UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from.............to.....................
Commission file number 1-225
KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 39-0394230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 619100
Dallas, Texas
75261-9100
(Address of principal executive offices)
(Zip Code)
(972) 281-1200
(Registrant's telephone number, including area code)
No change
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X . No .
----- -----
As of October 31, 2003, there were 504,459,002 shares of the Corporation's
common stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED INCOME STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -------------------------
(Millions of dollars, except per share amounts) 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net Sales ...................................................... $3,641.6 $3,486.7 $10,645.9 $10,226.5
Cost of products sold ..................................... 2,426.7 2,246.5 7,020.2 6,531.1
-------- -------- --------- ---------
Gross Profit .................................................. 1,214.9 1,240.2 3,625.7 3,695.4
Marketing, research and general expenses .................. 589.6 579.1 1,758.0 1,732.6
Other (income) expense, net ............................... 21.3 16.3 77.5 28.8
-------- -------- --------- ---------
Operating Profit ............................................... 604.0 644.8 1,790.2 1,934.0
Interest income ........................................... 4.8 3.6 13.9 10.8
Interest expense .......................................... (40.6) (45.1) (128.2) (136.9)
-------- -------- --------- ---------
Income Before Income Taxes ..................................... 568.2 603.3 1,675.9 1,807.9
Provision for income taxes ................................ 157.8 176.4 480.2 524.7
-------- -------- --------- ---------
Income Before Equity Interests ................................. 410.4 426.9 1,195.7 1,283.2
Share of net income of equity companies ................... 21.9 28.1 78.2 82.0
Minority owners' share of subsidiaries'
net income ............................................ (12.6) (13.8) (39.2) (48.8)
-------- -------- --------- ---------
Income Before Cumulative Effect of
Accounting Change ......................................... 419.7 441.2 1,234.7 1,316.4
Cumulative effect of accounting change,
net of income taxes .............................. - - - (11.4)
-------- -------- --------- ---------
Net Income .................................................. $ 419.7 $ 441.2 $ 1,234.7 $ 1,305.0
======== ======== ========= =========
Per Share Basis:
Basic
Income before cumulative effect of
accounting change ................................ $ .83 $ .85 $ 2.43 $ 2.54
======== ======== ========= =========
Net income ............................................ $ .83 $ .85 $ 2.43 $ 2.52
======== ======== ========= =========
Diluted
Income before cumulative effect of
accounting change ................................ $ .83 $ .85 $ 2.42 $ 2.52
======== ======== ========= =========
Net income ............................................ $ .83 $ .85 $ 2.42 $ 2.50
======== ======== ========= =========
Cash Dividends Declared ................................... $ .34 $ .30 $ 1.02 $ .90
======== ======== ========= =========
Unaudited
See Notes to Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEET
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
September 30, December 31,
(Millions of dollars) 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents ..................................................... $ 305.0 $ 494.5
Accounts receivable ........................................................... 1,795.3 1,952.1
Inventories ................................................................... 1,549.6 1,430.1
Other current assets .......................................................... 597.6 397.2
--------- ---------
Total Current Assets ...................................................... 4,247.5 4,273.9
Property ........................................................................... 14,746.0 13,564.0
Less accumulated depreciation ................................................. 6,640.6 5,944.6
--------- ---------
Net Property .............................................................. 8,105.4 7,619.4
Investments in Equity Companies .................................................... 459.7 571.2
Goodwill ........................................................................... 2,596.4 2,254.9
Other Assets ...................................................................... 996.7 866.4
--------- ---------
$16,405.7 $15,585.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Debt payable within one year .................................................. $ 971.4 $ 1,086.6
Accounts payable .............................................................. 1,071.8 1,122.0
Accrued expenses .............................................................. 1,332.6 1,271.4
Other current liabilities ..................................................... 532.9 558.3
--------- ---------
Total Current Liabilities ................................................. 3,908.7 4,038.3
Long-Term Debt ..................................................................... 2,821.8 2,844.0
Noncurrent Employee Benefit and Other Obligations .................................. 1,418.4 1,390.0
Deferred Income Taxes .............................................................. 942.7 854.2
Minority Owners' Interests in Subsidiaries ......................................... 245.5 255.5
Preferred Securities of Subsidiary ................................................. 562.6 553.5
Stockholders' Equity ............................................................... 6,506.0 5,650.3
--------- ---------
$16,405.7 $15,585.8
========= =========
Unaudited
See Notes to Consolidated Financial Statements.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Nine Months Ended
September 30
(Millions of dollars) 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Operations
Net income ............................................................................. $1,234.7 $1,305.0
Cumulative effect of accounting change, net of income taxes ............................ - 11.4
Depreciation ........................................................................... 550.7 518.3
Changes in operating working capital ................................................... 108.7 (157.3)
Deferred income tax provision .......................................................... 34.0 97.6
Equity companies' earnings in excess of dividends paid ................................. (27.5) (25.8)
Postretirement benefits ................................................................ (7.6) 11.5
Other .................................................................................. 126.1 114.2
-------- --------
Cash Provided by Operations ........................................................ 2,019.1 1,874.9
