(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2004
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 incorporation or organization) | 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) |
(I.R.S. Employer Identification No.) |
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 August 2, 2004, there were 494,510,854 shares of the Corporation’s common stock outstanding.
| Three Months Ended June 30 |
Six Months Ended June 30 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Millions of dollars, except per share amounts) |
2004 |
2003 |
2004 |
2003 | ||||||||||||
| Net Sales | $ | 3,775.7 | $ | 3,544.6 | $ | 7,574.8 | $ | 7,004.3 | ||||||||
| Cost of products sold | 2,491.0 | 2,337.4 | 5,002.5 | 4,593.5 | ||||||||||||
| Gross Profit | 1,284.7 | 1,207.2 | 2,572.3 | 2,410.8 | ||||||||||||
| Marketing, research and general expenses | 625.5 | 579.5 | 1,250.3 | 1,168.4 | ||||||||||||
| Other (income) expense, net | 14.5 | 20.8 | 29.0 | 56.2 | ||||||||||||
| Operating Profit | 644.7 | 606.9 | 1,293.0 | 1,186.2 | ||||||||||||
| Nonoperating expense | (38.7 | ) | -- | (90.2 | ) | -- | ||||||||||
| Interest income | 4.0 | 4.3 | 8.0 | 9.1 | ||||||||||||
| Interest expense | (40.7 | ) | (44.6 | ) | (79.4 | ) | (87.6 | ) | ||||||||
| Income Before Income Taxes | 569.3 | 566.6 | 1,131.4 | 1,107.7 | ||||||||||||
| Provision for income taxes | 126.8 | 164.9 | 243.5 | 322.4 | ||||||||||||
| Income Before Equity Interests | 442.5 | 401.7 | 887.9 | 785.3 | ||||||||||||
| Share of net income of equity companies | 29.9 | 30.3 | 60.8 | 56.3 | ||||||||||||
| Minority owners' share of subsidiaries' net income | (18.1 | ) | (14.7 | ) | (35.1 | ) | (26.6 | ) | ||||||||
| Net Income | $ | 454.3 | $ | 417.3 | $ | 913.6 | $ | 815.0 | ||||||||
| Per Share Basis: | ||||||||||||||||
| Net Income | ||||||||||||||||
| Basic | $ | .91 | $ | .82 | $ | 1.82 | $ | 1.60 | ||||||||
| Diluted | $ | .90 | $ | .82 | $ | 1.81 | $ | 1.60 | ||||||||
| Cash Dividends Declared | $ | .40 | $ | .34 | $ | .80 | $ | .68 | ||||||||
Unaudited
See Notes to Consolidated Financial Statements.
2
| (Millions of dollars) |
June 30, 2004 |
December 31, 2003 | ||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
Current Assets | ||||||||
| Cash and cash equivalents | $ | 362.3 | $ | 290.6 | ||||
| Accounts receivable | 1,951.9 | 1,955.1 | ||||||
| Inventories | 1,631.4 | 1,563.4 | ||||||
| Other current assets | 615.2 | 629.0 | ||||||
| Total Current Assets | 4,560.8 | 4,438.1 | ||||||
Property | 15,334.0 | 15,179.5 | ||||||
| Less accumulated depreciation | 7,161.5 | 6,916.1 | ||||||
| Net Property | 8,172.5 | 8,263.4 | ||||||
| Investments in Equity Companies | 451.9 | 427.7 | ||||||
Goodwill | 2,581.3 | 2,649.1 | ||||||
| Other Assets | 957.6 | 1,001.6 | ||||||
| $ | 16,724.1 | $ | 16,779.9 | |||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Debt payable within one year | $ | 502.5 | $ | 864.3 | ||||
| Accounts payable | 1,145.1 | 1,141.4 | ||||||
| Accrued expenses | 1,382.5 | 1,374.7 | ||||||
| Other current liabilities | 612.6 | 538.3 | ||||||
| Total Current Liabilities | 3,642.7 | 3,918.7 | ||||||
| Long-Term Debt | 2,772.9 | 2,733.7 | ||||||
Noncurrent Employee Benefit and Other Obligations | 1,621.7 | 1,614.4 | ||||||
| Deferred Income Taxes | 902.2 | 880.6 | ||||||
Minority Owners' Interests in Subsidiaries | 315.6 | 298.3 | ||||||
| Preferred Securities of Subsidiary | 706.2 | 567.9 | ||||||
Stockholders' Equity | 6,762.8 | 6,766.3 | ||||||
| $ | 16,724.1 | $ | 16,779.9 | |||||
Unaudited
See Notes to Consolidated Financial Statements.
