Item 1. Financial Statements
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
(Millions of dollars, except per share amounts)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Sales
|
|
$
|
4,554
|
|
|
$
|
4,588
|
|
|
$
|
9,037
|
|
|
$
|
9,064
|
|
Cost of products sold
|
|
2,910
|
|
|
2,924
|
|
|
5,741
|
|
|
5,761
|
|
Gross Profit
|
|
1,644
|
|
|
1,664
|
|
|
3,296
|
|
|
3,303
|
|
Marketing, research and general expenses
|
|
842
|
|
|
847
|
|
|
1,655
|
|
|
1,672
|
|
Other (income) and expense, net
|
|
3
|
|
|
(21
|
)
|
|
8
|
|
|
(11
|
)
|
Operating Profit
|
|
799
|
|
|
838
|
|
|
1,633
|
|
|
1,642
|
|
Interest income
|
|
2
|
|
|
3
|
|
|
4
|
|
|
7
|
|
Interest expense
|
|
(85
|
)
|
|
(81
|
)
|
|
(168
|
)
|
|
(157
|
)
|
Income Before Income Taxes and Equity Interests
|
|
716
|
|
|
760
|
|
|
1,469
|
|
|
1,492
|
|
Provision for income taxes
|
|
(202
|
)
|
|
(217
|
)
|
|
(409
|
)
|
|
(424
|
)
|
Income Before Equity Interests
|
|
514
|
|
|
543
|
|
|
1,060
|
|
|
1,068
|
|
Share of net income of equity companies
|
|
26
|
|
|
35
|
|
|
55
|
|
|
70
|
|
Net Income
|
|
540
|
|
|
578
|
|
|
1,115
|
|
|
1,138
|
|
Net income attributable to noncontrolling interests
|
|
(9
|
)
|
|
(12
|
)
|
|
(21
|
)
|
|
(27
|
)
|
Net Income Attributable to Kimberly-Clark Corporation
|
|
$
|
531
|
|
|
$
|
566
|
|
|
$
|
1,094
|
|
|
$
|
1,111
|
|
|
|
|
|
|
|
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Per Share Basis
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|
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Net Income Attributable to Kimberly-Clark Corporation
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|
|
|
|
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Basic
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$
|
1.50
|
|
|
$
|
1.57
|
|
|
$
|
3.08
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|
|
$
|
3.08
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Diluted
|
|
$
|
1.49
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|
|
$
|
1.56
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|
|
$
|
3.06
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|
$
|
3.06
|
|
|
|
|
|
|
|
|
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Cash Dividends Declared
|
|
$
|
0.97
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|
|
$
|
0.92
|
|
|
$
|
1.94
|
|
|
$
|
1.84
|
|
See notes to consolidated financial statements.
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
(Millions of dollars)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Income
|
|
$
|
540
|
|
|
$
|
578
|
|
|
$
|
1,115
|
|
|
$
|
1,138
|
|
Other Comprehensive Income (Loss), Net of Tax
|
|
|
|
|
|
|
|
|
Unrealized currency translation adjustments
|
|
55
|
|
|
(72
|
)
|
|
322
|
|
|
136
|
|
Employee postretirement benefits
|
|
(1
|
)
|
|
13
|
|
|
(3
|
)
|
|
7
|
|
Other
|
|
(24
|
)
|
|
12
|
|
|
(40
|
)
|
|
(7
|
)
|
Total Other Comprehensive Income (Loss), Net of Tax
|
|
30
|
|
|
(47
|
)
|
|
279
|
|
|
136
|
|
Comprehensive Income
|
|
570
|
|
|
531
|
|
|
1,394
|
|
|
1,274
|
|
Comprehensive income attributable to noncontrolling interests
|
|
(1
|
)
|
|
(9
|
)
|
|
(32
|
)
|
|
(31
|
)
|
Comprehensive Income Attributable to Kimberly-Clark Corporation
|
|
$
|
569
|
|
|
$
|
522
|
|
|
$
|
1,362
|
|
|
$
|
1,243
|
|
See notes to consolidated financial statements.
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(2017 Data is Unaudited)
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|
|
|
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(Millions of dollars)
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|
June 30, 2017
|
|
December 31, 2016
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ASSETS
|
|
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Current Assets
|
|
|
|
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Cash and cash equivalents
|
|
$
|
1,051
|
|
|
$
|
923
|
|
Accounts receivable, net
|
|
2,221
|
|
|
2,176
|
|
Inventories
|
|
1,738
|
|
|
1,679
|
|
Other current assets
|
|
380
|
|
|
337
|
|
Total Current Assets
|
|
5,390
|
|
|
5,115
|
|
Property, Plant and Equipment, Net
|
|
7,246
|
|
|
7,169
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|
Investments in Equity Companies
|
|
283
|
|
|
257
|
|
Goodwill
|
|
1,527
|
|
|
1,480
|
|
Other Assets
|
|
624
|
|
|
581
|
|
TOTAL ASSETS
|
|
$
|
15,070
|
|
|
$
|
14,602
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Debt payable within one year
|
|
$
|
1,246
|
|
|
$
|
1,133
|
|
Trade accounts payable
|
|
2,629
|
|
|
2,609
|
|
Accrued expenses
|
|
1,671
|
|
|
1,775
|
|
Dividends payable
|
|
343
|
|
|
329
|
|
Total Current Liabilities
|
|
5,889
|
|
|
5,846
|
|
Long-Term Debt
|
|
6,777
|
|
|
6,439
|
|
Noncurrent Employee Benefits
|
|
1,278
|
|
|
1,301
|
|
Deferred Income Taxes
|
|
441
|
|
|
532
|
|
Other Liabilities
|
|
296
|
|
|
309
|
|
Redeemable Preferred Securities of Subsidiaries
|
|
58
|
|
|
58
|
|
Stockholders' Equity (Deficit)
|
|
|
|
|
Kimberly-Clark Corporation
|
|
102
|
|
|
(102
|
)
|
Noncontrolling Interests
|
|
229
|
|
|
219
|
|
Total Stockholders' Equity
|
|
331
|
|
|
117
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
15,070
|
|
|
$
|
14,602
|
|
See notes to consolidated financial statements.
