FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from............to....................
Commission file number 1-225
KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 39-0394230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 619100
DALLAS, TEXAS
75261- 9100
(Address of principal executive offices)
(Zip Code)
(214) 281-1200
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
------ ------
AS OF NOVEMBER 1, 1995, 160,474,241 SHARES OF THE CORPORATION'S
COMMON STOCK WERE OUTSTANDING.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Three Months Nine Months
Ended September 30 Ended September 30
(Millions of dollars except per share amounts) 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES.................................. $2,212.3 $1,846.3 $6,378.9 $5,469.6
Cost of products sold...................... 1,450.2 1,247.5 4,218.9 3,628.5
--------- --------- --------- ---------
GROSS PROFIT............................... 762.1 598.8 2,160.0 1,841.1
Advertising, promotion and selling expenses 327.1 272.6 952.3 811.8
Research expense........................... 42.8 41.0 129.0 120.8
General expense............................ 111.8 93.3 317.5 271.6
---------- ----------- ---------- ----------
OPERATING PROFIT........................... 280.4 191.9 761.2 636.9
Interest expense........................... (35.2) (33.0) (108.2) (96.4)
Other income (expense), net................ 58.4 13.9 50.3 6.3
---------------------- ----------- ------------
INCOME BEFORE INCOME TAXES................. 303.6 172.8 703.3 546.8
Provision for income taxes................. 113.8 60.1 263.7 204.1
---------- ----------- ---------- ----------
INCOME BEFORE EQUITY INTERESTS............. 189.8 112.7 439.6 342.7
Share of net income of equity companies.... 24.1 32.0 57.1 95.5
Minority owners' share of subsidiaries'
net income ............................ (5.3) (2.9) (16.1) (8.7)
----------- ----------- ----------- -----------
NET INCOME ............................... $ 208.6 $ 141.8 $ 480.6 $ 429.5
========= ========= ========= =========
PER SHARE BASIS:
Net Income $ 1.30 $ .88 $ 3.00 $ 2.67
========= ======== ========= ==========
Cash Dividends Declared $ .45 $ .44 $ 1.35 $ 1.32
========= ======== ========= ==========
</TABLE>
Unaudited
See Notes to Financial Statements.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
September 30, December 31,
(Millions of dollars) 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................... $ 31.2 $ 23.8
Accounts receivable .......................... 1,058.9 847.5
Inventories .................................. 917.8 804.2
Other current assets ......................... 141.0 134.4
--------- -----------
TOTAL CURRENT ASSETS ....................... 2,148.9 1,809.9
--------- ----------
PROPERTY ........................................ 7,030.1 6,604.0
Less accumulated depreciation ................ 2,639.9 2,404.6
--------- ----------
NET PROPERTY ............................... 4,390.2 4,199.4
--------- ----------
INVESTMENTS IN EQUITY COMPANIES ................. 325.1 376.2
DEFERRED CHARGES AND OTHER ASSETS ............... 400.7 330.2
---------- -----------
$7,264.9 $ 6,715.7
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt payable within one year ................. $ 674.9 $ 771.8
Accounts payable ............................. 574.5 495.6
Other current liabilities .................... 930.9 791.4
---------- ----------
TOTAL CURRENT LIABILITIES .................. 2,180.3 2,058.8
LONG-TERM DEBT .................................. 976.8 929.5
NONCURRENT EMPLOYEE BENEFIT OBLIGATIONS ......... 459.6 438.7
DEFERRED INCOME TAXES ........................... 626.2 612.8
MINORITY OWNERS' INTERESTS IN SUBSIDIARIES ...... 149.7 80.1
STOCKHOLDERS' EQUITY ............................ 2,872.3 2,595.8
--------- ---------
$7,264.9 $6,715.7
======== ========
</TABLE>
Unaudited
See Notes to Financial Statements.
