FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from.............to.....................
Commission file number 1-225
KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 39-0394230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 619100
DALLAS, TEXAS
75261-9100
(Address of principal executive offices)
(Zip Code)
(972) 281-1200
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
AS OF NOVEMBER 4, 1997, 547,391,209 SHARES OF THE CORPORATION'S COMMON STOCK
WERE OUTSTANDING.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED INCOME STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Three Months Nine Months
Ended September 30 Ended September 30
(Millions of dollars except per share amounts) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------
NET SALES ............................. $3,095.3 $3,275.7 $9,457.2 $9,825.5
Cost of products sold .............. 1,937.0 2,019.7 5,865.7 6,147.1
-------- -------- -------- --------
GROSS PROFIT .......................... 1,158.3 1,256.0 3,591.5 3,678.4
Advertising, promotion and selling
expenses......................... 482.0 501.9 1,465.8 1,567.2
Research expense ................... 51.0 50.0 150.0 147.0
General expense .................... 158.8 158.3 470.5 436.9
-------- -------- -------- --------
OPERATING PROFIT ...................... 466.5 545.8 1,505.2 1,527.3
Interest income .................... 5.9 5.9 24.5 20.6
Interest expense ................... (35.0) (43.0) (118.3) (145.1)
Other income (expense), net ........ (14.5) 34.0 (4.9) 106.4
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ............ 422.9 542.7 1,406.5 1,509.2
Provision for income taxes ......... 139.5 189.9 464.1 528.2
-------- -------- -------- --------
INCOME BEFORE EQUITY INTERESTS ........ 283.4 352.8 942.4 981.0
Share of net income of equity companies 39.1 38.0 122.8 110.8
Minority owners' share of subsidiaries'
net income.......................... (6.5) (13.6) (34.2) (35.1)
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY GAINS ..... 316.0 377.2 1,031.0 1,056.7
Extraordinary gains, net of income taxes - - 17.5 -
-------- -------- -------- -------
NET INCOME............................. $ 316.0 $ 377.2 $1,048.5 $1,056.7
======== ======== ======== ========
PER SHARE BASIS:
Income before extraordinary gains... $ .57 $ .67 $ 1.85 $ 1.87
Extraordinary gains, net of income taxes - - .03 -
-------- -------- -------- --------
NET INCOME.......................... $ .57 $ .67 $ 1.88 $ 1.87
======== ======== ======== ========
CASH DIVIDENDS DECLARED............. $ .24 $ .23 $ .72 $ .69
======== ======== ======== ========
Unaudited
See Notes to Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEET
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, December 31,
(Millions of dollars) 1997 1996
- ---------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................... $ 101.5 $ 83.2
Accounts receivable ......................... 1,649.8 1,660.9
Inventories ................................. 1,325.3 1,348.3
Other current assets ........................ 311.8 446.8
--------- ---------
TOTAL CURRENT ASSETS ..................... 3,388.4 3,539.2
PROPERTY ....................................... 10,298.8 11,927.2
Less accumulated depreciation ............... 4,276.3 5,113.9
--------- ---------
NET PROPERTY ............................. 6,022.5 6,813.3
INVESTMENTS IN EQUITY COMPANIES ................ 588.8 551.1
GOODWILL, DEFERRED CHARGES AND OTHER ASSETS .... 1,023.0 942.1
ASSETS HELD FOR SALE ........................... 282.6 -
--------- ---------
$11,305.3 $11,845.7
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt payable within one year ................ $ 698.8 $ 576.5
Accounts payable ............................ 921.4 1,119.3
Accrued expenses ............................ 1,403.5 1,460.1
Other current liabilities ................... 497.7 531.0
--------- --------
TOTAL CURRENT LIABILITIES ................ 3,521.4 3,686.9
LONG-TERM DEBT ................................. 1,691.1 1,738.6
NONCURRENT EMPLOYEE BENEFIT AND OTHER OBLIGATIONS 925.9 926.1
DEFERRED INCOME TAXES .......................... 682.4 762.3
MINORITY OWNERS' INTERESTS IN SUBSIDIARIES ..... 214.8 248.7
STOCKHOLDERS' EQUITY ........................... 4,269.7 4,483.1
--------- ---------
$11,305.3 $11,845.7
========= =========
Unaudited
See Notes to Financial Statements.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Nine Months
Ended September 30
