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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from.............to.....................
Commission file number 1-225
KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 39-0394230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 619100
DALLAS, TEXAS
75261-9100
(Address of principal executive offices)
(Zip Code)
(972) 281-1200
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
----- ------
AS OF NOVEMBER 5, 1998, 541,884,437 SHARES OF THE CORPORATION'S COMMON
STOCK WERE OUTSTANDING.
<PAGE>
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) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES ............................. $3,099.7 $3,095.3 $9,189.6 $9,457.2
Cost of products sold .............. 1,895.9 1,937.0 5,627.5 5,865.7
-------- -------- -------- --------
GROSS PROFIT .......................... 1,203.8 1,158.3 3,562.1 3,591.5
Advertising, promotion and selling
expenses......................... 474.9 482.0 1,461.3 1,465.8
Research expense ................... 54.2 51.0 161.9 150.0
General expense .................... 253.7 158.8 590.7 470.5
Restructuring and other unusual charges 4.4 - 51.9 -
-------- -------- -------- --------
OPERATING PROFIT ...................... 416.6 466.5 1,296.3 1,505.2
Interest income .................... 4.9 5.9 19.0 24.5
Interest expense ................... (50.7) (35.0) (147.8) (118.3)
Other income (expense), net ........ 134.6 (14.5) 142.0 (4.9)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ............ 505.4 422.9 1,309.5 1,406.5
Provision for income taxes ......... 188.0 139.5 444.6 464.1
-------- -------- -------- --------
INCOME BEFORE EQUITY INTERESTS ........ 317.4 283.4 864.9 942.4
Share of net income of equity companies 29.2 39.1 92.1 122.8
Minority owners' share of subsidiaries'
net income....................... (6.6) (6.5) (19.3) (34.2)
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY GAINS ..... 340.0 316.0 937.7 1,031.0
Extraordinary gains, net of income taxes - - - 17.5
-------- -------- -------- --------
NET INCOME............................. $ 340.0 $ 316.0 $ 937.7 $1,048.5
======== ======== ======== ========
PER SHARE BASIS:
BASIC:
Income before extraordinary gains... $ .62 $ .57 $ 1.69 $ 1.85
Extraordinary gains, net of income
taxes............................... - - - .03
------ ------- ------- -------
Net income.......................... $ .62 $ .57 $ 1.69 $ 1.88
======= ======= ======= =======
DILUTED:
Income before extraordinary gains .. $ .62 $ .57 $ 1.69 $ 1.84
Extraordinary gains, net of income
taxes............................... - - - .03
------- ------- ------- -------
Net income.......................... $ .62 $ .57 $ 1.69 $ 1.87
======= ======= ======= =======
CASH DIVIDENDS DECLARED................ $ .25 $ .24 $ .75 $ .72
======= ======= ======= =======
</TABLE>
Unaudited
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, December 31,
(Millions of dollars) 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................ $ 90.0 $ 90.8
Accounts receivable .............................. 1,518.0 1,606.3
Inventories ...................................... 1,261.9 1,319.5
Other current assets ............................. 408.9 472.4
--------- ---------
TOTAL CURRENT ASSETS .......................... 3,278.8 3,489.0
PROPERTY ............................................ 10,709.0 9,756.2
Less accumulated depreciation .................... 4,785.4 4,155.6
--------- ---------
NET PROPERTY .................................. 5,923.6 5,600.6
INVESTMENTS IN EQUITY COMPANIES ..................... 823.7 567.7
ASSETS HELD FOR SALE ................................ 108.6 280.0
GOODWILL, DEFERRED CHARGES AND OTHER ASSETS ......... 1,367.6 1,328.7
--------- ---------
$11,502.3 $11,266.0
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt payable within one year ..................... $ 658.3 $ 663.1
Accounts payable ................................. 892.4 1,049.4
Accrued expenses ................................. 1,490.3 1,445.6
Other current liabilities ........................ 695.5 548.2
--------- ---------
TOTAL CURRENT LIABILITIES ..................... 3,736.5 3,706.3
LONG-TERM DEBT ...................................... 2,086.5 1,803.9
NONCURRENT EMPLOYEE BENEFIT AND OTHER OBLIGATIONS ... 888.0 887.1
DEFERRED INCOME TAXES ............................... 627.8 580.8
MINORITY OWNERS' INTERESTS IN SUBSIDIARIES .......... 188.9 162.6
STOCKHOLDERS' EQUITY ................................ 3,974.6 4,125.3
--------- ---------
$11,502.3 $11,266.0
========= =========
</TABLE>
Unaudited
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
Nine Months
Ended September 30
------------------
(Millions of dollars) 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Income............................................... $ 937.7 $1,048.5
1998 Charge ............................................. 58.2 -
Write-off of certain intangible and other assets ........ 95.6 -
Depreciation............................................. 378.2 361.8
Deferred income tax provision............................ 69.3 262.6
Changes in operating working capital..................... (53.7) (587.9)