<TABLE>
<CAPTION>
CONSOLIDATED CASH FLOW STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Nine Months
Ended September 30
(Millions of dollars) 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Income .................................... $ 480.6 $ 429.5
Depreciation .................................. 274.2 243.8
Changes in operating working capital .......... (66.2) (156.0)
Pension funding in excess of expense .......... (5.1) (49.5)
Other .......................................... (12.0) (17.7)
--------- ---------
CASH PROVIDED BY OPERATIONS .............. 671.5 450.1
-------- --------
INVESTING
Capital spending .............................. (330.6) (331.5)
Acquisition of businesses, net of cash acquired (81.7) (97.2)
Disposals of property and businesses .......... 87.2 138.1
Other ......................................... (10.0) (6.7)
--------- ---------
CASH USED FOR INVESTING .................. (335.1) (297.3)
-------- -------
FINANCING
Cash dividends paid ........................... (214.7) (210.9)
Changes in debt payable within one year ....... (135.5) 59.6
Increases in long-term debt ................... 54.9 167.0
Decreases in long-term debt ................... (26.9) (165.7)
Other ......................................... (6.8) (8.5)
--------- ---------
CASH USED FOR FINANCING .................. (329.0) (158.5)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . $ 7.4 $ (5.7)
======== ========
</TABLE>
Unaudited
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
1. The unaudited consolidated financial statements of Kimberly-Clark
Corporation (the "Corporation") generally have been prepared on
the same basis as those in the 1994 Annual Report to Stockholders.
All adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of operations,
cash flows and financial position for the interim periods have
been made and are of a normal recurring nature. Certain
reclassifications have been made to conform 1994 data to the
current period presentation.
2. The average number of common shares outstanding used in the
calculation of net income per share for the nine months ended
September 30, 1995 and 1994, was 160.3 million and 161.1 million,
respectively. There were 160.4 million shares outstanding at
September 30, 1995.
3. Share of net income of equity companies and net income, for the
third quarter and nine months ended September 30, 1995, include
nonoperating charges of $2.0 million, or $.01 per share and $20.4
million, or $.13 per share, respectively. These effects are
related to the translation of U.S. dollar-denominated liabilities
into pesos at the Corporation's Mexican affiliate which have been
incurred as a result of fluctuations in the value of the Mexican
peso.
Subsequent to September 30 and through November 9, 1995, the Mexican
peso has devalued approximately 16 percent. The effect of this
devaluation on the Mexican affiliate's U.S. dollar-denominated
liabilities has resulted in an additional nonoperating translation
charge, of which the Corporation's share is approximately $17
million or $.11 per share.
4. The following schedule details inventories by major
class as of September 30, 1995 and December 31, 1994:
September 30, December 31,
(Millions of dollars) 1995 1994
-------------------------------------------------------------------------
At lower of cost on the First-In,
First-Out (FIFO) method of market:
Raw materials ........................... $ 246.4 $180.8
Work in process ......................... 182.2 143.3
Finished goods .......................... 530.2 495.0
Supplies and other ...................... 145.3 132.8
---------- -------
1,104.1 951.9
Excess of FIFO cost over Last-In
First-Out (LIFO) cost ................... (186.3) (147.7)
---------- -------
Total ................................. $ 917.8 $804.2
========= ======
5. In May 1995, the Corporation announced plans for a spin-
off of its tobacco-related businesses in the U.S. and
France. The Corporation's board of directors has
approved the distribution to Kimberly-Clark stockholders
of all outstanding shares of common stock of Schweitzer-
Mauduit International, Inc. ("SMI"), which will hold
such operations. Kimberly-Clark stockholders will
receive one share of SMI common stock for every 10
shares of Kimberly-Clark stock held. The distribution
will be payable on November 30, 1995, to stockholders of
record on November 13, 1995. For the year ended
December 31, 1994, these operations had net sales of
$404 million.
6. In July 1995, the Corporation and Scott Paper Company
("Scott") announced that they had signed a definitive
merger agreement. After the merger, Scott will be a
wholly owned subsidiary of Kimberly-Clark, but the
combined company will operate under the Kimberly-Clark
name.
Under the merger agreement, Scott shareholders will
receive .78 of a share of newly issued Kimberly-Clark
common stock for each share of Scott common stock.
Consummation of the merger under such exchange ratio
will involve the issuance of approximately 119.6 million
shares of Kimberly-Clark common stock.
The merger is intended to qualify as a tax-free
reorganization and to be accounted for as a pooling of
interests. The merger is expected to be completed in
late 1995 and is subject to certain conditions,
including regulatory clearances and approval by the
shareholders of both companies. The Corporation is
cooperating fully with regulatory authorities in the
U.S., Europe and Canada to expedite clearance of the
transaction.
The combined enterprise may be required to divest one or
more of its product lines in order to obtain the
necessary authorizations and approvals of the merger.
Any such divestitures are not expected to have a
materially adverse effect on the operations and
operating results of the combined enterprise, but would
have such an effect on its European operations unless
the proceeds therefrom can be successfully redeployed.