--------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------------------------
OPERATIONS
Net Income............................................ $1,048.5 $1,056.7
Depreciation.......................................... 361.8 417.1
Deferred income tax provision......................... 262.6 101.3
Changes in operating working capital.................. (587.9) (217.1)
Extraordinary gains, net of income taxes.............. (17.5) -
Net gains on asset dispositions....................... - (80.8)
Pension funding in excess of expense.................. (1.4) (36.7)
Other................................................. (48.6) (82.2)
-------- --------
CASH PROVIDED BY OPERATIONS........................ 1,017.5 1,158.3
-------- --------
INVESTING
Capital spending...................................... (692.6) (557.3)
Acquisition of businesses, net of cash acquired....... (81.4) (146.9)
Disposals of property and businesses.................. 746.3 455.4
Other................................................. (35.9) 30.7
-------- --------
CASH USED FOR INVESTING............................ (63.6) (218.1)
-------- --------
FINANCING
Cash dividends paid................................... (398.1) (331.8)
Changes in short-term debt ........................... 244.1 (452.6)
Increases in long-term debt........................... 104.9 33.8
Decreases in long-term debt........................... (209.9) (277.4)
Proceeds from exercise of stock options............... 37.2 182.7
Acquisitions of common stock for the treasury......... (731.8) (246.0)
Other................................................. 18.0 14.6
-------- --------
CASH USED FOR FINANCING............................ (935.6) (1,076.7)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... $ 18.3 $ (136.5)
======== ========
Unaudited
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
1. The unaudited consolidated financial statements of Kimberly-Clark
Corporation (the "Corporation") have been prepared on the same
basis as those in the 1996 Annual Report to Stockholders and
include all adjustments necessary to present fairly the condensed
consolidated balance sheet, consolidated results of operations and
condensed consolidated cash flow statements for the periods
indicated.
2. Share of net income of equity companies for the nine months ended
September 30, 1997 includes a net nonoperating gain of $16.3
million, or $.03 per share, primarily related to the sale of a
portion of the tissue business of Kimberly-Clark de Mexico, S.A.
de C.V. ("KCM"). The sale was required by the Mexican regulatory
authorities following the merger of KCM and Scott Paper Company's
("Scott") former Mexican affiliate.
3. In June 1997, the Corporation sold its 50.1 percent equity
interest in Scott Paper Limited, a Canadian tissue subsidiary, and
in March 1997, it sold its Coosa Pines, Alabama, newsprint and
pulp manufacturing mill, together with related woodlands. Also in
March, the Corporation recorded impairment losses on the planned
sales of a pulp manufacturing mill in Miranda, Spain; a recycled
fiber facility in Oconto Falls, Wisconsin; and a tissue converting
facility in Yucca, Arizona; and on an integrated pulp making
facility in Everett, Washington. These transactions were
aggregated and reported as extraordinary gains totaling $17.5
million, or $.03 per share, for the nine months ended September
30, 1997.
4. Other income (expense), net in 1996 includes the following gains
related to sales of businesses and assets to meet regulatory
requirements associated with the merger of Kimberly-Clark and
Scott and the sale of the Corporation's remaining 20 percent
interest in Midwest Express Holdings, Inc. ("Midwest Express").
Three Months Nine Months
Ended Ended
(Millions of dollars, except per share) September 30, 1996 September 30, 1996
- ---------------------------------------------------------------------------------------
Certain U.K. tissue businesses,
a tissue mill in Prudhoe, England
and the Lakeview tissue mill in
Neenah, Wisconsin $ 23.0 $ 23.0
Scott baby wipes and certain
facial tissue businesses in the U.S.
and Midwest Express - 70.0
------- -------
Total $ 23.0 $ 93.0
======= =======
Effect on net income per share $ 0.05 $ 0.13
======= =======
5. The average number of common shares outstanding for the nine months ended
September 30, 1997 and 1996 was 557.8 million and 564.0 million,
respectively. The number of common shares outstanding as of September 30,
1997 and 1996 was 550.6 million and 564.6 million, respectively.