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENT
(Unaudited)
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|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
|
(Millions of dollars)
|
|
2017
|
|
2016
|
Operating Activities
|
|
|
|
|
Net income
|
|
$
|
1,115
|
|
|
$
|
1,138
|
|
Depreciation and amortization
|
|
358
|
|
|
349
|
|
Stock-based compensation
|
|
50
|
|
|
45
|
|
Deferred income taxes
|
|
(34
|
)
|
|
3
|
|
Equity companies' earnings in excess of dividends paid
|
|
(22
|
)
|
|
(30
|
)
|
Operating working capital
|
|
(191
|
)
|
|
(48
|
)
|
Postretirement benefits
|
|
(8
|
)
|
|
(4
|
)
|
Adjustment related to Venezuelan operations
|
|
—
|
|
|
(11
|
)
|
Other
|
|
(7
|
)
|
|
(29
|
)
|
Cash Provided by Operations
|
|
1,261
|
|
|
1,413
|
|
Investing Activities
|
|
|
|
|
Capital spending
|
|
(386
|
)
|
|
(397
|
)
|
Proceeds from sales of investments
|
|
—
|
|
|
28
|
|
Investments in time deposits
|
|
(61
|
)
|
|
(73
|
)
|
Maturities of time deposits
|
|
70
|
|
|
42
|
|
Other
|
|
(10
|
)
|
|
16
|
|
Cash Used for Investing
|
|
(387
|
)
|
|
(384
|
)
|
Financing Activities
|
|
|
|
|
Cash dividends paid
|
|
(674
|
)
|
|
(650
|
)
|
Change in short-term debt
|
|
114
|
|
|
(322
|
)
|
Debt proceeds
|
|
344
|
|
|
796
|
|
Debt repayments
|
|
(12
|
)
|
|
(591
|
)
|
Proceeds from exercise of stock options
|
|
107
|
|
|
58
|
|
Acquisitions of common stock for the treasury
|
|
(597
|
)
|
|
(293
|
)
|
Other
|
|
(46
|
)
|
|
(1
|
)
|
Cash Used for Financing
|
|
(764
|
)
|
|
(1,003
|
)
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
18
|
|
|
11
|
|
Change in Cash and Cash Equivalents
|
|
128
|
|
|
37
|
|
Cash and Cash Equivalents - Beginning of Period
|
|
923
|
|
|
619
|
|
Cash and Cash Equivalents - End of Period
|
|
$
|
1,051
|
|
|
$
|
656
|
|
See notes to consolidated financial statements.
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1
. Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all material adjustments which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented have been reflected. Dollar amounts are reported in millions, except per share dollar amounts, unless otherwise noted.
For further information, refer to the consolidated financial statements and footnotes included in our Annual Report on Form 10‑K for the year ended
December 31, 2016
. The terms "Corporation," "Kimberly-Clark," "K-C," "we," "our" and "us" refer to Kimberly-Clark Corporation and its consolidated subsidiaries.
Recently Adopted Accounting Standards
In 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2016-09,
Compensation-Stock Compensation (Topic 718)
. The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted this standard as of January 1, 2017. The adoption did not have a material impact on our financial position, results of operations and cash flows. Prior periods were not recast.
In 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
,
providing guidance on eight specific cash flow statement classification matters. We early adopted this standard as of January 1, 2017. The adoption of this standard did not have a material impact on our cash flow statement. Prior periods were not recast.
Accounting Standards Issued - Not Yet Adopted
In 2017, the FASB issued ASU No. 2017-07,
Compensation-Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
The standard requires that an employer report the service cost component in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of operating profit. The standard is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Prior periods are required to be recast. We will adopt this standard as of January 1, 2018. Net periodic benefit cost for pensions and other postretirement benefits for the six months ended June 30, 2017 and 2016 was
$55
and
$61
of which
$26
and
$30
, respectively, related to service cost.
In 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The ASU is effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. The ASU should be applied on a modified retrospective basis, recognizing the effects in retained earnings as of the beginning of the year of adoption. We will adopt this standard as of January 1, 2018. The impact of this standard on our financial position, results of operations and cash flows is not expected to be material.
In 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. Under the new guidance, a lessee will be required to recognize assets and liabilities for all leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The ASU requires additional disclosures. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The ASU requires adoption based upon a modified retrospective transition approach. Early adoption is permitted. The effects of this standard on our financial position, results of operations and cash flows are not yet known.
In 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. In 2016, the FASB issued four amendments to the ASU. The standard is effective for public companies for annual and interim periods beginning after December 15, 2017. We will adopt this ASU effective January 1, 2018. The
guidance is required to be adopted on either a full or modified retrospective basis. As this standard is not expected to have a material impact on our financial position, results of operations and cash flows on either a full or modified retrospective basis, we do not plan to recast prior periods.
Note 2
. Fair Value Information
The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:
Level 1 – Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.
Level 2 – Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3 – Prices or valuations that require inputs that are significant to the valuation and are unobservable.
A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
During the
six
months ended
June 30, 2017
and for the full year
2016
, there were
no
significant transfers among level 1, 2, or 3 fair value determinations.
Derivative liabilities and assets are measured on a recurring basis at fair value. At
June 30, 2017
and
December 31, 2016
, derivative liabilities were
$67
and
$46
, respectively, and derivative assets were
$43
at both periods. The fair values of derivatives used to manage interest rate risk and commodity price risk are based on LIBOR rates and interest rate swap curves and NYMEX price quotations, respectively. The fair value of hedging instruments used to manage foreign currency risk is based on published quotations of spot currency rates and forward points, which are converted into implied forward currency rates. Measurement of our derivative assets and liabilities is considered a level 2 measurement. Additional information on our classification and use of derivative instruments is contained in
Note 5
.
Redeemable preferred securities of subsidiaries are measured on a recurring basis at fair value and were
$58
at both
June 30, 2017
and
December 31, 2016
. They are not traded in active markets. For certain redeemable securities, fair values were calculated using a floating rate pricing model that compared the stated spread to the fair value spread to determine the price at which each of the financial instruments should trade. The model used the following inputs to calculate fair values: face value, current LIBOR rate, unobservable fair value credit spread, stated spread, maturity date and interest or dividend payment dates. The fair value of the remaining redeemable securities was based on various inputs, including an independent third-party appraisal, adjusted for current market conditions. Measurement of the redeemable preferred securities is considered a level 3 measurement.
Company-owned life insurance ("COLI") assets are measured on a recurring basis at fair value. COLI assets were
$64
and
$61
at
June 30, 2017
and
December 31, 2016
, respectively. The COLI policies are a source of funding primarily for our nonqualified employee benefits and are included in other assets. The COLI policies are measured at fair value using the net asset value per share practical expedient, and therefore, are not classified in the fair value hierarchy.