There can be no assurance that the consummation of any
such divestitures could be effected at a fair market
price or that the reinvestment of the proceeds therefrom
would produce for the combined enterprise operating
profit at the same level as the divested product
lines or a commensurate rate of return on the
amount of its investment.
On a pro forma basis, the combined operations would have
had net sales of approximately $11.7 billion and net
income of approximately $755 million for the year ended
December 31, 1994. Kimberly-Clark will take a one-time
pretax charge for restructuring the combined operations
and covering the costs of the merger and for other
unusual and nonrecurring items in the quarter the merger
is consummated. Such pretax charge, which is currently
estimated to be in the range of $1.0 billion to $1.5
billion, will include: (i) the costs of plant
rationalizations and employee terminations to eliminate
duplicate facilities and excess capacity; (ii) the costs
of integrating the businesses of the two companies;
(iii) the direct costs of the merger, including the fees
of financial advisors, legal counsel and independent
auditors; and (iv) other unusual and nonrecurring items.
The after-tax cost of the charge is currently estimated
to be in the range of $750 million to $1.15 billion.
The estimated charge and the nature of the costs
included therein are subject to change as the
integration plan is developed and more accurate
estimates of the restructuring and other unusual and
nonrecurring items become possible. Moreover, the
after-tax cost of such charge is likely to change
depending on the magnitude of the pretax charge, the
nature of the costs included therein, the tax laws of
the particular countries applicable to the entities
incurring such costs and the tax paying status of such
entities.
7. Other income (expense) in 1995 includes a gain of $61.4
million from the initial public offering of 80 percent
of the Corporation's investment in Midwest Express
Airlines, Inc. and Astral Aviation, Inc. The offering
involved the sale of 5.1 million shares of the common
stock of Midwest Express Holdings, Inc., the parent
company of these businesses. On an after-tax basis, the
offering increased 1995 net income $40.0 million, or
$.25 per share. For the year ended December 31, 1994,
these operations had net sales of $204 million.
Unaudited
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management believes that the following tables and commentary appropriately
discuss and analyze the comparative results of operations for the periods
covered.
Product classes referred to in the following discussion and analysis are:
- -------------------------------------------------------------------------
. Class I includes tissue products for household, commercial,
institutional and industrial uses; infant, child, feminine and
incontinence care products; industrial and commercial wipers; health
care products; and related products.
. Class II includes newsprint, printing papers, premium business and
correspondence papers, tobacco industry papers and products, technical
papers, and related products.
. Class III includes aircraft services, commercial air transportation,
and other products and services.
Adjustments:
- ------------
. Adjustments to sales shown in the following tables consist of
intercompany sales of products between product classes or geographic
areas. Adjustments to operating profit consist of expenses not
associated with product classes or geographic areas.
. Certain reclassifications have been made to conform 1994 data to the
current period presentation.
RESULTS OF OPERATIONS:
THIRD QUARTER 1995 COMPARED WITH THIRD QUARTER 1994
<TABLE>
<CAPTION>
By Product Class
($ Millions)
% Change % of 1995
NET SALES 1995 vs. 1994 Consolidated
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Class I.................... $1,795.7 +21.4% 81.2%
Class II................... 317.7 +13.7 14.4
Class III.................. 115.5 +11.5 5.2
Adjustments................ (16.6) (.8)
-------- -------
Consolidated............... $2,212.3 +19.8% 100.0%
======== =====
</TABLE>
<TABLE>
<CAPTION>
% Change % of 1995 % Return on Sales
OPERATING PROFIT 1995 vs. 1994 Consolidated 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class I.................... $226.0 + 49.0% 80.6% 12.6% 10.3%
Class II................... 60.4 + 23.5 21.5 19.0 17.5
Class III.................. 11.4 + 147.8 4.1 9.9 4.4
Adjustments................ (17.4) (6.2)
------ -------
Consolidated............... $280.4 + 46.1% 100.0% 12.7% 10.4%
====== =====
</TABLE>
Commentary:
Net sales increased as a result of higher sales volumes in most product
lines and higher selling prices. Increased sales volumes were
responsible for half of the revenue improvement compared with the third
quarter of 1994.
. Sales volumes were higher in North America. Noteworthy
contributors included Kleenex bathroom and facial tissue, Huggies
baby wipes and diapers, GoodNites disposable underpants, Depend and
Poise incontinence care products, Kotex and New Freedom feminine
care products, service and industrial products, professional health
care products and technical papers and related products.
