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 that have occurred in two of the last three
years represent unusual items. These matters and their effect on
the comparability of financial data presented in this
Management's Discussion and Analysis are discussed below.
1997 Restructuring and Other Unusual Charges
o In the fourth quarter of 1997, the Corporation announced a
plan to restructure its worldwide operations ("Announced
Plan"), the total pretax cost of which is approximately
$810.0 million. The Announced Plan is expected to reduce
the Corporation's operating costs by approximately $200
million annually in the year 2000. In order to achieve
these anticipated benefits, the Announced Plan requires the
sale, closure or downsizing of 18 manufacturing facilities
worldwide and a workforce reduction of approximately
5,000 employees. These actions will result in the
consolidation of the Corporation's manufacturing operations
into fewer, larger and more efficient facilities and in the
elimination of excess production capacity, including more
than 200,000 metric tons of high-cost tissue manufacturing
capacity in North America and Europe. Excluding the
eliminated facilities, the Corporation believes that it has
sufficient productive capacity to support its existing
operations and expects to add low-cost capacity as needed to
support future growth.
o In conjunction with the Announced Plan, the Corporation
recorded a 1997 pretax charge of $701.2 million ("1997
Charge"). The remaining $108.8 million of costs related to
the Announced Plan will be recorded in 1998 when
notification is made to employees whose employment will be
terminated or at the time other costs result in accruable
expenses. Of the 1997 Charge, $220.1 million relates to the
write-down of certain assets and inventories and has been
charged to cost of products sold, and $481.1 million has
been recorded as restructuring and other unusual charges in
the Consolidated Income Statement. Of the $220.1 million
charged to cost of products sold, approximately 31 percent
relates to Personal Care Products and approximately 67
percent relates to Tissue-Based Products. Approximately 66
percent relates to North American operations and
approximately 15 percent relates to European operations.
Additional information concerning the 1997 Charge is contained
in Note 2 to the Consolidated Financial Statements. The effect of
the 1997 Charge on cash flow is discussed under "Liquidity and
Capital Resources" elsewhere in this Management's Discussion and
Analysis.
Of the 1997 Charge, $119.1 million has been utilized through
December 31, 1997, and the balance of $582.1 million is expected
to be substantially utilized in 1998. At December 31, 1997, the
remaining reserves related to the 1997 Charge and the $108.8
million of related reserves to be recorded in 1998 are estimated
to be adequate to cover the remaining costs of the Announced
Plan.
The 1997 Charge decreased 1997 business segment and geographic
operating profit as follows:
1997 CHARGE
Outside
North North
($ Millions) America America Total
- - ----------------------------------------------------------------------------------------------------------------------
Personal Care Products .............................................. $ (134.4) $ (60.9) $ (195.3)
Tissue-Based Products .............................................. (276.8) (220.1) (496.9)
Newsprint, Paper and Other .......................................... (.7) - (.7)
-------- --------- ---------
$ (411.9) $ (281.0) (692.9)
Unallocated ........................................................ (8.3)
---------
Total ............................................................ $ (701.2)
=========
The income tax benefit of the 1997 Charge is estimated at
$190.2 million, or 27.1 percent of the pretax charge. This tax
rate is lower than the U.S. statutory income tax rate primarily
because no tax benefits were provided for certain costs related
to operations in countries where the Corporation has income tax
loss carryforwards for which valuation allowances have been
provided. The 1997 Charge, net of applicable income taxes,
equity company effects and minority interests, reduced 1997 net
income by $503.1 million, or $.91 per share.
1995 Business Combination, Worldwide Integration Plan and
Restructuring and Other Unusual Charges
o On December 12, 1995, the Corporation merged with Scott Paper
Company ("Scott"), a worldwide producer of sanitary tissue
products, in a $9.4 billion tax-free reorganization accounted
for as a pooling of interests. 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 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 ("1995 Charge"). Additional
information concerning the 1995 Charge is contained in Note 2
to the Consolidated Financial Statements. The 1995 Charge has
been substantially utilized as of December 31, 1997.
o The income tax benefit of the 1995 Charge was $360.0 million,
or 25 percent of the pretax charge. This tax rate is lower
than the U.S. statutory income tax rate because no tax
benefits were provided for certain costs and fees that are not
deductible and other costs related to operations in countries
where the Corporation has income tax loss carryforwards for
which valuation allowances have been provided. The 1995
Charge, net of applicable income taxes and minority interests,
reduced 1995 net income by $1,070.9 million, or $1.92 per
share.
For a description of the Corporation's business segments and a
summary of the business segment and geographic data that include
the 1997 and 1995 Charges, see Note 17 to the Consolidated
Financial Statements. However, for purposes of this Management's
Discussion and Analysis, the 1997 Charge is shown separately in
the following business segment and geographic presentations to
facilitate a meaningful discussion of ongoing operations. In
addition, the 1995 Charge has been excluded from all
presentations involving comparison of 1996 versus 1995 data.
ANALYSIS OF CONSOLIDATED OPERATING RESULTS - 1997 COMPARED WITH 1996
By Business Segment
Net Sales Operating Profit
------------------------------------------------- ------------------------------------------------------
% Change % OF 1997 % Change % Return on Sales
--------------------
($ Millions) 1997 1996 vs. 1996 CONSOLIDATED 1997 1996 vs. 1996 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------------
Personal Care
Products ........ $ 5,234.8 $ 4,837.8 + 8.2% 41.7% $ 969.1 $ 791.3 +22.5% 18.5% 16.4%
Tissue-Based
Products ........ 6,611.5 7,372.8 - 10.3 52.7 904.4 1,085.2 -16.7 13.7 14.7
Newsprint, Paper
and Other ....... 753.5 1,015.4 - 25.8 6.0 168.7 211.8 -20.3 22.4 20.9
1997 Charge ....... - - - (701.2) -
Adjustments ....... (53.2) (76.9) (.4) (37.8) (34.6)
----------- ---------- ----- --------- ---------
Consolidated....... $ 12,546.6 $ 13,149.1 - 4.6% 100.0% $ 1,303.2 $ 2,053.7 -36.5% 10.4% 15.6%
=========== ========== ===== ========= =========
By Geography
Net Sales Operating Profit
------------------------------------------------- -----------------------------------------------------
% Change % OF 1997 % Change % Return on Sales
-----------------
($ Millions) 1997 1996 vs. 1996 CONSOLIDATED 1997 1996 vs. 1996 1997 1996
- - --------------------------------------------------------------------------------------------------------------------------------
North America ..... $ 8,533.9 $ 9,001.8 -5.2% 68.0% $1,762.1 $1,736.0 + 1.5% 20.6% 19.3%
Outside North
America ......... 4,320.3 4,485.3 -3.7 34.4 280.1 352.3 - 20.5 6.5 7.9
1997 Charge ....... - - - (701.2) -
Adjustments ....... (307.6) (338.0) (2.4) (37.8) (34.6)
---------- ---------- ----- --------- ---------
Consolidated ...... $ 12,546.6 $ 13,149.1 -4.6% 100.0% $ 1,303.2 $ 2,053.7 - 36.5% 10.4% 15.6%
========== ========== ===== ========= =========
Notes:
Certain 1996 data has been reclassified in the geographic
presentation to conform to the 1997 presentation.
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:
Consolidated net sales were 4.6 percent lower than in 1996.
In 1996, the Corporation divested certain businesses to satisfy
U.S. and European regulatory requirements associated with the
Scott merger, and in 1997, it divested a noncore pulp and
newsprint facility located in Coosa Pines, Alabama ("Coosa") and
sold its interest in Scott Paper Limited ("SPL"). Excluding
revenues from these businesses in both years, consolidated net
sales remained essentially flat. Sales volumes, however,
increased nearly 5 percent. Although the preceding tables
include results of divested businesses, in order to facilitate a
meaningful discussion, such results have been excluded from the
following sales commentary.
o Worldwide sales of personal care products increased more than
10 percent, and sales volumes grew more than 14 percent, with
nearly all businesses in this segment participating in the
improved sales volumes. Important contributors to the
improved sales volumes were training and youth pants,
professional health care products, wet wipes, adult care
products, disposable diapers and feminine care products in
North America and disposable diapers in Europe, Latin America
and the Asia/Pacific region. Diaper volume resulting from
acquisitions in France, Spain, Portugal and Brazil accounted
for about 30 percent of the sales volume increase in personal
care products.
o Worldwide sales of tissue-based products declined 6 percent,
primarily due to lower selling prices and changes in currency
exchange rates in Europe and the Far East. Sales volumes
declined less than 1 percent. Increased sales volumes in the
U.S., Latin America and the Asia/Pacific region were offset by
lower sales volumes in Europe.
o On an overall basis, selling prices were 1.6 percent lower
than in 1996, primarily due to lower prices for tissue-based
products worldwide.
o Changes in currency exchange rates reduced consolidated net
sales 2.4 percent in 1997.
Excluding the 1997 Charge, operating profit declined 2.4
percent in absolute terms, but increased to 16.0 percent from
15.6 percent in 1996 as a percentage of net sales. Excluding the
divested businesses in both years and the 1997 Charge, operating
profit increased 2.6 percent. The operating profit increase was
attributable to the sales volume increases, manufacturing
efficiencies and lower pulp costs. These improvements were
partially offset by the lower selling prices, heightened
competition in Europe and the transitional effects of strategic
changes made in the Corporation's North American away-from-home
business. The following operating profit commentary excludes the
results of divested businesses in both years.
o Cost reductions and manufacturing efficiencies were achieved
in the North American personal care and consumer tissue
businesses.
o Operating profit was adversely affected by the transitional
effects of strategic changes related to the combination of
Kimberly-Clark's and Scott's away-from-home businesses in
North America, which are expected to improve the ongoing
profitability of this business. The transition resulted in
higher costs in 1997 and a negative impact on operating profit
of approximately $75 million.
o Marketing costs were lower in the North American personal care
and consumer tissue businesses, but were higher in Latin
America, primarily to support business expansions.
o General expenses were higher principally as a result of
business expansions outside North America.
o Changes in currency exchange rates reduced consolidated
operating profit by approximately $8 million in 1997.
Additional Income Statement Commentary:
o Interest expense declined primarily as a result of lower
average debt levels.
o The Corporation's effective income tax rate was 36.5 percent
in 1997 compared with 35.0 percent in 1996. Excluding the
1997 Charge, the Corporation's effective income tax rate for
1997 was 33.0 percent. The lower effective tax rate is
primarily due to additional tax planning opportunities, some
of which arose from the Scott merger.
o Other income in 1997 includes a pretax nonoperating gain on
the sale of the Corporation's interest in Ssangyong Paper Co.,
Ltd. ("Ssangyong") of Korea. This transaction resulted in an
after-tax gain of
$.03 per share.
o Other income in 1996 includes a net pretax nonoperating gain
from regulatory divestitures required in connection with the
Scott merger and from the sale of the Corporation's remaining
interest in Midwest Express Holdings, Inc. These transactions
resulted in a net after-tax gain of $.13 per share.
o The Corporation's 1997 share of equity company net income
includes a net nonoperating gain of $16.3 million, or $.03 per
share, relating to the sale of a portion of the tissue
business of Kimberly-Clark de Mexico, S.A. de C.V. ("KCM") to
meet Mexican regulatory requirements in connection with KCM's
merger with Scott's former Mexican affiliate, Compania
Industrial de San Cristobal S.A. de C.V. ("Cristobal"). Also
included in the Corporation's share of 1997 equity company net
income is $2.2 million of the 1997 Charge. In 1996, the
operations of Cristobal were restructured to eliminate, among
other things, duplicate capacity and to satisfy regulatory
requirements. The Corporation's share of KCM's after-tax
restructuring charge in 1996 was $5.5 million, or $.01 per
share. Excluding these unusual items in both years, the
Corporation's share of equity company net income declined 9.3
percent. The decline is attributable to KCM. Although KCM's
sales and operating profit showed year-to-year increases of
more than 5 and 8 percent, respectively, the year-to-year
comparison of the Corporation's share of KCM's net income was
adversely affected by an unusually low effective tax rate in
1996 and by the required change to hyperinflationary
accounting for Mexican operations in 1997. This accounting
change had a negative effect on net earnings reported by KCM
in 1997, the Corporation's share of which was approximately
$12 million.
o In 1997, minority owners' share of subsidiaries' net income
includes $10.1 million attributable to other owners' share of
the 1997 Charge. Excluding this share of the 1997 Charge,
minority owners' share of subsidiaries' net income declined
about 25 percent. The decline is primarily due to the sale of
the Corporation's interest in SPL and increased ownership in
certain subsidiaries in Central America in 1997.
o In March 1997, the Corporation sold Coosa for approximately
$600 million in cash. Also, in the first quarter of 1997, the
Corporation recorded impairment losses on the planned disposal
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 impairment
losses totaled $111.5 million before income tax benefits. In
June 1997, the Corporation completed the sale of its interest
in SPL for approximately $127 million. Accounting regulations
require that certain transactions following a business
combination that was accounted for as a pooling of interests
be reported as extraordinary items. Accordingly, the above
described transactions have been aggregated and reported as
extraordinary gains totaling $17.5 million, net of applicable
income taxes of $38.4 million. The high effective income tax
rate on the extraordinary gains is due to income tax loss
carryforwards in Spain which precluded the current recognition
of the income tax benefit on the Miranda impairment loss and
the tax basis in SPL being substantially lower than the
carrying amount of the investment in the financial statements.
