UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2010
OR
For the transition period from to
Commission file number 1-225
KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
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)
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of July 30, 2010, there were 409,312,506 shares of the Corporation’s common stock outstanding.
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED INCOME STATEMENT
CONDENSED CONSOLIDATED BALANCE SHEET
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
PART II – OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
(Unaudited)
(Millions of dollars, except per share amounts)
Net Sales
Cost of products sold
Gross Profit
Marketing, research and general expenses
Other (income) and expense, net
Operating Profit
Interest income
Interest expense
Income Before Income Taxes and Equity Interests
Provision for income taxes
Income Before Equity Interests
Share of net income of equity companies
Net Income
Net income attributable to noncontrolling interests
Net Income Attributable to Kimberly-Clark Corporation
Per Share Basis:
Basic
Diluted
Cash Dividends Declared
See Notes to Consolidated Financial Statements.
3
(Millions of dollars)
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Total Current Assets
Property
Less accumulated depreciation
Net Property
Investments in Equity Companies
Goodwill
Long-Term Notes Receivable
Other Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Debt payable within one year
Accounts payable
Accrued expenses
Other current liabilities
Total Current Liabilities
Long-Term Debt
Noncurrent Employee Benefits
Long-Term Income Taxes Payable
Deferred Income Taxes
Other Liabilities
Redeemable Preferred and Common Securities of Subsidiaries
Stockholders’ Equity
Kimberly-Clark Corporation
Noncontrolling interests
Total Stockholders’ Equity
4
Operating Activities
Net income
Depreciation and amortization
Stock-based compensation
(Increase) decrease in operating working capital
Deferred income taxes
Net losses on asset dispositions
Equity companies’ earnings in excess of dividends paid
Postretirement benefits
Other
Cash Provided by Operations
Investing Activities
Capital spending
Acquisition of businesses, net of cash acquired
Proceeds from sales of investments
Proceeds from dispositions of property
Investments in time deposits
Maturities of time deposits
Cash Used for Investing
Financing Activities
Cash dividends paid
Net increase (decrease) in short-term debt
Proceeds from issuance of long-term debt
Repayments of long-term debt
Cash paid on redeemable preferred securities of subsidiary
Shares purchased from noncontrolling interests
Proceeds from exercise of stock options
Acquisitions of common stock for the treasury
Cash Used for Financing
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(Decrease) increase in Cash and Cash Equivalents
Cash and Cash Equivalents, beginning of year
Cash and Cash Equivalents, end of period
5
Other Comprehensive Income, Net of Tax:
Unrealized currency translation adjustments
Employee postretirement benefits
Total Other Comprehensive Income, Net of Tax
Comprehensive Income
Comprehensive income attributable to noncontrolling interests
Comprehensive Income Attributable to Kimberly-Clark Corporation
6
Note 1. Accounting Policies
Basis of Presentation
The accompanying unaudited Condensed 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 adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included.
For further information, refer to the Consolidated Financial Statements and footnotes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009.
Note 2. Fair Value Measurements
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.
During the second quarter of 2010, there were no significant transfers among level 1, 2, or 3 fair value determinations.
Set forth below are the assets and liabilities that are measured on a recurring basis at fair value as of June 30, 2010, together with the inputs used to develop those fair value measurements.
Assets
Company-owned life insurance (“COLI”)
Available-for-sale securities
Derivatives
Total
Liabilities
7
Note 2. (Continued)
The COLI policies are a source of funding primarily for the Corporation’s nonqualified employee benefits and are included in other assets. Available-for-sale securities are included in other current assets and other assets, as appropriate. The derivative assets and liabilities are included in other current assets, other assets, accrued expenses and other liabilities, as appropriate.
Level 1 Fair Values - The fair values of certain available-for-sale securities are based on quoted market prices in active markets for identical assets. Unrealized losses on these securities aggregating $5 million are recorded in other comprehensive income until realized. The unrealized losses have not been recognized in earnings because the Corporation has both the intent and ability to hold the securities for a period of time sufficient to allow for an anticipated recovery of fair value to the cost of such securities.
Level 2 Fair Values - The fair value of the COLI policies is derived from investments in a mix of money market, fixed income and equity funds managed by unrelated fund managers. 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 quotations of spot currency rates and forward points, which are converted into implied forward currency rates. Additional information on the Corporation’s use of derivative instruments is contained in Note 9.
Level 3 Fair Values - The fair value of certain available-for-sale securities acquired in the fourth quarter of 2009 is based on quoted market prices for the exchange-traded securities, adjusted to reflect the restrictions placed on the sale of these securities. There was no significant change in the fair value from the date of acquisition through June 30, 2010.
Fair Value Disclosures
The following table includes the fair value of the Corporation’s financial instruments as of June 30, 2010, for which fair value disclosure is required:
Cash and cash equivalents(a)
Time deposits (included in other current assets)(b)
Long-term notes receivable(c)
Liabilities and redeemable preferred and common securities of subsidiaries
Short-term debt(d)
Monetization loan(c)
Long-term debt(e)
Redeemable preferred and common securities of subsidiaries(f)
Cash equivalents are comprised of certificates of deposit, time deposits and other interest-bearing investments with original maturity dates of 90 days or less, all of which are recorded at cost, which approximates fair value.
Time deposits are comprised of deposits with original maturities of more than 90 days but less than one year, all of which are recorded at cost, which approximates fair value.
8
Long-term notes receivable represent held-to-maturity securities, which arose from the sale of nonstrategic timberlands and related assets. The notes are backed by irrevocable standby letters of credit issued by money center banks. A consolidated variable interest entity (“VIE”) has an outstanding long-term monetization loan secured by the related note held by this VIE (indicated by Note 1 and Loan 1 below). The following summarizes the terms of the notes and the monetization loan as of June 30, 2010 (millions of dollars):
Description
Interest Rate(1)
Note 1
Note 2
Loan 1
Payable quarterly, 3-month LIBOR
The difference between the carrying amount of the notes and their fair value represents an unrealized loss position for which an other-than-temporary impairment has not been recognized in earnings because the Corporation has both the intent and ability to hold the notes for a period of time sufficient to allow for an anticipated recovery of fair value to the carrying amount of the notes. Neither the notes nor the monetization loan is traded in active markets. Accordingly, their 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, fair value credit spread, stated spread, maturity date and interest payment dates.