. Sales volumes were higher in Europe primarily as a result of the
launch of Huggies disposable diapers in France and Belgium in early
1995.
. Sales volumes also increased for tobacco industry papers and for
consumer products in Asia and Latin America.
. Selling prices increased in North America, primarily for pulp and
newsprint, tissue products, and Neenah Paper's premium business and
correspondence products, and at Midwest Express Airlines, Inc.
(`Midwest Express''), but declined for diapers and training pants.
. Outside North America, selling prices were higher in Europe and
Korea, primarily for tissue products.
. Changes in currency exchange rates are estimated to have increased
net sales by $33 million.
Gross profit increased 27.3 percent in absolute terms, and as a
percentage of sales, as a result of the higher selling prices and sales
volumes, offset, in part, by higher fiber costs.
. Cost reductions and manufacturing efficiencies were achieved in
North America, primarily in the tissue products, disposable diaper
and feminine care products businesses, and in Europe in the
disposable diaper business.
The increase in operating profit of 46.1 percent was greater than the
percentage increase in gross profit and was attributable primarily to
the higher selling prices.
. Marketing costs were higher, particularly in Europe in response to
intense competition in the disposable diaper market.
. General expense increased due to business expansion worldwide but
was unchanged as a percentage of sales.
. Changes in currency exchange rates had no significant effect on
consolidated operating profit in the third quarter of 1995.
<TABLE>
<CAPTION>
By Geography
($ Millions)
% Change % of 1995
NET SALES 1995 vs. 1994 Consolidated
- ---------------------------------------------------------------------
<S> <C> <C> <C>
North America.............. $1,605.8 +10.5% 72.6%
Outside North America...... 631.9 +53.9 28.6
Adjustments................ (25.4) (1.2)
-------- ------
Consolidated............... $2,212.3 +19.8% 100.0%
======== =====
</TABLE>
<TABLE>
<CAPTION>
% Change % of 1995 % Return on Sales
OPERATING PROFIT 1995 vs. 1994 Consolidated 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North America.......... $284.5 +36.9% 101.5% 17.7% 14.3%
Outside North America.. 13.3 N.M. 4.7 2.1 (.6)
Adjustments............ (17.4) (6.2)
-------- -----
Consolidated........... $280.4 +46.1% 100.0% 12.7% 10.4%
======== =====
</TABLE>
<TABLE>
<CAPTION>
% Change % of 1995
NET INCOME 1995 vs. 1994 Consolidated
- -------------------------------------------------------------------------
<S> <C> <C> <C>
North America.......... $193.8 +53.8% 92.9%
Outside North America.. 14.8 - 6.3 7.1
-------- -------
Consolidated........... $208.6 +47.1% 100.0%
======== =====
</TABLE>
Additional commentary:
. Operating profit improved in Asia and Latin America, and operating
losses declined in Europe.
. The increase in interest expense was primarily a result of higher
average debt levels, offset, in part, by lower interest rates.
. Other income (expense) in 1995 includes a gain of $61.4 million
from the initial public offering (`IPO'') of 80 percent of the
Corporation's investment in Midwest Express and Astral Aviation,
Inc. The offering involved the sale of 5.1 million shares of the
common stock of Midwest Express Holdings, Inc., the parent company
of these businesses. On an after-tax basis, the offering increased
1995 net income $40.0 million, or $.25 per share. For the year
ended December 31, 1994, these operations had net sales of $204
million.
. In 1994, other income (expense) included gains totaling $14.4
million, or $.09 per share from the divestitures of the
Corporation's Brazilian tissue subsidiary, its Memphis, Tenn.
tissue mill, and its adhesive-coated label stock business in Troy,
Ohio, as well as gains from the disposition of woodlands.
. The $7.9 million decline in the Corporation's share of net income
from equity companies was primarily attributable to the following
factors:
. The Corporation's Mexican affiliate, Kimberly-Clark de Mexico,
S.A. de C.V. (``K-C de Mexico''), had lower earnings due to a
decline in sales volumes and higher costs, primarily for raw
materials. These effects are attributable, in large measure, to
the economic problems in Mexico following the devaluation of the
Mexican peso in late 1994.
. Net income declined at the Corporation's Australian affiliate,
Kimberly-Clark Australia Pty. Limited, principally as a result of
an increase in the corporate income tax rate to 36 percent from
33 percent retroactive to January 1, 1995.