The extraordinary gains were equal to $.03 per share.
o Excluding the 1997 Charge, the nonoperating gains in both
years, the extraordinary gains in 1997, and the Corporation's
share of KCM's 1996 restructuring charge, earnings per share
increased 3.0 percent to $2.44 from $2.37 in 1996.
CHANGES IN 1996 NET SALES AND EARNINGS VERSUS 1995 (EXCLUDING THE 1995 CHARGE)
% Change
- - ---------------------------------------------------------------------------------------------------------------------
Net sales ................................................................................................. - 1.7%
Gross profit .............................................................................................. + 8.0
Operating profit .......................................................................................... +24.2
Net income................................................................................................. +27.1
Basic net income per share................................................................................. +25.8
Diluted net income per share............................................................................... +26.5
o The net sales decline in 1996 was principally the result of
the loss of revenues from businesses that were sold in 1996 to
satisfy U.S. and European regulatory requirements associated
with the Scott merger and other businesses that were divested
in 1995. Excluding the net sales of these businesses in both
years, consolidated net sales increased 4.6 percent and sales
volumes increased 6.0 percent.
o Despite the loss of earnings of divested businesses, gross
profit improved primarily because of higher sales volumes,
merger synergies, manufacturing efficiencies for personal care
products and lower pulp costs worldwide.
o Operating profit improved due to the higher gross margin
coupled with merger synergies.
o Net income improved more than operating profit as a percentage
of sales primarily because of reduced interest expense due to
lower average debt levels, partially offset by a higher
effective income tax rate in 1996 versus 1995 that resulted
primarily from a reduction in 1996 taxable income in
jurisdictions in which net operating loss carryforwards were
available.
NET SALES TRENDS IN RECENT YEARS
($ Billions) 1997 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------------------
Principal products:
Tissue ................................................................ $ 6.1 $ 6.9 $ 6.9 $ 5.9
Diapers ............................................................... 2.7 2.3 2.1 1.7
All other ............................................................. 3.7 3.9 4.4 4.0
------- ------ ------ ------
Consolidated ............................................................ $ 12.5 $ 13.1 $ 13.4 $ 11.6
======= ====== ====== ======
o Consolidated net sales have grown $900 million, or 7.8 percent, since
1994.
o The increase in sales from 1994 to 1995 is attributable primarily to
improved selling prices for tissue products, pulp and newsprint, a
better product mix and the effects of currency translation.
ANALYSIS OF OPERATING PROFIT AS A PERCENTAGE OF NET SALES
1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------------------
Net sales ........................................................................ 100.0% 100.0% 100.0%
Less:
Cost of products sold .......................................................... 63.5 62.7 66.0
Marketing expense .............................................................. 15.4 15.4 15.6
Research expense ............................................................... 1.7 1.6 1.5
General expense ................................................................ 5.1 4.7 4.5
Restructuring and other unusual charges......................................... 3.9 - 10.8
----- ----- -----
Operating profit ................................................................. 10.4% 15.6% 1.6%
===== ===== =====
o Excluding the portion of the 1997 Charge recorded in cost of
products sold would reduce the cost of products sold as a
percentage of net sales to 61.8 percent.
o Excluding the 1997 and 1995 Charges, operating profit margins
have improved during each of the last two years.
o The 1996 improvement in operating profit margin was caused
principally by higher sales volumes, merger synergies,
manufacturing efficiencies for personal care products and
lower pulp costs worldwide.
LIQUIDITY AND CAPITAL RESOURCES
Year Ended
December 31
-------------------------
($ Millions) 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------
Cash provided by operations ................................................................ $1,406.6 $1,674.2
Capital spending ........................................................................... 944.3 883.7
Proceeds from disposition of property and businesses ....................................... 779.6 455.4
Ratio of total debt to capital ............................................................. 36.5% 32.9%
Pretax interest coverage - times ........................................................... 8.1 11.2
Commentary:
o Cash provided by operations decreased $267.6 million in 1997
compared with 1996. Net income plus non-cash charges included
in net income increased to $2.0 billion in 1997 compared with
$1.8 billion in 1996. The Corporation invested $576.9 million
in operating working capital in 1997 compared with $141.6
million in 1996. Major operating uses of cash in 1997
compared with 1996 were higher tax payments arising, in part,
from the Coosa and SPL sales and lower accounts payable.
o During 1997, approximately $233 million was charged to the
reserves related to the 1995 Charge and approximately $12
million was recorded against reserves related to the 1997
Charge.
o Cash proceeds received in 1997 in connection with the Coosa
and SPL disposals, the sale of Ssangyong and other asset sales
totaled $779.6 million.
o In 1997, the Corporation purchased 17.9 million shares of its
common stock in connection with its share repurchase program
at a total cost of approximately $900 million. In September
1997, the board of directors authorized the repurchase of 20
million additional shares, of which the remaining authority at
December 31, 1997, was 15.5 million shares.
o On December 18, 1997, the Corporation completed the
acquisition of Tecnol Medical Products, Inc. ("Tecnol"), a
leading maker of disposable face masks and patient care
products, through the exchange of approximately 8.7 million
shares of the Corporation's common stock for all outstanding
shares of Tecnol common stock. The transaction has been
accounted for as a purchase.
o Although the Corporation generated significant cash flow from
opertions and from the sales of Coosa and SPL, outstanding
debt at the end of 1997 increased to $2.5 billion from $2.3
billion at year-end 1996, due primarily to the Corporation's
share repurchase program.
o The ratio of total debt to capital increased in 1997
principally as a consequence of the 1997 Charge and the higher
debt level at the end of 1997. Excluding the effect of the
1997 Charge, the ratio of total debt to capital would have
been 34.0 percent. The Corporation's target total debt to
capital ratio is 30 to 40 percent.
o The decline in the pretax interest coverage is due primarily
to the higher year-end debt levels and the effect of the 1997
Charge. Excluding the effect of the 1997 Charge, the 1997
pretax interest coverage would have been 11.9 times.
o On January 9, 1998, the Corporation issued $200 million of 6
3/8% Debentures due January 1, 2028. This issuance supported
the Corporation's classification of $200 million of short-term
commercial paper as long-term debt in the December 31, 1997
Consolidated Balance Sheet.
o A shelf registration statement for $500 million of debt
securities is on file with the Securities and Exchange
Commission. The registration provides flexibility to issue
debt promptly if the Corporation's needs and market conditions
warrant.
o Revolving credit facilities of $1.0 billion are in place for
general corporate purposes and to back up commercial paper
borrowings.
o The Corporation's long-term debt securities have a Double-A
rating, and its commercial paper is rated in the top category.
o 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.
MARKET RISK SENSITIVITY AND INFLATION RISKS
Pursuant to Financial Accounting Reporting Release No. 48
issued by the Securities and Exchange Commission in January 1997,
the Corporation is required to disclose information concerning
market risk with respect to foreign exchange rates, interest
rates and commodity prices. The Corporation has elected to make
such disclosures utilizing a sensitivity analysis approach based
on hypothetical changes in foreign exchange rates, interest rates
and commodity prices.
As a multinational enterprise, the Corporation is exposed to
changes in foreign currency exchange rates, interest rates and
commodity prices. The Corporation employs a variety of practices
to manage these market risks, including its operating and
financing activities and, where deemed appropriate, the use of
derivative financial instruments. The Corporation uses
derivative financial instruments only for risk management
purposes and does not use them for speculation or for trading.
All derivative instruments are either exchange traded or are
entered into with major financial institutions for the purpose of
reducing the Corporation's credit risk and the risk of
nonperformance by third parties.
Foreign Currency Risk
Foreign currency risk is managed by the use of foreign
currency forward, swap and option contracts. The use of these
contracts allows the Corporation to manage its transactional
exposure to exchange rate changes because the gains or losses
incurred on the derivative instruments will offset in whole, or
in part, losses or gains on the underlying foreign currency
exposure. As of December 31, 1997, the Corporation's only major
foreign currency transactional exposure was the Mexican peso.
There have been no significant changes in how foreign currency
transactional exposures were managed during 1997, and management
does not foresee or expect any significant changes in such
exposures or in the strategies it employs to manage them in the
near future.
Foreign currency contracts and transactional exposures are
sensitive to changes in foreign currency exchange rates. As of
December 31, 1997, a 10 percent unfavorable change in the
exchange rate of the U.S. dollar against the prevailing market
rates of the foreign currencies in which the Corporation has
transactional exposures would have resulted in a net unrealized
loss of approximately $25 million. Unrealized gains or losses on
foreign currency contracts and transactional exposures are
defined as the difference between the actual contract rates and
the hypothetical exchange rates. In the view of management, the
above unrealized losses resulting from the hypothetical changes
in foreign currency exchange rates are not material to the
Corporation's consolidated financial position, results of
operations or cash flows.
Additional information concerning the Corporation's foreign
currency risks and hedging activities is contained in Note 8 to
the Consolidated Financial Statements.
Interest Rate Risk
Interest rate risk is managed through the maintenance of a
portfolio of variable- and fixed-rate debt composed of short- and
long-term instruments. The objective is to maintain a cost-
effective mix that management deems appropriate. The Corporation
utilizes interest rate swaps when deemed appropriate to manage
interest rate risk over time. These arrangements permit the
Corporation to exchange fixed- for variable-rate interest or
variable- for fixed-rate interest in a cost-effective manner
based on agreed-upon notional amounts exchanged. At December 31,
1997, the Corporation had no interest rate swaps outstanding and
its debt portfolio was composed of approximately 28 percent
variable-rate debt, adjusted for the effect of variable-rate
assets, and 72 percent fixed-rate debt. The strategy employed by
the Corporation to manage its exposure to interest rate
fluctuations did not change significantly during 1997, and
management does not foresee or expect any significant changes in
its exposure to interest rate fluctuations or in how such
exposure is managed in the near future.
Various financial instruments issued by the Corporation and
its subsidiaries are sensitive to changes in interest rates.
Interest rate changes would result in gains or losses in the
market value of the Corporation's fixed-rate debt due to
differences between the current market interest rates and the
rates governing these instruments. With respect to the
Corporation's fixed-rate debt outstanding at December 31, 1997, a
100 basis- point decline in interest rates would have resulted in
no material effect on the Corporation's consolidated financial
position, results of operations or cash flows. With respect to
the Corporation's commercial paper and other floating-rate debt,
a 100 basis-point increase in interest rates would have had no
material effect on the Corporation's pro forma interest expense
for 1997.
Commodity Price Risk
The Corporation is subject to commodity price risk arising
from price movement for purchased pulp, the market price of which
is determined by industry supply and demand. Increased pulp
costs may or may not be recoverable through higher selling prices
for products made from such raw materials. The Corporation has
not used derivative instruments in the management of these risks.
Because the Corporation is approximately 70 percent integrated
with respect to its current pulp requirements and because a
portion of its pulp purchases are made under long-term contracts
priced using formulas that result in relatively stable year-to-
year pulp prices, management does not deem commodity price risk
to be material to the Corporation's consolidated financial
position, results of operations or cash flows.
Inflation Risk
The Corporation's inflation risks are managed on an entity-by-
entity basis through selective price increases, productivity
increases and cost-containment measures. Management does not
believe that inflation risk is material to the Corporation's
business or its consolidated financial position, results of
operations or cash flows.
"YEAR 2000" CAPABILITIES
The Corporation has been in the process of modifying computer
systems to be "Year 2000" compliant since 1995. The process
involves system reviews, testing and modification or replacement
of date-sensitive software. Plans call for completion of the
majority of the process by the end of 1998 and the balance by
mid-1999. Neither the "Year 2000" issue nor the financial
effects of the reviews, testing and modifications are expected to
have a material adverse effect on the Corporation's business or
its consolidated financial position, results of operations or
cash flows. At this time, the Corporation is unable to determine
the effect of the "Year 2000" issue on its customers or
suppliers.