Extraordinary gains, net of income taxes................. - (17.5)
Net (gains) losses on asset dispositions................. (72.2) 15.5
Pension funding in excess of expense..................... (24.3) (1.4)
Other.................................................... (9.1) (64.1)
-------- --------
CASH PROVIDED BY OPERATIONS........................... 1,379.7 1,017.5
-------- --------
INVESTING
Capital spending......................................... (481.3) (692.6)
Acquisition of businesses, net of cash acquired.......... (322.3) (81.4)
Disposals of property and businesses..................... 282.9 746.3
Other.................................................... (17.0) (35.9)
-------- --------
CASH USED FOR INVESTING............................... (537.7) (63.6)
-------- --------
FINANCING
Cash dividends paid...................................... (409.5) (398.1)
Net increase in short-term debt ......................... 20.2 244.1
Increases in long-term debt.............................. 537.3 104.9
Decreases in long-term debt.............................. (296.7) (209.9)
Proceeds from exercise of stock options.................. 26.1 37.2
Acquisitions of common stock for the treasury............ (706.3) (731.8)
Other.................................................... (13.9) 18.0
-------- --------
CASH USED FOR FINANCING............................... (842.8) (935.6)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ $ (.8) $ 18.3
======== ========
</TABLE>
Unaudited
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
1. The unaudited consolidated financial statements of Kimberly-Clark
Corporation (the "Corporation") have been prepared on the same
basis as those in the 1997 Annual Report to Stockholders and
include all adjustments necessary to present fairly the condensed
consolidated balance sheets, consolidated results of operations
and condensed consolidated cash flow statements for the periods
indicated. Certain reclassifications have been made to conform
1997 data to the current year presentation.
2. In the fourth quarter of 1997, the Corporation announced a plan
to restructure its worldwide operations ("Announced Plan"), the
total pretax cost of which was estimated at $810.0 million. In
conjunction with the Announced Plan, the Corporation recorded a
1997 pretax charge of $701.2 million ("1997 Charge"). The
remaining $108.8 million pretax costs of the Announced Plan have
been or will be recorded when such costs result in accruable
expenses.
In the nine months ended September 30, 1998, the Corporation
recorded costs ("1998 Charge") related to the Announced Plan.
During the third quarter of 1998, the 1998 Charge reduced
operating profit, net income and net income per share by $4.4
million, $3.3 million and $.01, respectively. For the nine
months ended September 30, 1998, the 1998 Charge increased cost
of products sold by $6.3 million and reduced operating profit,
net income and net income per share by $58.2 million, $38.8
million and $.07, respectively.
3. During the third quarter of 1998, the carrying amounts of
trademarks and unamortized goodwill of certain European
businesses were determined to be impaired and were written off.
In addition, the Corporation adopted the practice of depreciating
the cost of new personal computers ("PCs") acquired after
September 30, 1998 over two years and, in recognition of
obsolescence of its current PCs, wrote off the remaining book
value of all PCs acquired prior to 1997. These write-offs and
other nonoperating charges reduced third quarter 1998 operating
profit $95.6 million and net income $73.6 million, or $.13 per
share. Of the $95.6 million, $11.3 million is included in cost
of products sold and $84.3 million is included in general
expense.
4. Other income (expense), net, in the third quarter and nine months
ended September 30, 1998 includes a gain on the sale of the
Corporation's subsidiary, K-C Aviation Inc. The sale resulted in
a pretax gain of $140.0 million and an after-tax gain of $78.3
million, or $.14 per share.
5. Share of net income of equity companies for the quarter and nine
months ended September 30, 1997 includes a net nonoperating gain
of $16.3 million, or $.03 per share, primarily related to the
sale of a portion of the tissue business of Kimberly-Clark de
Mexico, S.A. de C.V. ("KCM"). The sale was required by the
Mexican regulatory authorities following the 1996 merger of KCM
and Scott Paper Company's former Mexican affiliate.
6. In June 1997, the Corporation sold Scott Paper Limited, a 50.1
percent-owned Canadian tissue subsidiary. In March 1997, the
Corporation sold its Coosa Pines, Alabama, newsprint and pulp
manufacturing mill, together with related woodlands. Also in
March, the Corporation recorded impairment losses on the planned
sales of a pulp manufacturing mill in Miranda, Spain; a recycled
fiber facility in Oconto Falls, Wisconsin; a tissue converting
facility in Yucca, Arizona; and on an integrated pulp making
facility in Everett, Washington. These 1997 transactions were
aggregated and reported as extraordinary gains, net of income
taxes, totaling $17.5 million, or $.03 per share, for the nine
months ended September 30, 1997.