Short-term debt is comprised of U.S. commercial paper with original maturities up to 90 days and other similar short-term debt issued by non-U.S. subsidiaries, all of which are recorded at cost, which approximates fair value.
Long-term debt includes long-term debt instruments and the portion payable within the next twelve months ($524 million). Fair values were estimated based on quoted prices for financial instruments for which all significant inputs were observable, either directly or indirectly.
The redeemable preferred securities are not traded in active markets. Accordingly, their fair values were calculated using a pricing model that compares 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 benchmark rate, fair value spread, stated spread, maturity date and interest payment dates. The fair value and the carrying amount of the redeemable common securities of $41 million were based on an independent third-party appraisal, adjusted for current market conditions.
Note 3. Highly Inflationary Accounting for Venezuelan Operations
In 2003, the Venezuelan government enacted currency restrictions which have affected the ability of the Corporation’s Venezuelan subsidiary (“K-C Venezuela”) to obtain U.S. dollars at the official exchange rate to pay for significant imports of U.S. dollar-denominated finished goods, raw materials and services to support its operations. For transactions that did not qualify for settlement at the official exchange rate, an unregulated market existed for the acquisition and exchange of bolivar- and U.S. dollar-denominated bonds, effectively resulting in a parallel market exchange rate substantially unfavorable to the official exchange rate.
9
Note 3. (Continued)
In instances during 2009 when the U.S. dollar-denominated imports did not receive government approval to be settled at the official exchange rate of 2.15 bolivars to the U.S. dollar, K-C Venezuela measured the transactions from U.S. dollars to bolivars at the exchange rate in the parallel market that was used to pay for these imports. In instances during 2009 when the U.S. dollar-denominated imports received government approval to be settled at the official exchange rate, K-C Venezuela measured the transactions from U.S. dollars to bolivars at the official exchange rate. During 2009, K-C Venezuela used the official rate to translate its operating results from the bolivar functional currency into U.S. dollars, based on its dividend remittance history at that rate. For the full year 2009, K-C Venezuela represented approximately 3 percent of consolidated net sales, and 1 percent of consolidated operating profit and net income attributable to the Corporation.
The cumulative inflation in Venezuela for the three years ended December 31, 2009 was more than 100 percent, based on the Consumer Price Index/National Consumer Price Index. As a result, effective January 1, 2010, K-C Venezuela began accounting for its operations as highly inflationary, as required by GAAP. Under highly inflationary accounting, K-C Venezuela’s functional currency became the U.S. dollar, and its income statement and balance sheet are measured into U.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on bolivar-denominated monetary assets and liabilities is reflected in earnings in other (income) and expense, net. As of June 30, 2010, K-C Venezuela had a bolivar-denominated net monetary asset position of $50 million.
For the first quarter 2010, the Corporation determined that, under highly inflationary accounting, the parallel exchange rate was the appropriate exchange rate to measure K-C Venezuela’s bolivar-denominated transactions into U.S. dollars as this was the rate at which K-C Venezuela had substantially converted the bolivars it generated from its operations during the first quarter of 2010 into U.S. dollars to pay for its imports.
As a result of the adoption of highly inflationary accounting, the Corporation recorded an after-tax charge of $96 million in first quarter 2010 to remeasure K-C Venezuela’s bolivar-denominated net monetary asset position into U.S. dollars at a parallel exchange rate of approximately 6 bolivars per U.S. dollar. In the Condensed Consolidated Cash Flow Statement, this non-cash charge was included in Other in Cash Provided by Operations. This charge was recorded in the following Consolidated Income Statement line items:
Net charge
On May 18, 2010, the Venezuelan government enacted reforms to its currency exchange regulations to close the parallel market. On June 9, 2010, the Central Bank of Venezuela began a regulated currency exchange system (the “central bank system”) that replaced the previous unregulated parallel market. Under the central bank system, entities domiciled in Venezuela (e.g., K-C Venezuela) are currently limited to convert bolivars into U.S. dollars at a volume of $50 thousand per day, up to a maximum of $350 thousand per month. This volume limitation is insufficient to convert K-C Venezuela’s bolivar-denominated cash into U.S. dollars to pay for the historical levels of U.S. dollar-denominated imports to support its operations.
10
As a result of the currency exchange regulations imposed on May 18, 2010, the Corporation determined that the central bank system rate of 5.4 bolivars per U.S. dollar was the appropriate exchange rate to measure K-C Venezuela’s bolivar-denominated transactions into U.S. dollars during the period May 18, 2010 through June 30, 2010, as this was the rate at which K-C Venezuela was able to convert a limited amount of its bolivar-denominated cash into U.S. dollars under the central bank system. Consistent with the first quarter of 2010, for the period April 1, 2010 through May 17, 2010, the Corporation used the parallel exchange rate to measure its bolivar-denominated transactions into U.S. dollars.
At June 30, 2010, the Corporation’s net investment in K-C Venezuela was $140 million.
Note 4. Organization Optimization Initiative
In June 2009, the Corporation announced actions to reduce its worldwide salaried workforce by approximately 1,600 positions by the end of 2009. These actions resulted in cumulative pretax charges of $128 million in 2009, including a pretax charge of $110 million ($78 million after-tax) recorded in the quarter ended June 30, 2009. Accrued expenses related to these actions have been substantially paid.
Costs of these actions were recorded at the business segment and corporate levels as follows:
Personal Care
Consumer Tissue
K-C Professional & Other
Health Care
Corporate & Other
On a geographic area basis, $76 million of the charges were recorded in North America and $34 million were recorded in Europe.
