage point increase in the health care cost trend rates would
increase the accumulated postretirement benefit obligation by $17.0 million at
December 31, 1996 and expense by $1.5 million for the year then ended.
In connection with the business dispositions referred to in Notes 3 and 12,
the Corporation transferred certain postretirement benefit obligations to the
respective buyers. The net postretirement curtailment and settlement recognized
on these sales was a $2.1 million gain in 1996 and a $14.9 million loss in 1995.
As a result of the 1994 sale of S.D. Warren, referred to in Note 12, the
Corporation realized a curtailment gain of $61.1 million ($38.5 million after
taxes).
INVESTMENT PLANS
Voluntary contribution investment plans are provided to substantially all
North American employees. Under the plans, the Corporation matches a portion of
employee contributions. Costs charged to expense under the plans were $24.1
million, $26.0 million and $33.4 million in 1996, 1995 and 1994, respectively.
NOTE 6. DEBT
The major issues of long-term debt outstanding were:
December 31
------------------------
(Millions of dollars) 1996 1995
- ---------------------------------------------------------------------------------------------------
Kimberly-Clark Corporation:
7 7/8% Debentures due 2023 ................................... $ 199.7 $ 199.7
8 5/8% Notes due 2001 ........................................ 199.7 199.6
9 1/8% Notes due 1997 ........................................ 100.0 100.0
9% Notes due 2000 ............................................ 99.9 99.8
6 7/8% Debentures due 2014 ................................... 99.7 99.7
5% Notes maturing to 2002 .................................... 54.0 -
9 1/2% Sinking Fund Debentures due 2018 ...................... 50.0 49.9
6.2% to 7.55% Industrial Development Revenue Bonds maturing to 2023 79.6 97.9
Other ........................................................ .5 3.4
---------- ---------
883.1 850.0
Subsidiaries:
7% Debentures due 2023 ....................................... 193.5 193.3
5.375% Swiss Franc Bonds (swapped into U.S. dollars - effective interest
rate of 11.1%) due 2000 ..................................... 99.3 99.1
7.2% to 7.4% British Pound Notes paid in 1996 ................ - 186.3
8.3% to 13% Debentures maturing to 2022 ...................... 174.7 172.9
Industrial Development Revenue Bonds at variable rates (average rate
for December 1996 - 4.7%) due 2018, 2023 and 2024 ........... 250.0 250.0
5.53% to 6 3/8% Industrial Development Revenue Bonds maturing to 2007 60.5 76.8
Bank loans and other financings in various currencies at fixed rates
(average rate at December 31, 1996 - 9.8%) maturing to 2025 . 139.1 93.8
Bank loans and other financings in various currencies at variable rates
(average rate at December 31, 1996 - 8.2%) maturing to 2003 . 103.6 162.4
--------- ---------
1,903.8 2,084.6
Less current portion ........................................... 165.2 99.9
--------- ---------
Total ........................................................ $ 1,738.6 $ 1,984.7
========= =========
Scheduled maturities of long-term debt are $129.8 million in 1998, $60.3
million in 1999, $248.6 million in 2000 and $225.3 million in 2001.
At December 31, 1996, the Corporation had $1.0 billion of revolving credit
facilities with a group of banks. These facilities, which were unused at
December 31, 1996, permit borrowing at competitive interest rates and are
available for general corporate purposes, including backup for commercial paper
borrowings. The Corporation pays commitment fees on the unused portion but may
cancel the facilities without penalty at any time prior to their expiration. Of
these facilities, $500 million expires in December 1997 and $500 million expires
in March 2001.
Debt payable within one year:
December 31
-----------------
(Millions of dollars) 1996 1995
- -------------------------------------------------------------------------
Commercial paper..................................... $274.0 $496.5
Current portion of long-term debt ................... 165.2 99.9
Other short-term debt .............................. 137.3 221.4
------ ------
Total ............................................. $576.5 $817.8
====== ======
At December 31, 1996 and 1995, the weighted-average interest rate for
commercial paper was 5.5 percent and 5.8 percent, respectively.
In 1994, the Corporation recorded an extraordinary loss on the retirement of
debt of $61.1 million, net of income tax benefits of $35.8 million. The 1994
extraordinary loss related to net premiums paid to retire $934.2 million of
debentures and notes and to terminate interest rate swaps prior to their
scheduled maturities. The funding source for these retirements was principally
from the net proceeds received on the sale of S.D. Warren. Included in the
amounts retired are debentures and notes that were defeased by placing $221.3
million of U.S. government obligations in an irrevocable trust to service the
defeased debt.
NOTE 7. FOREIGN CURRENCY
FOREIGN EXCHANGE RISK
The Corporation and its subsidiaries and affiliates have manufacturing
facilities in 35 countries throughout the world. Consequently, Kimberly-Clark
is subject to foreign exchange translation risk as a result of strengthening or
weakening of various currencies against each other and the U.S. dollar.
Foreign currency losses included in consolidated net income were $2.9
million, $46.4 million and $51.1 million for 1996, 1995 and 1994, respectively.
The losses include the Corporation's share of foreign currency losses
attributable to the effect of the devaluation of the Mexican peso, as explained
below, and losses from other currency transactions and from the translation of
balance sheet accounts of operations in hyperinflationary economies.
Certain equity affiliates and subsidiaries, located in Mexico and Latin
America, have financed a portion of their operations with U.S. dollar-
denominated liabilities, thereby creating foreign currency transaction risks.
The net exposure of the U.S. dollar-denominated liabilities of these entities at
December 31, 1996 was approximately $340 million of which approximately $310
million was attributable to the Corporation's Mexican affiliate. The
Corporation's share of the foreign currency transaction risk attributable to
these liabilities was approximately $160 million. Since December 1994 and
throughout 1995 and 1996, the value of the Mexican peso has declined. The
Corporation's share of the nonoperating, after-tax foreign currency losses
attributable to the effect of the 1994 devaluation and subsequent fluctuations
on the net exposure of the U.S. dollar-denominated liabilities of its Mexican
affiliate was $2.3 million, or $.01 per share, $38.5 million, or $.14 per share,
and $39.2 million, or $.14 per share, in 1996, 1995 and 1994, respectively.
TRANSLATION RISK
The income statements of foreign operations, other than those in
hyperinflationary economies, are translated into U.S. dollars at rates of
exchange in effect each month. The balance sheets of these operations are
translated at period-end exchange rates, and the differences from historical
exchange rates are reflected in stockholders' equity as unrealized currency
translation adjustments.