6. The following schedule details inventories by major class as of September
30, 1997 and December 31, 1996:
SEPTEMBER 30, December 31,
(Millions of dollars) 1997 1996
- -------------------------------------------------------------------------------
At lower of cost on the First-In,
First-Out (FIFO) method or market:
Raw materials........................... $ 350.2 $ 363.7
Work in process......................... 210.8 219.7
Finished goods.......................... 814.7 803.6
Supplies and other...................... 191.2 201.7
-------- --------
1,566.9 1,588.7
Excess of FIFO cost over Last-In,
First-Out (LIFO) cost .................. (241.6) (240.4)
-------- --------
Total .................................. $1,325.3 $1,348.3
======== ========
7. Accounting Pronouncements Not Yet Adopted
In February 1997, the FASB issued SFAS 128, "Earnings per Share," which
will become effective at year-end 1997. Early adoption of the standard
is not permitted. The pro-forma Basic Earnings per Share calculated
pursuant to SFAS 128 for the third quarter and first nine months of 1997
would be the same as reported Earnings per Share, and the pro-forma
Diluted Earnings per Share calculated pursuant to SFAS 128 would not be
materially lower than reported Earnings per Share.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income"
and SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information". Both standards become effective in 1998. Early adoption of
SFAS 130 is permitted, and early adoption of SFAS 131 is encouraged. The
effects of both of these standards on the Corporation are currently being
determined.
Unaudited
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management believes that the following commentary and tables appropriately
discuss and analyze the comparative results of operations and the financial
condition of the Corporation for the periods covered.
RESULTS OF OPERATIONS:
THIRD QUARTER OF 1997 COMPARED WITH THIRD QUARTER OF 1996
By Business Segment
($ Millions)
% Change % of 1997
NET SALES 1997 vs. 1996 Consolidated
- ------------------------------------------------------------------
Personal Care Products........... $1,328.9 + 5.4% 42.9%
Tissue-Based Products............ 1,599.1 - 11.2 51.7
Newsprint, Paper and Other....... 179.8 - 24.4 5.8
Adjustments...................... (12.5) (.4)
-------- -----
Consolidated..................... $3,095.3 - 5.5% 100.0%
======== =====
% Change % of 1997 % Return on Sales
-----------------
OPERATING PROFIT 1997 vs. 1996 Consolidated 1997 1996
- ------------------------------------------------------------------------------------
Personal Care Products .......... $ 232.6 + 8.7% 49.8% 17.5% 7.0%
Tissue-Based Products ........... 202.3 - 31.7 43.4 12.7 6.4
Newsprint, Paper and Other ...... 43.3 - 18.3 9.3 24.1 22.3
Adjustments...................... (11.7) (2.5)
------- -----
Consolidated..................... $ 466.5 - 14.5% 100.0% 15.1% 16.7%
======= =====
Commentary:
Consolidated net sales were 5.5 percent lower than in 1996;
however, excluding revenues of businesses divested in 1996 to
satisfy U.S. and European regulatory requirements associated
with the Scott Paper Company ("Scott") merger transaction and
businesses divested in 1997 (the Corporation's 50.1 percent
interest in Scott Paper Limited ("SPL"), and a newsprint and
pulp manufacturing operation at Coosa Pines, Alabama
("Coosa")), consolidated net sales increased approximately 1
percent, and sales volumes increased nearly 4 percent. The
following sales comparisons exclude divested businesses.
. Worldwide sales of personal care products in the third
quarter increased nearly 6 percent, driven by an increase
in sales volumes of almost 10 percent. Important
contributors to the improved sales volumes were training
and youth pants, incontinence care products, wet wipes and
professional health care products in North America and
disposable diapers in Europe, Latin America and the
Asia/Pacific region. Acquisitions in France, Spain, and
Portugal contributed to the diaper volume increase.
. Third quarter sales of tissue-based products were nearly 4
percent lower than in 1996, primarily because of changes
in foreign currency exchange rates. On a worldwide basis,
sales volumes and selling prices were virtually even with
last year's levels. In North America, sales volumes of
consumer tissue products were down about 2 percent, while
sales volumes for away-from-home products increased by 9
percent. As a result of intensified competition, sales
volumes for tissue-based products in Europe were down
about 4 percent compared to the third quarter of 1996, and
selling prices averaged approximately 2 percent lower.