The charges were included in the following income statement captions:
Net charges
11
Note 5. Inventories
The following schedule presents inventories by major class:
Summary of Inventories (Millions of dollars)
At the lower of cost determined on the FIFO or weighted-average cost methods or market:
Raw materials
Work in process
Finished goods
Supplies and other
Excess of FIFO or weighted-average cost over LIFO cost
The Corporation uses the LIFO method of valuing inventory for financial reporting purposes for most U.S. inventories. Interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time.
Note 6. Employee Postretirement Benefits
The table below presents benefit cost information for defined benefit plans and other postretirement benefit plans:
Service cost
Interest cost
Expected return on plan assets
Recognized net actuarial loss
Curtailment
Net periodic benefit cost
12
Note 6. (Continued)
During the first and second quarters of 2010, the Corporation made cash contributions of $176 million and $52 million, respectively, to its pension trusts. During the first and second quarters of 2009, the Corporation made cash contributions of $90 million and $405 million, respectively, to its pension trusts. The Corporation currently anticipates contributing about $240 million for the full year 2010 to its pension trusts.
For the U.S. pension plan, equity option strategies are used to reduce the volatility of returns on investments. Zero-cost equity collars are currently in place on the U.S. equity allocation which was about $1.3 billion as of June 30, 2010.
In April 2009, the Corporation took action with respect to its U.S. defined benefit pension plan (other than for certain employees subject to collective bargaining agreements) and supplemental benefit plans, to provide that no future compensation and benefit service will be accrued under these plans for plan years after December 31, 2009 (“U.S. DB Pension Freeze”). The U.S. DB Pension Freeze resulted in a pension curtailment charge aggregating $21 million in the second quarter of 2009 due to the write-off of applicable unamortized prior service costs. The Corporation also took action with respect to its Incentive Investment Plan (a 401(k) plan) and Retirement Contribution Plan (other than for certain employees subject to collective bargaining agreements) and Retirement Contribution Excess Benefit Program to discontinue all contributions to these plans for future plan years. These changes did not affect benefits earned by participants prior to January 1, 2010.
The Corporation adopted, effective January 1, 2010, a new 401(k) profit sharing plan, and amended its Retirement Contribution Excess Benefit Program, to provide for a matching contribution of 100 percent of a U.S. employee’s contributions to the plans, to a yearly maximum of four percent of eligible compensation, as well as a discretionary profit sharing contribution, in which contributions will be based on the Corporation’s profit performance. Except for certain employees subject to collective bargaining agreements, U.S. participants’ investment balances in the Corporation’s existing 401(k) plan and Retirement Contribution Plan were transferred to the new 401(k) plan.
13
Note 7. Earnings Per Share
There are no adjustments required to be made to net income for purposes of computing basic and diluted EPS. The average number of common shares outstanding is reconciled to those used in the basic and diluted EPS computations as follows:
(Millions of shares)
Average shares outstanding
Participating securities
Dilutive effect of stock options
Dilutive effect of restricted share and restricted share unit awards
Options outstanding during the three- and six-month periods ended June 30, 2010 to purchase 11.4 million and 14.4 million shares of common stock, respectively, were not included in the computation of diluted EPS because the exercise prices of the options were greater than the average market price of the common shares during the periods.
Options outstanding during the three- and six-month periods ended June 30, 2009 to purchase 26.3 million and 25.2 million shares of common stock, respectively, were not included in the computation of diluted EPS because the exercise prices of the options were greater than the average market price of the common shares during the periods.
The number of common shares outstanding as of June 30, 2010 and 2009 was 409.7 million and 414.3 million, respectively.
14
Note 8. Stockholders’ Equity
Set forth below is a reconciliation of comprehensive income and stockholders’ equity attributable to Kimberly-Clark Corporation and noncontrolling interests for the six months ended June 30, 2010 and 2009. Also reconciled for the same periods are the redeemable preferred and common securities of subsidiaries, which are required to be classified outside of stockholders’ equity.
Balance at December 31, 2009
Comprehensive Income:
Other comprehensive income, net of tax:
Unrealized translation
Total Comprehensive Income
Stock-based awards exercised or vested
Income tax benefits on stock-based compensation
Shares repurchased
Recognition of stock-based compensation
Dividends declared
Return on redeemable preferred securities and noncontrolling interests
Balance at June 30, 2010
The net unrealized currency translation adjustments for the six months ended June 30, 2010 are primarily due to a strengthening of the U.S. dollar versus the Australian dollar, euro and British pound.
In the six months ended June 30, 2010, the Corporation repurchased 8.2 million shares for a total cost of $500 million. The Corporation expects to repurchase $700 million to $800 million of its common stock in 2010.
15
Note 8. (Continued)
Balance at December 31, 2008
Additional investment in subsidiary and other
Balance at June 30, 2009
Net unrealized currency gains or losses resulting from the translation of assets and liabilities of non-U.S. subsidiaries, except those in highly inflationary economies, are accumulated in a separate section of stockholders’ equity. For these operations, changes in exchange rates generally do not affect cash flows; therefore, unrealized translation adjustments are recorded in stockholders’ equity rather than income. Upon the sale or substantially complete liquidation of any of these subsidiaries, the applicable unrealized translation adjustment would be removed from stockholders’ equity and reported as part of the gain or loss on the sale or liquidation.
Also included in stockholders’ equity 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.
16
The purchase of additional ownership in an already controlled subsidiary is recorded as an equity transaction with no gain or loss recognized in consolidated net income or comprehensive income. The following schedule reflects the effect of a change in ownership interest between the Corporation and a noncontrolling interest.