<PAGE>
7. There are no adjustments required to be made to Income Before
Extraordinary Gains for purposes of computing basic and diluted
earnings per share ("EPS"). A reconciliation of the average
number of common shares outstanding used in the basic and diluted
EPS computations is as follows:
<TABLE>
<CAPTION>
Average Common Shares Outstanding
------------------------------------------
Three Months Nine Months
Ended September 30 Ended September 30
------------------- --------------------
(Millions) 1998 1997 1998 1997
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic............................. 547.2 553.1 553.4 557.8
Dilutive effect of stock options 2.0 3.2 2.4 3.3
Dilutive effect of shares issued
for participation share awards. .5 .2 .5 .2
----- ----- ----- -----
Diluted........................... 549.7 556.5 556.3 561.3
===== ===== ===== =====
</TABLE>
Options outstanding during the third quarter and nine months
ended September 30, 1998 to purchase 9.2 million shares of common
stock at a weighted average price of $52.74 per share 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 options, which expire in 2004, 2007
and 2008, were still outstanding at September 30, 1998. The
number of common shares outstanding at September 30, 1998 and
1997 was 541.8 million and 550.6 million, respectively.
8. On May 5, 1998, the Corporation announced it will shut down its
pulp mill in Mobile, Alabama in September 1999 and will sell the
associated woodlands operations. The Corporation also announced
it will retain its pulp mill in Pictou County, Nova Scotia, which
had previously been identified for potential divestment.
Therefore, Assets Held for Sale in the accompanying condensed
consolidated balance sheet as of September 30, 1998 includes the
above mentioned woodlands and the pulp manufacturing facility in
Miranda, Spain, which previously had been identified as an
intended divestment. The Corporation is continuing its efforts
to sell its pulp mill in Terrace Bay, Ontario. However, as the
sale is not expected to occur within the next twelve months, this
facility has been reclassified from Assets Held for Sale and is
included in Property.
<PAGE>
9. The following schedule details inventories by major class as of
September 30, 1998 and December 31, 1997:
SEPTEMBER 30, December 31,
(Millions of dollars) 1998 1997
-------------------------------------------------------------------------
At lower of cost on the First-In,
First-Out (FIFO) method or market:
Raw materials............................. $ 328.4 $ 372.4
Work in process........................... 188.4 228.5
Finished goods............................ 755.5 749.9
Supplies and other........................ 200.3 174.5
-------- --------
1,472.6 1,525.3
Excess of FIFO cost over Last-In,
First-Out (LIFO) cost...................... (210.7) (205.8)
-------- --------
Total..................................... $1,261.9 $1,319.5
======== ========
10. The following schedule provides the detail of comprehensive
income:
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
(Millions of dollars) 1998 1997
---------------------------------------------------------------------------
<S> <C> <C>
Net Income................................... $ 937.7 $1,048.5
Unrealized currency translation adjustments.. (6.9) (181.9)
------- --------
Comprehensive income ........................ $ 930.8 $ 866.6
======= ========
</TABLE>
<PAGE>
11. The following schedule presents information concerning
consolidated operations by business segment:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
-------------------- --------------------
(Millions of dollars) 1998(A)(C) 1997 1998(B)(C) 1997
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES:
Personal Care Products ........ $1,385.4 $1,328.9 $4,123.5 $3,916.7
Tissue-Based Products ......... 1,552.9 1,599.1 4,587.3 4,997.1
Newsprint, Paper and Other .... 174.9 179.8 515.9 581.1
Intersegment sales ............ (13.5) (12.5) (37.1) (37.7)
-------- -------- -------- --------
Consolidated .................. $3,099.7 $3,095.3 $9,189.6 $9,457.2
======== ======== ======== ========
OPERATING PROFIT:
Personal Care Products ........ $ 173.2 $ 232.6 $ 617.2 $ 732.7
Tissue-Based Products ......... 227.0 202.3 610.7 662.9
Newsprint, Paper and Other .... 34.1 43.3 112.7 128.0
Unallocated items - net ....... (17.7) (11.7) (44.3) (18.4)
-------- -------- -------- --------
Consolidated .................. $ 416.6 $ 466.5 $1,296.3 $1,505.2
======== ======== ======== ========
</TABLE>
(a) Operating profit for Tissue-Based Products includes $4.4
million of the 1998 Charge described in Note 2.
(b) Operating profit for Personal Care Products and Tissue-Based
Products includes $12.6 million and $45.6 million,
respectively, of the 1998 Charge described in Note 2.
(c) Operating profit for Personal Care Products, Tissue-Based
Products and Newsprint, Paper and Other includes $80.5
million, $14.5 million and $.6 million, respectively, of the
write-off of certain intangible and other assets described in
Note 3.
Description of Product Segments:
Personal Care Products includes infant, child, feminine and
incontinence care products; wet wipes; health care products; and
related products.
Tissue-Based Products includes tissue and wipers for household
and away-from-home use; pulp; and related products.
Newsprint, Paper and Other includes newsprint, printing papers,
premium business and correspondence papers, specialty papers,
technical papers, and related products; and other products and
services.
Unaudited
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Management believes that the following commentary and tables
appropriately discuss and analyze the comparative results of
operations and the financial condition of the Corporation for the
periods covered.