. The strengthening of the U.S. dollar and devaluations of
certain Asian currencies reduced consolidated net sales
approximately 3 percent in the third quarter of 1997.
Gross profit declined 7.8 percent in absolute terms, and to
37.4 percent from 38.3 percent as a percentage of sales.
Operating profit declined 14.5 percent in absolute terms, and
to 15.1 percent from 16.7 percent as a percentage of net sales.
The decline in operating profit is attributable mainly to the
Corporation's tissue businesses in Europe, the loss of earnings
of divested businesses and the effects of certain strategic
changes in the Corporation's away-from-home tissue business in
North America. These negative factors more than offset the
improved earnings of the Corporation's personal care
operations. Excluding the divested businesses, operating
profit declined about 10 percent.
. Operating profit in Europe was negatively affected by the
heightened competition in certain European tissue markets
which resulted in lower sales volumes, reduced selling
prices and higher promotional spending.
. Operating profit was adversely affected by strategic
changes related to the combination of Kimberly-Clark's and
Scott's away-from-home businesses in North America, which
is expected to improve the ongoing profitability of this
business. These strategies are now reaching full
implementation; in the third quarter, as previously
mentioned, sales volumes increased 9 percent in this
business, as compared to a decrease of 4 percent in the
first half of 1997. To date, however, the transition has
resulted in higher costs and a negative impact on
operating profit in the third quarter of 1997 equivalent
to approximately 2 cents per share.
. Changes in currency exchange rates had no significant
effect on consolidated operating profit in the third
quarter of 1997.
By Geography
($ Millions)
% Change % of 1997
NET SALES 1997 vs. 1996 Consolidated
- ------------------------------------------------------------------
North America.................... $2,103.9 - 7.9% 68.0%
Outside North America............ 1,057.9 - 2.4 34.2
Adjustments...................... (66.5) (2.2)
-------- -----
Consolidated..................... $3,095.3 - 5.5% 100.0%
======== =====
% Change % of 1997 % Return on Sales
-----------------
OPERATING PROFIT 1997 vs. 1996(a) Consolidated 1997 1996(a)
- ---------------------------------------------------------------------------------------
North America.................... $ 429.2 - 5.8% 92.0% 20.4% 19.9%
Outside North America............ 49.0 -54.2 10.5 4.6 9.9
Adjustments...................... (11.7) (2.5)
------- -----
Consolidated..................... $ 466.5 -14.5% 100.0% 15.1% 16.7%
======= =====
(a) Certain 1996 data has been reclassified to conform to the 1997
presentation.
Commentary:
. Excluding the divested businesses, sales and operating profit
declined .1 percent and 1.9 percent, respectively, in North
America and declined .4 percent and 50.2 percent, respectively,
outside North America. The decline in operating profit outside
North America is primarily attributable to Europe.
Additional Income Statement Commentary:
. The decline in interest expense is primarily attributable to
lower average debt levels.
. Other income in 1996 includes a net pretax gain related to the
previously mentioned divestitures of businesses to meet the
regulatory requirements of the Scott merger. The divestitures
included a tissue mill in Prudhoe, England; certain consumer
tissue businesses in the United Kingdom and Ireland; and the
Lakeview tissue mill in Neenah, Wisconsin. These transactions
resulted in an after-tax gain of $.05 per share.
. The effective income tax rate decreased to 33.0 percent from
35.0 percent in the prior year and is expected to remain at or
below 33.0 percent for the balance of 1997. The lower effective
tax rate is primarily due to additional tax planning
opportunities, some of which arose from the Scott merger.
. The Corporation's share of net income of equity companies was
$39.1 million in the third quarter of 1997 compared with $38.0
million in the third quarter of 1996. Net income of Kimberly-
Clark de Mexico, S.A. de C.V. ("KCM") was slightly higher, as
its sales and earnings have begun to recover from the effects of
adverse economic conditions in Mexico over the last two years.
. Changes in currency exchange rates reduced net income by
approximately 2 cents per share in the third quarter of 1997.
The negative effects arose primarily from devaluations of
certain Asian currencies.
. Reported net income was $.57 per share for the third quarter of
1997 compared with $.67 per share for the third quarter of 1996.