-------- --------
Investing
Capital spending ....................................................................... (653.2) (603.4)
Acquisitions of businesses, net of cash acquired ....................................... (258.3) (407.7)
Proceeds from sales of investments ..................................................... 20.7 34.4
Net increase in time deposits .......................................................... (205.4) (36.7)
Investments in marketable securities ................................................... (10.8) (1.7)
Other .................................................................................. (14.3) (1.6)
-------- --------
Cash Used for Investing ............................................................ (1,121.3) (1,016.7)
-------- --------
Financing
Cash dividends paid .................................................................... (500.0) (457.9)
Net decrease in short-term debt ........................................................ (261.2) (580.2)
Proceeds from issuance of long-term debt ............................................... 522.7 817.7
Repayments of long-term debt ........................................................... (479.3) (136.3)
Proceeds from exercise of stock options ................................................ 20.3 62.4
Acquisitions of common stock for the treasury .......................................... (357.9) (480.2)
Other .................................................................................. (44.2) (34.0)
-------- --------
Cash Used for Financing ............................................................ (1,099.6) (808.5)
-------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents ................................ 12.3 (.8)
-------- --------
(Decrease) Increase in Cash and Cash Equivalents ............................................ (189.5) 48.9
-------- --------
Cash and Cash Equivalents, beginning of year ................................................ 494.5 364.5
-------- --------
Cash and Cash Equivalents, end of period .................................................... $ 305.0 $ 413.4
======== ========
Unaudited
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
The unaudited consolidated financial statements have been prepared on a basis
consistent with that used in the Annual Report on Form 10-K for the year ended
December 31, 2002, and include all normal recurring adjustments necessary to
present fairly the condensed consolidated balance sheet, consolidated income
statement and condensed consolidated cash flow statement for the periods
indicated.
1. In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. SFAS 150 requires that certain instruments classified as part of
stockholders' equity or between stockholders' equity and liabilities be
classified as liabilities effective in the third quarter of 2003. On
October 29, 2003, the FASB deferred indefinitely a provision of SFAS 150
that would have required certain minority interests in less than
100 percent owned subsidiaries to be classified as liabilities.
Reclassification of the minority interest of applicable subsidiaries of
the Corporation at September 30, 2003 would not have a material impact on
the financial statements. Except for these minority interests, the
Corporation has no instruments that would be affected by SFAS 150.
The Corporation continues to account for stock-based compensation using the
intrinsic-value method permitted by Accounting Principles Board Opinion 25,
Accounting for Stock Issued to Employees. No employee compensation for
stock options has been charged to earnings because the exercise prices of
all stock options granted have been equal to the market value of the
Corporation's common stock at the date of grant. Information about net
income and earnings per share as if the Corporation had applied the fair
value expense recognition requirements of SFAS 123 to all employee stock
options granted is presented below:
Three Months Nine Months
Ended Ended
September 30 September 30
------------------- -------------------
(Millions of dollars, except per share amounts) 2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------------
Net income, as reported ........................................... $419.7 $441.2 $1,234.7 $1,305.0
Less: Stock-based employee compensation
determined under the fair value requirements
of SFAS 123, net of income tax benefits .................. 13.1 17.6 42.5 52.5
====== ====== ======== ========
Pro forma net income .............................................. $406.6 $423.6 $1,192.2 $1,252.5
====== ====== ======== ========
Earnings per share
Basic - as reported ........................................... $ .83 $ .85 $ 2.43 $ 2.52
====== ====== ======== ========
Basic - pro forma ............................................. $ .80 $ .82 $ 2.35 $ 2.42
====== ====== ======== ========
Diluted - as reported ......................................... $ .83 $ .85 $ 2.42 $ 2.50
====== ====== ======== ========
Diluted - pro forma ........................................... $ .80 $ .82 $ 2.34 $ 2.40
====== ====== ======== ========
The assumptions used to calculate the fair value of options granted are
evaluated and revised, as necessary, to reflect market conditions and
experience.
2. There are no adjustments required to be made to net income for purposes of
computing basic and diluted earnings per share ("EPS"). The average number
of common shares outstanding used in the basic EPS computation is
reconciled to those used in the diluted EPS computation as follows:
Average Common Shares Outstanding
---------------------------------
Three Months Nine Months
Ended Ended
September 30 September 30
------------- -------------
(Millions of shares) 2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------
Basic .............................................................. 506.1 516.3 508.2 518.4
Dilutive effect of stock options ............................... 1.3 2.5 1.0 3.0
Dilutive effect of deferred compensation plan
shares .................................................... .4 .3 .3 .3
----- ----- ----- -----
Diluted ........................................................... 507.8 519.1 509.5 521.7
===== ===== ===== =====
Options outstanding during the three-month and nine-month periods ended
September 30, 2003 to purchase 20.4 million and 22.5 million shares of
common stock, respectively, were not included in the computation of diluted
EPS because the exercise prices of the options were greater than the
average market price of the common shares.
Options outstanding during the three-month and nine-month periods ended
September 30, 2002 to purchase 11.4 million and 5.7 million shares of
common stock, respectively, were not included in the computation of diluted
EPS because the exercise prices of the options were greater than the
average market price of the common shares.