CONTINGENCIES
See Note 14 to the Consolidated Financial Statements for a
discussion of pending litigation and other contingencies
affecting the Corporation.
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 have a material adverse effect on 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.
See Note 14 to the Consolidated Financial Statements.
OUTLOOK
The Corporation enjoyed successes in a number of areas in
1997, with Personal Care businesses having an outstanding year.
However, the Corporation's overall earnings fell short of
management's expectations because of lower selling prices
worldwide, particularly for tissue products; transitional issues
in the Corporation's North American away-from-home business; and
heightened competition in Europe. Selling prices alone were
approximately $240 million lower than in 1996, which is
equivalent to 29 cents per share. The Corporation has recently
announced or implemented price increases for consumer and away-
from-home tissue products in the United States, and management is
encouraged that going forward these actions will help offset a
portion of the price reductions.
In recognition that the Corporation's financial performance in
1997 did not represent sufficient progress toward the
Corporation's long-term goal of doubling earnings per share from
operations from 1995 to the year 2000, management has commenced
implementation of the previously described Announced Plan in an
effort to reduce costs. The Announced Plan is expected to make
the Corporation stronger, whatever the competitive environment,
and help the Corporation deliver the returns its shareholders
have come to expect. In total, management expects the
Corporation will realize a savings of $100 million in 1998,
growing to $200 million annually in the year 2000, as a result of
the Announced Plan.
As previously disclosed, the Corporation's U.S. away-from-home
business underwent extensive strategic changes in 1997 that
management believes will provide long-lasting benefits that
should far outweigh the short-term loss in volume experienced by
that business early in the year. The transition has been
accomplished, and volume levels began increasing in the second
half of 1997. Costs are being reduced, and management expects
this business to return to its historic position of delivering
financial margins greater than the corporate average by the
second quarter of 1998.
Management believes that the Corporation's businesses in North
America and Latin America are very strong and expects to see good
growth and solid returns in those areas in 1998.
In Europe, intense competition has created significant
uncertainty. While the situation has not worsened over the past
few months, it is difficult for management to predict when things
will improve. In the meantime, management will continue its
efforts to reduce costs, improve products and pursue its long-
term strategy of building market share. To support the growth of
the Corporation's European diaper business, capacity is being
expanded at the Corporation's state-of-the-art plant at Barton-
upon-Humber in the United Kingdom. A continued high rate of
growth is expected in Central and Eastern Europe, where sales of
the Corporation's diapers, tissue and other products in 21
countries have increased tenfold in the past three years.
In Mexico, home of the Corporation's largest business in the
Latin American region, the economy is showing signs of recovery,
which are being reflected in increased sales volumes and improved
prices at KCM, the Corporation's equity affiliate.
In the Asia/Pacific region, although the Corporation's sales
volumes increased 11 percent in 1997, that region's currency
crisis resulted in a sales decline of 4 percent after translating
to U.S. dollars. Asia represents 7 percent of the Corporation's
overall sales, and a smaller percentage of its operating profit,
so that region's problems did not have a substantial effect on
the Corporation's financial performance. Notwithstanding these
1997 effects, management believes that the economic difficulties
in Asia may actually allow the Corporation to accelerate its pace
of business expansion in the region and increase its market
shares. As a result, management believes that the Corporation is
well positioned to enjoy the prosperity that management believes
will eventually return to the region.
Management believes that the purchase of Tecnol increases the
Corporation's potential for sales and earnings growth, both in
the United States and abroad, and positions the Corporation's
Professional Health Care Sector as a possible fourth core
business in the future.
The Corporation has previously announced its intention to
reduce its dependence on internally produced pulp from the 80
percent level of 1996 to approximately 30 percent. Toward that
end, the Corporation completed the sale of Coosa to Alliance
Forest Products in March 1997 for $600 million in cash. In
addition, the Corporation had an agreement to sell its mills in
Terrace Bay, Ontario, and New Glasgow, Nova Scotia, to Vancouver-
based Harmac Pacific Inc. However, that sale was not completed,
and management is evaluating other options for these facilities.
In summary, despite the near-term uncertainties in Europe and
Asia, management believes that the Corporation is better
positioned than ever to take advantage of the strengths inherent
in its brands and to meet its ambitious goals for the year 2000
and beyond.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report concerning, among
other things, the business outlook, anticipated financial and
operating results, strategies, contingencies and contemplated
transactions of the Corporation, the adequacy of the 1997 and
1995 Charges, and the remaining costs of the Announced Plan
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 that, among other things,
depend on the achievement of future cost savings, including cost
savings as a result of the Announced Plan, 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) 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
NET SALES ..................................................................... $12,546.6 $13,149.1 $13,373.0
Cost of products sold........................................................ 7,972.6 8,241.4 8,828.1
--------- --------- ---------
GROSS PROFIT .................................................................. 4,574.0 4,907.7 4,544.9
Advertising, promotion and selling expenses ................................. 1,937.2 2,029.7 2,080.9
Research expense ............................................................ 211.8 207.9 207.2
General expense ............................................................. 640.7 616.4 603.8
Restructuring and other unusual charges ..................................... 481.1 - 1,440.0
--------- --------- ---------
OPERATING PROFIT .............................................................. 1,303.2 2,053.7 213.0
Interest income ............................................................. 31.4 28.1 33.3
Interest expense ............................................................ (164.8) (186.7) (245.5)
Other income (expense), net ................................................. 17.7 107.2 103.6
--------- --------- ---------
INCOME BEFORE INCOME TAXES .................................................... 1,187.5 2,002.3 104.4
Provision for income taxes .................................................. 433.1 700.8 153.5
--------- --------- ---------
INCOME (LOSS) BEFORE EQUITY INTERESTS ......................................... 754.4 1,301.5 (49.1)
Share of net income of equity companies ..................................... 157.3 152.4 113.3
Minority owners' share of subsidiaries' net income .......................... (27.7) (50.1) (31.0)
--------- --------- ---------
INCOME BEFORE EXTRAORDINARY GAINS ............................................. 884.0 1,403.8 33.2
Extraordinary gains, net of income taxes .................................... 17.5 - -
--------- --------- ---------
NET INCOME .................................................................... $ 901.5 $ 1,403.8 $ 33.2
========= ========= =========
PER SHARE BASIS
BASIC
Income before extraordinary gains ......................................... $ 1.59 $ 2.49 $ .06
========= ========= =========
Net income ................................................................ $ 1.62 $ 2.49 $ .06
========= ========= =========
DILUTED
Income before extraordinary gains.......................................... $ 1.58 $ 2.48 $ .06
========= ========= =========
Net income................................................................. $ 1.61 $ 2.48 $ .06
========= ========= =========
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEET
Kimberly-Clark Corporation and Subsidiaries
December 31
----------------------------
(Millions of dollars) ASSETS 1997 1996
- - -------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents ............................................................... $ 90.8 $ 83.2
Accounts receivable ..................................................................... 1,606.3 1,660.9
Inventories ............................................................................. 1,319.5 1,348.3
Deferred income tax benefits ............................................................ 341.6 327.4
Prepaid expenses and other .............................................................. 130.8 119.4
----------- -----------
TOTAL CURRENT ASSETS .................................................................. 3,489.0 3,539.2
PROPERTY
Land and timberlands .................................................................... 202.0 291.9
Buildings ............................................................................... 1,472.6 1,807.8
Machinery and equipment ................................................................. 7,715.0 9,234.0
Construction in progress ................................................................ 366.6 593.5
----------- -----------
9,756.2 11,927.2
Less accumulated depreciation ........................................................... 4,155.6 5,113.9
----------- -----------
NET PROPERTY .......................................................................... 5,600.6 6,813.3
INVESTMENTS IN EQUITY COMPANIES ........................................................... 567.7 551.1
ASSETS HELD FOR SALE....................................................................... 280.0 -
GOODWILL, NET OF ACCUMULATED AMORTIZATION.................................................. 594.8 262.0
DEFERRED CHARGES AND OTHER ASSETS ......................................................... 733.9 680.1
----------- -----------
$ 11,266.0 $ 11,845.7
=========== ===========
See Notes to Consolidated Financial Statements.
December 31
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Debt payable within one year ............................................................ $ 663.1 $ 576.5
Trade accounts payable .................................................................. 747.1 849.8
Other payables .......................................................................... 302.3 269.5
Accrued expenses ........................................................................ 1,445.6 1,460.1
Accrued income taxes .................................................................... 416.8 401.3
Dividends payable ....................................................................... 131.4 129.7
----------- -----------
TOTAL CURRENT LIABILITIES ............................................................. 3,706.3 3,686.9
LONG-TERM DEBT ............................................................................ 1,803.9 1,738.6
NONCURRENT EMPLOYEE BENEFIT AND OTHER OBLIGATIONS ......................................... 887.1 926.1
DEFERRED INCOME TAXES ..................................................................... 580.8 762.3
MINORITY OWNERS' INTERESTS IN SUBSIDIARIES ................................................ 162.6 248.7
STOCKHOLDERS' EQUITY
Preferred stock - no par value - authorized 20.0 million shares,
none issued ........................................................................... - -
Common stock - $1.25 par value - authorized 1.2 billion shares;
issued 568.6 million shares at December 31, 1997 and 1996.............................. 710.8 710.8
Additional paid-in capital .............................................................. 113.3 136.7
Common stock held in treasury, at cost - 12.3 million and 5.2 million
shares at December 31, 1997 and 1996, respectively .................................... (617.1) (214.4)
Unrealized currency translation adjustments ............................................. (953.2) (656.8)
Retained earnings ....................................................................... 4,871.5 4,506.8
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ............................................................ 4,125.3 4,483.1
----------- -----------
$ 11,266.0 $ 11,845.7
=========== ===========
CONSOLIDATED CASH FLOW STATEMENT
Kimberly-Clark Corporation and Subsidiaries
Year Ended December 31
-----------------------------------------
(Millions of dollars) 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net income ................................................................ $ 901.5 $1,403.8 $ 33.2
1997 and 1995 Charges, net of cash expended................................ 689.7 - 1,353.8
Extraordinary gains, net of income taxes .................................. (17.5) - -
Depreciation .............................................................. 490.9 561.0 581.7
Deferred income tax provision (benefit) ................................... 11.2 40.5 (330.0)
Gains on asset sales ...................................................... (8.4) (75.1) (118.5)
Equity companies' earnings in excess of dividends paid .................... (62.1) (100.2) (57.6)
Minority owners' share of subsidiaries' net income ........................ 27.7 50.1 31.0
Increase in operating working capital ..................................... (576.9) (141.6) (527.9)
Pension funding in excess of expense ...................................... (34.2) (28.2) (89.0)
Other ..................................................................... (15.3) (36.1) 54.9
--------- -------- ----------
CASH PROVIDED BY OPERATIONS .......................................... 1,406.6 1,674.2 931.6
--------- -------- ----------
INVESTING
Capital spending .......................................................... (944.3) (883.7) (817.6)
Acquisitions of businesses, net of cash acquired........................... (82.2) (223.6) (76.1)
Proceeds from disposition of property and businesses ...................... 779.6 455.4 336.1
Other ..................................................................... (58.9) 18.9 3.8
--------- -------- ----------
CASH USED FOR INVESTING .............................................. (305.8) (633.0) (553.8)
--------- -------- ----------
FINANCING
Cash dividends paid ....................................................... (530.6) (461.5) (348.2)
Net increase (decrease) in short-term debt................................. 355.3 (348.8) (25.2)
Increases in long-term debt ............................................... 107.5 75.8 80.7
Decreases in long-term debt ............................................... (253.8) (321.2) (944.0)
Proceeds from exercise of stock options ................................... 49.2 207.9 121.4
Acquisition of common stock for the treasury .............................. (910.6) (348.8) (137.8)
Other ..................................................................... 89.8 17.0 (40.9)
--------- -------- ----------
CASH USED FOR FINANCING .............................................. (1,093.2) (1,179.6) (1,294.0)
--------- -------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................ $ 7.6 $ (138.4) $ (916.2)
========= ======== ==========
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED 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 that are more
than 50 percent owned. Investments in nonconsolidated companies
that 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.
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
The number of common shares and per share data for all periods
reflects the two-for-one common stock split that became effective
April 2, 1997. (See Note 11.)