. The Corporation increased ownership in its South African
affiliate, Carlton Paper Corporation Limited (``Carlton''), and
its Argentine affiliate, Kimberly-Clark Argentina S.A., which
resulted in these former equity affiliates becoming consolidated
subsidiaries. Because these operations are now consolidated,
their results are no longer reported in net income from equity
affiliates.
. The effective tax rate increased to 37.5 percent from 34.8
percent a year ago. The prior year rate was affected by tax
benefits related to the 1994 disposition of the Corporation's
Brazilian tissue subsidiary.
RESULTS OF OPERATIONS:
FIRST NINE MONTHS OF 1995 COMPARED WITH FIRST NINE MONTHS OF 1994
<TABLE>
<CAPTION>
By Product Class
($ Millions)
% Change % of 1995
NET SALES 1995 vs. 1994 Consolidated
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class I................ $5,184.0 + 17.7% 81.3%
Class II............... 899.6 + 10.2 14.1
Class III.............. 350.1 + 21.1 5.5
Adjustments............ (54.8) (.9)
---------- -------
Consolidated........... $6,378.9 + 16.6% 100.0%
======== =====
</TABLE>
<TABLE>
<CAPTION>
% Change % of 1995 % Return on Sales
OPERATING PROFIT 1995 vs. 1994 Consolidated 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class I.................... $602.0 + 18.0% 79.0% 11.6% 11.6%
Class II................... 163.0 + 14.2 21.4 18.1 17.5
Class III.................. 35.4 + 140.8 4.7 10.1 5.1
Adjustments................ (39.2) (5.1)
--------- ------
Consolidated............... $761.2 + 19.5% 100.0% 11.9% 11.6%
========= =====
</TABLE>
Commentary:
Net sales increased as a result of higher sales volumes in most product
lines and higher selling prices. More than half of the revenue
improvement was attributable to increased sales volumes.
. Sales volumes were higher in North America. Noteworthy
contributors included Kleenex bathroom and facial tissue, Huggies
baby wipes and diapers, GoodNites disposable underpants, Depend and
Poise incontinence care products, service and industrial products,
professional health care products, technical papers and related
products, aircraft services, tobacco industry papers, and Midwest
Express.
. Sales volumes for consumer products increased in Europe.
Noteworthy contributors included feminine care products and Huggies
disposable diapers, which were launched in France and Belgium in
early 1995.
. Sales volumes also increased for tobacco industry papers in Europe
and for consumer products in Latin America and Asia.
. Selling prices increased in North America, primarily for tissue
products, pulp, newsprint, Neenah Paper's premium business and
correspondence papers, and at Midwest Express, but prices declined
for diapers and training pants.
. Outside North America, selling prices were higher in Europe and
Korea, principally for tissue products.
. Changes in currency exchange rates are estimated to have increased
consolidated net sales by $102 million.
Gross profit increased 17.3 percent in absolute terms, and as a
percentage of sales, as a result of the higher selling prices and sales
volumes, offset, in part, by higher fiber costs.
. Cost reductions and manufacturing efficiencies were achieved in
North America, primarily in the tissue products, feminine care
products and disposable diaper businesses, and in Europe in the
disposable diaper and tissue products businesses.
. The North American disposable diaper and training pants businesses
were adversely affected by the costs of matching price and count
reductions, the costs of product improvements, primarily those
associated with the introduction of stretchable side panels on
Huggies diapers.
. The tobacco industry papers business benefited from increased sales
volumes, higher selling prices and improved productivity which more
than offset higher fiber costs.
The increase in operating profit of 19.5 percent was greater than the
percentage increase in gross profit.
. Product introduction costs and promotional expenses were higher in
Europe to support the launch of diapers and in response to intense
competitive activity.
. Higher promotion costs were incurred in the U.S. in response to
strong competitive activity for consumer products and the costs of
matching a competitor's price and count reductions on diapers.
. Research and general expenses were higher largely due to the
development of new and improved products and to business
expansions; however, research expense was down slightly as a
percentage of sales.
. Changes in currency exchange rates had no significant effect on
consolidated operating profit in the first nine months of 1995.