The number of common shares outstanding as of September 30, 2003 and 2002
was 504.8 million and 515.0 million, respectively.
3. The following schedule presents inventories by major class as of
September 30, 2003 and December 31, 2002:
September 30, December 31,
(Millions of dollars) 2003 2002
----------------------------------------------------------------------------------------------------------------
At lower of cost on the First-In, First-Out (FIFO) method or market:
Raw materials ............................................................... $ 332.9 $ 323.2
Work in process ............................................................. 184.9 186.7
Finished goods .............................................................. 959.1 866.9
Supplies and other .......................................................... 234.1 210.7
-------- --------
1,711.0 1,587.5
Excess of FIFO cost over Last-In, First-Out (LIFO) cost ..................... (161.4) (157.4)
-------- --------
Total .................................................................. $1,549.6 $1,430.1
======== ========
FIFO cost of total inventories on the LIFO method was $678.9 million and
$642.7 million at September 30, 2003 and December 31, 2002, respectively.
4. During the third quarter of 2003, the Corporation acquired the remaining
49 percent interest in Kimberly-Clark Peru S.A. and the remaining
50 percent interest in its joint tissue venture in Brazil
(Klabin Kimberly S.A.). The cost of these acquisitions totaled
approximately $200 million. Appraisals are currently in process to
determine the appropriate allocation of the purchase price to the acquired
tangible and intangible assets at their fair market values.
5. In the third quarter of 2003, the Corporation issued $500 million of 5.0%
Notes due August 15, 2013 and redeemed $200 million of 7 7/8% debentures
and $200 million of 7.0% debentures. The balance of the proceeds was used
to retire commercial paper. A charge of $18.4 million was recorded to Other
(income) expense, net in connection with the redemptions. In connection
with the borrowing, the Corporation entered into a $300 million
fixed-to-floating interest rate swap agreement maturing on the same day as
the notes. Also in the third quarter of 2003, the Corporation terminated a
$400 million fixed-to-floating interest rate swap it had entered into in
March 2002 in connection with the issuance of $400 million of 4 1/2% Notes
maturing in July 2005. The gain on the terminated swap will be amortized
to earnings over the remaining life of the debt issue.
In August 2003, the Corporation repurchased $45 million of industrial
revenue bonds that had an original maturity of May 1, 2024.
6. The following schedule presents the components of comprehensive income:
Nine Months
Ended
September 30
(Millions of dollars) 2003 2002
-----------------------------------------------------------------------------------------------------------------
Net Income ............................................................................. $1,234.7 $1,305.0
Unrealized currency translation adjustments, net of tax ................................ 445.0 (81.9)
Deferred gains (losses) on cash flow hedges, net of tax ................................ .2 (2.3)
Unrealized holding (losses) gains on securities ........................................ (.1) .2
-------- --------
Comprehensive income ................................................................... $1,679.8 $1,221.0
======== ========
7. The following schedule presents information concerning consolidated
operations by business segment:
Three Months Nine Months
Ended Ended
September 30 September 30
---------------------- -----------------------
(Millions of dollars) 2003 2002 2003 2002
-----------------------------------------------------------------------------------------------------------------
NET SALES:
Personal Care ............................................. $1,330.9 $1,314.1 $ 3,942.3 $ 3,900.4
Consumer Tissue ........................................... 1,379.2 1,285.2 3,991.6 3,755.2
Business-to-Business ...................................... 970.9 928.4 2,826.1 2,679.7
Intersegment sales ........................................ (39.4) (41.0) (114.1) (108.8)
-------- -------- --------- ---------
Consolidated .............................................. $3,641.6 $3,486.7 $10,645.9 $10,226.5
======== ======== ========= =========
Three Months Nine Months
Ended Ended
September 30 September 30
---------------------- -----------------------
(Millions of dollars) 2003 2002 2003 2002
-----------------------------------------------------------------------------------------------------------------
OPERATING PROFIT (reconciled to income before income taxes):
Personal Care ............................................. $ 281.9 $ 273.5 $ 815.8 $ 830.9
Consumer Tissue ........................................... 188.3 232.2 620.0 698.4
Business-to-Business ...................................... 179.4 179.3 505.2 510.3
Other income (expense), net ............................... (21.3) (16.3) (77.5) (28.8)
Unallocated items - net ................................... (24.3) (23.9) (73.3) (76.8)
-------- -------- --------- ---------
Total Operating Profit .................................... 604.0 644.8 1,790.2 1,934.0
Interest income ....................................... 4.8 3.6 13.9 10.8
Interest expense ...................................... (40.6) (45.1) (128.2) (136.9)
-------- -------- --------- ---------
Income Before Income Taxes ................................ $ 568.2 $ 603.3 $ 1,675.9 $ 1,807.9
======== ======== ========== =========
Note: Unallocated items - net, consists of expenses not associated with
the business segments.
Description of Business Segments:
The Corporation is organized into operating segments based on product groupings.
These operating segments have been aggregated into three reportable global
business segments: Personal Care; Consumer Tissue; and Business-to-Business.