Note 11 to the Financial Statements describes the Corporation's
business segments and summarizes the business segment data that
include the 1998 Charge and the write-off of certain intangible and
other assets which are explained in Notes 2 and 3 to the Financial
Statements. For purposes of this Management's Discussion and
Analysis, the 1998 Charge and the write-off of certain intangible and
other assets have been combined and displayed on a separate line in
the following business segment and geographic presentations to
facilitate a discussion of ongoing operations.
RESULTS OF OPERATIONS:
THIRD QUARTER OF 1998 COMPARED WITH THIRD QUARTER OF 1997
<TABLE>
<CAPTION>
By Business Segment
(Millions of Dollars)
% Change % OF 1998
NET SALES 1998 vs. 1997 CONSOLIDATED
- --------------------------------------------------------------
<S> <C> <C> <C>
Personal Care Products....... $1,385.4 + 4.3% 44.7%
Tissue-Based Products........ 1,552.9 - 2.9 50.1
Newsprint, Paper and Other... 174.9 - 2.7 5.6
Intersegment sales........... (13.5) (.4)
-------- -----
Consolidated................. $3,099.7 + .1% 100.0%
======== =====
</TABLE>
<TABLE>
<CAPTION>
% Return on Sales
% Change % OF 1998 -----------------
OPERATING PROFIT 1998 vs. 1997 CONSOLIDATED 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Personal Care Products....... $253.7 + 9.1% 60.9% 18.3% 17.5%
Tissue-Based Products........ 245.9 +21.6 59.0 15.8 12.7
Newsprint, Paper and Other... 34.7 -19.9 8.3 19.8 24.1
1998 Charge and the write-off of
certain intangible and other
assets .................... (100.0) (24.0)
Unallocated items-net........ (17.7) (4.2)
------ -----
Consolidated................. $416.6 -10.7% 100.0% 13.4% 15.1%
====== =====
</TABLE>
Commentary:
Consolidated net sales for the quarter were essentially even with
1997. Changes in currency exchange rates reduced consolidated net
sales by approximately $97 million, or 3 percent, offsetting volume
and selling price increases. Worldwide sales volumes were 2 percent
higher. Selling prices also increased 2 percent, but were partially
offset by a shift to lower-priced products.
<PAGE>
o Worldwide sales of personal care products in the third quarter
were 4.3 percent higher than in 1997, as an increase in sales
volumes of about 7 percent was partially offset by negative
foreign currency effects. Sales volume growth was achieved in
professional health care, due largely to the acquisition of
Tecnol Medical Products, Inc. ("Tecnol") in December 1997; in
training and youth pants and baby wipes in North America; and
throughout most of Latin America. However, diaper sales volumes
in North America and Europe were below last year's levels while
the Corporation transitioned its diaper products to higher-count
packages and new unisex products.
o Worldwide sales of tissue-based products were 2.9 percent lower
than in the third quarter of 1997 primarily due to changes in
currency exchange rates in Asia. Selling price increases of
about 2 percent for the quarter were offset by lower sales
volumes. Despite a substantial increase in sales volumes in
Latin America, lower sales volumes of consumer tissue products
due to market conditions in Asia, lower private label sales in
Europe and lower consumer towel volume in North America caused
the overall decline in sales volumes.
Operating profit for the third quarter declined 10.7 percent in
absolute terms and to 13.4 percent from 15.1 percent as a percentage
of net sales. Excluding the 1998 Charge and the write-off of certain
intangible and other assets, operating profit increased 10.7 percent
in absolute terms and to 16.7 percent from 15.1 percent as a
percentage of net sales.
o The increase in worldwide operating profit for personal care
products was primarily due to the contribution from higher sales
volumes and selling prices being greater than the higher
marketing and manufacturing costs related to the introduction of
new and improved products and costs of business expansion.
o The increase in worldwide operating profit for tissue-based
products was mainly due to increased selling prices, primarily in
the North American consumer tissue business, and significant
restructuring and other cost savings.
o Excluding the write-off of certain intangible and other assets
charged to general expense of $84.3 million, general expense
increased $10.6 million primarily due to business expansion.
o The overall changes in foreign currency exchange rates, primarily
in Asia, reduced consolidated operating profit approximately $14
million.
<PAGE>
<TABLE>
<CAPTION>
By Geography
(Millions of Dollars)
% Change % OF 1998
NET SALES 1998 vs. 1997 CONSOLIDATED
- ---------------------------------------------------------------
<S> <C> <C> <C>
North America................ $2,130.8 + 1.3% 68.7%
Outside North America........ 1,027.7 - 2.9 33.2
Intergeographic sales........ (58.8) (1.9)
-------- -----
Consolidated................. $3,099.7 + .1% 100.0%
======== =====
</TABLE>
<TABLE>
<CAPTION>
% Return on Sales
% Change % OF 1998 -----------------
OPERATING PROFIT 1998 vs. 1997 CONSOLIDATED 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North America................ $456.3 + 6.3% 109.5% 21.4% 20.4%
Outside North America........ 78.0 +59.2 18.7 7.6 4.6
1998 Charge and the write-off
of certain intangible and
other assets............... (100.0) (24.0)
Unallocated items-net........ (17.7) (4.2)
------ -----
Consolidated................. $416.6 -10.7% 100.0% 13.4% 15.1%
====== =====
</TABLE>
Commentary:
o Net sales for North America increased primarily due to the sales
volume increases in professional health care, in training and
youth pants, and in baby wipes and the selling price increases
for tissue-based products, offset in part by the lower sales
volumes for tissue-based products and diapers. The decline in
net sales outside North America was primarily due to the
unfavorable currency effects in Asia and lower sales volumes for
diapers and consumer tissue products in Europe, partially offset
by higher sales volumes in Latin America.