Excluding the 1996 nonoperating gains from asset sales, net
income per share for the third quarter of 1997 declined 8.1
percent to $.57 from $.62 in the third quarter of 1996.
RESULTS OF OPERATIONS:
FIRST NINE MONTHS OF 1997 COMPARED WITH FIRST NINE MONTHS OF 1996
By Business Segment
($ Millions)
% Change % of 1997
NET SALES 1997 vs. 1996 Consolidated
- ------------------------------------------------------------------
Personal Care Products........... $3,916.7 + 8.7% 41.5%
Tissue-Based Products............ 4,997.1 - 9.8 52.8
Newsprint, Paper and Other....... 581.1 -21.8 6.1
Adjustments...................... (37.7) (.4)
-------- -----
Consolidated..................... $9,457.2 - 3.7% 100.0%
======== =====
% Change % of 1997 % Return on Sales
-----------------
OPERATING PROFIT 1997 vs. 1996 Consolidated 1997 1996
- ------------------------------------------------------------------------------------
Personal Care Products .......... $ 732.7 + 26.7% 48.7% 18.7% 16.1%
Tissue-Based Products ........... 662.9 - 19.0 44.0 13.3 14.8
Newsprint, Paper and Other ...... 128.0 - 24.9 8.5 22.0 23.0
Adjustments...................... (18.4) (1.2)
-------- -----
Consolidated..................... $1,505.2 - 1.4% 100.0% 15.9% 15.5%
======== =====
Commentary:
Consolidated net sales were 3.7 percent lower than in 1996; however,
excluding revenues from the businesses divested in 1996 to satisfy
U.S. and European regulatory requirements associated with the Scott
merger and businesses divested in 1997, consolidated net sales
increased approximately 1 percent, and sales volumes increased more
than 5 percent. The following sales comparisons exclude divested
businesses.
. Worldwide sales of personal care products increased more than 11
percent, and sales volumes grew almost 16 percent. Important
contributors to the improved sales volumes were training and
youth pants, disposable diapers, wet wipes, professional health
care products, and feminine care and adult care products in
North America and disposable diapers in Europe and Latin
America. Acquisitions in France, Spain, Portugal and Brazil
contributed to the diaper volume increase.
. Worldwide sales volumes of tissue-based products declined about
1 percent. The increased sales volumes posted in the U.S.,
Latin America and the Asia/Pacific region were more than offset
by lower sales volumes in Europe.
. On an overall basis, selling prices were approximately 2 percent
lower than in the first nine months of 1996, with North American
consumer tissue-based products experiencing the largest decline.
. Changes in currency exchange rates reduced consolidated net sales
approximately 2 percent in the first nine months of 1997.
Gross profit declined 2.4 percent in absolute terms, but improved to
38.0 percent from 37.4 percent as a percentage of sales. Operating
profit declined 1.4 percent in absolute terms, but improved to 15.9
percent from 15.5 percent as a percentage of net sales. Excluding
the divested businesses, operating profit increased nearly 5 percent.
The increase was attributable to the sales volume increases,
manufacturing efficiencies, lower pulp costs, merger synergies and
reduced promotion expense, offset in part by the lower selling
prices.
. Cost reductions and manufacturing efficiencies were achieved in
the North American personal care and consumer tissue businesses.
. Operating profit for the North American away-from-home business
declined approximately $65 million reflecting the near-term
negative effects of the previously described strategic changes
in the combination of Kimberly-Clark's and Scott's away-from-
home businesses.
. Marketing costs were lower in the North American personal care
and consumer tissue businesses.
. Divested businesses had a favorable effect on the year-to-year
marketing cost comparison.
. General expenses were higher principally as a result of business
expansions outside North America.
. Changes in currency exchange rates had no significant effect on
consolidated operating profit in the first nine months of 1997.