Net Income attributable to Kimberly-Clark Corporation
Decrease in Kimberly-Clark Corporation’s additional paid-in capital for purchase of remaining shares in its Andean region subsidiary(a)
Change from net income attributable to Kimberly-Clark Corporation and transfers to noncontrolling interests
During the first quarter of 2009, the Corporation acquired the remaining 31 percent interest in its Andean region subsidiary, Colombiana Kimberly Colpapel S.A., for $289 million. The acquisition was recorded as an equity transaction that reduced noncontrolling interests, accumulated other comprehensive income (“AOCI”) and additional paid-in capital classified in stockholders’ equity by $278 million and increased investments in equity companies by $11 million.
Note 9. Objectives and Strategies for Using Derivatives
As a multinational enterprise, the Corporation is exposed to risks, such as changes in foreign currency exchange rates, interest rates, commodity prices and investments of its defined benefit pension plans. A number of practices are employed to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. The Corporation’s policies allow the use of derivatives for risk management purposes and prohibit their use for speculation. The Corporation’s policies also prohibit the use of any leveraged derivative instrument. Foreign currency derivative instruments, interest rate swaps, equity collars and the majority of commodity hedging contracts are entered into with major financial institutions.
On the date the derivative contract is entered into, the Corporation formally designates certain derivatives as cash flow, fair value or net investment hedges (each discussed below), and establishes how the effectiveness of these hedges will be assessed and measured. This process links the derivatives to the transactions or financial balances they are hedging. Changes in the fair value of derivatives not designated as hedging instruments are recorded to earnings when they occur.
Set forth below is a summary of the fair values of the Corporation’s derivative instruments as of June 30, classified by the risks they are used to manage:
Foreign currency exchange risk
Interest rate risk
Commodity price risk
17
Note 9. (Continued)
Foreign Currency Exchange Risk Management
The Corporation has a centralized U.S. dollar functional currency international treasury operation (“In-House Bank”) that manages foreign currency exchange risks by netting, on a daily basis, exposures to recorded non-U.S. dollar assets and liabilities and entering into derivative instruments with third parties whenever the net exposure in any single currency exceeds predetermined limits. These derivative instruments are not designated as hedging instruments. Changes in the fair value of these instruments are recorded in earnings when they occur. The In-House Bank also records the gain or loss on the remeasurement of its non-U.S. dollar-denominated monetary assets and liabilities in earnings. Consequently, the effect on earnings from the use of these non-designated derivatives is substantially neutralized by the recorded transactional gains and losses. The In-House Bank’s daily notional derivative positions with third parties averaged $1.1 billion in the first six months of 2010 and its average net exposure for the period was $900 million. The In-House Bank used eight counterparties for its foreign exchange derivative contracts.
The Corporation enters into derivative instruments to hedge a portion of the net foreign currency exposures of its non-U.S. operations, principally for their forecasted purchases of pulp, which are priced in U.S. dollars. The derivative instruments used to manage these exposures are designated and qualify as cash flow hedges. The Corporation also hedges a portion of the net foreign currency exposures of its non-U.S. operations for imported intercompany finished goods and work-in-process priced predominately in U.S. dollars and euros through the use of derivative instruments that are designated and qualify as cash flow hedges.
Gains and losses on these cash flow hedges, to the extent effective, are recorded in other comprehensive income net of related income taxes and released to earnings as the related finished goods inventory containing the pulp and imported intercompany purchases are sold to unaffiliated customers. As of June 30, 2010, outstanding derivative contracts of $520 million notional value were designated as cash flow hedges for the forecasted purchases of pulp and intercompany finished goods and work-in-process.
The foreign currency exposure on intercompany balances managed outside the In-House Bank, primarily loans, is hedged with derivative instruments with third parties. At June 30, 2010, the notional amount of these predominately undesignated derivative instruments was $610 million.
Foreign Currency Translation Risk Management
Translation adjustments result from translating foreign entities’ financial statements to U.S. dollars from their functional currencies. Translation exposure, which results from changes in translation rates between functional currencies and the U.S. dollar, generally is not hedged. However, consistent with other years, a portion of the Corporation’s net investment in its Mexican affiliate has been hedged. At June 30, 2010, the Corporation had in place net investment hedges of $90 million for a portion of its investment in its Mexican affiliate. Changes in the fair value of net investment hedges are recognized in other comprehensive income to offset the change in value of the net investment being hedged. There was no significant ineffectiveness on these hedges as of June 30, 2010.
18
Interest Rate Risk Management
Interest rate risk is managed using a portfolio of variable- and fixed-rate debt composed of short- and long-term instruments and interest rate swaps. The objective is to maintain a cost-effective mix that management deems appropriate. From time to time, interest rate swap contracts, which are derivative instruments, are entered into to facilitate the maintenance of the desired ratio of variable- and fixed-rate debt. These derivative instruments are designated and qualify as fair value hedges. At June 30, 2010, interest rate swap contracts with an aggregate notional value of $700 million were in place.
From time to time, derivatives are used to hedge the anticipated issuance of fixed-rate debt. These exposures are hedged with forward-starting swaps or “treasury locks” (e.g., a 10-year “treasury lock” hedging the anticipated underlying U.S. Treasury interest rate related to issuance of 10-year debt). These swaps are designated as cash flow hedges. At June 30, 2010, outstanding forward-starting swaps with an aggregate notional value of $400 million were in place.
Commodity Price Risk Management
The Corporation uses derivative instruments to hedge a portion of its exposure to market risk arising from changes in the price of natural gas. Hedging of this risk is accomplished by entering into forward swap contracts, which are designated as cash flow hedges of specific quantities of natural gas expected to be purchased in future months.
As of June 30, 2010, outstanding commodity forward contracts were in place to hedge forecasted purchases of about 20 percent of the Corporation’s estimated natural gas requirements for the balance of the current year and a lesser percentage for future periods.
Effect of Derivative Instruments on Results of Operations and Other Comprehensive Income
Fair Value Hedges
Derivative instruments that are designated and qualify as fair value hedges are predominately used to manage interest rate risk. The fair values of these 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 hedged debt instruments 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.