o Operating profit in North America increased primarily due to the
increased earnings of the tissue-based businesses.
o The increase in operating profit outside North America was
primarily due to higher earnings from tissue-based products in
Europe and throughout Latin America, partially offset by
unfavorable currency effects in Asia.
o Of the $100.0 million 1998 Charge and write-off of certain
intangible and other assets, $31.2 million was incurred in North
America and $68.8 million was incurred outside North America.
Additional Income Statement Commentary:
o The increase in interest expense is primarily due to higher
average debt levels.
o On August 19, 1998, the Corporation completed the sale of its
subsidiary, K-C Aviation Inc. ("KCA") for $250 million in cash.
The sale resulted in a pretax gain of $140.0 million which is
included in other income (expense), net. This transaction
resulted in an after-tax gain of $78.3 million, or $.14 per
share.
<PAGE>
o The effective income tax rate, excluding the gain on the sale of
KCA, the 1998 Charge and the write-off of certain intangible and
other assets, declined from 33 percent in 1997 to 32 percent in
1998, and is expected to remain at approximately 32 percent for
the remainder of the year. The lower effective tax rate is
primarily due to tax planning opportunities.
o The 25.3 percent decrease in the Corporation's share of net
income of equity companies is principally due to a charge of $6.5
million, $.01 per share, related to the change in the value of
the Mexican peso.
o Excluding the effects of the 1998 Charge, the write-off of
certain intangible and other assets, the charge related to the
change in value of the Mexican peso and the gain on the sale of
KCA, earnings from operations were $.63 per share in the third
quarter of 1998 compared with $.57 per share in 1997.
<PAGE>
RESULTS OF OPERATIONS:
FIRST NINE MONTHS OF 1998 COMPARED WITH FIRST NINE MONTHS OF 1997
<TABLE>
<CAPTION>
By Business Segment
(Millions of Dollars)
% Change % OF 1998
NET SALES 1998 vs. 1997 CONSOLIDATED
- --------------------------------------------------------------
<S> <C> <C> <C>
Personal Care Products....... $4,123.5 + 5.3% 44.9%
Tissue-Based Products........ 4,587.3 - 8.2 49.9
Newsprint, Paper and Other... 515.9 -11.2 5.6
Intersegment sales........... (37.1) (.4)
-------- -----
Consolidated................. $9,189.6 - 2.8% 100.0%
======== =====
</TABLE>
<TABLE>
<CAPTION>
% Return on Sales
% Change % OF 1998 -----------------
OPERATING PROFIT 1998 vs. 1997 CONSOLIDATED 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Personal Care Products....... $ 710.3 - 3.1% 54.8% 17.2% 18.7%
Tissue-Based Products........ 670.8 + 1.2 51.7 14.6 13.3
Newsprint, Paper and Other... 113.3 -11.5 8.7 22.0 22.0
1998 Charge and the write-off
of certain intangible and
other assets............... (153.8) (11.8)
Unallocated items-net........ (44.3) (3.4)
-------- -----
Consolidated................. $1,296.3 -13.9% 100.0% 14.1% 15.9%
======== =====
</TABLE>
Commentary:
Consolidated net sales for the first nine months were 2.8 percent
lower than 1997. Changes in currency exchange rates reduced net sales
by nearly 4 percent. Excluding the revenues of the divested
businesses consisting of Coosa Pines, Alabama pulp and newsprint
facility ("Coosa"), which was sold in March 1997, Scott Paper Limited
("SPL"), which was sold in June 1997, and KCA, net sales were
essentially even with 1997.
o Worldwide sales of personal care products increased 5.3 percent
primarily because of higher sales volumes, offset in part by
changes in currency exchange rates, primarily in Asia. Important
contributors to the increase in sales volumes were professional
health care products, due largely to the acquisition of Tecnol;
training and youth pants and wet wipes in North America; and
throughout most of the Latin American region. However, in
comparison to the record sales volumes achieved in 1997, diaper
sales volumes in North America declined due to increased
competitive activity in 1998.
o Worldwide sales of tissue-based products, excluding SPL, declined
approximately 4 percent principally due to changes in currency
exchange rates in Asia and Europe and the lower consumer tissue
sales volumes in North America and Europe.