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 AND DEFERRED CHARGES
Goodwill is amortized on the straight-line method over various
periods not exceeding 40 years. The realizability and period of
benefit of goodwill is evaluated periodically to assess
recoverability and, if warranted, impairment or adjustment of the
period benefited would be recognized. Accumulated amortization
of goodwill at December 31, 1997 and 1996 was $94.1 and $75.3
million, respectively.
Costs of bringing significant new or expanded facilities into
operation are recorded as deferred charges and amortized over
periods of not more than five years.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures related to current operations that
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.
STOCK-BASED COMPENSATION
Compensation cost for stock options and awards is measured
based on intrinsic value under Accounting Principles Board
Opinion ("APB") 25, "Accounting for Stock Issued to Employees."
(See Note 9.)
ACCOUNTING STANDARDS CHANGES
In 1997, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") 128, "Earnings Per Share." (See
Note 6.)
In 1997, SFAS 130, "Reporting Comprehensive Income" and SFAS
131, "Disclosures About Segments of an Enterprise and Related
Information" were issued. These standards, which will become
effective in 1998, expand or modify disclosures and, accordingly,
will have no effect on the Corporation's consolidated financial
position, results of operations or cash flows.
NOTE 2. RESTRUCTURING AND OTHER UNUSUAL CHARGES
1997 CHARGE
In the fourth quarter of 1997, the Corporation announced a
plan to restructure its worldwide operations ("Announced Plan"),
the total pretax cost of which is approximately $810.0 million.
Of the costs of the Announced Plan, $701.2 million was recorded
as a charge against 1997 pretax income ("1997 Charge"), $503.1
million after income taxes, equity company effects and minority
interests, or $.91 per share. The remaining $108.8 million of
costs related to the Announced Plan will be recorded in 1998 when
notification is made to employees whose employment will be
terminated or at the time other costs result in accruable
expenses. Of the 1997 Charge, $220.1 million relates to the
write-down of certain assets and inventories and has been charged
to cost of products sold, and $481.1 million has been recorded as
restructuring and other unusual charges in the Consolidated
Income Statement. Approximately 71 percent of the 1997 Charge
relates to Tissue-Based Products and 28 percent relates to
Personal Care Products. Approximately 59 percent of the 1997
Charge relates to North American operations and approximately 27
percent relates to Europe.
The Announced Plan includes:
o The sale, closure or downsizing of 18 manufacturing
facilities worldwide and a workforce reduction of
approximately 5,000 employees. These actions will result in
the consolidation of the Corporation's manufacturing
operations into fewer, larger and more efficient facilities.
They also will eliminate excess production capacity,
including more than 200,000 metric tons of high-cost tissue
manufacturing capacity in North America and Europe.
o The write-down of property, plant and equipment and other
assets not needed in the restructured manufacturing
operations; the elimination of excess manufacturing
capacity; and the write-down of certain inventories in
restructured operations and other assets.
o The elimination of duplicate overhead and productive
capacity resulting from the combination of the Corporation's
Professional Health Care operations with those of Tecnol
Medical Products, Inc. ("Tecnol").
o The write-off of certain assets that became obsolete in 1997
due to recently enacted U.S. environmental air and water
emission rules that require reduced emission levels of
certain chemical compounds from the Corporation's pulp
production operations.
o Impaired asset charges.
The major categories of the 1997 Charge and their subsequent
utilization are summarized below:
Amounts
Charged Amounts Amounts to
to Earnings Utilized be Utilized
(Millions of dollars) in 1997 in 1997 Beyond 1997
- - ---------------------------------------------------------------------------------------------------------------------
Costs of workforce reduction.......................................... $ 57.3 $ 5.5 $ 51.8
Losses on facility disposals.......................................... 165.0 5.8 159.2
Write-down of property, plant and equipment
and other assets................................................... 333.4 19.2 314.2
Asset impairments..................................................... 82.6 82.6 -
Contract terminations and other....................................... 62.9 6.0 56.9
------- -------- -------
$ 701.2 $ 119.1 $ 582.1
======= ======== =======
The principal costs included in the 1997 Charge are as
follows:
o The costs of workforce reduction are primarily composed of
severance payments and other employee-related costs for
1,900 employees at facilities to be sold or closed and other
operations that are being downsized. The employees involved
were notified by December 31, 1997. The remainder of the
5,000 employees involved in the Announced Plan will be
notified in 1998, and the costs of their severance payments
and other costs will be accrued at that time.
o Losses on facility disposals include the write-down to
estimated net realizable value of six facilities to be sold
or closed and related costs of sale or closure. The sale or
closure of these facilities is expected to occur in 1998,
resulting in the elimination of excess production capacity.
o Write-down of property, plant and equipment and other assets
represents the net book value of older, less efficient
machinery and equipment not needed in the restructured
manufacturing operations; the elimination of excess
manufacturing capacity; the write-off of the net book value
of assets that became obsolete due to recently enacted U.S.
environmental air and water emission rules; and the
elimination of duplicate facilities and excess capacity
resulting from the Tecnol acquisition.
o Asset impairments represent charges for five manufacturing
facilities, the future cash flows from operations and the
sale or closure of which are estimated to be insufficient to
cover their carrying amounts. Each facility was written
down to its estimated fair value based on the Corporation's
assessment of expected future cash flows from operations and
disposal, discounted at a rate commensurate with the risk
involved.
o Contract terminations primarily represent the costs of
terminating certain supplier/distribution arrangements.
The 1997 Charge included in accrued expenses on the
Consolidated Balance Sheet was $191.8 million at December 31,
1997. Substantially all of this amount is expected to be paid in
1998 and the balance, primarily related to workforce reductions,
is expected to be paid in accordance with negotiated agreements
in 1999 and beyond.
1995 CHARGE
In the fourth quarter of 1995, the Corporation recorded a
pretax charge of $1,440.0 million ("1995 Charge"), $1,070.9
million after income taxes and minority interests, or $1.92 per
share, for the estimated costs of the 1995 merger with Scott
Paper Company ("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 the merger related
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
accountants; (v) impaired asset charges; and (vi) other unusual
charges.
The 1995 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. Based on
events occurring subsequent to 1995, certain aspects of the
Corporation's original plans for integrating the two
organizations and accomplishing the objectives of the merger
were, of necessity, revised. Although certain specific actions
originally contemplated in the 1995 Charge were modified, the
overall plan for restructuring the Corporation following the
merger and accomplishing the other matters included in the 1995
Charge should be completed at a total cost approximating the
original provision.
Major categories of the 1995 Charge and their subsequent
utilization are summarized below:
Amounts Amounts to
Charged Amounts Utilized be Utilized
---------------------------
to Earnings through in Beyond
(Millions of dollars) in 1995 1996 1997 1997
- - ---------------------------------------------------------------------------------------------------------------------
Workforce related................................. $ 220.2 $ 142.0 $ 78.2 $ -
Facility disposals................................ 293.6 293.6 - -
Excess capacity, restructured
facilities and other assets..................... 449.1 289.9 129.6 29.6
Contract settlements, lease
terminations, merger fees and
expenses and other.............................. 318.8 133.1 143.9 41.8
Asset impairments................................. 158.3 158.3 - -
--------- --------- ------- --------
$ 1,440.0 $ 1,016.9 $ 351.7 $ 71.4
========= ========= ======= ========
ACCOUNTING POLICIES FOR RESTRUCTURING AND OTHER UNUSUAL CHARGES
The Corporation considers amounts included in the 1997 and
1995 Charges to be utilized when the following specific criteria
are met. Workforce related reserves are considered utilized when
contractual termination liabilities are fixed. The reserves for
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) closes such facilities; (ii) sells such
facilities; or (iii) writes off such assets because there are no
plans for any future recovery of carrying amounts. Costs for
contract settlements, lease terminations, and merger fees and
expenses are considered utilized at the time settlements are
negotiated and agreed upon and the amount of required payments
are fixed.
Provisions for asset impairments are 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 are written down to their estimated
fair values.
The operating costs of facilities to be sold or closed are
charged to operating profit during the period such facilities
remain in use. Salaries, wages and benefits of employees at such
locations are charged to operations during the time such
employees are actively employed.
NOTE 3. ACQUISITION
On December 18, 1997, the Corporation completed the
acquisition of Tecnol through the exchange of approximately 8.7
million shares of the Corporation's common stock for all
outstanding shares of Tecnol common stock. The value of the
exchange of stock plus related acquisition costs was
approximately $428 million. The acquisition was accounted for as
a purchase. Accordingly, the assets and liabilities of Tecnol
are included in the Consolidated Balance Sheet as of December 31,
1997. The results of Tecnol's operations from the date of the
acquisition to December 31, 1997, were not significant.
The Corporation has engaged an independent appraiser to assist
in the determination of the fair market value of the acquired
assets and, while the appraisal is not yet complete, the
Corporation believes that the allocation of the purchase price
will result in assigning values to intangible assets in a range
of $320 million to $340 million. These intangible assets will be
amortized on the straight-line method over periods ranging up to
20 years.
The unaudited pro forma combined historical results, as if the
Tecnol business had been acquired at the beginning of fiscal 1997
and 1996, respectively, are estimated to be:
(Millions of dollars, except per share amounts) 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------
Net sales............................................................................... $12,701.5 $13,293.5
Income before extraordinary gains....................................................... 868.1 1,385.0
Net income.............................................................................. 885.6 1,385.0
Basic net income per share.............................................................. 1.57 2.42
Diluted net income per share............................................................ 1.56 2.41
The pro forma results include amortization of the intangibles
discussed above and interest expense on debt assumed issued to
finance the acquisition of the treasury stock exchanged in the
purchase. The pro forma results are not necessarily indicative
of what actually would have occurred if the acquisition had been
completed as of the beginning of each of the fiscal periods
presented, nor are they necessarily indicative of future
consolidated results.
NOTE 4. INCOME TAXES
An analysis of the provision for income taxes follows:
Year Ended December 31
--------------------------------------
(Millions of dollars) 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------
Current income taxes:
United States ................................................................. $423.9 $474.4 $280.3
State ......................................................................... 96.7 67.6 43.7
Other countries ............................................................... 104.6 118.3 159.5
------ ------ ------
Total ....................................................................... 625.2 660.3 483.5
------ ------ ------
Deferred income taxes:
United States ................................................................. (82.3) 38.8 (133.2)
State ......................................................................... (56.5) (10.1) (48.2)
Other countries ............................................................... (14.9) 11.8 (148.6)
------ ------ ------
Total ....................................................................... (153.7) 40.5 (330.0)
------ ------ ------
Total provision for income taxes................................................. 471.5 700.8 153.5
Less income taxes related to extraordinary gains ................................ 38.4 - -
------ ------ ------
Total provision excluding income taxes related
to extraordinary gains.................................................... $433.1 $700.8 $153.5
====== ====== ======
Income before income taxes is classified in the Consolidated Income Statement
as follows:
Year Ended December 31
----------------------------------------
(Millions of dollars) 1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Gains:
United States ................................................................. $1,132.6 $1,624.9 $ 42.5
Other countries ............................................................... 54.9 377.4 61.9
-------- -------- --------
$1,187.5 $2,002.3 $ 104.4
======== ======== ========
Extraordinary Gains:
United States ................................................................. $ 55.9 $ - $ -
======== ======== ========
Deferred income tax assets (liabilities) are composed of the
following:
December 31
------------------------------
(Millions of dollars) 1997 1996
- - --------------------------------------------------------------------------------------------------------------------------
Current deferred income tax assets attributable to:
Advertising and promotion accruals....................................................... $ 37.7 $ 41.4
Pension, postretirement and other employee benefits ..................................... 80.2 83.4
Other accrued expenses, including those related to the 1997 and
1995 Charges........................................................................... 192.0 186.3
Other ................................................................................... 40.7 33.2
Valuation allowances .................................................................... (9.0) (16.9)
-------- ---------
Net current deferred income tax asset ................................................. $ 341.6 $ 327.4
======== =========
Noncurrent deferred income tax assets (liabilities) attributable to:
Accumulated depreciation ................................................................ $(788.7) $(1,016.2)
Operating loss carryforwards ............................................................ 280.4 260.7
Other postretirement benefits ........................................................... 287.3 320.8
Installment sales ....................................................................... (137.9) (137.9)
Other ................................................................................... (2.8) -
Valuation allowances .................................................................... (219.1) (189.7)
------- ---------
Net noncurrent deferred income tax liability .......................................... $(580.8) $ (762.3)
======= =========
The valuation allowances for deferred income tax assets
increased by $21.5 million in 1997 and decreased by $54.1 million
in 1996. Valuation allowances at the end of 1997 relate to the
potentially unusable portion of tax loss carryforwards of $737.6
million that are in jurisdictions outside the United States. If
not utilized against taxable income, $288.4 million of this
amount will expire from 1998 through 2005. The remaining $449.2
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 before income
taxes related to extraordinary gains is as follows:
1997 1996 1995
---------------------- ----------------------- ------------------------
(Millions of dollars) AMOUNT PERCENT Amount Percent Amount Percent
- - --------------------------------------------------------------------------------------------------------------------------
Income before income taxes:
As reported ................................. $1,187.5 $2,002.3 $ 104.4
Add back the 1997 and 1995
Charges.................................... 701.2 - 1,440.0
-------- -------- ---------
Income before income taxes
excluding the 1997 and 1995
Charges .............................. $1,888.7 $2,002.3 $ 1,544.4
======== ======== =========
Tax at U.S. statutory rate(a) ................. $ 661.0 35.0% $ 700.8 35.0% $ 540.5 35.0%
State income taxes, net of federal
tax benefit.................................. 37.4 2.0 37.3 1.9 34.2 2.2
Operating losses for which no tax
benefit was recognized....................... 26.7 1.4 22.6 1.1 10.9 .7
Net operating losses realized ................. (4.7) (.2) (12.6) (.6) (70.6) (4.6)
Other - net ................................... (97.1) (5.2) (47.3) (2.4) (1.5) (.1)
-------- ---- -------- ---- --------- -----
623.3 33.0% 700.8 35.0% 513.5 33.2%
==== ==== =====
Tax benefit of the 1997 and 1995
Charges(b) .................................. (190.2) 27.1% - (360.0) 25.0%
-------- ==== -------- --------- =====
Provision for income taxes................... $ 433.1 36.5% $ 700.8 35.0% $ 153.5 147.0%
======== ==== ======== ==== ========= =====
(a) Tax at U.S. statutory rate is based on income before income
taxes excluding the 1997 Charge of $701.2 million and the
1995 Charge of $1,440.0 million. The tax benefit of such
items is shown elsewhere in the table.