Each reportable segment is headed by an executive officer who reports to the
Corporation's Chief Executive Officer and is responsible for the development and
execution of global strategies to drive growth and profitability of the
Corporation's worldwide personal care, consumer tissue and business-to-business
operations. These strategies include global plans for branding and product
positioning, technology and research and development programs, cost reductions
including supply chain management, and capacity and capital investments for each
of these businesses. The principal sources of revenue in each of the global
business segments are described below.
The Personal Care segment manufactures and markets disposable diapers, training
and youth pants and swimpants; feminine and incontinence care products; and
related products. Products in this segment are primarily for household use and
are sold under a variety of brand names, including Huggies, Pull-Ups, Little
Swimmers, GoodNites, Kotex, Lightdays, Depend, Poise and other brand names.
The Consumer Tissue segment manufactures and markets facial and bathroom tissue,
paper towels and napkins for household use; wet wipes; and related products.
Products in this segment are sold under the Kleenex, Scott, Cottonelle, Viva,
Andrex, Scottex, Page, Huggies and other brand names.
The Business-to-Business segment manufactures and markets facial and bathroom
tissue, paper towels, wipers and napkins for away-from-home use; health care
products such as surgical gowns, drapes, infection control products,
sterilization wraps, disposable face masks and exam gloves, respiratory
products, and other disposable medical products; printing, premium business and
correspondence papers; specialty and technical papers; and other products.
Products in this segment are sold under the Kimberly-Clark, Kleenex, Scott,
Kimwipes, WypAll, Surpass, Safeskin, Tecnol, Ballard and other brand names.
Unaudited
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS:
Third Quarter of 2003 Compared With Third Quarter of 2002
By Business Segment
(Millions of dollars)
Net Sales 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Personal Care ................................................................................. $1,330.9 $1,314.1
Consumer Tissue ............................................................................... 1,379.2 1,285.2
Business-to-Business .......................................................................... 970.9 928.4
Intersegment sales ............................................................................ (39.4) (41.0)
-------- --------
Consolidated .................................................................................. $3,641.6 $3,486.7
======== ========
Commentary:
Consolidated net sales for the third quarter of 2003 were 4.4 percent higher
than in 2002, primarily driven by an approximate 3 percent improvement in
currency exchange rates and higher sales volumes of nearly 2 percent. Sales
volumes benefited from shipments of new and improved products as well as the
consolidation, in August 2003, of Klabin Kimberly S.A. ("Klabin"), the
Corporation's former equity affiliate, in Brazil. Net selling prices were down
about 1 percent as a result of competitive promotional spending.
Each of the business segments posted higher net sales in the quarter compared
with last year. The increased ownership of Klabin from 50 to 100 percent added
approximately 1 percent to net sales.
o Personal care net sales increased 1.3 percent in the third quarter.
Favorable currency effects of more than 3 percent were partially offset by
lower net selling prices of about 1 percent and product mix. Sales volumes
were flat. Although strong volume growth continued in Australia and for the
Corporation's child care and incontinence care products in North America,
overall sales volumes were constrained by intense competition in the diaper
category in a number of key markets.
In North America, personal care sales volumes increased more than 2 percent
versus the prior year, driven by record third quarter shipments of improved
Pull-Ups training pants with Easy Open sides, GoodNites youth pants and
Depend and Poise incontinence care products. Sales of new Huggies
Convertibles diaper-pants contributed to the sequential improvement from
the second quarter of 2003 in shipments of Huggies diapers; however, the
brand's sales volumes were still about 3 percent lower than in the third
quarter of 2002. Net selling prices of personal care products in North
America declined approximately 2 percent from last year, primarily as a
result of actions to counter price reductions implemented by a competitor
in the training pant category.
Personal care net sales in Europe increased more than 2 percent in the
quarter. Currency effects boosted net sales nearly 9 percent, while lower
sales of diaper products led to a near 6 percent decline in overall sales
volumes. In Asia, personal care net sales rose approximately 7 percent in
the third quarter, highlighted by strong double-digit growth in Australia
from a combination of currency benefits and higher sales volumes. Finally,
in Latin America, personal care net sales decreased about 9 percent. Sales
improved significantly in Brazil, primarily due to higher net selling
prices; however, this increase was more than offset by reduced sales
volumes throughout most of the rest of the region.
o Net sales of consumer tissue products increased 7.3 percent, driven
primarily by currency effects in Europe and Australia and the Klabin
acquisition. Overall consumer tissue sales volumes increased approximately
3 percent. Net selling prices were about the same as last year, as response
to competitive promotional activity in North America and Europe offset list
price increases in Europe and Latin America.
In North America, sales volumes of consumer tissue products declined more
than 1 percent and net selling prices were almost 2 percent lower. However,
product mix benefited sales about 1 percent. Sales volumes of Viva towels
and Scott bathroom tissue improved, while shipments of Kleenex facial
tissue were below the prior year. Although sales of new Cottonelle Ultra
bathroom tissue were solid, sales volumes for Cottonelle bathroom tissue
overall decreased in the face of significantly higher levels of promotion
spending by competitors.