The following table includes the fair value of our financial instruments for which disclosure of fair value is required:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
Carrying Amount
|
|
Estimated Fair Value
|
|
Carrying Amount
|
|
Estimated Fair Value
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
(a)
|
1
|
|
$
|
1,051
|
|
|
$
|
1,051
|
|
|
$
|
923
|
|
|
$
|
923
|
|
Time deposits and other
(b)
|
1
|
|
134
|
|
|
134
|
|
|
138
|
|
|
138
|
|
Liabilities and redeemable securities of subsidiaries
|
|
|
|
|
|
|
|
|
|
Short-term debt
(c)
|
2
|
|
286
|
|
|
286
|
|
|
170
|
|
|
170
|
|
Long-term debt
(d)
|
2
|
|
7,737
|
|
|
8,258
|
|
|
7,402
|
|
|
7,886
|
|
|
|
(a)
|
Cash equivalents are composed of certificates of deposit, time deposits and other interest-bearing investments with original maturity dates of 90 days or less. Cash equivalents are recorded at cost, which approximates fair value.
|
|
|
(b)
|
Time deposits are composed of deposits with original maturities of more than 90 days but less than one year and instruments with original maturities of greater than one year, included in other current assets or other assets in the consolidated balance sheet, as appropriate. Other, included in other current assets, is composed of funds held in escrow. Time deposits and other are recorded at cost, which approximates fair value.
|
|
|
(c)
|
Short-term debt is composed of U.S. commercial paper and/or other similar short-term debt issued by non-U.S. subsidiaries, all of which are recorded at cost, which approximates fair value.
|
|
|
(d)
|
Long-term debt includes the current portion of these debt instruments. Fair values were estimated based on quoted prices for financial instruments for which all significant inputs were observable, either directly or indirectly.
|
Note 3
. Earnings Per Share ("EPS")
There are no adjustments required to be made to net income for purposes of computing EPS. The average number of common shares outstanding is reconciled to those used in the basic and diluted EPS computations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
(Millions of shares)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Basic
|
|
354.4
|
|
|
360.0
|
|
|
355.2
|
|
|
360.4
|
|
Dilutive effect of stock options and restricted share unit awards
|
|
2.3
|
|
|
2.4
|
|
|
2.4
|
|
|
2.5
|
|
Diluted
|
|
356.7
|
|
|
362.4
|
|
|
357.6
|
|
|
362.9
|
|
Options outstanding that were not included in the computation of diluted EPS because their exercise price was greater than the average market price of the common shares were insignificant. The number of common shares outstanding as of
June 30, 2017
and
2016
was
353.4 million
and
359.7 million
, respectively.
Note 4
. Stockholders' Equity
Set forth below is a reconciliation for the
six
months ended
June 30, 2017
of the carrying amount of total stockholders' equity (deficit) from the beginning of the period to the end of the period.
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity (Deficit) Attributable to
|
|
|
The Corporation
|
|
Noncontrolling Interests
|
Balance at December 31, 2016
|
|
$
|
(102
|
)
|
|
$
|
219
|
|
Net Income
|
|
1,094
|
|
|
18
|
|
Other comprehensive income, net of tax
|
|
268
|
|
|
11
|
|
Stock-based awards exercised or vested
|
|
107
|
|
|
—
|
|
Recognition of stock-based compensation
|
|
50
|
|
|
—
|
|
Shares repurchased
|
|
(626
|
)
|
|
—
|
|
Dividends declared
|
|
(689
|
)
|
|
(21
|
)
|
Other
|
|
—
|
|
|
2
|
|
Balance at June 30, 2017
|
|
$
|
102
|
|
|
$
|
229
|
|
During the
six months ended
June 30, 2017
, we repurchased
4.7
million shares at a total cost of
$600
pursuant to a share repurchase program authorized by our Board of Directors.
Net unrealized currency gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries, except those in highly inflationary economies, are recorded in accumulated other comprehensive income ("AOCI"). For these operations, changes in exchange rates generally do not affect cash flows; therefore, unrealized translation adjustments are recorded in AOCI rather than net income. Upon sale or substantially complete liquidation of any of these subsidiaries, the applicable unrealized translation would be removed from AOCI and reported as part of the gain or loss on the sale or liquidation.
Also included in unrealized translation amounts are the effects of foreign exchange rate changes on intercompany balances of a long-term investment nature and transactions designated as hedges of net foreign investments.
The change in net unrealized currency translation for the
six months ended
June 30, 2017
was primarily due to the strengthening of most foreign currencies versus the U.S. dollar, including the euro, Australian dollar, South Korean won and British pound sterling.
The changes in the components of AOCI attributable to Kimberly-Clark, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Translation
|
|
Defined Benefit Pension Plans
|
|
Other Postretirement Benefit Plans
|
|
Cash Flow Hedges and Other
|
Balance as of December 31, 2015
|
|
$
|
(2,252
|
)
|
|
$
|
(1,013
|
)
|
|
$
|
(3
|
)
|
|
$
|
(10
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
132
|
|
|
2
|
|
|
(9
|
)
|
|
6
|
|
(Income) loss reclassified from AOCI
|
|
—
|
|
|
14
|
|
(a)
|
—
|
|
|
(13
|
)
|
Net current period other comprehensive income (loss)
|
|
132
|
|
|
16
|
|
|
(9
|
)
|
|
(7
|
)
|
Balance as of June 30, 2016
|
|
$
|
(2,120
|
)
|
|
$
|
(997
|
)
|
|
$
|
(12
|
)
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
(2,351
|
)
|
|
$
|
(1,097
|
)
|
|
$
|
(31
|
)
|
|
$
|
5
|
|
Other comprehensive income (loss) before reclassifications
|
|
310
|
|
|
(17
|
)
|
|
—
|
|
|
(37
|
)
|
(Income) loss reclassified from AOCI
|
|
—
|
|
|
15
|
|
(a)
|
—
|
|
|
(3
|
)
|
Net current period other comprehensive income (loss)
|
|
310
|
|
|
(2
|
)
|
|
—
|
|
|
(40
|
)
|
Balance as of June 30, 2017
|
|
$
|
(2,041
|
)
|
|
$
|
(1,099
|
)
|
|
$
|
(31
|
)
|
|
$
|
(35
|
)
|
|
|
(a)
|
Included in computation of net periodic pension costs.
|
Note 5
. Objectives and Strategies for Using Derivatives
As a multinational enterprise, we are exposed to financial risks, such as changes in foreign currency exchange rates, interest rates, and commodity prices. We employ a number of practices to manage these risks, including operating and financing activities and, where appropriate, the use of derivative instruments. We enter into derivative instruments to hedge a portion of forecasted cash flows denominated in foreign currencies for non-U.S. operations' purchases of raw materials, which are priced in U.S. dollars, and imports of intercompany finished goods and work-in-process priced predominantly in U.S. dollars and euros. The derivative instruments used to manage these exposures are designated and qualify as cash flow hedges. The foreign currency exposure on certain non-functional currency denominated monetary assets and liabilities, primarily intercompany loans and accounts payable, is hedged with primarily undesignated derivative instruments.
Interest rate risk is managed using a portfolio of variable and fixed-rate debt composed of short and long-term instruments. Interest rate swap contracts may be used to facilitate the maintenance of the desired ratio of variable and fixed-rate debt and are designated and qualify as fair value hedges. From time to time, we also hedge the anticipated issuance of fixed-rate debt, and these contracts are designated as cash flow hedges.