The income statements and balance sheets of operations in hyperinflationary
economies, i.e., Brazil and Venezuela, are translated into U.S. dollars using
both current and historical rates of exchange. For balance sheet accounts
translated at current exchange rates, such as cash and accounts receivable, the
differences from historical exchange rates are reflected in income. Effective
January 1, 1997, the Mexican economy has been determined to be hyperinflationary
and, as a consequence, the 1997 financial statements of the Corporation's
Mexican operations will be translated as described previously in this paragraph.
Translation exposure is not hedged. The risk to any particular entity's net
assets is minimized to the extent that the entity is financed with local
currency borrowing. In addition, many of the Corporation's non-U.S. operations
buy the majority of their inputs and sell the majority of their outputs in their
local currency, thereby minimizing the effect of currency rate changes on their
local operating profit margins.
NOTE 8. FINANCIAL INSTRUMENTS
The Corporation, in the conduct of its international business, has
transactions denominated in numerous currencies. Consequently, the Corporation
is subject to foreign currency, price and interest rate risks, and it uses
various financial instruments and derivatives to manage such risks when it is
practicable and economical to do so.
Foreign currency risks arise from transactions and commitments denominated in
nonlocal currencies. These transactions and commitments include the purchase of
raw materials, finished goods or items of property, plant and equipment, receipt
of dividends or royalties and fees, the sale of products and the repayment of
loans.
The instruments used to hedge foreign currency risks are forward contracts
(`contracts''), currency swaps and, to a lesser extent, option contracts.
Usually these hedging arrangements extend for no more than 12 months, although
some currency swaps, which are used to hedge certain foreign currency
borrowings, extend through the year 2000. Hedging instruments, all of which are
purchased from well-known money center banks (counterparties) throughout the
world, are expressed in notional principal amounts, which are contractual
balances upon which the calculation of the amounts to be exchanged are based.
Notwithstanding the sizable notional principal amounts involved, the
Corporation's credit exposure under these arrangements is limited to the fair
value of the agreements with a positive fair value at the reporting date.
Additionally, credit risks with respect to the counterparties are considered
minimal in view of the financial strength of the counterparties.
Gains and losses on instruments that hedge firm commitments are deferred and
included in the basis of the underlying hedged items. Premiums paid for options
are amortized ratably over the life of the option. Contracts used to hedge
recorded foreign currency transactions generally mature within 120 days
and are marked-to-market with the resulting gains or losses included in
current income. These gains and losses offset foreign exchange gains and losses
on the underlying transactions.
The following table presents the aggregate notional principal amounts,
carrying values and fair values of the Corporation's foreign currency financial
instruments outstanding at December 31, 1996 and 1995:
DECEMBER 31, 1996 December 31, 1995
----------------------------- ---------------------------------
NOTIONAL Notional
PRINCIPAL CARRYING FAIR Principal Carrying Fair
(Millions of dollars) AMOUNTS VALUES VALUES Amounts Values Values
- ----------------------------------------------------------------------------------------
Forward contracts
Assets ............... $480.1 $ 8.2 $ 6.5 $698.9 $ 5.4 $ 3.6
Liabilities .......... 543.0 (.8) (3.6) 479.2 (6.1) (5.9)
Currency swaps
Assets ............... 28.1 .1 (1.6) - - -
Liabilities .......... - - - 61.4 (.1) (12.3)
Option contracts
Assets ............... 10.0 .2 .1 - - -
In addition to the above items, the Corporation has assets and liabilities
which qualify as financial instruments. The carrying value and fair value for
each of these items are summarized below:
DECEMBER 31, 1996 December 31, 1995
------------------------- ------------------------
CARRYING FAIR Carrying Fair
(Millions of dollars) VALUE VALUE Value Value
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents ......... $ 83.2 $ 83.2 $ 221.6 $ 221.6
Long-term variable rate notes receivable 220.0 220.0 220.0 220.0
Short-term debt ................... (411.3) (411.3) (717.9) (717.9)
Current maturities and long-term debt (1,903.8) (1,956.8) (2,084.6) (2,249.0)
The estimated fair values of the Corporation's financial instruments are
generally based on quoted market prices or on current rates available to the
Corporation for financial instruments of similar remaining maturities and do not
include potential tax effects or possible expenses incurred in settling the
transactions.
NOTE 9. EQUITY PARTICIPATION PLANS AND STOCK OPTIONS
Kimberly-Clark Equity Participation Plans provide for awards of participation
shares and stock options to key employees of the Corporation and its
subsidiaries. Upon maturity, participation share awards are paid in cash and/or
shares of the Corporation's stock based on the increase in the book value of the
Corporation's common stock during the award period. Participants do not receive
dividends on the participation shares, but their accounts are credited with
dividend shares payable in cash and/or shares of the Corporation's stock at the
maturity of the award. Neither participation nor dividend shares are shares of
common stock.
Data concerning participation and dividend shares follow:
1996 1995 1994
- --------------------------------------------------------------------------------
Outstanding - Beginning of year........... 2,996,850 3,795,678 3,584,354
Awarded .................................. 977,000 1,052,650 -
Dividend shares credited - net ........... 341,250 432,195 358,499
Matured .................................. (655,964) (2,199,273) (84,775)
Forfeited ................................ (72,550) (84,400) (62,400)
--------- --------- ---------
Outstanding - End of year ................ 3,586,586 2,996,850 3,795,678
========= ========= =========
As permitted by SFAS 123, ``Accounting for Stock-Based Compensation,'' the
Corporation has elected to follow Accounting Principles Board Opinion 25,
`Accounting for Stock Issued to Employees,'' to measure compensation cost for
employee stock options. The pro forma effect of applying the SFAS 123
fair value method of measuring compensation costs to the Corporation's
stock-based awards was not significant to reported net income and earnings per
share. All stock options are granted at not less than market value and expire
10 years after the date of grant. The Kimberly-Clark options become exercisable
over three years. The Scott stock options outstanding and exercisable at the
date of the merger were converted to Kimberly-Clark stock options, and no
additional shares will be granted under the Scott plans.