Consumer tissue net sales in Europe increased nearly 15 percent primarily
as a result of improvement in currency exchange rates for the euro and the
British pound. Sales volumes rose about 4 percent. Despite increases in
list prices averaging 8 percent, net selling prices were only about
1 percent higher due to the continued promotional activity. In Asia,
consumer tissue net sales increased approximately 9 percent as currency
benefits in Australia and volume gains in Australia and Korea were
partially offset by lower sales volumes elsewhere in the region. Consumer
tissue net sales in Latin America increased more than 30 percent primarily
as a result of the consolidation of Klabin, Brazil's leading tissue
manufacturer.
o Net sales of business-to-business products increased 4.6 percent in the
quarter, driven by sales volume growth of about 3 percent and currency
benefits of nearly 3 percent. Net selling prices declined almost 1 percent.
Net sales for the Corporation's global health care business set a new third
quarter record. Health care's sales volumes rose almost 6 percent, with
continued strong growth outside North America. Sales volumes for the
professional business in North America increased for the seventh
consecutive quarter, with an increase of more than 2 percent. In other
regions, the professional businesses' volumes grew at a double-digit rate
in Asia and Latin America, but were about 4 percent lower in Europe.
Operating Profit 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Personal Care ................................................................................... $281.9 $273.5
Consumer Tissue ................................................................................. 188.3 232.2
Business-to-Business ............................................................................ 179.4 179.3
Other income (expense), net ..................................................................... (21.3) (16.3)
Unallocated items - net ......................................................................... (24.3) (23.9)
------ ------
Consolidated .................................................................................... $604.0 $644.8
====== ======
Note: Unallocated items - net, consists of expenses not associated with the
business segments.
Commentary:
Consolidated operating profit in the third quarter of 2003 was $604.0 million, a
decrease of 6.3 percent from last year. Over and above the positive
contributions from sales volume growth and changes in foreign exchange rates,
the Corporation reduced costs by about $50 million in the third quarter of 2003.
These improvements, however, were not sufficient to overcome the impact of lower
net selling prices, higher pension expense of about $35 million, as well as
increased fiber, distribution and energy costs of about $40 million. Each of the
three business segments incurred more than $10 million of the increased pension
expense.
Included in the third quarter of 2002 were charges of $11.6 million associated
with the plans to streamline manufacturing and administrative operations in
Latin America and Europe and for a special tax levied by the Colombian
government to preserve the democratic security of that country. These costs were
included in the business segments as follows: personal care $4.2 million;
consumer tissue $5.5 million; and business-to-business $1.9 million. These
charges were included in the consolidated income statement as follows: cost of
products sold $2.5 million; and marketing, research and general expenses
$9.1 million.
o Personal care segment operating profit increased 3.1 percent primarily due
to aggressive cost-management efforts and favorable currency effects,
partially offset by the lower net selling prices and the higher pension
costs. Operating profit in North America increased because of the cost
savings programs and the higher sales volumes, partially offset by the
lower selling prices. Operating profit in Europe improved on the strength
of cost savings initiatives and in Asia because of cost savings and
favorable currency effects, principally in Australia. However, operating
profit in Latin America declined due to lower sales volumes and higher
materials costs.
o Consumer tissue operating profit declined 18.9 percent as cost savings were
more than offset by the effect of the higher promotional activity and
higher pension, fiber, distribution and energy costs. The levels of
promotional spending remained high in North America and Europe during the
quarter.
o Business-to-business operating profit was essentially flat versus last
year. Operating profit for the global health care business increased
because of higher sales volumes, cost savings programs and favorable
currency effects. For the North America professional business, an increase
in operating profit was driven by aggressive cost savings and higher sales
volumes, tempered by lower net selling prices. The improvements in these
businesses were nearly offset by the higher pension expense and lower
profit in other businesses in the segment.
o Other income (expense), net included a charge of $18.4 million in the third
quarter of 2003 for the costs associated with the previously announced
redemption of $200 million of 7 7/8% and $200 million of 7.0% debentures.
The effect of this charge was partially offset by lower currency
transaction losses in 2003 compared with 2002.
By Geography:
(Millions of dollars)
Net Sales 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
North America .............................................................................. $2,260.0 $2,256.0
Outside North America ...................................................................... 1,524.7 1,371.2
Intergeographic sales ...................................................................... (143.1) (140.5)
-------- --------
Consolidated ............................................................................... $3,641.6 $3,486.7
======== ========
Operating Profit 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
North America .............................................................................. $ 520.3 $ 560.4
Outside North America ...................................................................... 129.3 124.6
Other income (expense), net ................................................................ (21.3) (16.3)
Unallocated items - net .................................................................... (24.3) (23.9)
--------- --------
Consolidated ............................................................................... $ 604.0 $ 644.8
========= ========
Note: Unallocated items - net, consists of expenses not associated with the
geographic areas.
Commentary:
o Net sales in North America increased .2 percent from last year as
higher sales volumes for personal care and health care products were nearly
offset by the lower consumer tissue sales volumes and net selling prices.
o Net sales outside of North America increased 11.2 percent primarily due to
favorable currency effects in Europe and Australia and higher sales
volumes, particularly in the professional and health care businesses. The
consolidation of Klabin contributed about 2 percentage points to the
overall gain in net sales.
o Operating profit in North America decreased 7.2 percent because the lower
net selling prices and higher pension, fiber, distribution and energy costs
more than offset the benefits of the increased personal care sales volumes
and cost savings programs.
o Operating profit outside North America increased 3.8 percent as the
benefits of cost savings initiatives, growth in the health care business
and favorable currency effects were partially offset by higher fiber costs.