<PAGE>
Operating profit for the first nine months decreased 13.9 percent in
absolute terms and to 14.1 percent from 15.9 percent, as a percentage
of net sales. Excluding the 1998 Charge and the write-off of certain
intangible and other assets, operating profit decreased 3.7 percent
from 1997. Furthermore, excluding the earnings of the divested
businesses, the decline in operating profit was approximately 2
percent.
o The decrease in worldwide operating profit for personal care
products was primarily due to increased marketing costs related
to the introduction of new and improved products in North America
and Europe, lower sales volumes and increased manufacturing costs
for diapers in North America and costs of business expansion,
which combined to more than offset the overall increase in sales
volumes.
o Excluding SPL, the increase in worldwide operating profit for
tissue-based products was approximately 6 percent. The improved
earnings in the North American businesses more than offset lower
earnings in Europe and the negative effect of currency exchange
rates, primarily in Asia.
o Excluding the write-off of certain intangible and other assets
charged to general expense of $84.3 million, general expense
increased $35.9 million primarily due to business expansion.
o The overall changes in foreign currency exchange rates, primarily
in Asia, reduced consolidated operating profit approximately $47
million.
<PAGE>
<TABLE>
<CAPTION>
By Geography
(Millions of Dollars)
% Change % OF 1998
NET SALES 1998 vs. 1997 CONSOLIDATED
- --------------------------------------------------------------
<S> <C> <C> <C>
North America................ $6,315.5 - 2.3% 68.7%
Outside North America........ 3,071.8 - 4.9 33.4
Intergeographic sales........ (197.7) (2.1)
-------- -----
Consolidated................. $9,189.6 - 2.8% 100.0%
======== =====
</TABLE>
<TABLE>
<CAPTION>
% Return on Sales
% Change % OF 1998 -----------------
OPERATING PROFIT 1998 vs. 1997 CONSOLIDATED 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North America................ $1,303.3 + .7% 100.5% 20.6% 20.0%
Outside North America........ 191.1 -16.7 14.7 6.2 7.1
1998 Charge and the write-off
of certain intangible and
other assets............... (153.8) (11.8)
Unallocated items-net........ (44.3) (3.4)
-------- -----
Consolidated................. $1,296.3 -13.9% 100.0% 14.1% 15.9%
======== =====
</TABLE>
Commentary:
o Excluding divested businesses, 1998 net sales for North America
increased approximately 2 percent compared with the prior year.
o The decline in net sales outside North America was due to changes
in currency exchange rates, primarily in Asia, and the lower
consumer tissue and diaper sales volumes in Europe, which more
than offset the increased sales volumes in Latin America.
o Excluding divested businesses, operating profit for North America
increased approximately 3 percent primarily due to the improved
earnings for tissue-based businesses.
o Outside North America, operating profit declined primarily due to
increased marketing expenses for diapers and feminine care
products in Europe, the lower earnings for tissue products in
Europe, and unfavorable currency effects in Asia.
o Of the $153.8 million 1998 Charge and the write-off of certain
intangible and other assets, $55.6 million was incurred in North
America and $98.2 million was incurred outside North America.
Additional Income Statement Commentary:
o The increase in interest expense is primarily attributable to
higher average debt levels.
o The Corporation's share of net income of equity companies,
excluding nonoperating items from both years, decreased 3
percent. In 1998, a charge of $11.2 million, or $.02 per share,
related to the change in the value of the Mexican peso was
recorded against earnings for the first nine months. In 1997, a
net nonoperating gain of $16.3 million, or $.03 per share, was
recorded related to the required sale of a portion of the tissue
business of Kimberly-Clark de Mexico, S.A. de C.V. ("KCM").
<PAGE>
o Excluding the effects of the 1998 Charge, the write-off of
certain intangible and other assets, the charge for the
devaluation of the peso, the 1998 gain on the sale of KCA, the
1997 nonoperating gain at KCM and the 1997 extraordinary gains
(as described in Note 6 to the Financial Statements), earnings
from operations were $1.77 per share for the first nine months of
1998 compared with $1.82 per share in 1997.
LIQUIDITY AND CAPITAL RESOURCES
o Cash provided by operations in the first nine months of 1998
increased $362.2 million compared with the first nine months of
1997, primarily due to a reduced investment in working capital
and higher tax payments in 1997, in part, from the Coosa and SPL
sales, which more than offset the lower contribution from net
income.
o At September 30, 1998, approximately $360 million of the total
1997 and 1998 Charges remain to be utilized and is estimated to
be adequate for the announced actions.
o During the first nine months of 1998, the Corporation repurchased
15.5 million shares of its common stock, including 12.5 million
shares repurchased in the third quarter, for approximately $700
million. These reacquisitions completed the 20 million share
repurchase program announced in September 1997. On October 8,
1998, the Corporation announced that its board of directors had
authorized the repurchase of an additional 25 million shares of
its common stock.
o On July 20, 1998, the Corporation issued $300 million of 6 1/4%
Debentures due July 15, 2018, and used the proceeds to retire
commercial paper.