3
| (Millions of dollars) |
Six Months Ended June 30 | |||||||
|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 | |||||||
| Operations | ||||||||
| Net income | $ | 913.6 | $ | 815.0 | ||||
| Depreciation | 407.9 | 370.7 | ||||||
| Changes in operating working capital | (7.1 | ) | 39.3 | |||||
| Deferred income tax provision | 23.2 | (10.7 | ) | |||||
| Equity companies' earnings in excess of dividends paid | (36.1 | ) | (30.9 | ) | ||||
| Postretirement benefits | 1.5 | (27.6 | ) | |||||
| Other | 47.7 | 53.6 | ||||||
| Cash Provided by Operations | 1,350.7 | 1,209.4 | ||||||
| Investing | ||||||||
| Capital spending | (219.6 | ) | (402.1 | ) | ||||
| Acquisitions of businesses, net of cash acquired | -- | (45.2 | ) | |||||
| Proceeds from sales of investments | 19.5 | 17.0 | ||||||
| Net increase in time deposits | (12.2 | ) | (144.0 | ) | ||||
| Investments in marketable securities | (4.1 | ) | (10.9 | ) | ||||
| Other | 11.9 | (14.6 | ) | |||||
| Cash Used for Investing | (204.5 | ) | (599.8 | ) | ||||
| Financing | ||||||||
| Cash dividends paid | (372.2 | ) | (327.5 | ) | ||||
| Net decrease in short-term debt | (281.1 | ) | (132.5 | ) | ||||
| Proceeds from issuance of long-term debt | 32.9 | 8.5 | ||||||
| Repayments of long-term debt | (174.3 | ) | (19.7 | ) | ||||
| Proceeds from preferred securities of subsidiary | 125.0 | -- | ||||||
| Proceeds from exercise of stock options | 190.9 | 17.4 | ||||||
| Acquisitions of common stock for the treasury | (579.1 | ) | (251.7 | ) | ||||
| Other | (10.4 | ) | (27.3 | ) | ||||
| Cash Used for Financing | (1,068.3 | ) | (732.8 | ) | ||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | (6.2 | ) | 5.5 | |||||
| Increase (decrease) in Cash and Cash Equivalents | 71.7 | (117.7 | ) | |||||
| Cash and Cash Equivalents, beginning of year | 290.6 | 494.5 | ||||||
| Cash and Cash Equivalents, end of period | $ | 362.3 | $ | 376.8 | ||||
Unaudited
See Notes to Consolidated Financial Statements.
4
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, 2003, 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.
In June 2004, a nonaffiliated entity invested an additional $125 million in the Corporation’s Luxembourg-based financing subsidiary, increasing the aggregate par value of the voting-preferred securities held by the nonaffiliated entity (the “Securities”). In conjunction with this transaction, the fixed annual rate of return on the Securities was increased from 4.47 percent to 4.56 percent. The subsidiary loaned these funds to the Corporation which used them to reduce its outstanding commercial paper.
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 provisions of Statement of Financial Accounting Standards (“SFAS”) 123, Accounting for Stock-Based Compensation, to all employee stock options granted is presented below.
| Three Months Ended June 30 |
Six Months Ended June 30 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Millions of dollars, except per share amounts) |
2004 |
2003 |
2004 |
2003 | ||||||||||||
| Net income, as reported | $ | 454.3 | $ | 417.3 | $ | 913.6 | $ | 815.0 | ||||||||
| Less: Stock-based employee compensation determined | ||||||||||||||||
| under the fair value requirements of SFAS 123, net | ||||||||||||||||
| of income tax benefits | 8.6 | 13.4 | 18.0 | 29.4 | ||||||||||||
| Pro forma net income | $ | 445.7 | $ | 403.9 | $ | 895.6 | $ | 785.6 | ||||||||
| Earnings per share: | ||||||||||||||||
| Basic - as reported | $ | .91 | $ | .82 | $ | 1.82 | $ | 1.60 | ||||||||
| Basic - pro forma | $ | .89 | $ | .79 | $ | 1.79 | $ | 1.54 | ||||||||
| Diluted - as reported | $ | .90 | $ | .82 | $ | 1.81 | $ | 1.60 | ||||||||
| Diluted - pro forma | $ | .88 | $ | .79 | $ | 1.77 | $ | 1.54 | ||||||||
The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience.
5
The following schedule presents inventories by major class as of June 30, 2004 and December 31, 2003.
| (Millions of dollars) |
June 30, 2004 |
December 31, 2003 | ||||||
|---|---|---|---|---|---|---|---|---|
| At lower of cost on the First-In, | ||||||||
| First-Out (FIFO) method or market: | ||||||||
| Raw materials | $ | 338.0 | $ | 353.8 | ||||
| Work in process | 205.2 | 186.8 | ||||||
| Finished goods | 1,018.1 | 935.2 | ||||||
| Supplies and other | 241.1 | 238.1 | ||||||
| 1,802.4 | 1,713.9 | |||||||
| Excess of FIFO cost over Last-In, First-Out (LIFO) cost | (171.0 | ) | (150.5 | ) | ||||
| Total | $ | 1,631.4 | $ | 1,563.4 | ||||
FIFO cost of total inventories on the LIFO method was $758.1 million and $663.8 million at June 30, 2004 and December 31, 2003, respectively.
In 2003, the Corporation entered into an agreement whereby it acquired a 49.5 percent minority interest in a synthetic fuel partnership. Although the partnership is a variable interest entity, the Corporation is not the primary beneficiary and the entity has not been consolidated. The Corporation’s exposure to economic loss from this investment is minimal.
The production of synthetic fuel results in pretax losses. In the second quarter of 2004, these pretax losses totaled $38.7 million and are reported as nonoperating expense on the Corporation’s income statement. The production of synthetic fuel results in tax credits as well as tax deductions for the nonoperating losses, which reduce the Corporation’s income tax expense. In the second quarter of 2004, the Corporation’s participation in the synthetic fuel partnership resulted in $35.3 million of tax credits, and the nonoperating losses generated an additional $13.5 million of tax benefits, which combined to reduce the Corporation’s income tax provision by $48.8 million.
In December 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, (“SFAS 132R”). The Corporation has adopted the interim period disclosure requirements of SFAS 132R as shown below.
| Defined Benefit Plans |
Other Postretirement Benefit Plans | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended June 30 | ||||||||||||||
| (Millions of dollars) |
2004 | |||||||||||||