By Geography
($ Millions)
% Change % of 1997
NET SALES 1997 vs. 1996 Consolidated
- -------------------------------------------------------------------
North America.................... $6,463.2 - 4.1% 68.3%
Outside North America............ 3,230.4 - 3.4 34.2
Adjustments...................... (236.4) (2.5)
-------- -----
Consolidated..................... $9,457.2 - 3.7% 100.0%
======== =====
% Change % of 1997 % Return on Sales
-----------------
OPERATING PROFIT 1997 vs. 1996(a) Consolidated 1997 1996 (a)
- -----------------------------------------------------------------------------------------
North America.................... $1,294.3 - .5% 86.0% 20.0% 19.3%
Outside North America............ 229.3 -13.9 15.2 7.1 8.0
Adjustments...................... (18.4) (1.2)
-------- -----
Consolidated..................... $1,505.2 - 1.4% 100.0% 15.9% 15.5%
======== =====
(a) Certain 1996 data has been reclassified to conform to the 1997
presentation.
Commentary:
. Excluding the divested businesses, sales and operating profit
improved 1.8 percent and 4.9 percent, respectively, in
North America and declined .5 percent and 6.6 percent,
respectively, outside North America.
. Operating profit in Europe declined due to the heightened
competition in the tissue-based businesses. The decline was
offset, in part, by sales volume increases for disposable
diapers, lower pulp costs and merger synergies.
. Operating profit was higher in Latin America, primarily as a
result of business expansion in Brazil in July 1996.
Additional Income Statement Commentary:
. The decline in interest expense is primarily attributable to
lower average debt levels.
. Other income in 1996 includes a net pretax gain from the
previously mentioned regulatory divestitures and the sale of the
Corporation's remaining 20 percent interest in Midwest Express
Holdings, Inc. These transactions resulted in an after-tax gain
of $.13 per share.
. The Corporation's 1997 share of net income of equity companies
includes a net nonoperating gain of $16.3 million, equal to $.03
per share, comprised primarily of a gain from the sale of a
portion of the tissue business of KCM to meet Mexican regulatory
requirements in connection with KCM's merger with Scott's former
Mexican affiliate. Excluding the net gain, the Corporation's
share of equity company net income declined 3.9 percent. The
decline is attributable to KCM where sales and earnings have
been depressed by adverse economic conditions in Mexico during
the last two years.
. Reported net income was $1.88 per share for the first nine
months of 1997 compared with $1.87 for the first nine months of
1996. Excluding (i) the Corporation's share of the previously
discussed gain on the sale of a portion of the tissue business
of KCM, (ii) the second quarter 1997 extraordinary gain on the
sale of the Corporation's interest in SPL of $.02 per share,
(iii) the first quarter 1997 extraordinary gain on the sale of
Coosa of $.01 per share, and (iv) the 1996 gains on asset
disposals, net income per share for the first nine months of
1997 increased 4.6 percent to $1.82 from $1.74 for the first
nine months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
. Cash provided by operations in the first nine months of 1997 was
$1,017.5 million compared with $1,158.3 million in the first nine
months of 1996, a year-to-year decrease of $140.8 million. Net
income plus non-cash charges included in net income increased to
$1.6 billion in 1997 compared with $1.4 billion in 1996. The
Corporation invested approximately $588 million in operating
working capital in 1997 compared with approximately $217 million
in 1996. Major uses of cash were higher tax payments arising, in
part, from the Coosa and SPL sales, restructuring related payments
and lower accounts payable.
. At December 31, 1996, $423.1 million of the 1995 charge for the
estimated costs of the Scott merger, for restructuring the
combined operations and other unusual items (the "one-time
charge") remained to be utilized. At September 30, 1997, the
balance was $203.5 million. During the first nine months of 1997,
approximately $125 million of cash payments were charged to the
reserves related to the one-time charge. 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.
. During the first nine months of 1997, the Corporation repurchased
14.5 million shares of its common stock, including 8.9 million
shares in the third quarter, in connection with its share
repurchase programs, at a total cost of $724 million. The board
of directors recently authorized the repurchase of an additional
20 million shares, of which the remaining authority at September
30, 1997 was 18.9 million shares.
. Despite the higher level of cash provided by operations plus the
proceeds from the sales of Coosa and SPL, the Corporation's
outstanding debt was $2.4 billion, compared to $2.3 billion at
year-end 1996, due primarily to the Corporation's share repurchase
program.
. The Corporation's ratio of total debt to capital was 34.8 percent
at September 30, 1997 compared with 32.9 percent at December 31,
1996. The Corporation's objective is to maintain a total debt to
capital ratio in the range of 30 to 40 percent.