<TABLE>
<CAPTION>
By Geography
($ Millions)
% Change % of 1995
NET SALES 1995 vs. 1994 Consolidated
- ----------------------------------------------------------------------
<S> <C> <C> <C>
North America.............. $4,692.5 + 7.8% 73.6%
Outside North America...... 1,744.0 + 47.5 27.3
Adjustments................ (57.6) (.9)
-------- --------
Consolidated............... $6,378.9 + 16.6% 100.0%
======== =====
</TABLE>
<TABLE>
<CAPTION>
% Change % of 1995 % Return on Sales
OPERATING PROFIT 1995 vs. 1994 Consolidated 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North America.......... $750.4 + 13.6% 98.5% 16.0% 15.2%
Outside North America.. 50.0 + 614.3 6.6 2.9 .6
Adjustments............ (39.2) (5.1)
----------- ------
Consolidated $761.2 + 19.5% 100.0% 11.9% 11.6%
=========== =====
</TABLE>
<TABLE>
<CAPTION>
% Change % of 1995
NET INCOME 1995 vs. 1994 Consolidated
- ------------------------------------------------------------------------
<S> <C> <C> <C>
North America.......... $439.2 + 16.1% 91.4%
Outside North America.. 41.4 - 19.3 8.6%
---------- ------
Consolidated........... $480.6 + 11.9% 100.0%
========== =====
</TABLE>
Additional commentary:
. Operating profit improved in Asia and Latin America, and operating
losses were lower in Europe.
. The increase in interest expense was primarily the result of higher
average debt levels, offset, in part, by lower interest rates.
. Other income (expense) in 1995 includes the previously described
gain of $61.4 million from the IPO by Midwest Express Holdings, Inc.
. Other income (expense) in 1995 includes a pretax charge of $6.0
million related to the disposition of the Corporation's trucking
business. On an after-tax basis, the transaction decreased net
income $3.8 million, or $.02 per share.
. The $38.4 million decline in the Corporation's share of net income
from equity companies was primarily attributable to the following
factors:
. In the first nine months of 1995, the Mexican peso lost value
versus the U.S. dollar. Because K-C de Mexico has financed a
portion of its operations with U.S. dollar-denominated
liabilities, the remeasurement of these liabilities by the
affiliate resulted in an after-tax peso devaluation loss of which
Kimberly-Clark's share was $20.4 million, or $.13 per share.
. The U.S. dollar exposure at Kimberly-Clark de Mexico was
approximately $390 million and approximately $330 million at
September 30, 1995 and December 31, 1994, respectively. These
liabilities include the affiliate's short-term debt for the
continued expansion of manufacturing facilities in that country.
. Subsequent to September 30 and through November 9, 1995, the Mexican
peso has devalued approximately 16 percent. The effect of this
devaluation on the Mexican affiliate's U.S. dollar-denominated
liabilities has resulted in an additional nonoperating translation
charge, of which the Corporation's share is approximately $17
million or $.11 per share.
. In addition to the peso devaluation loss, K-C de Mexico had lower
earnings due to a decline in sales volumes and higher costs,
primarily for raw materials. These effects are attributable, in
large measure, to the economic problems in Mexico following the
devaluation of the peso.
. The readoption of equity accounting for Carlton in the second
quarter of 1994 increased the Corporation's share of equity
company earnings by $10.0 million and net income by
$6.3 million, or $.04 per share.
LIQUIDITY AND CAPITAL RESOURCES
. Cash provided from operations, including the net proceeds from the IPO
by Midwest Express Holdings, Inc., increased more than net income as a
result of higher depreciation, the timing of pension funding and income
tax payments, offset, in part, by an increase in accounts receivable
and inventories. The increase in accounts receivable was due, in part,
to increased sales; and the growth in inventories is in line with the
overall growth of the Corporation's businesses. Accounts receivable
and inventories at September 30, 1995 also include the consolidation of
the Corporation's former equity affiliates in Argentina and South
Africa.
. In May 1995, the Corporation announced plans for a spin-off of its
tobacco-related businesses in the U.S. and France. The Corporation's
board of directors has approved the distribution to Kimberly-Clark
stockholders of all outstanding shares of common stock of Schweitzer-
Mauduit International, Inc. (``SMI''), which will hold such operations.
Kimberly-Clark stockholders will receive one share of SMI common stock
for every 10 shares of Kimberly-Clark stock held. The distribution
will be payable on November 30, 1995, to stockholders of record on
November 13, 1995. For the year ended December 31, 1994, these
operations had net sales of $404 million.
. In July 1995, the Corporation and Scott Paper Company (``Scott'')
announced that they had signed a definitive merger agreement. After the
merger, Scott will be a wholly owned subsidiary of Kimberly-Clark, but
the combined company will operate under the Kimberly-Clark name.