(b) The effective rate for the tax benefit attributable to the
1997 Charge is lower than the U.S. statutory rate of 35.0
percent primarily because no tax benefits were provided for
certain costs related to operations in countries in which
the Corporation has income tax loss carryforwards for which
valuation allowances have been provided. The effective rate
for the tax benefit attributable to the 1995 Charge is lower
than the U.S. statutory rate of 35.0 percent because no tax
benefits were provided for certain costs and fees that are
not deductible and others related to operations in countries
in which the Corporation has income tax loss carryforwards
for which valuation allowances have been provided.
At December 31, 1997, income taxes have not been provided on
approximately $1.6 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. Withholding taxes of
approximately $100 million would be payable upon remittance of
all previously unremitted earnings at December 31, 1997.
NOTE 5. POSTRETIREMENT AND OTHER BENEFITS
RETIREMENT PLANS
The Corporation and its subsidiaries in North America and the
United Kingdom have defined benefit and/or defined contribution
retirement plans covering substantially all regular employees.
Most other subsidiaries outside the U.S. have pension plans or,
in certain countries, termination pay plans covering
substantially all regular employees. Obligations under such
plans are provided for by contributing to trusts, purchasing
insurance policies, or recording liabilities.
DEFINED BENEFIT RETIREMENT PLANS
Defined benefit plans covering salaried employees generally
provide pension benefits based on years of service and
compensation during the final years of employment. Defined
benefit plans covering hourly employees generally 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 defined benefit plans, which are composed 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 composed
principally of common stocks, high-grade corporate and government
bonds, real estate funds and various short-term investments.
The components of net pension cost were as follows:
Year Ended December 31
-----------------------------------
(Millions of dollars) 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------
Benefits earned ..................................................................... $ 72.6 $ 86.0 $ 78.0
Interest on projected benefit obligation (PBO)....................................... 246.7 243.9 249.8
Amortization and other .............................................................. 6.0 13.4 4.0
------- ------- -------
325.3 343.3 331.8
Less expected return on plan assets (actual returns on plan assets
were gains of $622.1 million, $446.1 million and $521.7 million in
1997, 1996 and 1995, respectively) ................................................ 297.8 283.2 276.1
------- ------- -------
Net pension cost .................................................................... $ 27.5 $ 60.1 $ 55.7
======= ======= =======
The weighted-average assumptions used to determine net pension
costs were as follows:
Year Ended December 31
----------------------------------
1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------
Expected long-term rate of return on plan assets..................................... 9.6% 9.6% 10.2%
Discount rate ....................................................................... 7.9% 7.5% 8.7%
Assumed rate of increase in compensation ............................................ 4.9% 4.4% 5.4%
Transition adjustments are being amortized on the straight-
line method over 14 to 23 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:
1997 PLANS WHERE 1996 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 ..................................................... $3,114.1 $ 90.7 $2,834.5 $ 132.7
Nonvested .................................................. 62.8 4.2 48.4 3.4
-------- -------- -------- -------
Total ................................................... $3,176.9 $ 94.9 $2,882.9 $ 136.1
======== ======== ======== =======
PBO ......................................................... $3,507.0 $ 116.2 $3,233.7 $ 161.0
Plan assets at fair value ...................................... 3,613.9 6.0 3,318.7 24.5
-------- ------- -------- -------
PBO less than (in excess of) plan assets ....................... $ 106.9 $(110.2) $ 85.0 $(136.5)
======== ======= ======== =======
Consisting of:
Unfavorable actuarial experience ........................... $ (16.2) $ (36.8) $ (48.8) $ (32.9)
Unamortized transition adjustments ......................... 20.5 (3.8) 26.6 (4.2)
Unamortized prior service costs ............................ (45.9) (6.8) (42.9) (7.3)
Net prepaid (accrued) pension costs ........................ 148.5 (92.5) 150.1 (119.4)
Adjustment for minimum liability ........................... - 29.7 - 27.3
-------- ------- -------- -------
Total ................................................... $ 106.9 $(110.2) $ 85.0 $(136.5)
======== ======= ======== =======
(a) Plans with accumulated benefit obligations that exceed plan
assets are composed 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.
The weighted-average assumptions used to determine the PBO
were as follows:
December 31
------------------------------
1997 1996
- - ---------------------------------------------------------------------------------------------------------------------
Discount rate(a) .................................................................... 7.1% 7.9%
Assumed rate of increase in compensation ............................................ 4.3% 4.9%
(a) Weighted-average discount rates for U.S. plans were 7.0% and
7.75% at December 31, 1997 and 1996, respectively.
In connection with certain business dispositions occurring in
the last two years, the Corporation transferred certain pension
obligations to the respective buyers. These dispositions
resulted in immediate recognition of gains of $.5 million and
$2.1 million in 1997 and 1996, respectively.
DEFINED CONTRIBUTION RETIREMENT PLANS
The Corporation's contributions to the defined contribution
retirement plans are based on the age and compensation of covered
employees. The Corporation's contributions charged to expense
were $14.8 million, $8.5 million and $9.7 million in 1997, 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 employees retiring after
1993. 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 cost were as follows:
Year Ended December 31
----------------------------------
(Millions of dollars) 1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------------------
Benefits earned ...................................................................... $10.7 $12.0 $10.3
Interest on accumulated postretirement benefit obligation ............................ 44.9 48.0 54.6
Amortization and other................................................................ (8.8) (4.4) (.8)
----- ----- -----
Net postretirement benefit cost (of which $52.4 million, $54.3 million
and $49.9 million were paid in 1997, 1996 and 1995, respectively) .................. $46.8 $55.6 $64.1
===== ===== =====
The components of the postretirement health care and life
insurance benefit obligation are presented below:
December 31
-----------------------
(Millions of dollars) 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees ........................................................................................ $426.3 $438.7
Fully eligible active plan participants ......................................................... 50.5 62.2
Other active plan participants .................................................................. 161.2 130.9
------ ------
Total ......................................................................................... 638.0 631.8
Unrecognized actuarial gain........................................................................ 98.1 119.0
Unrecognized prior service gain.................................................................... 19.8 22.3
------ ------
Total accrued postretirement benefit liability .................................................... 755.9 773.1
Less current portion .............................................................................. 56.6 56.5
------ ------
Noncurrent portion ................................................................................ $699.3 $716.6
====== ======
Weighted-average discount rates used to determine the
accumulated postretirement benefit obligation for all plans were
7.0% and 7.8% at December 31, 1997 and 1996, respectively. The
rates used for the U.S. plans were 7.0% and 7.75% at December 31,
1997 and 1996, respectively.
The December 31, 1997 accumulated postretirement benefit
obligation for the U.S. plans was determined using an assumed
health care cost trend rate of 8.6% in 1998, declining gradually
to an ultimate rate of 6.0% for certain plans and to zero by 2009
and thereafter for others, which reflects the previously
described limit on the Corporation's cost of annual per capita
retiree medical benefits for certain plans. The December 31,
1996, accumulated postretirement benefit obligation 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 by 2007 and thereafter for others.
A one-percentage point increase in the health care cost trend
rate would increase the accumulated postretirement benefit
obligation by $22.5 million at December 31, 1997, and expense by
$1.8 million for the year then ended.
In connection with certain business dispositions occurring in
the last three years, the Corporation transferred certain
postretirement benefit obligations to the respective buyers.
These dispositions resulted in immediate recognition of gains of
$7.5 million and $2.1 million in 1997 and 1996, respectively, and
a loss of $14.9 million in 1995.
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 $24.9 million, $24.1
million and $26.0 million in 1997, 1996 and 1995, respectively.
NOTE 6. EARNINGS PER SHARE
There are no adjustments required to be made to Income Before
Extraordinary Gains for purposes of computing basic and diluted
earnings per share ("EPS").
A reconciliation of the average number of common shares
outstanding used in the basic and diluted EPS computations is as
follows:
Average Common Shares Outstanding
------------------------------------------
(Millions) 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------
Basic .................................................................... 555.9 564.0 559.0
Dilutive effect of stock options........................................... 3.1 2.9 4.7
Dilutive effect of shares issued for participation share awards............ 0.3 0.2 -
----- ----- -----
Diluted .................................................................... 559.3 567.1 563.7
===== ===== =====
There were no securities outstanding at December 31, 1997,
which were excluded from the EPS computations. The number of
common shares outstanding as of December 31, 1997 and 1996 was
556.3 million and 563.4 million, respectively.
NOTE 7. DEBT
The major issues of long-term debt outstanding were:
December 31
----------------------------
(Millions of dollars) 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------
Kimberly-Clark Corporation:
Commercial paper to be refinanced........................................................... $ 200.0 $ -
7 7/8% Debentures due 2023 ................................................................. 199.7 199.7
8 5/8% Notes due 2001 ...................................................................... 199.8 199.7
9 1/8% Notes due 1997 ...................................................................... - 100.0
9% Notes due 2000 .......................................................................... 99.9 99.9
6 7/8% Debentures due 2014 ................................................................. 99.7 99.7
5% Notes maturing to 2002 .................................................................. 45.0 54.0
9 1/2% Sinking Fund Debentures due 2018 .................................................... 50.0 50.0
6.2% to 7.55% Industrial Development Revenue Bonds maturing to 2023 ........................ 79.7 79.6
Other ..................................................................................... .2 .5
--------- ----------
974.0 883.1
Subsidiaries:
7% Debentures due 2023 ..................................................................... 193.8 193.5
11.1% Bonds due 2000 ....................................................................... 99.4 99.3
8.3% to 13% Debentures maturing to 2022 .................................................... 156.0 174.7
Industrial Development Revenue Bonds at variable rates (average rate
for December 1997 - 4.4%) due 2015, 2018, 2023 and 2024 .................................. 286.6 250.0
5.7% to 6 3/8% Industrial Development Revenue Bonds maturing to 2007 ....................... 28.3 60.5
Bank loans and other financings in various currencies at fixed rates
(weighted-average rate at December 31, 1997 - 10.3%) maturing to 2008 .................... 112.9 139.1
Bank loans and other financings in various currencies at variable rates
(weighted-average rate at December 31, 1997 - 7.8%) maturing to 2005 ..................... 54.4 103.6
--------- ----------
1,905.4 1,903.8
Less current portion ......................................................................... 101.5 165.2
--------- ----------
Total ..................................................................................... $ 1,803.9 $ 1,738.6
========= ==========
At December 31, 1997, $200 million of short-term commercial
paper was classified as long-term debt. On January 9, 1998, the
Corporation issued $200 million of 6 3/8% Debentures due January
1, 2028, and used the proceeds to retire commercial paper.