. On September 4, 1997, the Corporation signed a definitive
agreement to acquire Tecnol Medical Products, Inc., a leading
maker of disposable face masks and patient care products. The
transaction, which is subject to approval by Tecnol shareholders,
will be accounted for as a purchase and involves the issuance of
approximately 8.9 million shares of Kimberly-Clark common stock
for all of Tecnol's outstanding shares. The transaction is
expected to close by the end of the year.
. On November 3, 1997, the Corporation signed a definitive agreement
to sell its Terrace Bay, Ontario and New Glasgow, Pictou County,
Nova Scotia pulp facilities, and related woodlands, to Harmac
Pacific Inc., a publicly held Canadian corporation ("Harmac").
The transaction, which is subject to Harmac's ability to obtain
financing and regulatory approvals, is expected to close in late
December or early January.
. The Corporation believes cash flow from operations plus the
ability to issue both short-term and long-tem debt will be
sufficient to fund capital expenditures, pay dividends, meet debt
maturity requirements, fund business acquisitions and continue to
meet the Corporation's announced stock repurchase goals.
ENVIRONMENTAL MATTERS
The Corporation has been named as a potentially responsible party at
a number of waste disposal sites, none of which, individually or in
the aggregate, in management's opinion, is likely to have a material
adverse effect on its business or results of operations.
OUTLOOK
Management believes that, while it has made progress toward its long-
term goals in a number of areas, the Corporation's overall financial
performance this year is not acceptable. The Corporation incurred
significant costs to implement strategic changes in its away-from-
home business in North America and has not sufficiently offset the
negative effects of heightened competition in Europe and continued
low selling prices for the Corporation's products elsewhere around
the world. However, management is taking aggressive steps to ensure
that the Corporation's results will improve from this point forward.
Management believes its focus on profitable growth and cost reduction
in the Corporation's away-from-home business is beginning to show
positive results and is encouraged by the recovery in sales and
earnings at KCM.
Before the end of the year, management will finalize and announce
plans for further, significant cost reductions in the Corporation's
worldwide operations. These plans will be designed to increase
operating efficiencies, focus on advantaged technologies and create a
world-class cost and distribution structure to support the
Corporation's growth through the year 2000 and beyond.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain information contained in this report is forward looking and
is based on various assumptions. Such information includes, without
limitation, the business outlook, future capital resources,
anticipated financial and operating results and contemplated
transactions of the Corporation, the Corporation's estimated
effective income tax rate in 1997, and the status and adequacy of the
Corporation's remaining reserves for restructuring and other unusual
charges at September 30, 1997. These forward-looking statements are
based upon management's expectations and beliefs concerning future
events impacting the Corporation. There can be no assurance that
such events will occur or that their effects on the Corporation will
be as currently expected. For a description of certain factors that
could cause the Corporation's future results to differ materially
from those expressed in any such forward-looking statements, see the
section of Part I, Item 1 of the Corporation's Annual Report on Form
10-K for the year ended December 31, 1996 entitled "Factors That May
Affect Future Results."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litigation
. On September 5, 1997, a complaint was filed by Leonard Salmanson
(the "Salmanson Complaint") on behalf of a putative class of the
public stockholders of Tecnol Medical Products, Inc. ("Tecnol") in
the Court of Chancery of the State of Delaware in and for
Newcastle County (Case No. 15909NC) against Tecnol, the members of
the Tecnol Board of Directors and the Corporation. The Salmanson
Complaint relates to the pending merger transaction, announced on
September 4, 1997, whereby a subsidiary of the Corporation would
merge with and into Tecnol and Tecnol would become a wholly owned
subsidiary of the Corporation (the "Merger"). The Salmanson
Complaint alleges, among other things, that the terms of the
Merger are inherently unfair to Tecnol stockholders because the
price being paid to them is unfairly low and the process by which
the transaction was determined was unfair, the members of the
Tecnol Board breached their duties of due care and loyalty to
Tecnol stockholders in agreeing to the Merger, and the Corporation
aided and abetted in such alleged breaches. The Salmanson
Complaint seeks, among other things, to enjoin the Merger and to
recover unspecified damages.