We use derivative instruments, such as forward swap contracts, to hedge a limited portion of our exposure to market risk arising from changes in prices of certain commodities. These derivatives are designated as cash flow hedges of specific quantities of the underlying commodity expected to be purchased in future months.
Translation adjustments result from translating foreign entities' financial statements into U.S. dollars from their functional currencies. The risk to any particular entity's net assets is reduced to the extent that the entity is financed with local currency borrowing. Translation exposure, which results from changes in translation rates between functional currencies and the U.S. dollar, generally is not hedged, other than net investment hedges with an aggregate notional value of
$369
at
June 30, 2017
for a portion of our investment in certain affiliates.
At
June 30, 2017
and
December 31, 2016
, derivative liabilities were
$67
and
$46
, respectively, and derivative assets were
$43
at both periods, primarily comprised of foreign currency exchange contracts.
Derivative instruments that are designated and qualify as fair value hedges are predominantly used to manage interest rate risk. The fair values of these derivative instruments are recorded as an asset or liability, as appropriate, with the offset recorded in current earnings. The offset to the change in fair values of the related hedged items also is recorded in current earnings. Any realized gain or loss on the derivatives that hedge interest rate risk is amortized to interest expense over the life of the related debt. As of
June 30, 2017
, there were no outstanding interest rate contracts designated as fair value hedges.
Fair value hedges resulted in no significant ineffectiveness in the six months ended June 30, 2017 and 2016
, and
gains or losses recognized in interest expense for interest rate swaps were not significant.
For the
six
month periods ended
June 30, 2017
and
2016
,
no
gains or losses were recognized in earnings as a result of a hedged firm commitment no longer qualifying as a fair value hedge.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is initially recorded in AOCI, net of related income taxes, and recognized in earnings in the same period that the hedged exposure affects earnings. As of
June 30, 2017
, outstanding commodity forward contracts were in place to hedge a limited portion of our estimated requirements of the related underlying commodities in the remainder of
2017
and future periods. As of
June 30, 2017
, the aggregate notional values of outstanding foreign exchange and interest rate derivative contracts designated as cash flow hedges were
$750
and
$486
, respectively.
Cash flow hedges resulted in no significant ineffectiveness for the six months ended June 30, 2017 and 2016
, and
no
gains or losses were reclassified into earnings as a result of the discontinuance of cash flow hedges due to the original forecasted transaction no longer being probable of occurring. At
June 30, 2017
, amounts to be reclassified from AOCI during the next twelve months are not expected to be material. The maximum maturity of cash flow hedges in place at
June 30, 2017
is
July 2019
.
Gains or losses on undesignated foreign exchange hedging instruments are immediately recognized in other (income) and expense, net. A gain of
$19
and a loss of
$14
were recorded in the
three months ended
June 30, 2017
and
2016
, respectively. Gains of
$16
and
$14
were recorded in the six months ended June 30, 2017 and 2016, respectively. The effect on earnings from the use of these non-designated derivatives is substantially neutralized by the transactional gains and losses recorded on the underlying assets and liabilities. At
June 30, 2017
, the notional amount of these undesignated derivative instruments was
$1.9 billion
.
Note 6
. Business Segment Information
We are organized into operating segments based on product groupings. These operating segments have been aggregated into three reportable global business segments: Personal Care, Consumer Tissue and K-C Professional. The reportable segments were determined in accordance with how our chief operating decision maker and our executive managers develop and execute global strategies to drive growth and profitability. These strategies include global plans for branding and product positioning, technology, research and development programs, cost reductions including supply chain management, and capacity and capital investments for each of these businesses. Segment management is evaluated on several factors, including operating profit. Segment operating profit excludes other (income) and expense, net and income and expense not associated with the business segments.
The principal sources of revenue in each global business segment are described below:
|
|
•
|
Personal Care
brands offer our consumers a trusted partner in caring for themselves and their families by delivering confidence, protection and discretion through a wide variety of innovative solutions and products such as disposable diapers, training and youth pants, swimpants, baby wipes, feminine and incontinence care products and other related products. Products in this segment are sold under the Huggies, Pull-Ups, Little Swimmers, GoodNites, DryNites, Kotex, U by Kotex, Intimus, Depend, Plenitud, Poise and other brand names.
|
|
|
•
|
Consumer Tissue
offers a wide variety of innovative solutions and trusted brands that touch and improve people's lives every day. Products in this segment include facial and bathroom tissue, paper towels, napkins and related products, and are sold under the Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Neve and other brand names.
|
|
|
•
|
K-C Professional
partners with businesses to create Exceptional Workplaces, helping to make them healthier, safer and more productive through a range of solutions and supporting products such as wipers, tissue, towels, apparel, soaps and sanitizers. Our brands, including Kleenex, Scott, WypAll, Kimtech and Jackson Safety, are well-known for quality and trusted to help people around the world work better.
|
Information concerning consolidated operations by business segment is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
|
|
|
|
Six Months Ended June 30
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
NET SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal Care
|
|
$
|
2,270
|
|
|
$
|
2,279
|
|
|
—
|
|
|
$
|
4,520
|
|
|
$
|
4,486
|
|
|
+1
|
%
|
Consumer Tissue
|
|
1,463
|
|
|
1,494
|
|
|
-2
|
%
|
|
2,918
|
|
|
2,990
|
|
|
-2
|
%
|
K-C Professional
|
|
810
|
|
|
806
|
|
|
—
|
|
|
1,578
|
|
|
1,569
|
|
|
+1
|
%
|
Corporate & Other
|
|
11
|
|
|
9
|
|
|
N.M.
|
|
|
21
|
|
|
19
|
|
|
N.M.
|
|
TOTAL NET SALES
|
|
$
|
4,554
|
|
|
$
|
4,588
|
|
|
-1
|
%
|
|
$
|
9,037
|
|
|
$
|
9,064
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING PROFIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal Care
|
|
$
|
467
|
|
|
$
|
455
|
|
|
+3
|
%
|
|
$
|
948
|
|
|
$
|
904
|
|
|
+5
|
%
|
Consumer Tissue
|
|
241
|
|
|
275
|
|
|
-12
|
%
|
|
516
|
|
|
555
|
|
|
-7
|
%
|
K-C Professional
|
|
163
|
|
|
150
|
|
|
+9
|
%
|
|
309
|
|
|
300
|
|
|
+3
|
%
|
Corporate & Other
(a)
|
|
(69
|
)
|
|
(63
|
)
|
|
N.M.
|
|
|
(132
|
)
|
|
(128
|
)
|
|
N.M.
|
|
Other (income) and expense, net
(a)
|
|
3
|
|
|
(21
|
)
|
|
N.M.