Fair value of long-term debt was $1,972.4 million and $1,956.8
million at December 31, 1997 and 1996, respectively. Scheduled
maturities of long-term debt are $50.0 million in 1999, $260.9
million in 2000, $231.6 million in 2001 and $49.3 million in
2002.
At December 31, 1997, the Corporation had $1.0 billion of
revolving credit facilities with a group of banks. These
facilities, which were unused at December 31, 1997, 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 November 1998 and $500 million expires in November
2002.
Debt payable within one year:
December 31
-----------------------------
(Millions of dollars) 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Commercial paper.............................................................................. $392.6 $274.0
Current portion of long-term debt ............................................................ 101.5 165.2
Other short-term debt ....................................................................... 169.0 137.3
------ ------
Total ..................................................................................... $663.1 $576.5
====== ======
At December 31, 1997 and 1996, the weighted-average interest
rate for commercial paper was 5.9 percent and 5.5 percent,
respectively.
NOTE 8. RISK MANAGEMENT
As a multinational enterprise, the Corporation is exposed to
changes in foreign currency exchange rates, interest rates and
commodity prices. The Corporation employs a variety of practices
to manage these market risks, including its operating and
financing activities and, where deemed appropriate, the use of
derivative financial instruments. The Corporation uses
derivative financial instruments only for risk management
purposes and does not use them for speculation or for trading.
All derivative instruments are either exchange traded or are
entered into with major financial institutions for the purpose of
reducing the Corporation's credit risk and the risk of
nonperformance by third parties.
Foreign Currency Risk Management
Foreign currency risk is managed by the use of foreign
currency forward, swap and option contracts. The use of these
contracts allows the Corporation to manage its transactional
exposure to exchange rate changes because the gains or losses
incurred on the derivative instruments will offset in whole, or
in part, losses or gains on the underlying foreign currency
exposure. As of December 31, 1997, the Corporation's only major
foreign currency transactional exposure was the Mexican peso.
There have been no significant changes in how foreign currency
transactional exposures were managed during 1997, and management
does not foresee or expect any significant changes in such
exposures or in the strategies it employs to manage them in the
near future.
Foreign currency losses included in consolidated net income
were $10.2 million, $2.9 million and $46.4 million for 1997, 1996
and 1995, respectively. The 1997 loss is attributable to
weakening currencies in the Asia/Pacific region. Also included
in these losses were the Corporation's share of foreign currency
gains and losses at the Corporation's Mexican affiliate,
Kimberly-Clark de Mexico, S.A. de C.V. ("KCM"), attributable to
changes in the value of the Mexican peso. The Corporation's share
of the peso currency effects was insignificant in 1997 and 1996
compared with a loss of $38.5 million in 1995.
Prior to 1997, Mexico's economy was deemed to be non-
hyperinflationary, and because KCM has financed a portion of its
operations with U.S. dollar obligations, KCM experienced foreign
currency losses on these obligations as the value of the peso
declined. Beginning in 1997, the Mexican economy was determined
to be hyperinflationary because that country's cumulative
inflation rate for the last three years had exceeded 100 percent.
For accounting purposes, the functional currency of KCM became
the U.S. dollar rather than the Mexican peso. Accordingly,
changes in the value of the peso no longer result in foreign
currency gains or losses attributable to the U.S. dollar
obligations. However, changes in the value of the peso have
resulted in gains or losses attributable to peso-denominated
monetary assets held by KCM.
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
one year 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.
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 risk with
respect to the counterparties is considered minimal in view of
the financial strength of the counterparties.
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, 1997 and 1996:
DECEMBER 31, 1997 December 31, 1996
---------------------------------------- ------------------------------------------
NOTIONAL Notional
PRINCIPAL CARRYING FAIR Principal Carrying Fair
(Millions of dollars) AMOUNTS VALUES VALUES Amounts Values Values
- - ----------------------------------------------------------------------------------------------------------------------------
Forward contracts
Assets .......................... $1,094.1 $38.9 $47.3 $480.1 $ 8.2 $ 6.5
Liabilities ..................... 350.0 (6.4) (6.4) 543.0 (.8) (3.6)
Currency swaps
Assets .......................... - - - 28.1 .1 (1.6)
Option contracts
Assets .......................... 10.0 - - 10.0 .2 .1
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, Mexico (effective
January 1,1997) 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.
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.
Interest Rate Risk Management
Interest rate risk is managed through the maintenance of a
portfolio of variable- and fixed-rate debt composed of short- and
long-term instruments. The objective is to maintain a cost-
effective mix that management deems appropriate. The Corporation
utilizes interest rate swaps when deemed appropriate to manage
interest rate risk over time. These arrangements permit the
Corporation to exchange fixed- for variable-rate interest or
variable- for fixed-rate interest in a cost-effective manner
based on agreed-upon notional amounts exchanged. At December 31,
1997, the Corporation had no material amount of interest rate
swaps outstanding. The strategy employed by the Corporation to
manage its exposure to interest rate fluctuations did not change
significantly during 1997. Management does not foresee or expect
any significant changes in its exposure to interest rate
fluctuations or in how such exposure is managed in the near
future.
Commodity Price Risk Management
The Corporation is subject to commodity price risk arising
from price movement for purchased pulp, the market price of which
is determined by industry supply and demand. Increased pulp
costs may or may not be recoverable through higher selling prices
for products produced from such raw materials. The Corporation
has not used derivative instruments in the management of these
risks. Because the Corporation is approximately 70 percent
integrated with respect to its current pulp requirements and
because a portion of its pulp purchases are made under long-term
contracts priced using a formula that results in relatively
stable year-to-year pulp prices, management does not deem
commodity price risk to be material to the Corporation's
consolidated financial position, results of operations or cash
flows.
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 or cash and 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 or cash and 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:
1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------
Outstanding - Beginning of year........................................... 7,173,172 5,993,700 7,591,356
Awarded ................................................................. 1,993,800 1,954,000 2,105,300
Dividend shares credited - net ........................................... 795,360 682,500 864,390
Matured ................................................................. (500,161) (1,311,928) (4,398,546)
Forfeited ................................................................ (80,800) (145,100) (168,800)
--------- --------- ---------
Outstanding - End of year ................................................ 9,381,371 7,173,172 5,993,700
========= ========= =========
Amounts expensed related to participation shares were $26.8
million, $17.9 million and $15.2 million in 1997, 1996 and 1995,
respectively.
The Corporation also has stock option plans under which
executives and key employees may be granted awards. Under these
plans, all stock options are granted at not less than market
value and expire 10 years after the date of grant and become
exercisable over three years.
In October 1997, approximately 57,000 employees worldwide were
granted approximately 3.2 million stock options and .2 million
stock appreciation rights under the Corporation's Global Stock
Option Plan. Employees were granted options to purchase a fixed
number of shares, ranging from 25 to 125 shares per employee, of
common stock at a price equal to the fair market value of the
Corporation's stock at the date of grant. The grants generally
become exercisable after the third anniversary of the grant date
and have a term of seven years.
Data concerning stock option activity follows:
1997 1996 1995
-------------------------- ------------------------- --------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
OPTIONS EXERCISE Options Exercise Options Exercise
(000) PRICE (000) Price (000) Price
- - -------------------------------------------------------------------------------------------------------------------------
Outstanding - Beginning of
year................................ 12,609 $26.61 20,688 $20.57 27,702 $17.53
Granted............................... 6,111 51.12 2,876 39.94 4,254 24.91
Exercised............................. (2,401) 20.15 (10,694) 18.49 (8,384) 14.70
Rescinded options..................... - - (2,432) 13.55
Canceled or expired................... (124) 38.61 (261) 27.63 (452) 10.89
------ ------ ------
Outstanding - End of year............. 16,195(a) 36.73 12,609 26.61 20,688 20.57
====== ====== ======
Exercisable - End of year............. 7,016 25.57 7,522 22.24 16,078 19.16
====== ====== ======
(a) At December 31, 1997, exercise prices, number of options
outstanding and weighted-average expiration dates are shown
in the following table:
Options Outstanding
-----------------------------------------------
Remaining Options Exercisable
--------------------------------
Number Weighted-Average Contractual Number Weighted-Average
Exercise Price Range (000) Exercise Price Life (Years) (000) Price
- - -----------------------------------------------------------------------------------------------------------------------
$10.98 - $14.725........... 570 $13.74 2.5 570 $13.74
18.15 - 22.36........... 1,752 19.92 3.6 1,752 19.92
24.65 - 28.34........... 5,063 26.09 6.0 3,800 26.57
39.93 - 52.125.......... 8,810 47.67 7.9 894 39.98
------ -----
16,195 7,016
====== =====
At December 31, 1997, 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 21.0 million shares.
The Corporation has elected to follow APB 25, "Accounting for
Stock Issued to Employees" and related interpretations in
accounting for its stock options. Under APB 25, because the
exercise price of the Corporation's employee stock options equals
the market price of the underlying stock on the date of grant, no
compensation expense is recognized. However, SFAS 123,
"Accounting for Stock-Based Compensation," requires presentation
of pro forma net income and earnings per share as if the
Corporation had accounted for its employee stock options granted
subsequent to December 31, 1994, under the fair value method of
that statement. For purposes of pro forma disclosure, the
estimated fair value of the options is amortized to expense over
the vesting period. Under the fair value method, the
Corporation's net income and net income per share would have been
reduced as follows:
(Millions of dollars, except per share amounts) 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------
Net income................................................................................ $22.4 $16.1 $9.4
Basic and diluted net income per share.................................................... .04 .03 .02
The weighted-average fair value of the individual options
granted during 1997, 1996 and 1995 is estimated as $12.22, $8.66
and $5.73, respectively, on the date of grant. The fair values
were determined using a Black-Scholes option-pricing model with
the following assumptions:
1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------------------
Dividend yield............................................................... 1.88% 2.30% 3.50%
Volatility................................................................... 18.30% 18.30% 18.90%
Risk-free interest rate...................................................... 5.98% 5.31% 7.51%
Expected life................................................................ 5.4 YEARS 5.8 years 5.8 years
NOTE 10. COMMITMENTS
LEASES
The future minimum obligations under leases having a
noncancelable term in excess of one year as of December 31, 1997,
are as follows:
Operating
(Millions of dollars) Leases
- - ------------------------------------------------------------------------------------------------------------------------
Year Ending December 31:
1998 .................................................................................................... $ 56.9
1999 .................................................................................................... 40.0
2000 .................................................................................................... 31.8
2001 .................................................................................................... 28.2
2002 .................................................................................................... 21.6
Thereafter ................................................................................................ 106.6
------
Future minimum obligations .................................................................................. $285.1
======
Operating lease obligations have been reduced by $19.6 million
for rental income from noncancelable sublease agreements.
Consolidated rental expense under operating leases was $150.8
million, $147.9 million and $157.0 million in 1997, 1996 and
1995, respectively.
RAW MATERIALS
The Corporation has entered into long-term contracts for the
purchase of raw materials, primarily pulp. The minimum purchase
commitments extend to 2004. At current prices, the commitments
are approximately $383 million, $244 million and $172 million in
1998, 1999 and 2000, respectively. The commitment beyond the
year 2000 is approximately $259 million in total.
ENERGY
The Corporation has a long-term contract with Mobile Energy
Services Co. for power, steam and liquid processing at the
Corporation's Mobile, Alabama, pulp and tissue mill. The
Corporation's commitments under the agreement are reset every two
years based on peak energy usage in the prior two years. As of
December 31, 1997, the Corporation's annual commitment is
approximately $55 million per year until December 31, 1999.
Although the Corporation is primarily liable for rental
payments on the above-mentioned leases and, considering the
purchase commitments for raw materials and energy described
above, management believes the Corporation's exposure to losses,
if any, under these arrangements is minimal.