Data concerning stock options follow:
1996 1995 1994
-------------------- ------------------ -------------------
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
OPTIONS EXERCISE Options Exercise Options Exercise
(000) PRICE (000) Price (000) Price
- --------------------------------------------------------------------------------------
Outstanding-Beginning of
year ................... 10,344 $41.15 13,851 $35.07 10,386 $32.47
Granted.................. 1,438 79.88 2,127 49.83 6,292 34.92
Exercised................ (5,347) 36.98 (4,192) 29.41 (2,076) 25.15
Rescinded options........ - (1,216) 27.11 -
Canceled, expired or
adjusted ............... (131) 55.26 (226) 21.78 (751) 28.63
------ ------ ------
Outstanding-End of year.. 6,304(a) 53.22 10,344 41.15 13,851 35.07
====== ====== ======
Exercisable-End of year.. 3,761 44.48 8,039 38.33 7,390 31.51
====== ====== ======
(a) At December 31, 1996, exercise prices, number of options outstanding and
weighted-average expiration dates are shown in the following table:
Number of Options Weighted-Average
Exercise Price Range Outstanding (000) Expiration Date
-------------------------------------------------------------------
$21.96 - $40.00 1,359 2000
$40.27 - $57.58 3,529 2004
$79.88 1,416 2006
-------
6,304
=======
At December 31, 1996, the number of additional shares of common stock of the
Corporation available for option and sale under the 1992 Plan or for award as
participation shares at such date under the 1992 Plan was 2,684,636 shares.
Amounts expensed related to participation shares awarded under the Plans were
$17.9 million, $15.2 million and $12.3 million in 1996, 1995 and 1994,
respectively.
NOTE 10. COMMITMENTS
LEASES
The future minimum obligations under leases having an initial or remaining
noncancelable term in excess of one year as of December 31, 1996 are as follows:
Operating
(Millions of dollars) Leases
- ----------------------------------------------------------------------------
Year Ending December 31:
1997 ...................................................... $ 54.3
1998 ...................................................... 44.5
1999 ...................................................... 28.8
2000 ...................................................... 21.4
2001 ...................................................... 20.5
Thereafter ................................................ 97.8
--------
Future minimum obligations .................................. $ 267.3
========
Operating lease obligations have been reduced by $23.3 million for rental
income from noncancelable sublease agreements. Although the Corporation is
primarily liable for rental payments under these leases, no loss is expected
from the sublease arrangements.
Consolidated rental expense under operating leases was $147.9 million, $157.0
million and $163.7 million in 1996, 1995 and 1994, respectively.
OTHER
The Corporation has entered into long-term contracts for the purchase of raw
materials, primarily pulp. The minimum purchase commitments extend to 2002. At
current prices, the commitments are approximately $220 million, $180 million and
$60 million in 1997, 1998 and 1999, respectively and approximately $50 million
thereafter. These purchase commitments are not expected to result in losses.
NOTE 11. STOCKHOLDERS' EQUITY
Changes in common stock issued, treasury stock, additional paid-in capital,
retained earnings and unrealized currency translation adjustments (`UTA'') are
shown below:
Common Stock Issued Additional
(Millions of dollars, Treasury Stock Paid-In Retained
---------------------- --------------------
except per share amounts) Shares Amount Shares Amount Capital Earnings UTA
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31,
1993 ................. . 278,191,727 $347.8 1,753,769 $(45.3) $332.1 $3,632.9 $(463.9)
Shares issued for the exercise
of stock options, stock awards
and restricted stock 2,355,110 2.9 (341,793) 9.5 52.7 - -
Purchased for treasury . - - 1,013,848 (52.2) - - -
Translation adjustment . - - - - - - (101.1)
Minimum pension liability
adjustment ........... - - - - - 1.7 -
Net income ............. - - - - - 753.8 -
Dividends declared on:
Common shares ........ - - - - - (342.8) -
Preferred shares ..... - - - - - (.3) -
----------- ------ --------- ------ ------ ------- ------
Balance at December 31,
1994 ................. . 280,546,837 350.7 2,425,824 (88.0) 384.8 4,045.3 (565.0)
Shares issued for the exercise
of stock options, stock awards
and restricted stock 3,895,587 4.8 (436,291) 12.7 150.4 - -
Conversion of Scott options
and restricted shares payable
upon change of control . 832,469 1.1 - - 18.3 - -
Cancellation of Scott treasury
shares ............... (2,994,775) (3.7) (2,994,775) 138.2 (134.5) - -
Distribution of net assets
of Schweitzer-Mauduit
International, Inc. . - - - - - (119.0) (13.3)
Purchased for treasury . - - 2,484,966 (137.8) - - -
Translation adjustment . - - - - - - (62.2)
Minimum pension liability
adjustment ........... - - - - - (15.8) -
Net income ............. - - - - - 33.2 -
Dividends declared on:
Common shares ........ - - - - - (349.5) -
Preferred shares ..... - - - - - (.3) -
----------- ------ --------- ------ ------ ------- ------
Balance at December 31,
1995 ................. . 282,280,118 352.9 1,479,724 (74.9) 419.0 3,593.9 (640.5)
Shares issued for the exercise
of stock options, stock awards
and restricted stock 2,018,287 2.5 (3,344,089) 209.3 73.1 - -
Purchased for treasury . - - 4,475,962 (348.8) - - -
Translation adjustment . - - - - - - (16.3)
Minimum pension liability
adjustment ........... - - - - - 28.1 -
Net income ............. - - - - - 1,403.8 -
Dividends declared on
common shares ........ - - - - - (519.0) -
----------- ------ --------- ------ ------ ------- ------
BALANCE AT DECEMBER 31,
1996 ................. . 284,298,405 $355.4 2,611,597 $(214.4) $ 492.1 $4,506.8 $(656.8)
=========== ======= ========== ======= ======= ======== =======
At December 31, 1996, unremitted net income of equity companies included in
consolidated retained earnings was $718.3 million.
Scott had preferred shares outstanding in each of the years ended December
31, 1993 and 1994 (46,205 shares of $3.40 series and 24,435 shares of $4.00
series) which were redeemed for cash prior to the merger in 1995. Such
preferred stock was carried at $7.1 million and was redeemed for
$7.3 million. All other preferred stock issues of Scott which were authorized
but unissued were canceled effective with the merger.
On June 21, 1988, the board of directors of the Corporation declared a
distribution of one preferred share purchase right for each outstanding share of
the Corporation's common stock. On June 8, 1995, the board amended the plan
governing such rights. The rights are intended to protect the stockholders
against abusive takeover tactics.
A right will entitle its holder to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock at an exercise price of $225, but
will not become exercisable until 10 days after a person or group acquires or
announces a tender offer which would result in the ownership of
20 percent or more of the Corporation's outstanding common shares.