Under the merger agreement, Scott shareholders will receive .78 of a
share of newly issued Kimberly-Clark common stock for each share of
Scott common stock. Consummation of the merger under such exchange
ratio will involve the issuance of approximately 119.6 million shares
of Kimberly-Clark common stock.
The merger is intended to qualify as a tax-free reorganization and to
be accounted for as a pooling of interests. The merger is expected to
be completed in late 1995 and is subject to certain conditions,
including regulatory clearances and approval by the shareholders of
both companies. The Corporation is cooperating fully with regulatory
authorities in the U.S., Europe and Canada to expedite clearance of the
transaction.
The combined enterprise may be required to divest one or more of its
product lines in order to obtain the necessary authorizations and
approvals of the merger. Any such divestitures are not expected to
have a materially adverse effect on the operations and operating
results of the combined enterprise, but would have such an effect on
its European operations unless the proceeds therefrom can be
successfully redeployed. There can be no assurance that the
consummation of any such divestitures could be effected at a fair
market price or that the reinvestment of the proceeds therefrom would
produce for the combined enterprise operating profit at the same level
as the divested product lines or a commensurate rate of return on
the amount of its investment.
On a pro forma basis, the combined operations would have had net sales
of approximately $11.7 billion and net income of approximately $755
million for the year ended December 31, 1994. Kimberly-Clark will take
a one-time pretax charge for restructuring the combined operations and
covering the costs of the merger and for other unusual and nonrecurring
items in the quarter the merger is consummated. Such pretax charge, which
is currently estimated to be in the range of $1.0 billion to $1.5 billion,
will include: (i) the costs of plant rationalizations and employee
terminations to eliminate duplicate facilities and excess capacity;
(ii) the costs of integrating the businesses of the two companies;
(iii) the direct costs of the merger, including the fees of financial
advisors, legal counsel and independent auditors; and (iv) other
unusual and nonrecurring items. The after-tax cost of the charge is
currently estimated to be in the range of $750 million to
$1.15 billion. The estimated charge and the nature of the costs
included therein are subject to change as the integration plan is
developed and more accurate estimates of the restructuring and other
unusual and nonrecurring items become possible. Moreover, the after-
tax cost of such charge is likely to change depending on the magnitude
of the pretax charge, the nature of the costs included therein, the tax
laws of the particular countries applicable to the entities incurring
such costs and the tax paying status of such entities.
Management is unable at this time to accurately assess the effect of
the Scott merger on the combined entity's financial leverage. However,
management believes that the combined entity's ability to generate cash
from operations and its capacity to issue short-term and long-term debt
will be adequate to fund working capital, capital spending and other
needs in the foreseeable future.
. The effect of the Midwest Express Holdings, Inc. and SMI dispositions,
individually and in aggregate, on the Corporation's overall liquidity
and capital resources is not expected to be significant.
ENVIRONMENTAL MATTERS
The Environmental Protection Agency has not identified the Corporation as
a potentially responsible party at any designated cleanup site which, in
management's opinion, could have a material adverse effect on its
business or results of operations.
OUTLOOK
Management believes that the Corporation is on track to exceed its stated
objective of earnings per share growth of 10 percent for the full year,
excluding the previously discussed restructuring charge related to the
proposed merger of Kimberly-Clark and Scott and for other unusual and
nonrecurring items.
Through the first nine months of 1995, European operating losses have
declined compared with the same period in 1994. However, with the 1995
fourth-quarter introduction of an improved Huggies UltraTrim diaper,
management intends to increase spending on machine start ups and promotional
programs associated with the establishment of Huggies disposable diapers
in Europe. Management expects this level of spending to increase
European losses for 1995 compared to those incurred in 1994.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
LITIGATION
----------
. On October 13, 1995, the proceedings under the following actions were
dismissed without prejudice: Edith Citron and Lynn Robbins, et al. v.
Scott Paper Co., et al., filed in the Court of Common Pleas,
Philadelphia County, Pennsylvania, Case No. 95-07-SD-0080; and Harry
Lewis and Albert Ominsky, Trustee, et al. v. Scott Paper Co., et al.,
filed in the Court of Common Pleas, Philadelphia County, Pennsylvania,
Case No. 95-07-SD-0079. The subject matter of this litigation was
previously reported in Part II, Item 1 of the Corporation's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(4) Copies of instruments defining the rights of holders of long-
term debt will be furnished to the Securities and Exchange
Commission upon request.