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 share amounts) Shares Amount Shares Amount Capital Earnings UTA
- - ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1994 .......................... 561,093,674 $701.4 4,851,648 $(88.0) $34.1 $4,045.3 $(565.0)
Shares issued for the exercise
of stock options, stock awards
and restricted stock ........... 7,791,174 9.6 (872,582) 12.7 145.6 - -
Conversion of Scott options
and restricted shares payable
upon change of control .......... 1,664,938 2.2 - - 17.2 - -
Cancellation of Scott treasury
shares .......................... (5,989,550) (7.4) (5,989,550) 138.2 (130.8) - -
Distribution of net assets
of Schweitzer-Mauduit
International, Inc. ............ - - - - - (119.0) (13.3)
Purchased for treasury ............ - - 4,969,932 (137.8) - - -
Translation adjustments ........... - - - - - - (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 .......................... 564,560,236 705.8 2,959,448 (74.9) 66.1 3,593.9 (640.5)
Shares issued for the exercise
of stock options and stock
awards .......................... 4,036,574 5.0 (6,688,178) 209.3 70.6 - -
Purchased for treasury ............ - - 8,951,924 (348.8) - - -
Translation adjustments ........... - - - - - - (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 .......................... 568,596,810 710.8 5,223,194 (214.4) 136.7 4,506.8 (656.8)
Shares issued for the exercise
of stock options and stock
awards .......................... - - (2,434,504) 88.2 (18.2) - -
Purchased for treasury ............ - - 18,143,208 (910.6) - - -
Translation adjustments ........... - - - - - - (296.4)
Shares issued for the
acquisition of Tecnol............ - - (8,681,530) 419.7 (5.2) - -
Minimum pension liability
adjustment ...................... - - - - - (4.5) -
Net income ........................ - - - - - 901.5 -
Dividends declared on
common shares ................... - - - - - (532.3) -
----------- ------ ---------- -------- ------- ---------- ----------
Balance at December 31,
1997 .......................... 568,596,810 $710.8 12,250,368 $ (617.1) $ 113.3 $ 4,871.5 $ (953.2)
=========== ====== ========== ======== ======= ========== ==========
The Corporation has 20 million shares of authorized preferred
stock with no par value, none of which has been issued.
On February 20, 1997, the Corporation's board of directors
declared a two-for-one common stock split payable in the form of
a 100 percent stock dividend that was distributed on April 2,
1997, to stockholders of record on March 7, 1997. An amount
equal to the par value of the shares issued was transferred from
additional paid-in capital to the common stock account for all
periods presented. Accordingly, all numbers of common shares, per
share data and the amounts of the stockholders' equity accounts
for all periods presented in these consolidated financial
statements have been restated to reflect the stock split.
At December 31, 1997, unremitted net income of equity
companies included in consolidated retained earnings was $780.2
million.
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 two-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
that 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 two-hundredth of a share of Series A
Junior Participating Preferred Stock.
The rights may be redeemed at $.005 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.
NOTE 12. EXTRAORDINARY GAINS
In March 1997, the Corporation sold its noncore pulp and
newsprint facility located in Coosa Pines, Alabama ("Coosa") for
approximately $600 million in cash. Also, in the first quarter
of 1997, the Corporation recorded impairment losses on the
planned disposal 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
impairment losses totaled $111.5 million before income tax
benefits. In June 1997, the Corporation completed the sale of
its interest in Scott Paper Limited ("SPL") for approximately
$127 million. Accounting regulations require that certain
transactions following a business combination that was accounted
for as a pooling of interests be reported as extraordinary items.
Accordingly, the above described transactions have been
aggregated and reported as extraordinary gains totaling $17.5
million, net of applicable income taxes of $38.4 million. The
high effective income tax rate on the extraordinary gains is due
to income tax loss carryforwards in Spain that precluded the
current recognition of the income tax benefit on the Miranda
impairment loss and the tax basis in SPL being substantially
lower than the carrying amount of the investment in the financial
statements. The extraordinary gains were equal to $.03 per share
for both basic and diluted EPS.
NOTE 13. OTHER DISPOSITIONS OF BUSINESSES
In December 1997, the Corporation sold its 17 percent interest
in Ssangyong Paper Co., Ltd. ("Ssangyong") of Korea. The sale
resulted in a gain of $.03 per share.
In 1996, to meet regulatory requirements associated with the
merger with Scott, the Corporation sold the former Scott baby
wipes business and certain tissue businesses in the U.S. and the
U.K. The regulatory disposals resulted in a net gain of $.09 per
share.
In 1995, the Corporation sold 80 percent of its investment in
Midwest Express Airlines, Inc. ("Midwest") through an initial
public offering and recognized a gain of $.07 per share, and in
1996, the Corporation sold its remaining 20 percent interest and
recognized a gain of $.04 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.
NOTE 14. CONTINGENCIES
On May 13, 1997, the State of Florida, acting through its
attorney general, filed a complaint in the Gainesville Division
of the United States District Court for the Northern District of
Florida (the "Florida District Court"), alleging that
manufacturers of tissue products for away-from-home use,
including the Corporation and Scott, agreed to fix prices by
coordinating price increases for such products. Following
Florida's complaint, approximately 45 class action complaints
have been filed in various federal and state courts around the
United States that contain allegations similar to those made by
the State of Florida in its complaint. The actions in federal
courts have been consolidated for pretrial proceedings in the
Florida District Court. The foregoing actions seek an
unspecified amount of actual and treble damages. The Corporation
has answered the complaints in these actions and has denied the
allegations contained therein as well as any liability.
Discovery with respect to class certification and the merits of
the claims has commenced. The Corporation intends to
contest these claims vigorously. Management does not expect
these actions to have a material adverse effect on the
Corporation's business or results of operations.
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.
Capital expenditures for compliance with the U.S.
Environmental Protection Agency's Cluster Rule for kraft and
sulfite pulping operations are expected to be $87.0 million,
$138.6 million and $52.8 million in 1998, 1999 and 2000,
respectively. The Corporation is presently evaluating options
for reducing its dependence on internally produced pulp, and the
results of this evaluation may have an effect on the amount of
Cluster Rule spending required.
NOTE 15. SUPPLEMENTAL DATA (Millions of dollars)
SUPPLEMENTAL BALANCE SHEET DATA
December 31
----------------------
Summary of Accounts Receivable and Inventories 1997 1996
- - -------------------------------------------------------------------------------------------------------------------------
Accounts Receivable:
From customers ............................................................................... $1,439.7 $1,481.5
Other ....................................................................................... 226.5 225.7
Less allowance for doubtful accounts and sales discounts ..................................... (59.9) (46.3)
-------- --------
Total ................................................................................... $1,606.3 $1,660.9
======== ========
Inventories by Major Class:
At the lower of cost on the First-In, First-Out (FIFO) method or market:
Raw materials .............................................................................. $ 372.4 $ 363.7
Work in process ............................................................................ 228.5 219.7
Finished goods ............................................................................. 749.9 803.6
Supplies and other ......................................................................... 174.5 201.7
-------- --------
1,525.3 1,588.7
Excess of FIFO cost over Last-In, First-Out (LIFO) cost ...................................... (205.8) (240.4)
-------- --------
Total ................................................................................... $1,319.5 $1,348.3
======== ========
Total inventories include $526.6 million and $493.8 million of
inventories valued on the LIFO method at December 31, 1997 and
1996, respectively.
December 31
------------------------
Summary of Accrued Expenses 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Accruals for the 1997 and 1995 Charges ......................................................... $ 268.3 $ 339.7
Accrued advertising and promotion expense ...................................................... 262.8 264.1
Accrued salaries and wages ..................................................................... 310.9 293.8
Other accrued expenses ......................................................................... 603.6 562.5
---------- ----------
Total accrued expenses .................................................................. $ 1,445.6 $ 1,460.1
========== ==========
SUPPLEMENTAL CASH FLOW STATEMENT DATA
Summary of Cash Flow Effects of Increase in Year Ended December 31
-----------------------------------
Operating Working Capital(a) 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
Accounts receivable .............................................................. $ 13.4 $ 34.2 $ (264.5)
Inventories ...................................................................... (43.7) 15.9 (191.3)
Prepaid expenses ................................................................. (13.6) 21.6 (56.7)
Trade accounts payable ........................................................... (93.9) (55.6) 148.8
Other payables ................................................................... 32.8 54.2 10.8
Accrued expenses ................................................................. (283.2) (352.5) (111.8)
Accrued income taxes ............................................................. (151.9) 141.0 (63.0)
Currency rate changes ............................................................ (36.8) (.4) (.2)
--------- -------- --------
Increase in operating working capital ............................................ $ (576.9) $ (141.6) $ (527.9)
========= ======== ========
(a) Excludes the effects of acquisitions, dispositions and the
1997 and 1995 Charges.
Year Ended December 31
------------------------------------
Other Cash Flow Data(a) 1997 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------
Interest paid .................................................................... $ 173.6 $ 219.8 $ 259.9
Income taxes paid ................................................................ 557.3 503.0 570.1
Decrease in cash and cash equivalents due to exchange
rate changes ................................................................... (17.4) - (.7)
Reconciliation of changes in cash and cash equivalents:
Balance, January 1 ............................................................. $ 83.2 $ 221.6 $ 1,137.8
Increase (decrease) ............................................................ 7.6 (138.4) (916.2)
-------- -------- ---------
Balance, December 31 ........................................................... $ 90.8 $ 83.2 $ 221.6
======== ======== =========
(a) See Note 3 for information concerning the Tecnol acquisition
for common stock.
Year Ended December 31
-------------------------------------
Interest Expense 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------------
Gross interest cost .............................................................. $ 181.8 $ 200.6 $ 254.3
Capitalized interest on major construction projects............................... (17.0) (13.9) (8.8)
-------- -------- ---------
Interest expense ................................................................. $ 164.8 $ 186.7 $ 245.5
======== ======== =========
NOTE 16. UNAUDITED QUARTERLY DATA
(Millions of dollars,
except per share 1997 1996
---------------------------------------------- -----------------------------------------------
amounts) FOURTH(a) THIRD SECOND(b) FIRST (c) Fourth(d) Third (e) Second(f) First
- - -----------------------------------------------------------------------------------------------------------------------------
Net sales ................ $3,089.4 $3,095.3 $3,124.3 $3,237.6 $3,323.6 $3,275.7 $3,347.7 $3,202.1
Gross profit ............. 982.5 1,158.3 1,192.2 1,241.0 1,229.3 1,256.0 1,254.3 1,168.1
Operating profit
(loss) ................. (202.0) 466.5 494.4 544.3 526.4 545.8 488.2 493.3
Income (Loss) before
extraordinary gains..... (147.0) 316.0 350.8 364.2 347.1 377.2 364.7 314.8
Net income (loss)......... (147.0) 316.0 363.5 369.0 347.1 377.2 364.7 314.8
Per share basis:
Basic
Income (Loss)
before
extraordinary
gains............... (.26) .57 .63 .65 .62 .67 .64 .56
Net income (loss)..... (.26) .57 .65 .66 .62 .67 .64 .56
Diluted
Income (Loss)
before
extraordinary
gains............... (.26) .57 .63 .64 .61 .66 .64 .55
Net income (loss)..... (.26) .57 .65 .65 .61 .66 .64 .55
Cash dividends
declared per
share ................. .24 .24 .24 .24 .23 .23 .23 .23
Market price:
High ................... 53-15/16 55 56-7/8 55-3/8 49-13/16 44-3/8 38-15/16 41-1/2
Low .................... 47-5/16 43-1/4 46-1/8 46-11/16 42-3/16 35-11/16 34-5/16 37
Close .................. 49-5/16 48-15/16 49-3/4 49-3/4 47-5/8 44-1/16 38-5/8 37-3/16
(a) Gross profit, operating loss, net loss, basic net loss per
share and diluted net loss per share includes $220.1
million, $701.2 million, $503.1 million, $.91 and $.90,
respectively, related to the 1997 Charge. Basic and diluted
net loss per share also include a nonoperating gain of $.03
per share related to the sale of Ssangyong.
(b) Includes a nonoperating gain recorded by KCM primarily
related to the sale of a portion of its tissue business.
The Corporation's share of the after-tax effect of this gain
was $16.3 million, or $.03 per share. Also includes an
extraordinary gain, net of income taxes, of $12.7 million,
or $.02 per share, resulting from the sale of the
Corporation's interest in SPL.
(c) Includes an extraordinary gain, net of income taxes, of $4.8
million, or $.01 per share, resulting from the sale of
Coosa, net of impairment losses on certain other facilities.
(d) Includes a nonoperating charge recorded by KCM for
restructuring costs related to its merger with Scott's
former Mexican affiliate. The Corporation's share of the
after-tax charge was $5.5 million, or $.01 per share.
(e) Includes a net gain of $.05 per share related to the sale of
certain tissue businesses to satisfy U.S. and European
regulatory requirements associated with the Scott merger.
(f) Includes a net gain of $.08 per share related to the
divestiture of the former Scott baby wipes and certain
facial tissue businesses in the U.S. and the sale of the
Corporation's remaining interest in Midwest.