Additional Income Statement Commentary:
o Interest expense decreased 10.0 percent primarily due to lower interest
rates.
o The lower effective tax rate in the third quarter of 2003 was driven by the
resolution of certain matters related to prior years' taxes.
o The Corporation's share of net income of equity companies in the third
quarter decreased to $21.9 million in 2003 from $28.1 million in 2002
primarily due to lower net income at Kimberly-Clark de Mexico, S.A. de C.V.
("KCM"). Most of the decrease in KCM's earnings was attributable to
currency effects as a result of changes in the value of the Mexican peso.
o On a diluted basis, net income was $.83 per share, a decrease of
2.4 percent compared with $.85 per share in 2002.
First Nine Months of 2003 Compared With First Nine Months of 2002
By Business Segment
(Millions of dollars)
Net Sales 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Personal Care ............................................................................... $ 3,942.3 $ 3,900.4
Consumer Tissue ............................................................................. 3,991.6 3,755.2
Business-to-Business ........................................................................ 2,826.1 2,679.7
Intersegment sales .......................................................................... (114.1) (108.8)
--------- ---------
Consolidated ................................................................................ $10,645.9 $10,226.5
========= =========
Operating Profit 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Personal Care ............................................................................... $ 815.8 $ 830.9
Consumer Tissue ............................................................................. 620.0 698.4
Business-to-Business ........................................................................ 505.2 510.3
Other income (expense), net ................................................................. (77.5) (28.8)
Unallocated items - net ..................................................................... (73.3) (76.8)
--------- ---------
Consolidated ................................................................................ $ 1,790.2 $ 1,934.0
========= =========
Note: Unallocated items - net, consists of expenses not associated with the
business segments.
Commentary:
Consolidated net sales for the first nine months of 2003 increased 4.1 percent
over the prior year. Excluding favorable currency effects, net sales increased
..5 percent, as higher sales volumes were substantially offset by lower net
selling prices.
o Net sales of personal care products, excluding currency effects, declined
more than 1 percent due to lower sales volumes. Net selling prices were
slightly lower than in 2002.
o Net sales of consumer tissue products, excluding currency effects,
increased almost 2 percent due to higher sales volumes and the
consolidation of Klabin. Net selling prices were flat.
o Excluding currency effects, net sales of business-to-business products were
about 2 percent higher as an almost 3 percent increase in sales volumes was
tempered by lower selling prices.
Consolidated operating profit declined 7.4 percent due to higher promotional
spending, increased fiber, distribution and energy costs and increased pension
expense of approximately $105 million that more than offset the benefits of cost
reduction programs of nearly $140 million and favorable currency effects. Each
of the three business segments incurred more than $30 million of the increased
pension expense.
Included in the first nine months of 2002 were charges for business improvement
programs of $35.6 million primarily related to the plans to streamline
manufacturing operations in Latin America, to consolidate administrative
functions in Europe and for the previously mentioned Colombian special tax.
These costs were included in the business segments as follows: personal care
$12.2 million; consumer tissue $17.0 million; and business-to-business
$6.4 million. These charges were included in the consolidated income statement
as follows: cost of products sold $16.6 million; and marketing, research and
general expenses $19.0 million.
o Personal care segment operating profit decreased 1.8 percent primarily
because of lower sales volumes and net selling prices reflecting the
competitive environment and higher pension costs, tempered by cost savings
and favorable currency effects.
o Consumer tissue segment operating profit declined 11.2 percent as lower net
selling prices and higher pension expense and higher fiber, distribution
and energy costs more than offset the benefit of cost savings programs.
o Business-to-business operating profit declined 1.0 percent as cost savings
initiatives, higher sales volumes and favorable currency were more than
offset by lower net selling prices, higher pension expense and increased
fiber, distribution and energy costs.
o Other income (expense), net included a charge of $15.6 million in 2003 for
a legal judgment in Europe and the previously mentioned charge of
$18.4 million for the cost of the bond redemptions compared with a charge
of $26.5 million in 2002 for tax credit related losses in Brazil. In
addition to these charges, other expense in 2003 reflected currency
transaction losses compared with other income in 2002 for currency
transaction gains, including a gain of $17.3 million on Australian dollar
forward contracts related to last year's acquisition of the remaining
45 percent interest in Kimberly-Clark Australia Pty. Limited.
By Geography
(Millions of dollars)
Net Sales 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
North America ............................................................................ $ 6,689.3 $ 6,719.2
Outside North America .................................................................... 4,372.1 3,916.6
Intergeographic sales .................................................................... (415.5) (409.3)
--------- ---------
Consolidated ............................................................................. $10,645.9 $10,226.5
========= =========
Operating Profit 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
North America ............................................................................ $ 1,533.6 $ 1,653.2
Outside North America .................................................................... 407.4 386.4
Other income (expense), net .............................................................. (77.5) (28.8)
Unallocated items - net .................................................................. (73.3) (76.8)
--------- ---------
Consolidated ............................................................................. $ 1,790.2 $ 1,934.0
========= =========
Note: Unallocated items - net, consists of expenses not associated with the
geographic areas.