Under certain circumstances, a right will entitle its holder to acquire
either shares of the Corporation's stock or shares of an acquiring company's
common stock, in either event having a market value of twice the exercise price
of the right. At any time after the acquisition by a person or group of
20 percent or more, but fewer than 50 percent, of the Corporation's common
shares, the Corporation may exchange the rights, except for rights held by the
acquiring person or group, in whole or in part, at a rate of one right for one
share of the Corporation's common stock or for one one-hundredth of a share of
Series A Junior Participating Preferred Stock.
The rights may be redeemed at $.01 per right prior to the acquisition by a
person or group of 20 percent or more of the common stock. Unless redeemed
earlier, the rights expire on June 8, 2005.
The Corporation has 20 million shares of authorized preferred stock with no
par value, none of which has been issued.
NOTE 12. DISPOSITIONS OF BUSINESSES
The Corporation has agreed to sell its pulp and newsprint mill, inventories
and related woodlands at Coosa Pines, Alabama, for approximately $600 million in
cash to Alliance Forest Products (`Alliance''), a Montreal-based company. The
transaction, which is subject to completion of financing by Alliance and other
customary conditions, is expected to close in late March 1997. The companies
also agreed to a five-year supply contract under which the Corporation will
purchase a significant portion of the pulp produced at the Coosa mill for use in
its consumer products.
In 1995, the Corporation sold 80 percent of its investment in Midwest Express
Airlines, Inc. through an initial public offering and recognized a gain of $.14
per share, and in 1996, the Corporation sold its remaining 20 percent interest
and recognized a gain of $.07 per share. During 1995, the Corporation spun off
its tobacco-related business operations in the United States, Canada and France
in a tax-free transaction.
On December 20, 1994, Scott completed the sale of S.D. Warren, its former
printing and publishing papers subsidiary, to an investor group led by Sappi
Limited. Scott received $1.6 billion, which included the buyer's assumption of
approximately $120 million of debt. In connection with the transaction, Scott
remained either contingently liable as guarantor, or directly liable as the
original obligor for certain debt and lease obligations of S.D. Warren. The
buyer provided Scott with a letter of credit from a major financial institution
guaranteeing repayment of these obligations. The Corporation believes it will
incur no liability under these arrangements. S.D. Warren's operations have been
segmented and reported as a discontinued operation in the consolidated income
statement in 1994.
In 1994, the sale of Scott's former energy and recovery complex assets
located at its Mobile, Alabama mill site was completed for approximately $350
million. In addition, during 1994, Scott's interest in a 50-percent-owned
health care joint venture was sold for approximately $65.7 million. These asset
dispositions resulted in a gain of $.22 per share.
In 1994, the Corporation also sold its tissue mill in Memphis, Tennessee,
adhesive-coated label stock business in Troy, Ohio, tissue subsidiary in Brazil
and Spenco Medical Corporation and received total proceeds of $118.2 million.
These transactions had no significant effect on 1994 earnings.
NOTE 13. CONTINGENCIES
Since 1990, numerous lawsuits, related to exposure to asbestos, have been
filed in state and federal courts by thousands of plaintiffs against multiple
defendants, including, in some cases, the Corporation. After the settlement of
several matters in 1995, there remain three consolidated multiple plaintiff
asbestos actions in Texas state courts that include less than 250 claims against
the Corporation. 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 Corporation's Coosa Pines,
Alabama, mill as employees of independent contractors at various times since the
mill's construction 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.
Kimberly-Clark Tissue Company, formerly named Scott Paper Company, is a
defendant in numerous actions in state and federal courts seeking damages
relating to breast implants. The actions allege that the plaintiffs' breast
implants were covered by polyurethane foam manufactured by Scott's former Foam
Division, which was sold in 1983, and that the foam caused physical and/or
psychological harm to the plaintiffs. Under a ruling covering federal multi-
district litigation, all federal cases have been consolidated in the Northern
District of Alabama for pre-trial purposes. In April 1995, the court granted
Scott's motion for summary judgment and dismissed with prejudice all claims
pending against Scott and the purchaser of Scott's Foam Division. Scott's
similar motion for summary judgment was granted in the consolidated California
state actions. Actions in other state courts have not reached the stage in the
litigation process where similar summary judgment motions can be filed.
In the consolidated federal suit, the plaintiffs initially appealed the
summary judgment but then agreed, in January 1996, to dismiss the appeal against
Scott and its related entities. In the consolidated California actions, the
plaintiffs never filed an appeal. Therefore, the summary judgments in Scott's
favor in the federal multi-district litigation and in California are final and
no new legal claims can be filed in either any United States district court or
in California. In the hundreds of actions pending in other state courts, the
actions are in various stages of early discovery.
The Corporation believes that it has meritorious defenses against the
asbestos and breast implant actions and that the final results of such claims,
while they cannot be predicted with certainty, will not have a material adverse
effect on the Corporation's business or results of operations.
In June and November 1996, the Corporation was served with amended complaints
in the action originally filed on September 20, 1994 by the Attorney General of
the state of West Virginia in the Circuit Court of Kanawha County seeking to
recover from certain tobacco companies and other defendants, including the
Corporation, monies which West Virginia allegedly has spent and will spend on
medical care for its citizens with alleged tobacco-related illnesses. Among
other things, the amended complaints allege that the Corporation aided, abetted
and participated in the manufacture of cigarettes by supplying reconstituted
tobacco sheets to the tobacco company defendants and advertising that the use of
such sheets would allow the tobacco companies to manipulate the level of
nicotine in their cigarettes.
The Attorney General amended the original complaints to add Public Employees
Insurance Agency and the Department of Health and Human Services as plaintiffs
in an effort to reinstate eight common law counts which had been dismissed
against the Corporation and the other defendants on June 6, 1995 on the basis
that the Attorney General lacked the authority to bring the suit in his own
name. The Corporation has filed a motion to dismiss the amended complaints on
several grounds. The Corporation believes the Attorney General's claims are
without merit.
The Corporation also is subject to routine litigation from time to time
which, individually or in the aggregate, is not expected to have a material
adverse effect on the Corporation's business or results of operations.
The Corporation has been named a potentially responsible party under the
provisions of the federal Comprehensive Environmental Response, Compensation and
Liability Act, or analogous state statute, at a number of waste disposal sites,
none of which, individually, or in the aggregate, in management's opinion, is
likely to have a material adverse effect on the Corporation's business or
results of operations.