o At September 30, 1998, total debt was $2.7 billion compared with
$2.5 billion at December 31, 1997. The increase in total debt
was used primarily to finance business acquisitions and
repurchase shares of the Corporation's common stock. Net debt
(total debt net of cash, cash equivalents and $220 million of
long-term notes receivable) was $2.4 billion at September 30,
1998 compared with $2.2 billion at December 31, 1997. The
Corporation's total debt to capital ratio was 39.7 percent at
September 30, 1998 compared with 36.5 percent at December 31,
1997, and its ratio of net debt to capital was 36.9 percent at
September 30, 1998 compared with 33.5 percent at December 31,
1997.
o Management believes that cash flow from operations plus its
ability to issue both short-term and long-term debt will be
sufficient to fund capital expenditures, pay dividends, meet debt
maturity requirements, fund business acquisitions and allow the
Corporation to pursue its announced share repurchase program.
o On May 5, 1998, the Corporation announced that it will shut down
its pulp mill in Mobile, Alabama in September 1999 and will sell
the associated woodlands operations. This action is expected to
result in a net gain. As a result of the shutdown, the
Corporation will no longer be required to invest approximately
$260 million at such facility to comply with newly issued
environmental regulations for pulp mills. It is expected that
the closure of the pulp mill will reduce the percentage of virgin
fiber the Corporation produces for use in its products from
nearly 70 percent to about 45 percent. The Corporation is
continuing its efforts to sell its pulp mills in Terrace Bay,
Ontario and Miranda, Spain, and plans to continue to operate pulp
mills in Everett, Washington and Pictou County, Nova Scotia. The
Corporation also announced that it will continue to operate its
Mobile tissue mill and plans to invest approximately $100 million
in the facility over the next several years to install systems
that process recycled fiber and that allow the use of baled pulp.
<PAGE>
o On May 28, 1998, the Corporation announced that it had purchased
a 50 percent equity interest in Klabin Tissue, S.A., the leading
tissue manufacturer in Brazil.
o In July 1998, the Corporation purchased a 51 percent ownership in
Kimberly Bolivia, S.A. a new joint venture company.
o In July 1998, the Corporation purchased an additional 10 percent
ownership interest in its Korean affiliate, Yuhan-Kimberly,
Limited ("Y-K"), increasing the Corporation's interest in Y-K to
70 percent.
ENVIRONMENTAL MATTERS
The Corporation has been named as a potentially responsible party at a
number of waste disposal sites, none of which, individually or in the
aggregate, in management's opinion, is likely to have a material
adverse effect on its business or results of operations.
"YEAR 2000" READINESS
Since 1995, the Corporation has been involved in a worldwide program
to be "Year 2000" ready. The program involves reviews of major
business, financial and other information systems, including equipment
with embedded microprocessors; development of specific plans for
modification or replacement of date-sensitive software or
microprocessors; execution of such plans; and the testing of such
systems to ensure their "Year 2000" readiness. Included within the
scope of the program are contacts with key suppliers and customers to
determine the extent of their "Year 2000" readiness in order to ensure
a steady flow of goods and services to the Corporation and continuity
with respect to customer service.
The Corporation's Crisis Management Program has been expanded, where
necessary, to include contingency plans relating to possible "Year
2000" issues. This program includes, among other things, contingency
plans and backup procedures to be followed in case of failure of
production operations, the inability of major suppliers to fulfill
their commitments, and the inability of major customers to submit
orders and receive product.
Progress against the "Year 2000" readiness plan is monitored and
reported to senior management and to the Corporation's board of
directors or audit committee on a regular basis. As of
September 30, 1998, management estimates that it has completed
almost half of the work involved in modifying, replacing and
testing the Corporation's major systems and microprocessors,
and management plans to have substantially all such work completed
by June 30, 1999.
The total cost to ensure "Year 2000" readiness, which is primarily
comprised of staff time and the cost of replacing certain computerized
systems and microprocessors, is estimated to be approximately $80
million. Management estimates that $27 million has been incurred for
this purpose as of September 30, 1998.
<PAGE>
Neither the "Year 2000" issue nor the financial effects of the
reviews, modifications, replacements and testing are expected to have
a material adverse effect on the Corporation's business or its
consolidated financial position, results of operations, or cash flow.
Management believes that its "Year 2000" readiness program has
encompassed all reasonable actions and contingency plans to avoid
business interruptions resulting from "Year 2000" problems. The
effect, if any, on the Corporation's future results of operations of
the Corporation's major customers or suppliers not being "Year 2000"
ready cannot be reasonably estimated. This latter risk is mitigated
somewhat by the Corporation's broad base of customers and suppliers
and the worldwide nature of the Corporation's operations.