Fair value hedges resulted in no significant ineffectiveness in the three and six month periods ended June 30, 2010 and 2009. For the three and six month periods ended June 30, 2010 and 2009, no gain or loss was recognized in earnings as a result of a hedged firm commitment no longer qualifying as a fair value hedge.
Cash Flow Hedges
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 other comprehensive income, net of related income taxes, and recognized in earnings in the same period that the hedged exposure affects earnings.
19
Cash flow hedges resulted in no significant ineffectiveness in the six-month periods ended June 30, 2010 and 2009. For the six-month periods ended June 30, 2010 and 2009, 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, 2010, $23 million of after-tax gains are expected to be reclassified from AOCI primarily to cost of sales during the next twelve months, consistent with the timing of the underlying hedged transactions. The maximum maturity of cash flow hedges in place at June 30, 2010 is July 2012.
Quantitative Information about the Corporation’s Use of Derivative Instruments
The following tables display the location and amount of gains and losses reported in the Consolidated Income Statement and Statement of Other Comprehensive Income (“OCI”) and the location and fair values of derivative instruments presented in the Consolidated Balance Sheet.
Effect of Derivative Instruments on the Consolidated Income Statement
for the Three Months Ended June 30, 2010 and 2009 – (millions of dollars)
Foreign Exchange Contracts
Income Statement Classification
Undesignated Hedging Instruments
Income StatementClassification of Gain or (Loss)Reclassified from AOCI
Interest rate contracts
Foreign exchange contracts
Commodity contracts
Net Investment Hedges
for the Six Months Ended June 30, 2010 and 2009 – (millions of dollars)
20
Gains and (losses) on these instruments primarily relate to derivatives entered into with third parties to manage foreign currency exchange exposure on the remeasurement of non-U.S. dollar denominated monetary assets and liabilities. Consequently, the effect on earnings from the use of these undesignated derivatives is substantially neutralized by the recorded transactional gains and losses.
Fair Values of Derivative Instruments
Derivatives designated as hedging instruments:
Undesignated derivatives:
Total asset derivatives
21
Total liability derivatives
22
Note 10. Description of Business Segments
The Corporation is organized into operating segments based on product groupings. These operating segments have been aggregated into four reportable global business segments: Personal Care; Consumer Tissue; K-C Professional & Other; and Health Care. The reportable segments were determined in accordance with how the Corporation’s executive managers develop and execute the Corporation’s global strategies to drive growth and profitability of the Corporation’s worldwide Personal Care, Consumer Tissue, K-C Professional & Other and Health Care operations. 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.
The principal sources of revenue in each global business segment are described below:
The Personal Care segment manufactures and markets disposable diapers, training and youth pants and swimpants; baby wipes; feminine and incontinence care products; and related products. Products in this segment are primarily for household use and are sold under a variety of brand names, including Huggies, Pull-Ups, Little Swimmers, GoodNites, Kotex, Lightdays, Depend, Poise and other brand names.
The Consumer Tissue segment manufactures and markets facial and bathroom tissue, paper towels, napkins and related products for household use. Products in this segment are sold under the Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Hakle, Page and other brand names.
The K-C Professional & Other segment manufactures and markets facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products for the away-from-home marketplace. Products in this segment are sold under the Kimberly-Clark, Kleenex, Scott, WypAll, Kimtech, KleenGuard, Kimcare and Jackson brand names.
The Health Care segment manufactures and markets disposable health care products such as surgical drapes and gowns, infection control products, face masks, exam gloves, respiratory products, pain management products and other disposable medical products. Products in this segment are sold under the Kimberly-Clark, Ballard, ON-Q and other brand names.
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Note 10. (Continued)
The following schedules present information concerning consolidated operations by business segment:
NET SALES:
Intersegment sales
Consolidated
OPERATING PROFIT (reconciled to income before income taxes):
Other income and (expense), net(a)
Corporate & Other(b)
Total Operating Profit
Income Before Income Taxes
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Notes:
For the six months ended June 30, 2010, other income and (expense), net includes a $79 million charge for the adoption of highly inflationary accounting in Venezuela effective January 1, 2010. See additional information in Note 3 to the Condensed Consolidated Financial Statements. In addition, other income and (expense), net includes the following amounts of foreign currency transaction losses:
Other income and (expense), net
Included in Corporate & Other for the six months ended June 30, 2010, is a $19 million charge related to the adoption of highly inflationary accounting in Venezuela effective January 1, 2010. See additional information in Note 3 to the Condensed Consolidated Financial Statements. The charges related to the business segments are as follows:
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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 the Corporation’s recent performance, its financial condition and its prospects. The following will be discussed and analyzed:
Overview of Second Quarter 2010 Results
Results of Operations and Related Information
Liquidity and Capital Resources
Environmental Matters
Business Outlook
Net sales increased 2.8 percent.
Operating profit and net income attributable to Kimberly-Clark Corporation increased 16.7 percent and 23.6 percent, respectively.
Cash provided by operations was $587 million, a decrease of 41 percent compared to last year.
This section presents a discussion and analysis of the Corporation’s second quarter and first six months of 2010 net sales, operating profit and other information relevant to an understanding of the results of operations.
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Second Quarter of 2010 Compared With Second Quarter of 2009
Analysis of Net Sales
By Business Segment
Commentary:
Personal care net sales in North America increased 7 percent versus the second quarter of 2009. Sales volumes were up 3 percent and net selling prices rose 2 percent, driven by a lower level of promotional activity for Huggies diapers. In addition, changes in product mix and currency exchange rates each added 1 percent of growth. Feminine care sales volumes grew at a double-digit rate for the second consecutive quarter as a result of the U by Kotex line extension. Adult care volumes also increased double-digits, benefitting from recent innovations in the Poise and Depend brands and supporting marketing campaigns. In other areas of the business, sales volumes for the Corporation’s child care brands advanced 2 percent, while volumes for Huggies baby wipes decreased 2 percent and volumes for Huggies diapers were down slightly.