(11) The following statement is filed as an exhibit to Part I of
this Form 10-Q:
The net income per common share computations included in the
Consolidated Income Statement in Part 1, Item I, of this Form 10-Q
are based on average number of shares of common stock outstanding.
The only "common stock equivalents" or other potentially dilutive
securities or agreements (as defined in Accounting Principles Board
Opinion No. 15) which were contained in the Corporation's capital
structure during the periods presented were options outstanding
under the Corporation's Equity Participation Plans.
Alternative computations of "primary" and "fully diluted" net
income per share amounts for 1995 and 1994 assume the exercise of
outstanding stock options using the "treasury stock method." There
is no significant difference between net income per share presented
in Item 1 and net income per share calculated on a "primary" and
"fully diluted" basis for the third quarter and first nine months
of 1995 and 1994.
(12) The following computation is filed as an exhibit to Part I of
this Form 10-Q:
<TABLE>
<CAPTION>
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ MILLIONS)
Nine Months Ended September 30
------------------------------
1995 1994
-----------------------------------------------------------------------------
<S> <C> <C>
Consolidated Companies
----------------------
Income before income taxes .............. $703.3 $546.8
Interest expense ........................ 108.2 96.4
Interest factor in rent expense ......... 18.0 17.9
Amortization of capitalized interest .... 5.4 4.8
Equity Affiliates
-----------------
Share of 50%-owned:
Income before income taxes ............ 33.1 32.3
Interest expense ...................... 6.0 5.9
Interest factor in rent expense ....... 0.4 0.5
Amortization of capitalized interest .. 0.5 0.5
Distributed income of less than 50%-owned 13.6 21.7
------- -----
Earnings ................................... $888.5 $726.8
====== ======
Consolidated Companies
----------------------
Interest expense ........................ $108.2 $ 96.4
Capitalized interest .................... 4.1 7.8
Interest factor in rent expense ......... 18.0 17.9
Equity Affiliates
-----------------
Share of 50%-owned:
Interest expense and capitalized interest 6.4 6.1
Interest factor in rent expense ..... 0.4 0.5
------- ------
Fixed charges .............................. $137.1 $128.7
====== ======
Ratio of earnings to fixed charges .. 6.48 5.65
======== =======
</TABLE>
(27) The Financial Data Schedule required by Item 601(b)(27) of
Regulation S-K has been included with the electronic filing of this
Form 10-Q.
(b) Reports on Form 8-K
(i) The Corporation filed a Current Report on Form 8-K
dated September 7, 1995, which reported the
Corporation's estimated realized gain resulting from
its initial public offering of shares of the common
stock of Midwest Express Holdings, Inc.
(ii) The Corporation filed a Current Report on Form 8-K
dated September 22, 1995, which reported the Corporation's
revised expectations concerning the matters reported in its
Current Report on Form 8-K dated September 7, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIMBERLY-CLARK CORPORATION
(Registrant)
By: /s/ John W. Donehower
---------------------------------------
John W. Donehower
Senior Vice President and
Chief Financial Officer
(principal financial officer)
By: /s/ Randy J. Vest
----------------------------------------
Randy J. Vest
Vice President and Controller
(principal accounting officer)
November 10, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Certain items below are not disclosed since they are not required for interim
reporting under Regulation S-X, Article 10.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> SEP-30-1995
<CASH> 31200
<SECURITIES> 0
<RECEIVABLES> 1058900
<ALLOWANCES> 0<F1>
<INVENTORY> 917800
<CURRENT-ASSETS> 2148900
<PP&E> 7030100
<DEPRECIATION> 2639900
<TOTAL-ASSETS> 7264900
<CURRENT-LIABILITIES> 2180300
<BONDS> 976800
<COMMON> 0<F1>
0
0
<OTHER-SE> 0<F1>
<TOTAL-LIABILITY-AND-EQUITY> 7264900
<SALES> 6378900
<TOTAL-REVENUES> 6378900
<CGS> 4218900
<TOTAL-COSTS> 5617700
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108200
<INCOME-PRETAX> 703300
<INCOME-TAX> 263700
<INCOME-CONTINUING> 480600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 480600
<EPS-PRIMARY> 3.00
<EPS-DILUTED> 3.00
<FN>
<F1>Items not disclosed since they are not required for interim reporting under
Regulation S-X, Article 10.
</FN>
</TABLE>