. With respect to the West Virginia tobacco litigation described in
Item 3 of the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996 and Item 1 of the Corporation's
Quarterly Report on Form 10-Q for the period ended March 31, 1997,
the State has agreed to exclude the Corporation from the State's
appeal of the court's rulings dismissing the common law claims.
The State further agreed to dismiss the Corporation from the
litigation without prejudice to later add the Corporation under
certain limited circumstances; however, if the litigation
terminates as to all cigarette manufacturer defendants by
settlement or otherwise, the Corporation will be dismissed from
the litigation with prejudice. The court entered an order
incorporating these agreements on July 18, 1997.
. With respect to the away-from-home sanitary paper products
antitrust litigation described in Item 1 of the Corporation's
Quarterly Report on Form 10-Q for the period ended June 30, 1997,
additional lawsuits with similar allegations have been filed in
various state and federal courts against the Corporation and other
manufacturers of such products. Defendants' petition to
consolidate the federal cases in multi-district litigation is
pending.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(3)a Restated Certificate of Incorporation, dated June 12, 1997,
incorporated by reference to Exhibit No. (3)a of the
Corporation's Quarterly Report on Form 10-Q for the period
ended June 30, 1997.
(3)b By-Laws, as amended November 22, 1996, incorporated by
reference to Exhibit No. 4.2 of the Corporation's
Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on December 6, 1996
(File No. 33-17367).
(4) Copies of instruments defining the rights of holders of
long-term debt will be furnished to the Securities and
Exchange Commission upon request.
(11) The following statement is filed as an exhibit to Part I of
this Form 10-Q:
The net income per common share computations included in
the Consolidated Income Statement in Part 1, Item I, of
this Form 10-Q are based on average number of shares of
common stock outstanding. The only "common stock
equivalents" or other potentially dilutive securities or
agreements (as defined in Accounting Principles Board
Opinion No. 15) which were contained in the Corporation's
capital structure during the periods presented were options
outstanding under the Corporation's Equity Participation
Plans.
Alternative computations of "primary" and "fully diluted"
net income per share amounts for 1997 and 1996 assume the
exercise of outstanding stock options using the "treasury
stock method." There is no significant difference between
net income per share presented in Item 1 and net income per
share calculated on a "primary" and "fully diluted" basis
for the third quarter and first nine months of 1997 and
1996.
(12) The following computation is filed as an exhibit to
Part I of this Form 10-Q:
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ MILLIONS)
Nine Months Ended September 30
------------------------------
1997 1996
- ------------------------------------------------------------------------------
Consolidated Companies
Income before income taxes ............. $1,406.5 $1,509.2
Interest expense ....................... 118.3 145.1
Interest factor in rent expense ........ 36.1 23.9
Amortization of capitalized interest ... 6.8 6.6
Equity Affiliates
Share of 50%-owned:
Income before income taxes ............ 43.1 33.8
Interest expense ...................... 5.4 7.1
Interest factor in rent expense ....... .5 .6
Amortization of capitalized interest .. .5 .5
Distributed income of less than 50%-owned 31.4 31.4
-------- --------
Earnings ................................... $1,648.6 $1,758.2
======== ========
Consolidated Companies
Interest expense ....................... $ 118.3 $ 145.1
Capitalized interest ................... 15.1 10.5
Interest factor in rent expense ........ 36.1 23.9
Equity Affiliates
Share of 50%-owned:
Interest expense and capitalized interest 5.4 7.1
Interest factor in rent expense........ .5 .6
-------- --------
Fixed charges............................... $ 175.4 $ 187.2
======== ========
Ratio of earnings to fixed charges... 9.40 9.39
======== ========
(27) The Financial Data Schedule required by Item 601(b)(27) of
Regulation S-K has been included with the electronic
filing of this Form 10-Q.
(b) Reports on Form 8-K
The Corporation filed a Current Report on Form 8-K on October
30, 1997 reporting its October 21, 1997 press release as to the
Corporation's third quarter earnings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
KIMBERLY-CLARK CORPORATION
(Registrant)
By: /s/ John W. Donehower
------------------------------
John W. Donehower
Senior Vice President and
Chief Financial Officer
(principal financial officer)
By: /s/ Randy J. Vest
-----------------------------
Randy J. Vest
Vice President and Controller
(principal accounting officer)
November 7, 1997