|
|
|
8
|
|
|
(11
|
)
|
|
N.M.
|
|
TOTAL OPERATING PROFIT
|
|
$
|
799
|
|
|
$
|
838
|
|
|
-5
|
%
|
|
$
|
1,633
|
|
|
$
|
1,642
|
|
|
-1
|
%
|
|
|
(a)
|
Corporate & Other and Other (income) and expense, net include expenses not associated with the business segments, including charges as indicated in the Non-GAAP Reconciliations.
|
N.M. - Not Meaningful
Note 7
. Supplemental Balance Sheet Data
The following schedule presents a summary of inventories by major class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
|
LIFO
|
|
Non-LIFO
|
|
Total
|
|
LIFO
|
|
Non-LIFO
|
|
Total
|
Raw materials
|
|
$
|
89
|
|
|
$
|
251
|
|
|
$
|
340
|
|
|
$
|
93
|
|
|
$
|
236
|
|
|
$
|
329
|
|
Work in process
|
|
110
|
|
|
87
|
|
|
197
|
|
|
114
|
|
|
89
|
|
|
203
|
|
Finished goods
|
|
440
|
|
|
632
|
|
|
1,072
|
|
|
430
|
|
|
600
|
|
|
1,030
|
|
Supplies and other
|
|
—
|
|
|
294
|
|
|
294
|
|
|
—
|
|
|
280
|
|
|
280
|
|
|
|
639
|
|
|
1,264
|
|
|
1,903
|
|
|
637
|
|
|
1,205
|
|
|
1,842
|
|
Excess of FIFO or weighted-average cost over LIFO cost
|
|
(165
|
)
|
|
—
|
|
|
(165
|
)
|
|
(163
|
)
|
|
—
|
|
|
(163
|
)
|
Total
|
|
$
|
474
|
|
|
$
|
1,264
|
|
|
$
|
1,738
|
|
|
$
|
474
|
|
|
$
|
1,205
|
|
|
$
|
1,679
|
|
Inventories are valued at the lower of cost and net realizable value, determined on the FIFO or weighted-average cost methods, and at the lower of cost or market, determined on the LIFO cost method.
The following schedule presents a summary of property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Land
|
$
|
171
|
|
|
$
|
163
|
|
Buildings
|
2,744
|
|
|
2,612
|
|
Machinery and equipment
|
14,150
|
|
|
13,591
|
|
Construction in progress
|
324
|
|
|
488
|
|
|
17,389
|
|
|
16,854
|
|
Less accumulated depreciation
|
(10,143
|
)
|
|
(9,685
|
)
|
Total
|
$
|
7,246
|
|
|
$
|
7,169
|
|
|
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
Introduction
This management's discussion and analysis of financial condition and results of operations is intended to provide investors with an understanding of our recent performance, financial condition and prospects. The following will be discussed and analyzed:
|
|
•
|
Overview of
Second
Quarter
2017
Results
|
|
|
•
|
Results of Operations and Related Information
|
|
|
•
|
Liquidity and Capital Resources
|
We describe our business outside North America in two groups – Developing and Emerging Markets ("D&E") and Developed Markets. D&E markets comprise Eastern Europe, the Middle East and Africa, Latin America and Asia-Pacific, excluding Australia and South Korea. Developed Markets consist of Western and Central Europe, Australia and South Korea.
This section presents a discussion and analysis of our
second quarter
2017
net sales, operating profit and other information relevant to an understanding of the results of operations. In addition, we provide commentary regarding organic sales growth, which describes the impact of changes in volume, product mix and net selling price on net sales. Changes in foreign currency rates also impact the year-over-year change in net sales. Our analysis compares the three months and six months ended June 30, 2017 results to the same periods in 2016.
Throughout this MD&A, we refer to financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S., or GAAP, and are therefore referred to as non-GAAP financial measures. These measures include adjusted operating profit, adjusted net income, adjusted earnings per share and adjusted effective tax rate. We believe these measures provide our investors with additional information about our underlying results and trends, as well as insight into some of the financial measures used to evaluate management.
Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measures, and they should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items being excluded. We compensate for these limitations by using these non-GAAP financial measures as a supplement to the GAAP measures and by providing reconciliations of the non-GAAP and comparable GAAP financial measures.
The non-GAAP financial measures exclude the following items for the relevant time periods as indicated in the reconciliations included later in this MD&A:
|
|
•
|
2014 Organization Restructuring - In 2014, we initiated this restructuring in order to improve organization efficiency and offset the impact of stranded overhead costs resulting from the 2014 spin-off of our health care business. As a result, we recognized restructuring charges in 2014, 2015 and 2016. Restructuring actions were completed by December 31, 2016.
|
|
|
•
|
Adjustment related to Venezuelan Operations - Effective December 31, 2015, we deconsolidated the assets and liabilities of our business in Venezuela from our consolidated balance sheet and in the second quarter of 2016, recorded an adjustment related to an updated assessment.
|
Overview of
Second
Quarter
2017
Results
|
|
•
|
Net sales of $4.6 billion decreased 1 percent compared to the year-ago period, as organic sales were down 1 percent. Organic sales decreased 2 percent in North American consumer products, reflecting category softness, less promotion shipments and competitive activity. Outside North America, organic sales declined 3 percent in developed markets and rose 2 percent in developing and emerging markets.
|
|
|
•
|
Operating profit of $799 decreased 5 percent compared to the prior year. Net Income Attributable to Kimberly-Clark Corporation was $531 compared to $566 in 2016. Diluted net income per share was $1.49 in 2017 and $1.56 in 2016. Results were impacted by lower net sales and input cost inflation, while the comparison benefited from cost savings.
|
Results of Operations and Related Information
This section presents a discussion and analysis of our
second
quarter
2017
net sales, operating profit and other information relevant to an understanding of the results of operations.