OUTLOOK
Management continues to expect that fourth quarter earnings from
operations will improve sequentially from the third quarter of 1998,
with further cost reductions in Europe to be an important contributing
factor. Management is finalizing a number of restructuring actions
which it believes will significantly lower the Corporation's cost
structure in Europe. These actions are a part of the restructuring
program the Corporation announced in 1997. Management is working on a
plan to reduce up to 60,000 tons of tissue capacity across Europe, in
addition to the 30,000 tons eliminated with the sale of the Orleans,
France mill in May 1998. The Corporation expects to reduce its
capacity in Europe to manufacture feminine care products by closing
its facility at Sealand in the United Kingdom and transferring
production to Germany and the Czech Republic. In addition, the
Corporation is significantly streamlining its administrative
organization across Europe which management believes will result in
$20 million in annual savings. These collective actions are expected
to reduce the workforce in Europe by approximately 500 employees.
In 1997, the Corporation announced an objective to double earnings per
share from operations during the five-year period 1995 to the year
2000. However, because of the earnings shortfall in Europe and the
Asian economic crisis, management has determined that this objective
is no longer attainable. In light of these circumstances, management
has announced that its objective going forward is to improve top-line
growth and return, at a minimum, to the Corporation's historic double-
digit growth rate in earnings per share from operations.
Management has indicated that the Corporation intends to repurchase
shares of its common stock under its new 25 million share repurchase
authority, based upon the price of its shares, prevailing market
conditions and other factors.
<PAGE>
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, anticipated financial position and
operating results, strategies, contingencies and contemplated
transactions of the Corporation including, but not limited to, the
sale of the woodlands associated with the closure of the Mobile pulp
mill, the Corporation's estimated effective tax rate for 1998, and its
"Year 2000" readiness program. These forward-looking statements are
based upon management's expectations and beliefs concerning future
events impacting the Corporation. There can be no assurance that such
events will occur or that their effects on the Corporation will be as
currently expected. For a description of certain factors that could
cause the Corporation's future results to differ materially from those
expressed in any such forward-looking statements, see the section of
Part l, Item 1 of the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997 entitled "Factors That May Affect Future
Results."
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litigation
With respect to the away-from-home sanitary paper products antitrust
litigation described in Item 3 of the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997, on October 6, 1998,
the states of Maryland, New York and West Virginia filed an action
against the Corporation and other manufacturers of such products in
the United States District Court for the Northern District of Florida
making allegations substantially similar to those previously reported
by the Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(3)a Restated Certificate of Incorporation, dated June 12,
1997, incorporated by reference to Exhibit No. (3)a of the
Corporation's Quarterly Report on Form 10-Q for the period
ended June 30, 1997.
(3)b By-Laws, as amended November 22, 1996, incorporated by
reference to Exhibit No. 4.2 of the Corporation's
Registration Statement on Form S-8 filed with the Securities
and Exchange Commission on December 6, 1996 (File No. 33-
17367).
(4) Copies of instruments defining the rights of holders of
long-term debt will be furnished to the Securities and
Exchange Commission upon request.
<PAGE>
(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 OF DOLLARS)
Nine Months Ended September 30
------------------------------
1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Consolidated Companies
----------------------
Income before income taxes ................... $1,309.5 $1,406.5
Interest expense ............................. 147.8 118.3
Interest factor in rent expense .............. 38.7 36.1
Amortization of capitalized interest ......... 7.0 6.8
Equity Affiliates
----------------------
Share of 50%-owned:
Income before income taxes .................. 34.5 43.1
Interest expense ............................ 6.4 5.4
Interest factor in rent expense ............. .5 .5
Amortization of capitalized interest ........ .4 .5
Distributed income of less than 50% owned..... 35.7 31.4
-------- --------
Earnings ........................................ $1,580.5 $1,648.6
======== ========
Consolidated Companies
----------------------
Interest expense ............................. $ 147.8 $ 118.3
Capitalized interest ......................... 10.1 15.1
Interest factor in rent expense .............. 38.7 36.1
Equity Affiliates
----------------------
Share of 50%-owned:
Interest expense and capitalized interest.... 6.5 5.4
Interest factor in rent expense.............. .5 .5
-------- --------
Fixed charges.................................... $ 203.6 $ 175.4
======== ========
Ratio of earnings to fixed charges......... 7.76 9.40
======== =======
</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
None.
<PAGE>
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 9, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 90000
<SECURITIES> 0
<RECEIVABLES> 1518000
<ALLOWANCES> 0<F1>
<INVENTORY> 1261900
<CURRENT-ASSETS> 3278800
<PP&E> 10709000
<DEPRECIATION> 4785400
<TOTAL-ASSETS> 11502300
<CURRENT-LIABILITIES> 3736500
<BONDS> 2086500
0
0
<COMMON> 0
<OTHER-SE> 0<F1>
<TOTAL-LIABILITY-AND-EQUITY> 11502300
<SALES> 9189600
<TOTAL-REVENUES> 9189600
<CGS> 5627500
<TOTAL-COSTS> 7893300
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147800
<INCOME-PRETAX> 1309500
<INCOME-TAX> 444600
<INCOME-CONTINUING> 937700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 937700
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
<FN>
<F1>Items not disclosed since they are not required for interim reporting under
regulation S-X, Article 10.
</FN>
</TABLE>