NOTE 14. SUPPLEMENTAL DATA (Millions of dollars)
SUPPLEMENTAL BALANCE SHEET DATA
December 31
----------------------
Summary of Accounts Receivable and Inventories 1996 1995
- ------------------------------------------------------------------------------------------------
Accounts Receivable:
From customers ................................................. $1,481.5 $1,579.5
Other .......................................................... 225.7 183.2
Less allowance for doubtful accounts and sales discounts ....... (46.3) (84.7)
-------- --------
Total ....................................................... $1,660.9 $1,678.0
======== ========
Inventories by Major Class:
At the lower of cost on the First-In, First-Out (FIFO) method or
market:
Raw materials ................................................. $ 363.7 $ 373.7
Work in process ............................................... 219.7 281.0
Finished goods ................................................ 803.6 785.2
Supplies and other ............................................ 201.7 251.1
---------- --------
1,588.7 1,691.0
Excess of FIFO cost over Last-In, First-Out (LIFO) cost ........ (240.4) (264.9)
---------- --------
Total ....................................................... $ 1,348.3 $1,426.1
========== ========
Total inventories include $493.8 million and $519.4 million of inventories
valued on the LIFO method at December 31, 1996 and 1995, respectively.
December 31
----------------------
Summary of Accrued Expenses 1996 1995
- -------------------------------------------------------------------------------------------
Accruals for restructuring and other unusual charges ............. $ 339.7 $ 610.7
Accrued advertising and promotion expense ........................ 264.1 250.6
Accrued salaries and wages ....................................... 293.8 339.6
Other accrued expenses ........................................... 562.5 354.4
---------- ---------
Total accrued expenses ...................................... $ 1,460.1 $ 1,555.3
========== =========
SUPPLEMENTAL CASH FLOW STATEMENT DATA
Summary of Cash Flow Effects of Changes in Year Ended December 31
----------------------------------------
Operating Working Capital* 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
Accounts receivable .................................... $ 34.2 $ (264.5) $ (287.4)
Inventories ............................................ 15.9 (191.3) (74.1)
Prepaid expenses ....................................... 21.6 (56.7) 3.5
Trade accounts payable ................................. (55.6) 148.8 116.0
Other payables ......................................... 54.2 10.8 35.8
Accrued expenses ....................................... (352.5) (111.8) (222.6)
Accrued income taxes ................................... 141.0 (63.0) 228.8
Currency rate changes .................................. (.4) (.2) (15.9)
----------- --------- ---------
Changes in operating working capital ................... $ (141.6) $ (527.9) $ (215.9)
=========== ========= =========
* Excludes the effects of acquisitions, dispositions and the 1995 one-time
charge.
Year Ended December 31
-----------------------------------
Other Cash Flow Data 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Interest paid ......................................... $ 219.8 $ 259.9 $ 333.5
Income taxes paid ..................................... 503.0 570.1 321.2
Increase (decrease) in cash and cash equivalents due to exchange
rate changes ........................................ - (.7) 7.3
Reconciliation of changes in cash and cash equivalents:
Balance, January 1 .................................. $ 221.6 $ 1,137.8 $ 168.4
Increase (decrease) ................................. (138.4) (916.2) 969.4
--------- --------- ---------
Balance, December 31 ................................ $ 83.2 $ 221.6 $ 1,137.8
========= ========= =========
<CAPTON>
Year Ended December 31
----------------------------------
Interest Expense 1996 1995 1994
- -------------------------------------------------------------------------------------
Gross interest cost .......................... $ 200.6 $ 254.3 $ 351.5
Capitalized interest ......................... (13.9) (8.8) (20.6)
Interest expense allocated to discontinued operation - - (60.4)
--------- --------- --------
Interest expense ............................. $ 186.7 $ 245.5 $ 270.5
========= ========= ========
Interest expense is capitalized on major construction projects. Interest
expense in 1994 was allocated to the discontinued operation based on the ratio
of net assets sold to the sum of consolidated common stockholders' equity and
consolidated debt less debt specifically related to the discontinued operation.
NOTE 15. UNAUDITED QUARTERLY DATA
(Millions of dollars,
except per share 1996(a,b) 1995(a,b)
------------------------------------- ------------------------------------------
amounts) FOURTH THIRD(C) SECOND(D) FIRST Fourth(e) Third (f) Second First
- -----------------------------------------------------------------------------------------------------
Net sales ........ $3,323.6 $3,275.7 $3,347.7 $3,202.1 $3,297.9 $3,509.5 $3,393.7 $3,171.9
Gross profit ..... 1,229.3 1,256.0 1,254.3 1,168.1 1,090.1 1,229.9 1,173.2 1,051.7
Operating profit
(loss) ........ 526.4 545.8 488.2 493.3 (1,087.9) 496.3 435.7 368.9
Net income (loss) 347.1 377.2 364.7 314.8 (841.7) 367.9 307.4 199.6
Net income (loss)
per share ...... 1.23 1.34 1.30 1.11 (3.01) 1.32 1.10 .71
Cash dividends
declared per
share ........... .46 .46 .46 .46 .45 .45 .45 .45
Market price:
High ........... 99-5/8 88-3/4 77-7/8 83 83 68-3/4 62-5/8 53-3/8
Low ............ 84-3/8 71-3/8 68-5/8 74 66-5/8 57-1/2 50-1/8 47-1/4
Close .......... 95-1/4 88-1/8 77-1/4 74-3/8 82-3/4 67-1/8 59-7/8 52
(a) Certain promotional costs incurred in 1995 and the first quarter of 1996
have been reclassified from advertising, promotion and selling expenses
to a reduction in net sales to conform to the presentation of such data
for the year ended December 31, 1996.
(b) Results include nonoperating effects for the Corporation's share of
foreign currency losses incurred by its Mexican affiliate on the
translation of the net exposure of U.S. dollar-denominated liabilities
into pesos resulting from the fluctuation of the Mexican peso. Effects
for the quarters are as follows:
(Millions of dollars,
except per share 1996 1995
------------------------------------- -----------------------------------------
amounts) FOURTH THIRD SECOND FIRST Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------
Nonoperating gain (loss)
due to the peso .... $(4.4) $.7 $(.6) $2.0 $(18.1) $(2.0) $8.4 $(26.8)
Per share gain (loss)
due to the peso .... (.02) - - .01 (.06) (.01) .03 (.10)
In the fourth quarter 1996, the Corporation's Mexican affiliate recorded a
nonoperating charge to cover restructuring costs related to its merger with
the Corporation's other Mexican affiliate. The Corporation's share of the
after-tax effect of this charge was $5.5 million, or $.02 per share.