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Results
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
|
2017
|
|
2016
|
|
Percent Change
|
|
2017
|
|
2016
|
|
Percent Change
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
2,366
|
|
|
$
|
2,410
|
|
|
-2
|
%
|
|
$
|
4,679
|
|
|
$
|
4,783
|
|
|
-2
|
%
|
Outside North America
|
2,269
|
|
|
2,254
|
|
|
+1
|
%
|
|
4,522
|
|
|
4,429
|
|
|
+2
|
%
|
Intergeographic sales
|
(81
|
)
|
|
(76
|
)
|
|
N.M.
|
|
|
(164
|
)
|
|
(148
|
)
|
|
N.M.
|
|
Total Net Sales
|
4,554
|
|
|
4,588
|
|
|
-1
|
%
|
|
9,037
|
|
|
9,064
|
|
|
—
|
|
Operating Profit:
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
561
|
|
|
589
|
|
|
-5
|
%
|
|
$
|
1,129
|
|
|
1,159
|
|
|
-3
|
%
|
Outside North America
|
310
|
|
|
291
|
|
|
+7
|
%
|
|
644
|
|
|
600
|
|
|
+7
|
%
|
Corporate & Other
(a)
|
(69
|
)
|
|
(63
|
)
|
|
N.M.
|
|
|
(132
|
)
|
|
(128
|
)
|
|
N.M.
|
|
Other (income) and expense, net
(a)
|
3
|
|
|
(21
|
)
|
|
N.M.
|
|
|
8
|
|
|
(11
|
)
|
|
N.M.
|
|
Total Operating Profit
|
799
|
|
|
838
|
|
|
-5
|
%
|
|
1,633
|
|
|
1,642
|
|
|
-1
|
%
|
Share of Net Income of Equity Companies
|
26
|
|
|
35
|
|
|
-26
|
%
|
|
55
|
|
|
70
|
|
|
-21
|
%
|
Net Income Attributable to Kimberly-Clark Corporation
|
531
|
|
|
566
|
|
|
-6
|
%
|
|
1,094
|
|
|
1,111
|
|
|
-2
|
%
|
Diluted Earnings per Share
|
1.49
|
|
|
1.56
|
|
|
-4
|
%
|
|
3.06
|
|
|
3.06
|
|
|
—
|
|
|
|
(a)
|
Corporate & Other and Other (income) and expense, net include expenses not associated with the business segments, including charges as indicated in the Non-GAAP Reconciliations.
|
N.M. - Not Meaningful
GAAP to Non-GAAP Reconciliations of Selected Financial Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
|
As
Reported
|
|
Charges for 2014 Organization Restructuring
|
|
Adjustment Related to Venezuelan Operations
|
|
As
Adjusted
Non-GAAP
|
Cost of products sold
|
|
$
|
2,924
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2,922
|
|
Marketing, research and general expenses
|
|
847
|
|
|
(1
|
)
|
|
—
|
|
|
848
|
|
Other (income) and expense, net
|
|
(21
|
)
|
|
—
|
|
|
(11
|
)
|
|
(10
|
)
|
Operating Profit
|
|
838
|
|
|
(1
|
)
|
|
11
|
|
|
828
|
|
Provision for income taxes
|
|
(217
|
)
|
|
—
|
|
|
—
|
|
|
(217
|
)
|
Net Income Attributable to Kimberly-Clark Corporation
|
|
566
|
|
|
(1
|
)
|
|
11
|
|
|
556
|
|
Diluted Earnings per Share
|
|
1.56
|
|
|
—
|
|
|
0.03
|
|
|
1.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
|
As
Reported
|
|
Charges for 2014 Organization Restructuring
|
|
Adjustment Related to Venezuelan Operations
|
|
As
Adjusted
Non-GAAP
|
Cost of products sold
|
|
$
|
5,761
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
5,759
|
|
Marketing, research and general expenses
|
|
1,672
|
|
|
13
|
|
|
—
|
|
|
1,659
|
|
Other (income) and expense, net
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
Operating Profit
|
|
1,642
|
|
|
(15
|
)
|
|
11
|
|
|
1,646
|
|
Provision for income taxes
|
|
(424
|
)
|
|
4
|
|
|
—
|
|
|
(428
|
)
|
Net Income Attributable to Kimberly-Clark Corporation
|
|
1,111
|
|
|
(11
|
)
|
|
11
|
|
|
1,111
|
|
Diluted Earnings per Share
|
|
3.06
|
|
|
(0.03
|
)
|
|
0.03
|
|
|
3.06
|
|
Analysis of Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Percent Change
|
|
Adjusted Operating Profit
|
|
Percent Change
|
|
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
|
|
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
Volume
|
|
—
|
|
|
—
|
|
|
Volume
|
|
(1
|
)
|
|
(1
|
)
|
Net Price
|
|
(1
|
)
|
|
(1
|
)
|
|
Net Price
|
|
(5
|
)
|
|
(7
|
)
|
Mix/Other
|
|
—
|
|
|
—
|
|
|
Input Costs
|
|
(9
|
)
|
|
(7
|
)
|
Currency
|
|
—
|
|
|
—
|
|
|
Cost Savings
|
|
14
|
|
|
14
|
|
Total
(a)
|
|
(1
|
)
|
|
—
|
|
|
Currency Translation
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
Other
(c)
|
|
(3
|
)
|
|
(1
|
)
|
Organic
(b)
|
|
(1
|
)
|
|
(1
|
)
|
|
Total
|
|
(4
|
)
|
|
(1
|
)
|
(a) Total may not equal the sum of volume, net price, mix/other and currency due to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Includes the impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Net sales of $4.6 billion in the second quarter of 2017 were down 1 percent compared to the year-ago period. Changes in foreign currency exchange rates had no overall effect on net sales. Organic sales were down 1 percent due to lower net selling prices.
Second quarter operating profit was $799 in 2017 and $838 in 2016. The year-over-year comparison was impacted by lower net sales and $75 of higher input costs, driven by increases in pulp and other raw materials. Results in 2017 included $120 of cost savings from our FORCE (Focused On Reducing Costs Everywhere) program.
The second quarter effective tax rate was 28.2 percent in 2017 and 28.6 percent in 2016. The rate in both periods benefited from the resolution of certain tax matters. The rate in 2017 also benefited from the adoption of ASU No. 2016-09,
Compensation-Stock Compensation (Topic 718)
.
Our share of net income of equity companies in the second quarter was $26 in 2017 and $35 in 2016. Kimberly-Clark de Mexico, S.A.B. de C.V. ("K-C de Mexico") results were impacted by a weaker Mexican peso and higher input costs, partially offset by benefits from organic sales growth and cost savings.
Diluted earnings per share for the second quarter was $1.49 in 2017 and $1.56 in 2016. Second quarter adjusted earnings per share was $1.53 in 2016. The comparison was impacted by lower net sales and input cost inflation, while the comparison benefited from cost savings.
Year-to-date net sales of $9.0 billion decreased slightly compared to the prior year. Organic sales were down approximately 1 percent driven by lower net selling prices. Changes in foreign currency exchange rates benefited sales slightly. Operating profit was $1,633 in 2017 compared to $1,642 in 2016. The comparison was impacted by lower net sales and $110 of higher input costs. Results in 2017 included $230 of FORCE cost savings. The year-to-date effective tax rate was 27.8 percent in 2017 and 28.4 percent in 2016. The rate in both periods benefited from the resolution of certain tax matters and tax planning initiatives. In 2017, the rate also benefited from the adoption of ASU No. 2016-09,
Compensation-Stock Compensation (Topic 718)
. Diluted earnings per share was $3.06 in 2017, even with the year-ago period. The comparison was impacted by lower operating profit and reduced
net income from equity companies and benefited from declines in the effective tax rate and share count. Adjusted earnings per share was $3.06 in 2016.