Commentary:
o Net sales in North America declined .4 percent as higher sales volumes for
health care products were offset by the lower sales volumes and net selling
prices for personal care products.
o Net sales outside of North America increased 11.6 percent principally due
to favorable currency effects in Europe.
o Operating profit in North America decreased 7.2 percent because the higher
promotional spending, increased pension expense and higher fiber,
distribution and energy costs more than offset the benefit of cost
reduction programs.
o Operating profit outside North America increased 5.4 percent. Increased
operating profit in personal care in Europe and Asia and the growth in the
health care business, partially offset by lower earnings in personal care
in Latin America, contributed to the improvement. Operating profit in 2002
included $30.4 million of the previously discussed business improvement and
other charges.
Additional Income Statement Commentary:
o Interest expense decreased 6.4 percent because the benefit of lower
interest rates more than offset a higher average level of debt.
o The Corporation's share of net income of equity companies decreased to
$78.2 million in 2003 compared with $82.0 million in 2002 as lower net
income from KCM was partially offset by higher earnings elsewhere in Latin
America.
o On a diluted basis, net income was $2.42 per share in 2003, a decrease of
3.2 percent compared with $2.50 per share in 2002. The first nine months of
2002 included a charge of $.02 per share for the cumulative effect of an
accounting change related to the adoption of an accounting pronouncement
regarding trade and consumer promotion.
LIQUIDITY AND CAPITAL RESOURCES
o Cash provided by operations for the first nine months of 2003 increased
$144.2 million or 8 percent compared with the first nine months of 2002.
Working capital was positively impacted by a reduction in accounts
receivable, primarily in Europe, income tax refunds of prior year taxes and
lower income tax payments, partially offset by higher levels of finished
goods inventories.
o For the first nine months of 2003, the net increase in time deposits was
primarily attributable to investment of cash accumulated in Korea.
o During the first nine months of 2003, the Corporation repurchased nearly
7 million shares of its common stock at a cost of approximately
$339 million, including 2.3 million shares repurchased in the third quarter
at a cost of approximately $113 million.
o At September 30, 2003, total debt and preferred securities was
$4.4 billion, a decrease of $.1 billion from December 31, 2002. The average
level of total debt during the first nine months of 2003 was approximately
$225 million higher than in the same period of 2002.
o At December 31, 2002 the Corporation had $1.425 billion of unused
syndicated revolving credit facilities. Based on its projected cash flows
and anticipated commercial paper borrowing requirements, in October 2003
the Corporation reduced its outstanding facilities to $1.22 billion. The
existing structure was substantially unchanged and cost of the facilities
was not changed. Of these facilities, $610 million expire in October 2004
and $610 million expire in November 2008.
o The Corporation has signed an agreement to acquire a 49.5 percent ownership
interest in a synthetic fuel partnership. The transaction was subject to
the receipt of a favorable private letter ruling from the Internal Revenue
Service (the "IRS") confirming that the synthetic fuel produced by the
partnership is eligible for Section 29 tax credits. The partnership
received the favorable letter ruling on October 31, 2003. The
partnership's test procedures are in compliance with the requirements
outlined by the IRS in its Announcement 2003-70 published on
October 29, 2003.
As a result of this transaction, during the fourth quarter, the Corporation
will recognize approximately $100 million in expenses related to its share
in the partnership and approximately $120 million in federal income tax
benefits, resulting in an annual net benefit of approximately $20 million
of additional net income. The impact this transaction will have on the
Corporation's 2003 earnings is incremental to management's previous
guidance. Compared with the Corporation's effective tax rate of 29 percent
in 2002, the transaction will lower the annual rate by about 4 percentage
points in 2003.
The Corporation expects this transaction to result in similar expenses,
federal income tax benefits and additional net income annually through
2007. However, the benefits from this transaction in those subsequent
years are expected to be partially offset by the expiration of benefits
from other tax savings initiatives.
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 of the
business in the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB") issued
interpretation ("FIN") 46, Consolidation of Variable Interest Entities, an
Interpretation of ARB 51. In October 2003, the effective date of FIN 46 was
deferred to December 31, 2003. FIN 46 requires consolidation of entities in
which an entity is the primary beneficiary despite not having voting control.
Likewise, it does not permit consolidation of entities in which an entity has
voting control but is not the primary beneficiary. The Corporation has
determined that it is the primary beneficiary of its Luxembourg financing
subsidiary described in Note 9 to the consolidated financial statements included
in the Corporation's Form 10-K for the year ended December 31, 2002 and will
continue to consolidate that entity. In addition, the Corporation has determined
that it is not the primary beneficiary of the financing entities described in
Note 13 to such consolidated financial statements and will continue not to
consolidate such entities. The Corporation is continuing to evaluate the impact
of applying FIN 46 to its real estate entities described in Note 13 to such
consolidated financial statements and has not yet completed the analysis. The
Corporation estimates that even if it were to consolidate all of its real estate
entities, suchconsolidation would not result in a material adverse effect on the
Corporation's results of operations, financial position, cash flows or
liquidity.