(c) Includes a net gain of $.10 per share related to the sale of certain tissue
businesses in the United Kingdom and Ireland, a tissue mill in Prudhoe,
England, and the Lakeview tissue mill in Neenah, Wisconsin.
(d) Includes a net gain of $.16 per share related to the divestiture of the
former Scott baby wipes and facial tissue businesses in the U.S. and the
sale of the Corporation's remaining 20 percent interest in Midwest Express
Airlines, Inc.
(e) Includes the 1995 one-time charge of $1,440.0 million ($1,070.9 million
after income taxes and minority interests, or $3.83 per share).
(f) Includes a gain of $.14 per share related to the sale of 80 percent of
Midwest Express Airlines, Inc.
NOTE 16. BUSINESS SEGMENT AND GEOGRAPHIC DATA
For financial reporting purposes, the Corporation's businesses are separated
into three segments.
. Personal Care Products includes infant, child, feminine and incontinence
care products; wet wipes; health care products; and related products.
. Tissue-Based Products includes tissue and wipers for household and away-
from-home use; pulp; and related products.
. Newsprint, Paper and Other includes newsprint, printing papers, premium
business and correspondence papers, specialty papers, technical papers,
and related products; and other products and services.
Information concerning consolidated operations by business segment and
geographic area, as well as data for equity companies, is presented in the
tables below and on the following pages:
CONSOLIDATED OPERATIONS BY BUSINESS SEGMENT
Net Sales Operating Profit
-------------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994 1996 1995(a) 1994
- --------------------------------------------------------------------------------------------------
Personal Care Products . $ 4,837.8 $ 4,384.2 $ 3,783.6 $ 791.3 $ 339.8 $ 582.7
Tissue-Based Products .. 7,372.8 7,524.3 6,420.1 1,085.2 (38.4) 576.3
Newsprint, Paper
and Other ............ 1,015.4 1,584.3 1,514.6 211.8 224.6 213.0
---------- ---------- ---------- --------- --------- ---------
Combined ............... 13,226.0 13,492.8 11,718.3 2,088.3 526.0 1,372.0
Intersegment sales ..... (76.9) (119.8) (90.4) - - -
Unallocated items - net - - - (34.6) (313.0) (94.9)
---------- ---------- ---------- --------- --------- ---------
Consolidated ........... $ 13,149.1 $13,373.0 $11,627.9 $2,053.7 $ 213.0 $1,277.1
========== ========= ========= ======== ========= ========
Assets Depreciation Capital Spending
----------------------------- ----------------------------- --------------------------
(Millions of dollars) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
Personal Care
Products . $ 3,376.1 $ 3,369.7 $ 3,162.1 $174.9 $193.1 $162.2 $227.2 $237.4 $313.6
Tissue-Based
Products . 6,512.8 5,982.2 5,862.3 343.1 323.6 322.4 608.5 485.5 393.3
Newsprint,
Paper
and Other 655.6 682.2 993.5 32.6 51.0 135.6 37.8 76.4 119.4
---------- ---------- ---------- ------ ------ ------ ------ ------ ------
Combined ... 10,544.5 10,034.1 10,017.9 550.6 567.7 620.2 873.5 799.3 826.3
Unallocated(b)
and
intersegment
assets ... 1,301.2 1,405.1 2,537.8 10.4 14.0 15.7 10.2 18.3 31.0
---------- ---------- ---------- ------ ------ ------ ------ ------ ------
Consolidated $ 11,845.7 $11,439.2 $ 12,555.7 $561.0 $581.7 $635.9 $883.7 $817.6 $857.3
========== ========== ========== ====== ====== ====== ====== ====== ======
(a) Operating profit in 1995 for Personal Care Products; Tissue-Based Products;
Newsprint, Paper and Other; and Unallocated includes $230.3 million, $981.2
million, $35.0 million and $193.5 million, respectively, of the
restructuring and other unusual charges described in Note 3.
(b) Assets include investments in equity companies of $551.1 million, $413.4
million and $555.3 million in 1996, 1995 and 1994, respectively.
CONSOLIDATED OPERATIONS BY GEOGRAPHIC AREA
Net Sales Operating Profit
------------------------------------------ ----------------------------
(Millions of dollars) 1996 1995 1994 1996 1995(a) 1994
- -------------------------------------------------------------------------------------------------------
United States ........... $ 8,142.5 $ 8,642.3 $ 8,062.7 $1,601.0 $661.9 $1,152.5
Canada .................. 1,311.0 1,250.1 955.1 109.4 21.9 34.9
Intergeographic items(b) (451.7) (452.6) (356.5) - - -
---------- ---------- ---------- -------- ------ --------
North America ........... 9,001.8 9,439.8 8,661.3 1,710.4 683.8 1,187.4
Europe .................. 2,881.8 2,862.5 2,340.5 177.9 (277.5) 62.2
Asia, Latin America and Africa 1,603.5 1,342.5 836.1 200.0 119.7 122.4
---------- ---------- ---------- -------- ------ --------
Combined ................ 13,487.1 13,644.8 11,837.9 2,088.3 526.0 1,372.0
Intergeographic items ... (338.0) (271.8) (210.0) - - -
Unallocated items - net . - - - (34.6) (313.0) (94.9)
---------- ---------- ---------- -------- ------ --------
Consolidated ............ $ 13,149.1 $13,373.0 $ 11,627.9 $2,053.7 $213.0 $1,277.1
=========== ========== ========== ======== ====== =========
Assets
------------------------------------------
(Millions of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------------
United States ............................... $ 5,703.6 $ 5,728.0 $ 5,841.0
Canada ...................................... 825.6 609.1 759.5
Intergeographic items ....................... (50.2) (47.3) (54.4)
---------- ---------- ----------
North America ............................... 6,479.0 6,289.8 6,546.1
Europe ...................................... 2,579.0 2,592.7 2,687.6
Asia, Latin America and Africa .............. 1,610.2 1,240.1 855.2
---------- ---------- ----------
Combined .................................... 10,668.2 10,122.6 10,088.9
Intergeographic items ....................... (131.1) (99.2) (86.9)
Unallocated items - net (c) ................. 1,308.6 1,415.8 2,553.7
---------- ---------- ----------
Consolidated ................................ $ 11,845.7 $ 11,439.2 $12,555.7
========== ========== ==========
(a) Operating profit in 1995 for the U.S.; Canada; Europe; Asia, Latin America
and Africa; and Unallocated includes $575.6 million, $161.5 million, $464.1
million, $45.3 million and $193.5 million, respectively, of the
restructuring and other unusual charges described in Note 3.