Results by Business Segments
Personal Care
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
|
|
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Sales
|
|
$
|
2,270
|
|
|
$
|
2,279
|
|
|
$
|
4,520
|
|
|
$
|
4,486
|
|
|
Operating Profit
|
|
$
|
467
|
|
|
$
|
455
|
|
|
$
|
948
|
|
|
$
|
904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Percent Change
|
|
Percent Change
|
|
Operating Profit
|
|
Percent Change
|
|
Percent Change
|
Volume
|
|
—
|
|
|
|
|
1
|
|
|
Volume
|
|
—
|
|
|
|
|
2
|
|
Net Price
|
|
(1
|
)
|
|
|
|
(1
|
)
|
|
Net Price
|
|
(6
|
)
|
|
|
|
(7
|
)
|
Mix/Other
|
|
1
|
|
|
|
|
—
|
|
|
Input Costs
|
|
(5
|
)
|
|
|
|
(5
|
)
|
Currency
|
|
—
|
|
|
|
|
1
|
|
|
Cost Savings
|
|
14
|
|
|
|
|
14
|
|
Total
|
|
—
|
|
|
|
|
1
|
|
|
Currency Translation
|
|
1
|
|
|
|
|
1
|
|
|
|
|
|
|
|
Other
(b)
|
|
(1
|
)
|
|
|
|
—
|
|
Organic
(a)
|
|
(1
|
)
|
|
|
|
—
|
|
|
Total
|
|
3
|
|
|
|
|
5
|
|
(a) Combined impact of changes in volume, net price and mix/other.
(b) Includes the impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Second quarter net sales of $2.3 billion were down slightly. Changes in net selling prices reduced sales by 1 percent, while changes in product mix improved sales by about 1 percent. Second quarter operating profit of $467 increased 3 percent. The comparison benefited from cost savings, partially offset by lower net selling prices and input cost inflation.
Net sales in North America decreased 1 percent. Sales volumes were down 1 percent compared to 8 percent growth in the base period that included benefits from innovations and promotion activity. Volumes in 2017 were also impacted by competitive activity. Total volumes in infant and child care were off mid-single digits due to lower Huggies diaper volumes. Baby wipes volumes increased mid-single digits and adult care volumes rose low-single digits.
Net sales in developing and emerging markets increased 3 percent including a 1 percent benefit from favorable currency rates. Sales volumes increased 4 percent and changes in product mix increased sales by 1 percent, while changes in net selling prices decreased sales by about 2 percent. The volume increase included gains in China, Eastern Europe and Latin America. The decline in net selling prices was mostly in China and Eastern Europe.
Net sales in developed markets outside North America (Australia, South Korea and Western/Central Europe) decreased 7 percent. Sales volumes decreased 5 percent and changes in net selling prices decreased sales by 3 percent, while changes in product mix increased sales by approximately 2 percent. The changes mostly occurred in South Korea.
Consumer Tissue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
|
|
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Sales
|
|
$
|
1,463
|
|
|
$
|
1,494
|
|
|
$
|
2,918
|
|
|
$
|
2,990
|
|
|
Operating Profit
|
$
|
241
|
|
|
$
|
275
|
|
|
$
|
516
|
|
|
$
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Percent Change
|
|
Percent Change
|
|
Operating Profit
|
|
Percent Change
|
|
Percent Change
|
Volume
|
|
(1
|
)
|
|
|
|
(1
|
)
|
|
Volume
|
|
(5
|
)
|
|
|
|
(6
|
)
|
Net Price
|
|
(1
|
)
|
|
|
|
(1
|
)
|
|
Net Price
|
|
(4
|
)
|
|
|
|
(6
|
)
|
Mix/Other
|
|
—
|
|
|
|
|
—
|
|
|
Input Costs
|
|
(11
|
)
|
|
|
|
(5
|
)
|
Currency
|
|
—
|
|
|
|
|
—
|
|
|
Cost Savings
|
|
11
|
|
|
|
|
11
|
|
Total
|
|
(2
|
)
|
|
|
|
(2
|
)
|
|
Currency Translation
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Other
(b)
|
|
(3
|
)
|
|
|
|
(1
|
)
|
Organic
(a)
|
|
(2
|
)
|
|
|
|
(2
|
)
|
|
Total
|
|
(12
|
)
|
|
|
|
(7
|
)
|
(a) Combined impact of changes in volume, net price and mix/other.
(b) Includes the impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Second quarter net sales of $1.5 billion decreased 2 percent. Changes in sales volumes and net selling prices each decreased net sales by 1 percent. Second quarter operating profit of $241 decreased 12 percent. The comparison was impacted by lower net sales, input cost inflation and other manufacturing cost increases, partially offset by cost savings and lower marketing, research and general spending.
Net sales in North America decreased 4 percent. Sales volumes were down approximately 4 percent compared to 6 percent growth in the year-ago period, while changes in net selling prices increased sales slightly. The volume decline included impacts from lower promotion shipments and competitive activity.
Net sales in developing and emerging markets increased 6 percent including a 4 percent benefit from favorable currency rates. Sales volumes increased 8 percent, while changes in net selling prices decreased sales by 5 percent and changes in product mix decreased sales by 1 percent. The changes mostly occurred in Latin America.
Net sales in developed markets outside North America decreased 5 percent including a 4 percent decrease from unfavorable currency rates. Sales volumes fell 2 percent, as declines in Western/Central Europe were mostly offset by increases in South Korea. Overall changes in product mix improved sales by 1 percent.
K-C Professional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
|
|
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Sales
|
|
$
|
810
|
|
|
$
|
806
|
|
|
$
|
1,578
|
|
|
$
|
1,569
|
|
|
Operating Profit
|
$
|
163
|
|
|
$
|
150
|
|
|
$
|
309
|
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Percent Change
|
|
Percent Change
|
|
Operating Profit
|
|
Percent Change
|
|
Percent Change
|
Volume
|
|
1
|
|
|
|
|
1
|
|
|
Volume
|
|
3
|
|
|
|
|
1
|
|
Net Price
|
|
(1
|
)
|
|
|
|
(1
|
)
|
|
Net Price
|
|
(4
|
)
|
|
|
|
(4
|
)
|
Mix/Other
|
|
—
|
|
|
|
|
1
|
|
|
Input Costs
|
|
(13
|
)
|
|
|
|
(12
|
)
|
Currency
|
|
—
|
|
|
|
|
—
|
|
|
Cost Savings
|
|
14
|
|
|
|
|
13
|
|
Total
|
|
—
|
|
|
|
|
1
|
|
|
Currency Translation
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Other
(b)
|
|
9
|
|
|
|
|
5
|
|
Organic
(a)
|
|
1
|
|
|
|
|
1
|
|
|
Total
|
|
9
|
|
|
|
|
3
|
|
(a) Combined impact of changes in volume, net price and mix/other.