In May 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") 150, Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity. SFAS 150 requires that certain instruments
classified as part of stockholders' equity or between stockholders' equity and
liabilities be classified as liabilities effective in the third quarter of 2003.
On October 29, 2003, the FASB deferred indefinitely a provision of SFAS 150 that
would have required certain minority interests in less than 100 percent owned
subsidiaries to be classified as liabilities. Reclassification of the minority
interest of applicable subsidiaries of the Corporation at September 30, 2003
would not have a material impact on the financial statements. Except for these
minority interests, the Corporation has no instruments that would be affected
by SFAS 150.
ENVIRONMENTAL MATTERS
The Corporation has been named as a potentially responsible party at a number of
waste disposal sites, none of which individually or in the aggregate, in
management's opinion, is likely to have a material adverse effect on its
business, financial condition or results of operations.
OUTLOOK
Given the intensity of the competitive environment in the categories in which
the Corporation does business, management remains focused on increasing sales
volumes and aggressively reducing costs over the balance of the year.
Looking at the Corporation's three business segments, management is encouraged
by the earnings growth in the personal care segment and the continued strong
operating profit margins in the business-to-business operations. Still,
management is not expecting any letup in competitive promotional spending.
In particular, management expects fourth quarter profit comparisons in the
consumer tissue segment will be pressured by higher fiber costs and continued
high levels of promotion spending. Meanwhile, management is confident that the
Corporation will continue to generate cost savings across all its businesses.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain information contained in this report is forward-looking and is based on
various assumptions. Such information includes, without limitation, the business
outlook, including new product introductions, cost savings and acquisitions,
anticipated financial and operating results, strategies, contingencies and
contemplated transactions of the Corporation. These forward-looking statements
are based upon management's expectations and beliefs concerning future events
impacting the Corporation. There can be no assurance that such events will occur
or that the Corporation's results will be as estimated. For a description of
certain factors that could cause the Corporation's future results to differ
materially from those expressed in any such forward-looking statements, see the
section of Part I, Item 1 of the Corporation's Annual Report on Form 10-K for
the year ended December 31, 2002 entitled "Factors That May Affect Future
Results."
Item 4. Controls and Procedures.
As of September 30, 2003, an evaluation was performed under the supervision and
with the participation of the Corporation's management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Corporation's disclosure controls and procedures.
Based on that evaluation, the Corporation's management, including the Chief
Executive Officer and Chief Financial Officer, concluded that the Corporation's
disclosure controls and procedures were effective as of September 30, 2003.
There have been no significant changes during the quarter covered by this report
in the Corporation's internal control over financial reporting or in other
factors that could significantly affect internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(3)a Restated Certificate of Incorporation, dated June 12, 1997,
incorporated by reference to Exhibit No. (3)a of the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1999.
(3)b By-Laws, as amended April 24, 2003, incorporated by
reference to Exhibit No. (3)b of the Corporation's
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2003.
(4) Copies of instruments defining the rights of holders of
long-term debt will be furnished to the Securities and
Exchange Commission on request.
(31)a Certification of Chief Executive Officer required by Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), filed herewith.
(31)b Certification of Chief Financial Officer required by Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act, filed
herewith.
(32)a Certification of Chief Executive Officer required by Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section
1350 of Chapter 63 of Title 18 of the United States Code,
filed herewith.
(32)b Certification of Chief Financial Officer required by Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section
1350 of Chapter 63 of Title 18 of the United States Code,
filed herewith.
(b) Reports on Form 8-K
The Corporation furnished the following Current Report after June 30, 2003 and
prior to September 30, 2003:
Current Report on Form 8-K dated July 23, 2003, to furnish the text
of a press release issued on July 23, 2003 regarding second quarter
results of operations, strategic plan and long-term objectives.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIMBERLY-CLARK CORPORATION
(Registrant)
By: /s/ Mark A. Buthman
-----------------------------------
Mark A. Buthman
Senior Vice President and
Chief Financial Officer
(principal financial officer)
By: /s/ Randy J. Vest
-----------------------------------
Randy J. Vest
Vice President and Controller
(principal accounting officer)
November 6, 2003
EXHIBIT INDEX
Exhibit No. Description
(3)a Restated Certificate of Incorporation, dated June 12, 1997,
incorporated by reference to Exhibit No. (3)a of the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1999.
(3)b By-Laws, as amended April 24, 2003, incorporated by reference to
Exhibit No. (3)b of the Corporation's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2003.
(4) Copies of instruments defining the rights of holders of
long-term debt will be furnished to the Securities and
Exchange Commission on request.
(31)a Certification of Chief Executive Officer required by
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), filed herewith.
(31)b Certification of Chief Financial Officer required by
Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, filed
herewith.
(32)a Certification of Chief Executive Officer required by
Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and
Section 1350 of Chapter 63 of Title 18 of the United States Code,
filed herewith.
(32)b Certification of Chief Financial Officer required by
Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and
Section 1350 of Chapter 63 of Title 18 of the United States Code,
filed herewith.