(b) Net sales include $284.8 million, $310.3 million and $236.8 million by
operations in Canada to the U.S. in 1996, 1995 and 1994, respectively.
(c) Assets include investments in equity companies of $551.1 million, $413.4
million and $555.3 million in 1996, 1995 and 1994, respectively.
EQUITY COMPANIES' DATA BY GEOGRAPHIC AREA
Kimberly-
Clark's
Share
Net Gross Operating Net of Net
(Millions of dollars) Sales Profit Profit Income Income
- -------------------------------------------------------------------------------------------------------------
For the year ended:
December 31, 1996
Latin America .................. $1,380.5 $ 512.9 $ 344.3 $ 291.5(a) $ 133.1(a)
North America, Asia, Australia and
Middle East(b) ................ 725.7 253.0 83.8 42.8 19.3
-------- --------- --------- --------- ---------
Total ....................... $2,106.2 $ 765.9 $ 428.1 $ 334.3 $ 152.4
======== ========= ========= ========= =========
December 31, 1995
Latin America(c) ............... $1,465.2 $ 551.0 $ 399.8 $ 222.1(a) $ 104.8(a)
North America, Asia, Australia, Africa(d)
and Middle East .............. 567.6 196.0 56.5 19.5 8.5
-------- --------- --------- --------- ---------
Total ....................... $2,032.8 $ 747.0 $ 456.3 $ 241.6 $ 113.3
======== ========= ========= ========= =========
December 31, 1994
Latin America(c) ............... $1,843.6 $ 675.4 $ 429.0 $ 194.6(a) $ 88.9(a)
Asia, Australia, Africa(d) and
Middle East .................. 577.9 202.5 58.7 37.4 21.6
-------- --------- --------- --------- ---------
Total ....................... $2,421.5 $ 877.9 $ 487.7 $ 232.0 $ 110.5
======== ========= ========= ========= =========
(a) Includes nonoperating effects for the Corporation's share of foreign
currency losses incurred by its Mexican affiliate on the translation of the
net exposure of U.S. dollar-denominated liabilities into pesos resulting
from the fluctuation of the Mexican peso. Effects are as follows:
Kimberly-Clark's Share
(Millions of dollars) Net Income of Net Income
- ------------------------------------------------------------------------------
1996 .................................... $ (5.0) $ (2.3)
1995 .................................... (89.4) (38.5)
1994 .................................... (91.2) (39.2)
(b) In June 1996, the Corporation acquired 49.9 percent of Hogla, Ltd., and
formed a consumer products joint venture in Israel.
(c) Results for Latin America in 1994 include operations of a joint venture in
Argentina. In the first quarter of 1995, the Corporation purchased
additional shares of this subsidiary resulting in its consolidation.
(d) The Corporation's share of net income for 1994 includes a gain of $10.0
million from the readoption of equity accounting for the Corporation's
South African affiliate. In the first quarter of 1995, the Corporation
purchased additional shares of this subsidiary resulting in its
consolidation.
Non- Non- Stock-
Current Current Current Current holders'
(Millions of dollars) Assets Assets Liabilities Liabilities Equity
- ----------------------------------------------------------------------------------------------
December 31, 1996
Latin America(a) ................ $ 661.3 $ 606.3 $ 321.0 $ 267.5 $ 679.2
Asia, Australia and Middle East . 272.5 463.8 168.9 225.3 342.0
--------- --------- --------- --------- ---------
Total ........................ $ 933.8 $ 1,070.1 $ 489.9 $ 492.8 $ 1,021.2
========= ========= ========= ========= =========
December 31, 1995
Latin America(a) ................ $ 722.6 $ 599.2 $ 404.7 $ 339.1 $ 578.0
North America, Asia, Australia and
Middle East .................... 168.3 465.5 153.0 229.5 251.3
--------- --------- --------- --------- ---------
Total ........................ $ 890.9 $1,064.7 $ 557.7 $ 568.6 $ 829.3
========= ========= ========= ========= =========
December 31, 1994
Latin America(a) ................ $ 697.1 $ 721.6 $ 354.3 $ 322.2 $ 743.2
Asia, Australia, Africa and
Middle East .................... 164.8 454.9 159.6 151.7 308.4
--------- --------- --------- --------- ---------
Total ......................... $ 861.9 $1,176.5 $ 513.9 $ 473.9 $ 1,051.6
========= ========= ========= ========= =========
(a) Includes effect of December 1994 devaluation of the Mexican peso and
subsequent fluctuations on the translated balance sheet of the
Corporation's Mexican affiliate.
Equity companies are principally engaged in Personal Care Products and
Tissue-Based Products operations.
Kimberly-Clark de Mexico, S.A. de C.V. is partially owned by the public and
its stock is publicly traded in Mexico. At December 31, 1996, the Corporation's
investment in this equity company was $309.2 million, and the estimated fair
value was $2.45 billion based on publicly-traded shares.
INDEPENDENT AUDITORS' REPORT
Kimberly-Clark Corporation and Subsidiaries
Kimberly-Clark Corporation, Its Directors and Stockholders:
We have audited the accompanying consolidated balance sheets of Kimberly-
Clark Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated income and cash flow statements for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
consolidated financial statements give retroactive effect to the merger of
Kimberly-Clark Corporation and Scott Paper Company, which has been accounted for
as a pooling of interests as described in Note 2 to the consolidated financial
statements. We did not audit the financial statements of Scott Paper Company
for the years ended December 31, 1995 and 1994 (before the effects of the
conforming adjustments that were applied to restate such statements) which
statements reflect total assets (in millions) of $4,525.8 as of
December 31, 1995 and total net sales (in millions) of $4,131.6 and $3,581.1 for
the years ended December 31, 1995 and 1994, respectively. Those financial
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Scott Paper
Company for 1995 and 1994, is based solely on the report of such other auditors.
We audited the conforming adjustments that were applied to restate the 1995 and
1994 financial statements of Scott Paper Company.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors referred
to above, such consolidated financial statements present fairly, in all material
respects, the financial position of Kimberly-Clark Corporation and Subsidiaries
at December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Dallas, Texas
January 27, 1997
AUDIT COMMITTEE CHAIRMAN'S LETTER
Kimberly-Clark Corporation and Subsidiaries
The members of the Audit Committee are selected by the board of directors.