(b) Includes the impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Second quarter net sales of $0.8 billion increased slightly. Sales volumes increased about 1 percent and changes in product mix improved sales slightly. Changes in net selling prices decreased sales by 1 percent and currency rates were slightly unfavorable. Second quarter operating profit of $163 increased 9 percent. The comparison benefited from cost savings, lower manufacturing costs and reduced marketing, research and general spending, partially offset by input cost inflation.
Net sales in North America increased 1 percent. Sales volumes increased 1 percent driven by growth in wipers and safety products.
Net sales in developing and emerging markets increased approximately 4 percent including a 2 percent benefit from favorable currency rates. Sales volumes increased about 1 percent.
Net sales in developed markets outside North America were down 2 percent including a 3 percent negative impact from changes in currency rates. Sales volumes improved 2 percent, while changes in product mix decreased sales by 1 percent.
Liquidity and Capital Resources
Cash Provided by Operations
Cash provided by operations was
$1,261
for the first
six
months of
2017
, compared to
$1,413
in the prior year. The decrease was mainly due to higher tax payments in 2017, partially offset by improvements in accounts payable.
Investing
During the first
six
months of
2017
, our capital spending was
$386
compared to
$397
in the prior year. We anticipate that full-year 2017 capital spending will be in the lower half of our target range of $850 to $950.
Financing
In May 2017, we issued $350 aggregate principal amount of 3.90% notes due May 4, 2047. Proceeds from the offering were used for general corporate purposes, including repayment of a portion of our outstanding commercial paper indebtedness.
Our short-term debt, which consists of U.S. commercial paper with original maturities up to 90 days and/or other similar short-term debt issued by non-U.S. subsidiaries, was
$286
as of
June 30, 2017
(included in debt payable within one year on the consolidated balance sheet). The average month-end balance of short-term debt for the
second
quarter of
2017
was
$380
. These short-term borrowings provide supplemental funding for supporting our operations. The level of short-term debt generally fluctuates depending upon the amount of operating cash flows and the timing of customer receipts and payments for items such as pension contributions, dividends and income taxes.
At
June 30, 2017
, total debt was
$8.0 billion
compared to
$7.6 billion
at
December 31, 2016
.
We maintain a $2.0 billion revolving credit facility which expires in 2021. This facility, currently unused, supports our commercial paper program, and would provide liquidity in the event our access to the commercial paper markets is unavailable for any reason.
We repurchase shares of Kimberly-Clark common stock from time to time pursuant to publicly announced share repurchase programs. During the first
six
months of
2017
, we repurchased
4.7 million
shares of our common stock at a cost of
$600
through a broker in the open market. We are targeting full-year
2017
share repurchases of $800 to $1 billion, subject to market conditions.
We engage in foreign currency denominated transactions with customers and suppliers, as well as between subsidiaries with different functional currencies. There has been a steady devaluation of the Argentine peso relative to the U.S. dollar in recent years, along with an increase in local inflation. As of June 30, 2017, Argentina is not designated as a highly-inflationary economy for accounting purposes. We are closely monitoring developments in Argentina and potential implications on our results and reporting for our operations in that country. Net sales of K-C Argentina were approximately 2 percent of our consolidated net sales for the six months ended June 30, 2017 and 2016.
We also continue to monitor developments related to tax legislation and government policy, including U.S. corporate tax reform and the United Kingdom’s withdrawal from the European Union. The impact of these potential changes to our business and consolidated financial results cannot be determined until the relevant legislation and policies are finalized.
Management believes that our ability to generate cash from operations and our capacity to issue short-term and long-term debt are adequate to fund working capital, capital spending, payment of dividends, pension plan contributions and other needs for the foreseeable future. Further, we do not expect restrictions or taxes on repatriation of cash held outside of the U.S. to have a material effect on our overall business, liquidity, financial condition or results of operations for the foreseeable future.
Legal Matters
We are party to certain legal proceedings relating to our former healthcare business, Halyard Health, Inc. (“Halyard”), described in our Form 10-Q for the period ended March 31, 2017. During the second quarter, Halyard and Kimberly-Clark each filed suits against the other seeking declaratory judgment regarding the scope of Halyard’s indemnification obligations to Kimberly-Clark under the terms of the distribution agreement we entered into with Halyard in connection with the spin-off. Although the results of litigation and claims cannot be predicted with certainty, we continue to believe that the final outcome of these matters will not have a material adverse effect, individually or in the aggregate, on our business, financial condition, results of operations or liquidity.
Business Outlook
In 2017, we plan to continue to execute our Global Business Plan strategies, which include a focus on targeted growth initiatives, innovation and brand building, cost savings programs and shareholder-friendly capital allocation. In 2017, we expect earnings per share to be at the low end of our target range of $6.20 to $6.35. Our outlook is based on the assumptions described below:
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We expect net sales and organic sales growth to be similar, or up slightly, year-on-year. Sales volumes are anticipated to be up slightly, while changes in net selling prices and product mix, combined, are expected to negatively impact net sales slightly.
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We anticipate the net impact of changes in commodity costs to be between $200 and $300 of inflation primarily due to higher prices for several raw materials, including pulp.
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We plan to achieve cost savings of $425 to $450 from our FORCE program.
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We expect an effective tax rate similar to or slightly lower than 2016.
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We expect net income from equity companies to decline due to lower income at K-C de Mexico as a result of a weaker Mexican peso and input cost inflation.
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We expect to contribute up to $100 to our defined benefit pension plans.
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Information Concerning Forward-Looking Statements
Certain matters contained in this report concerning the business outlook, including the anticipated cost savings from our FORCE program, cash flow and uses of cash, growth initiatives, innovations, marketing and other spending, net sales, anticipated currency rates and exchange risks, raw material, energy and other input costs, effective tax rate, contingencies and anticipated transactions of Kimberly-Clark, including dividends, share repurchases and pension contributions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are based upon management's expectations and beliefs concerning future events impacting Kimberly-Clark. There can be no assurance that these future events will occur as anticipated or that our results will be as estimated. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update them.
The assumptions used as a basis for the forward-looking statements include many estimates that, among other things, depend on the achievement of future cost savings and projected volume increases. In addition, many factors outside our control, including fluctuations in foreign currency exchange rates, the prices and availability of our raw materials, potential competitive pressures on selling prices for our products, energy costs and retail trade customer actions, as well as general economic and political conditions globally and in the markets in which we do business, could affect the realization of these estimates.
For a description of certain factors that could cause our future results to differ from those expressed in these forward-looking statements, see Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2016
entitled "Risk Factors." Other factors not presently known to us or that we presently consider immaterial could also affect our business operations and financial results.