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In Europe, personal care net sales fell 5 percent in the quarter, including a negative currency effect of 2 percent. Changes in net selling prices and product mix each reduced sales by 1 percent. In addition, overall sales volumes were down 1 percent compared to a double-digit increase in the year-ago period.
In the Corporation’s international operations in Asia, Latin America, the Middle East, Eastern Europe and Africa, personal care net sales increased 3 percent despite an unfavorable currency impact of 3 percent. Sales volumes were up 5 percent, with growth in a number of markets, including Australia, China and most of Latin America. On the other hand, volumes fell significantly in Venezuela in a difficult foreign currency exchange environment. Overall net selling prices rose 1 percent, as increases in Venezuela were mostly offset by modest declines elsewhere.
In North America, net sales of consumer tissue products decreased 5 percent compared to the year-ago period. Net selling prices improved 2 percent, primarily due to sheet count reductions on Cottonelle bathroom tissue, and changes in product mix benefited sales 2 percent. Sales volumes fell 9 percent in the quarter and were impacted by the sheet count reductions, consumer trade-down in paper towels and competitive promotional activity. By product category, bathroom tissue volumes decreased high-single digits, towel volumes declined at a double-digit rate and Kleenex facial tissue volumes were down slightly.
In Europe, consumer tissue net sales declined about 5 percent compared with the second quarter of 2009, including unfavorable currency effects of 2 percent. Sales volumes were off 2 percent in a continued difficult environment, while changes in product mix reduced sales 1 percent.
In the Corporation’s international operations in Asia, Latin America, the Middle East, Eastern Europe and Africa, consumer tissue net sales increased 6 percent, including a 1 percent benefit from currency effects. The growth in organic sales was due to higher net selling prices, while sales volumes and product mix were essentially even with the prior year.
Net sales of K-C Professional (KCP) & other products increased 8.8 percent compared with the second quarter of 2009. The acquisition of Jackson Products, Inc. (“Jackson”) added 4 percent of sales growth in the quarter. In addition, net selling prices increased more than 4 percent and product mix was slightly positive, reflecting the Corporation’s continued focus on increasing net realized revenue. Organic sales volumes were even with year-ago levels. In North America, KCP net sales increased 11 percent, including an approximate 7 percent benefit from Jackson. Net selling prices rose 4 percent and changes in currency rates added 1 percent of sales growth, while organic sales volumes were down about 1 percent. Washroom product volumes declined in a continued difficult economic environment, while high-margin wiper and safety product volumes grew at a solid rate. In Europe, KCP’s net sales rose 6 percent despite an unfavorable currency effect of 3 percent. Sales volumes increased about 10 percent compared to a double-digit decline in the year-ago period and favorable product mix benefited sales by 1 percent, while net selling prices were down 2 percent. In the Corporation’s international operations in Asia, Latin America, the Middle East, Eastern Europe and Africa, KCP’s net sales increased 19 percent, including a 1 percent benefit from currency effects. The combined impact of higher net selling prices and improved product mix increased sales by 13 percent, and sales volumes were up 5 percent, with particular strength in Asia.
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Net sales of health care products increased 2.7 percent in the second quarter due to an 11 percent benefit from the acquisition of I-Flow Corporation (“I-Flow”) and a 1 percent increase from favorable currency exchange rates. However, organic sales volumes declined 6 percent and net selling prices fell 3 percent. The organic volume comparison was adversely affected by approximately 5 percent due to increased demand in 2009 for face masks as a result of the H1N1 flu virus. In addition, volumes in 2010 were impacted by unanticipated distributor and end-user inventory reductions. The Corporation believes that most of these reductions are now complete. Meanwhile, organic sales volumes for medical devices rose 9 percent in the quarter.
By Geography
North America
Outside North America
Intergeographic sales
Net sales in North America increased 2.8 percent primarily due to higher net selling prices, improvements in product mix and favorable currency effects.
Net sales outside North America increased 2.9 percent because higher sales volumes in a number of markets, including Australia, Korea, China and most of Latin America, and higher net selling prices, primarily in Venezuela, were partially offset by unfavorable currency effects.
Analysis of Operating Profit
Operating Profit(a)
Other income and (expense), net(b)
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In 2009, organization optimization initiative charges (as described in Note 4 to the Condensed Consolidated Financial Statements) were included in the business segments as follows:
2010 includes $5 million of currency transaction losses versus $20 million of currency transaction losses in 2009.
Includes inflation for key cost inputs.
Includes cost savings and the impact of the 2009 organization optimization initiative charges.
Consolidated operating profit increased 16.7 percent compared to the prior year. The benefits of higher net sales, cost savings of approximately $105 million, lower pension expense of about $40 million, and a $35 million positive impact from increased manufacturing volumes as a result of production curtailment in the year-ago period, were partially offset by inflation in key cost inputs of about $235 million and a $40 million increase in strategic marketing investments. Current year comparisons were also favorably impacted by organization optimization initiative charges of $110 million in 2009, and a current quarter benefit of $35 million as a result of the initiative. Overall marketing, research and general expenses were similar to year-ago levels, as increases in 2010, in part related to I-Flow and strategic marketing, were essentially offset by the organization optimization initiative charges in 2009.
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Personal care segment operating profit increased 12.4 percent as the benefits from cost savings, higher net selling prices and a positive impact from increased manufacturing volumes as a result of production curtailment in the year-ago period, were partially offset by input cost inflation, higher marketing spending and unfavorable currency effects. In addition, current period comparisons benefited from the charges related to the organization optimization initiative in 2009. In North America, operating profit increased from the prior year as cost savings, higher net selling prices, and the positive impact from increased manufacturing volumes as a result of production curtailment in the year-ago period, were partially offset by inflation in key input costs. Operating profit in Europe increased because cost savings and a lower level of marketing and general expense due to the organization optimization initiative charges in 2009 were partially offset by inflation in key input costs. In K-C’s international operations in Asia, Latin America, the Middle East, Eastern Europe and Africa, operating profit was essentially even as higher sales volumes, a positive impact from increased manufacturing volumes as a result of production curtailment in the year-ago period, and higher net selling prices were offset by unfavorable currency effects and higher marketing costs.