During 1996, the committee consisted of five outside directors and met three
times.
The Audit Committee oversees the financial reporting process on behalf of the
board of directors. As part of that responsibility, the committee recommended
to the board of directors, subject to stockholder approval, the selection of the
Corporation's independent public accountants. The Audit Committee discussed the
overall scope and specific plans for annual audits with the Corporation's
internal auditors and Deloitte & Touche LLP. The committee also discussed the
Corporation's annual consolidated financial statements and the adequacy of its
internal controls. The committee met regularly with the internal auditors and
Deloitte & Touche LLP, without management present, to discuss the results of
their audits, their evaluations of the Corporation's internal controls, and the
overall quality of the Corporation's financial reporting. The meetings also
were designed to facilitate any private communication with the committee desired
by the internal auditors or independent public accountants.
/s/Paul J. Collins
- ----------------------------
Paul J. Collins
Chairman, Audit Committee
January 27, 1997
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Kimberly-Clark Corporation and Subsidiaries
The management of Kimberly-Clark Corporation is responsible for conducting
all aspects of the business, including the preparation of the financial
statements in this annual report. The financial statements have been prepared
using generally accepted accounting principles considered appropriate in the
circumstances to present fairly the Corporation's consolidated financial
position, results of operations and cash flows on a consistent basis.
Management also has prepared the other information in this annual report and is
responsible for its accuracy and consistency with the financial statements.
As can be expected in a complex and dynamic business environment, some
financial statement amounts are based on management's estimates and judgments.
Even though estimates and judgments are used, measures have been taken to
provide reasonable assurance of the integrity and reliability of the financial
information contained in this annual report. These measures include an
effective control-oriented environment in which the internal audit function
plays an important role, an Audit Committee of the board of directors which
oversees the financial reporting process, and independent audits.
One characteristic of a control-oriented environment is a system of internal
control over financial reporting and over safeguarding of assets against
unauthorized acquisition, use or disposition, designed to provide reasonable
assurance to management and the board of directors regarding preparation of
reliable published financial statements and such asset safeguarding. The system
is supported with written policies and procedures, contains self-monitoring
mechanisms and is audited by the internal audit function. Appropriate actions
are taken by management to correct deficiencies as they are identified. All
internal control systems have inherent limitations, including the possibility of
circumvention and overriding of controls, and, therefore, can provide only
reasonable assurance as to financial statement preparation and such asset
safeguarding.
The Corporation has also adopted a code of conduct which, among other things,
contains policies for conducting business affairs in a lawful and ethical manner
in each country in which it does business, for avoiding potential conflicts of
interest, and for preserving confidentiality of information and business ideas.
Internal controls have been implemented to provide reasonable assurance that the
code of conduct is followed.
The financial statements have been audited by the independent accounting
firm, Deloitte & Touche LLP. During their audits, the independent auditors were
given unrestricted access to all financial records and related data, including
minutes of all meetings of stockholders and the board of directors and all
committees of the board. Management believes that all representations made to
the independent auditors during their audits were valid and appropriate. The
financial statements of Scott Paper Company for 1995 and 1994 were audited
by other auditors.
During the audits conducted by both the independent auditors and the internal
audit function, management received recommendations to strengthen or modify
internal controls in response to developments and changes. Management has
adopted, or is in the process of adopting, all recommendations which are cost
effective.
The Corporation has assessed its internal control system as of December 31,
1996 in relation to criteria for effective internal control over financial
reporting described in `Internal Control - Integrated Framework'' issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that, as of December 31, 1996, its system of
internal control over the preparation of its published interim and annual
financial statements and over safeguarding of assets against unauthorized
acquisition, use or disposition met those criteria.
/s/Wayne R. Sanders /s/John W. Donehower
- ---------------------------- --------------------------
Wayne R. Sanders John W. Donehower
Chairman of the Board Senior Vice President and
and Chief Executive Officer Chief Financial Officer
January 27, 1997
ADDITIONAL INFORMATION
TRANSFER AND DIVIDEND DISBURSING AGENT AND REGISTRAR
Stockholders may contact The First National Bank of Boston, c/o Boston
EquiServe L.P., Investor Relations Department, P.O. Box 644, Boston,
Massachusetts 02102-0644, 800-730-4001. Stock certificates may be hand
delivered in Boston and New York for transfer.
DIVIDENDS AND DIVIDEND REINVESTMENT PLAN
Quarterly dividends have been paid continually since 1935. Dividends
are paid on or about the second day of January, April, July and October.
The Automatic Dividend Reinvestment service of The First National Bank
of Boston is available to Kimberly-Clark stockholders of record. The
service makes it possible for Kimberly-Clark stockholders of record to
have their dividends automatically reinvested in common stock and to
make additional cash investments up to $3,000 per quarter.
STOCK EXCHANGES
Kimberly-Clark common stock is listed on the New York, Chicago and
Pacific stock exchanges. The ticker symbol is KMB.
ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders will be held at the Corporation's
World Headquarters, 351 Phelps Drive, Irving, Texas, at 11:00 a.m. on
Thursday, April 17, 1997.
CALENDAR, SEC FORM 10-K AND OTHER INFORMATION
The fiscal year ends December 31. The annual report is distributed in
early March. Stockholders and others may obtain additional information
about Kimberly-Clark, including the Corporation's annual report to the
Securities and Exchange Commission on Form 10-K (which will be filed in
late March), without charge on request to Stockholder Services, P.O. Box
612606, Dallas, Texas 75261-2606.
EMPLOYEES AND STOCKHOLDERS
In its worldwide consolidated operations, Kimberly-Clark had 54,800
employees as of December 31, 1996. Equity companies had an additional
12,600 employees. The Corporation had 56,221 stockholders of record and
281.7 million shares of common stock outstanding as of the same date.
TRADEMARKS
The brand names mentioned in this report - Kleenex,(R) ColdCare,(R)
Kotex,(R) Depend,(R) Huggies,(R) Pull-Ups,(R) Scott,(R) Scotties,(R)
Peaudouce,(R) Lily,(R) Lidie,(R) Comfort & Beauty,(R) Andrex,(R)
Scottex,(R) Classic Crest,(R) and Environment,(R) - are trademarks of
Kimberly-Clark Corporation or its affiliates.
This 1996 Annual Report is printed on Classic Crest avon brilliant white
cover and text and Environment milky way parchment text with 100 percent
recycled fiber. These papers are produced by Kimberly-Clark's Neenah
Paper Sector.