NOTE 17. BUSINESS SEGMENT AND GEOGRAPHIC DATA
For financial reporting purposes, the Corporation's businesses
are separated into three segments.
o Personal Care Products includes infant, child, feminine and
incontinence care products; wet wipes; health care products;
and related products.
o Tissue-Based Products includes tissue and wipers for
household and away-from-home use; pulp; and related
products.
o 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) 1997 1996 1995 1997(a) 1996 1995(b)
- - ----------------------------------------------------------------------------------------------------------------------------
Personal Care Products ............ $ 5,234.8 $ 4,837.8 $ 4,384.2 $ 773.8 $ 791.3 $ 339.8
Tissue-Based Products ............. 6,611.5 7,372.8 7,524.3 407.5 1,085.2 (38.4)
Newsprint, Paper
and Other ....................... 753.5 1,015.4 1,584.3 168.0 211.8 224.6
---------- ---------- ---------- --------- --------- ----------
Combined .......................... 12,599.8 13,226.0 13,492.8 1,349.3 2,088.3 526.0
Intersegment sales ................ (53.2) (76.9) (119.8) - - -
Unallocated items - net ........... - - - (46.1) (34.6) (313.0)
---------- ---------- ---------- --------- --------- ----------
Consolidated ...................... $ 12,546.6 $ 13,149.1 $ 13,373.0 $ 1,303.2 $ 2,053.7 $ 213.0
========== ========== ========== ========= ========= ==========
Assets Depreciation Capital Spending
----------------------------------- ----------------------------- -----------------------------
(Millions of dollars) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------------
Personal Care
Products ....... $ 3,870.2 $ 3,376.1 $ 3,369.7 $191.5 $174.9 $193.1 $353.8 $227.2 $237.4
Tissue-Based
Products ....... 5,545.0 6,512.8 5,982.2 270.3 343.1 323.6 532.8 608.5 485.5
.........
Newsprint,
Paper
and Other ...... 435.3 655.6 682.2 17.7 32.6 51.0 30.6 37.8 76.4
---------- ---------- ---------- ------ ------ ------ ------ ------ ------
Combined ......... 9,850.5 10,544.5 10,034.1 479.5 550.6 567.7 917.2 873.5 799.3
.........
Unallocated(c)
and
intersegment
assets ......... 1,415.5 1,301.2 1,405.1 11.4 10.4 14.0 27.1 10.2 18.3
---------- ---------- ---------- ------ ------ ------ ------ ------ ------
Consolidated ..... $ 11,266.0 $ 11,845.7 $ 11,439.2 $490.9 $561.0 $581.7 $944.3 $883.7 $817.6
========== ========== ========== ====== ====== ====== ====== ====== ======
(a) Operating profit in 1997 for Personal Care Products; Tissue-
Based Products; Newsprint, Paper and Other; and Unallocated
includes $195.3 million, $496.9 million, $.7 million and
$8.3 million, respectively, of the 1997 Charge described in
Note 2.
(b) 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 1995 Charge described
in Note 2.
(c) Assets include investments in equity companies of $567.7
million, $551.1 million and $413.4 million in 1997, 1996 and
1995, respectively.
CONSOLIDATED OPERATIONS BY GEOGRAPHIC AREA
Net Sales Operating Profit(a)
----------------------------------------- -----------------------------------------
(Millions of dollars) 1997 1996 1995 1997(b) 1996 1995(c)
- - --------------------------------------------------------------------------------------------------------------------------
United States...................... $ 7,878.7 $ 8,142.5 $ 8,642.3 $1,229.2 $1,626.6 $669.1
Canada............................. 1,052.5 1,311.0 1,250.1 121.0 109.4 21.9
Intergeographic items(d)........... (397.3) (451.7) (452.6) - - -
---------- ---------- ---------- -------- -------- ------
North America...................... 8,533.9 9,001.8 9,439.8 1,350.2 1,736.0 691.0
Europe............................. 2,548.1 2,881.8 2,862.5 (105.4) 164.8 (277.5)
Asia, Latin America and Africa..... 1,772.2 1,603.5 1,342.5 104.5 187.5 112.5
---------- ---------- ---------- -------- -------- ------
Combined........................... 12,854.2 13,487.1 13,644.8 1,349.3 2,088.3 526.0
Intergeographic items.............. (307.6) (338.0) (271.8) - - -
Unallocated items - net............ - - - (46.1) (34.6) (313.0)
---------- ---------- ---------- -------- -------- ------
Consolidated....................... $ 12,546.6 $ 13,149.1 $ 13,373.0 $1,303.2 $2,053.7 $213.0
========== ========== ========== ======== ======== ======
Assets
----------------------------------------
(Millions of dollars) 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------
United States.................................................................... $ 5,713.2 $ 5,703.6 $ 5,728.0
Canada........................................................................... 543.6 825.6 609.1
Intergeographic items............................................................ (65.4) (50.2) (47.3)
---------- ---------- ----------
North America.................................................................... 6,191.4 6,479.0 6,289.8
Europe........................................................................... 2,297.1 2,579.0 2,592.7
Asia, Latin America and Africa................................................... 1,502.6 1,610.2 1,240.1
---------- ---------- ----------
Combined......................................................................... 9,991.1 10,668.2 10,122.6
Intergeographic items............................................................ (142.4) (131.1) (99.2)
Unallocated items - net(e)....................................................... 1,417.3 1,308.6 1,415.8
---------- ---------- ----------
Consolidated..................................................................... $ 11,266.0 $ 11,845.7 $ 11,439.2
========== ========== ==========
(a) Certain reclassifications have been made to conform prior
year's data to the current year presentation.
(b) Operating profit in 1997 for the U.S.; Canada; Europe;
Asia, Latin America and Africa; and Unallocated includes
$403.7 million; $8.2 million; $189.8 million; $91.2 million
and $8.3 million, respectively, of the 1997 Charge
described in Note 2.
(c) 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 1995 Charge described
in Note 2.
(d) Net sales include $246.0 million, $284.8 million and $310.3
million by operations in Canada to the U.S. in 1997, 1996
and 1995, respectively.
(e) Assets include investments in equity companies of $567.7
million, $551.1 million and $413.4 million in 1997, 1996
and 1995, 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, 1997
Latin America(a) ............................. $1,464.3 $ 528.6 $ 382.5 $ 283.1 $ 130.8
Asia, Australia and Middle East................ 698.1 253.6 93.6 55.0 26.5
-------- --------- --------- --------- ---------
Total .................................... $2,162.4 $ 782.2 $ 476.1 $ 338.1 $ 157.3
======== ========= ========= ========= =========
For the year ended:
December 31, 1996
Latin America(b)............................... $1,380.5 $ 512.9 $ 344.3 $ 291.5 $ 133.1
North America, Asia, Australia and
Middle East(c)(b) .......................... 725.7 253.0 83.8 42.8 19.3
-------- --------- --------- --------- ---------
Total .................................... $2,106.2 $ 765.9 $ 428.1 $ 334.3 $ 152.4
======== ========= ========= ========= =========
For the year ended:
December 31, 1995
Latin America(d,e)............................. $1,465.2 $ 551.0 $ 399.8 $ 222.1 $ 104.8
North America, Asia, Australia, Africa(e)
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
======== ========= ========= ========= =========
(a) Kimberly-Clark's share of net income includes a nonoperating
gain of $16.3 million, primarily related to the sale of a
portion of the tissue business of KCM. Additionally,
operating profit, net income and Kimberly-Clark's share of
net income includes $6.7 million, $4.4 million and $2.2
million, respectively, related to the 1997 Charge.
(b) Kimberly-Clark's share of net income includes a nonoperating
charge of $5.5 million, recorded by KCM for restructuring
costs related to its merger with Scott's former Mexican
affiliate.
(c) In June 1996, the Corporation acquired 49.9 percent of
Hogla, Ltd., and formed a consumer products joint venture in
Israel.
(d) Net income and Kimberly-Clark's share of net income includes
a nonoperating charge of $89.4 million and $38.5 million,
respectively, for foreign currency losses incurred by KCM on
the translation of the net exposure of U.S. dollar-
denominated liabilities into pesos resulting from the
fluctuation of the Mexican peso. In 1996, this charge was
not significant. Effective January 1, 1997, the Mexican
economy was determined to be hyperinflationary and the 1997
U.S. dollar-denominated liabilities were translated using
historical exchange rates. (See Note 8.)
(e) In the first quarter of 1995, the Corporation purchased
additional shares of its subsidiaries in Argentina and South
Africa, resulting in their consolidation.
Non- Non- Stock-
Current Current Current Current holders'
(Millions of dollars) Assets Assets Liabilities Liabilities Equity
- - -------------------------------------------------------------------------------------------------------------------------
December 31, 1997
Latin America.................................... $752.8 $ 624.6 $336.0 $278.4 $ 763.0
Asia, Australia and Middle East ................. 226.8 386.9 128.0 185.5 300.2
------ -------- ------ ------ --------
Total ...................................... $979.6 $1,011.5 $464.0 $463.9 $1,063.2
====== ======== ====== ====== ========
December 31, 1996
Latin America.................................... $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.................................... $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
====== ======== ====== ====== ========
Equity companies are principally engaged in Personal Care
Products and Tissue-Based Products operations.
KCM is partially owned by the public and its stock is publicly
traded in Mexico. At December 31, 1997, the Corporation's
investment in this equity company was $365.3 million, and the
estimated fair value was $2.9 billion based on the market price
of 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,
1997 and 1996, and the related consolidated income and cash flow
statements for each of the three years in the period ended
December 31, 1997. 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. We did not audit the
financial statements of Scott Paper Company for the year ended
December 31, 1995 (before the effects of the conforming
adjustments that were applied to restate such statements) which
statements reflect total net sales (in millions) of $4,131.6 for
the year ended December 31, 1995. 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, is based solely on the
report of such other auditors. We audited the conforming
adjustments that were applied to restate the 1995 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
- - ---------------------------
Deloitte & Touche LLP
Dallas, Texas
January 26, 1998
AUDIT COMMITTEE CHAIRMAN'S LETTER
Kimberly-Clark Corporation and Subsidiaries
The members of the Audit Committee are selected by the board
of directors. The committee consists of six outside directors
and met three times during 1997.
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.
Paul J. Collins
Chairman, Audit Committee
January 26, 1998
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 consolidated financial statements in this
annual report. The consolidated 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
consolidated 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 that 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 that, 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 consolidated 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 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 that are cost
effective.
The Corporation has assessed its internal control system as of
December 31, 1997, 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,
1997, its system of internal control over the preparation of its
published interim and annual consolidated financial statements
and over safeguarding of assets against unauthorized acquisition,
use or disposition met those criteria.
Wayne R. Sanders John W. Donehower
Chairman of the Board Senior Vice President and
and Chief Executive Officer Chief Financial Officer
January 26, 1998
ADDITIONAL INFORMATION
TRANSFER AND DIVIDEND DISBURSING AGENT AND REGISTRAR
Stockholders may contact BankBoston N.A., c/o Boston EquiServe L.P., P.O.
Box 8040, Boston, Massachusetts 02266-8040, 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 Boston EquiServe L.P. 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 a.m. on Thursday,
April 30, 1998.
INVESTOR RELATIONS
Shareholders, registered representatives, security analysts, portfolio
managers and other investors desiring further information about the company
should contact Michael D. Masseth, Vice President-Investor Relations at
972-281-1478. Investor information may also be obtained by calling
800-639-1352.
CALENDAR, SEC FORM 10-K AND OTHER INFORMATION
The fiscal year ends December 31. The annual report is distributed in
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 57,000
employees as of December 31, 1997. Equity companies had an additional 12,700
employees. The Corporation had 56,475 stockholders of record and 556.3
million shares of common stock outstanding as of the same date.
TRADEMARKS
The brand names mentioned in this report - Andrex(R), Camelia(R), Classic
Crest(R), Depend(R), Environment(R), GoodNites(R), Huggies(R), Kimbies(R),
Kleenex(R), Cottonelle(R), Kleenex Super Saugtuch(R), Kotex(R), Kotex(R)
White, Little Swimmers(R), Monbebe(R), Monica(R), Poise(R), Pull-Ups(R),
Scott(R), Scotties(R), ScotTissue(R) and Waldorf(R) - are trademarks of
Kimberly-Clark Corporation or its affiliates.
Cellucotton was formerly a trademark of Kimberly-Clark.
The 1997 Annual Report is printed on new Classic Crest avon brilliant
white super smooth cover and text and on Environment woodstock text with 100
percent recycled fiber. These papers are produced by Kimberly-Clark's Neenah
Paper Sector.