Consumer tissue segment operating profit decreased 6.2 percent as higher net selling prices, cost savings, and a lower level of marketing, research and general expenses were more than offset by inflation in key input costs, unfavorable currency effects and lower sales volumes. In addition, current period comparisons benefited from the charges related to the organization optimization initiative in 2009. Operating profit in North America decreased as higher net selling prices and a lower level of marketing, research and general expenses were more than offset by inflation in key input costs and lower sales volumes. In Europe, operating profit increased as lower marketing, research and general expenses and cost savings were partially offset by inflation in key input costs. Operating profit in K-C’s international operations in Asia, Latin America, the Middle East, Eastern Europe and Africa, decreased because higher net selling prices were more than offset by unfavorable currency effects and inflation in key input costs.
Operating profit for K-C Professional & Other products increased 30.4 percent due to higher net selling prices and cost savings, partially offset by inflation in key input costs.
Health care segment operating profit decreased 32.3 percent because increased sales volumes and cost savings were more than offset by higher selling and general expenses, inflation in key input costs and lower net selling prices.
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Operating profit in North America was even with the prior year as higher net selling prices, cost savings, the positive impact from increased manufacturing volumes as a result of production curtailment in the year-ago period, and favorable product mix were essentially offset by inflation in key cost inputs and lower sales volumes. In addition, the current year comparisons benefited from charges in 2009 related to the organization optimization initiative.
Operating profit outside North America increased 22.7 percent as higher net selling prices, cost savings, the positive impact from increased manufacturing volumes as a result of production curtailment in the year-ago period, and higher sales volumes were partially offset by inflation in key cost inputs and unfavorable currency effects. In addition, the current year comparisons benefited from the organization optimization initiative charges in Europe in 2009.
Additional Income Statement Commentary
Interest expense for the second quarter of 2010 was $11 million lower than the prior year due to a lower average level of debt and lower interest rates.
The Corporation’s effective tax rate for the second quarter of 2010 was 27.5 percent compared to 29.0 percent in the prior year.
The Corporation’s share of net income of equity companies in the second quarter increased to $47 million from $44 million in 2009, mainly as a result of higher net income at Kimberly-Clark de Mexico, S.A.B. de C.V. (“KCM”). KCM achieved high single-digit growth in both organic sales and net income, and delivered improved gross margin.
First Six Months of 2010 Compared With First Six Months of 2009
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Personal care net sales increased 5.3 percent due to higher sales volumes, favorable currency effects, primarily in Australia, Korea, and Brazil, and higher net selling prices.
Consumer tissue net sales increased 0.2 percent because favorable currency effects, higher net selling prices and product mix were mostly offset by lower sales volumes. The favorable currency effects primarily occurred in the same countries as personal care.
Net sales of K-C Professional & Other products increased 10.4 percent due to higher sales volumes as a result of the Jackson acquisition, higher net selling prices, and favorable currency effects, primarily in Australia, Europe and Canada.
Health care net sales increased 12.3 percent due to higher sales volumes, primarily related to the I-Flow acquisition, and favorable currency effects, partially offset by lower net selling prices and unfavorable product mix.
Net sales in North America increased 3.5 percent due to higher net selling prices, favorable currency effects, higher sales volumes and improvements in product mix.
Net sales outside North America increased 7.4 percent due to favorable currency effects, higher sales volumes, and higher net selling prices, primarily in most of Latin America, Australia and Korea.
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Corporate & Other(c)
Organization optimization initiative charges of $110 million are included in 2009 as described in Note 4 to the Condensed Consolidated Financial Statements.
Other income and (expense), net included a $79 million charge for the adoption of highly inflationary accounting in Venezuela effective January 1, 2010. See additional information in Note 3 to the Condensed Consolidated Financial Statements. In addition, foreign currency transaction losses totaled $26 million in 2010 and $96 million in the prior year.
Included in Corporate & Other in 2010 is a $19 million charge related to the adoption of highly inflationary accounting in Venezuela.
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Includes inflation of key cost inputs.
Includes cost savings and the impact of the 2009 organization optimization initiative charges. Consolidated also includes the charge related to the adoption of highly inflationary accounting in Venezuela.
Consolidated operating profit increased 11.2 percent compared with the prior year. For the first six months of 2010, factors contributing to the increase in operating profit included organic sales growth, cost savings of $185 million, organization optimization initiative charges of $110 million in 2009, lower pension expense of $80 million, and increased manufacturing volumes as a result of production curtailment in the year-ago period improved comparisons by approximately $65 million. These positive factors were partially offset by inflation in key cost inputs of about $310 million and increased marketing, research and general expenses, including higher strategic marketing spending of about $100 million and increases related to the I-Flow acquisition and to support future growth in K-C International.
In addition, the Corporation recorded charges in 2010 of $19 million in cost of products sold, and $79 million in other income and (expense), net related to the adoption of highly inflationary accounting in Venezuela effective January 1, 2010. In addition, other income and (expense), net included foreign currency transaction losses of $26 million in the first six months of 2010 and $96 million in the year-ago period.
Personal care segment operating profit increased 9.4 percent as cost savings, higher net selling prices, a positive impact from increased manufacturing volumes as a result of production curtailment in the year-ago period, and higher sales volumes were partially offset by inflation in key input costs, unfavorable currency effects, and increased marketing, research and general expense, including strategic marketing spending.
Consumer tissue segment operating profit declined 6.5 percent as cost savings, higher net selling prices, and the benefits from increased manufacturing volumes as a result of production curtailment in the year-ago period were more than offset by inflation in key input costs, lower sales volumes and unfavorable currency effects.
Operating profit for K-C Professional & Other products increased 31.9 percent due to higher net selling prices and cost savings, partially offset by inflation in key input costs.
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Health care segment operating profit decreased 10.0 percent as higher sales volumes and cost savings were more than offset by increased selling and general expenses and inflation in key input costs.
Other income and (expense), net in 2010 includes a $79 million charge for the adoption of highly inflationary accounting in Venezuela. In addition, foreign currency transaction losses totaled $26 million in 2010 and $96 million in 2009.
Included in Corporate and Other is a $19 million charge related to the adoption of highly inflationary accounting in Venezuela.
Operating profit in North America increased 5.7 percent as cost savings, higher net selling prices, and the positive impact from increased manufacturing volumes as a result of production curtailment in the year-ago period, were partially offset by inflation in key cost inputs and increases in marketing, research and general expenses.
Operating profit outside North America increased 9.6 percent as cost savings, higher sales volumes, higher net selling prices, and the positive impact from increased manufacturing volumes as a result of production curtailment in the year-ago period, were partially offset by inflation in key cost inputs, unfavorable currency effects and increases in marketing, research and general expenses.
Interest expense for the first six months of 2010 was $23 million lower than the prior year primarily due to a lower average level of debt and lower interest rates.
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For the first six months, the Corporation’s effective tax rate was 33.3 percent in 2010 compared with 29.1 percent in 2009. The difference is driven primarily by the nondeductible currency losses resulting from the adoption of highly inflationary accounting in Venezuela and changes in tax law related to U.S. health care reform legislation, including a charge related to the Medicare Part D subsidy.
The Corporation’s share of net income of equity companies for the first six months of 2010 increased to $90 million from $76 million in 2009, principally due to higher net income at Kimberly-Clark de Mexico.
Cash provided by operations for the first six months of 2010 was $1.1 billion, a decrease of approximately 38 percent from $1.7 billion in the prior year. The decrease is primarily related to a modest increase in working capital compared to a significant decline in the prior year. On the other hand, pension plan contributions to the Corporation’s defined benefit pension plans totaled approximately $228 million in 2010 versus $495 million in 2009.
Capital spending for the first six months was $363 million compared with $396 million last year. The Corporation currently anticipates full year capital spending to be at the low end, or potentially slightly below, its target range of $1.0 to $1.1 billion in 2010.
At June 30, 2010, total debt and redeemable securities was $6.7 billion compared with $6.5 billion at the end of 2009.
During the second quarter of 2010, the Corporation repurchased approximately 5.7 million shares of its common stock at a cost of about $350 million. Year-to-date, the Corporation has repurchased approximately 8.2 million shares for a total cost of $500 million. As previously announced, the Corporation expects to repurchase $700 million to $800 million of its common stock in 2010.
In 2003, the Venezuelan government enacted currency restrictions, which have affected the ability of K-C Venezuela to obtain U.S. dollars at the official exchange rate to pay for significant imports of finished goods, raw materials and services to support its operations. These exchange restrictions have negatively impacted K-C Venezuela because it has had to meet its foreign currency needs at rates which are substantially unfavorable to the official exchange rate. During the second quarter 2010, the Venezuelan government enacted reforms to its currency exchange regulations that include a volume limitation that is insufficient to convert K-C Venezuela’s bolivar-denominated cash into U.S. dollars to pay for the historical levels of U.S. dollar-denominated imports to support its operations.
For the full year 2009, K-C Venezuela represented approximately 3 percent of consolidated net sales, and 1 percent of consolidated operating profit and net income attributable to the Corporation. However, the currency exchange limitations have negatively impacted K-C Venezuela’s ability to import U.S. dollar-denominated finished goods and raw materials. While this has not had a material effect on the Corporation’s 2010 earnings, second quarter sales volumes of K-C Venezuela were significantly lower than 2009 levels, a trend which is expected to continue in the second half of the year.
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See Note 3 to the Consolidated Financial Statements for more details about the accounting for K-C Venezuela’s financial results and the previously discussed charge resulting from the January 1, 2010 adoption of highly inflationary accounting in Venezuela.
Management believes that the Corporation’s ability to generate cash from operations and its capacity to issue short-term and long-term debt are adequate to fund operations, capital spending, payment of dividends and other needs in the foreseeable future.
The Corporation has been named a potentially responsible party under the provisions of the federal Comprehensive Environmental Response, Compensation and Liability Act, or analogous state statutes, 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 the Corporation’s business, financial condition, results of operations, or liquidity.
The Corporation plans to continue to strengthen its brands, pursue targeted growth initiatives and invest for future growth. The Corporation has launched a number of innovations already this year and intends to bring more to market in the second half of the year. The Corporation continues to expect that strategic marketing spending will rise at a faster pace than sales in 2010, and is planning for higher input cost inflation than previously estimated, although it is expected that pulp prices will start to fall sequentially in the second half of the year. The Corporation also expects that sales volumes in the second half of the year will increase somewhat from second quarter levels. Management continues to focus on increasing revenue realization, generating incremental cost savings and controlling discretionary spending.
Information Concerning Forward-Looking Statements
Certain matters contained in this report concerning the business outlook, including anticipated raw material and energy costs, economic conditions, anticipated currency rates and exchange risk, anticipated impact of acquisitions, cost savings, distributor and end user purchases, product launches, cash flow and uses of cash, capital spending, marketing spending, anticipated financial and operating results, revenue realization strategies, contingencies and anticipated transactions of the Corporation constitute forward-looking statements and are based upon management’s expectations and beliefs concerning future events impacting the Corporation. There can be no assurance that these future events will occur as anticipated or that the Corporation’s results will be as estimated. For a description of certain factors that could cause the Corporation’s future results to differ materially from those expressed in any such forward-looking statements, see Item 1A of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 entitled “Risk Factors.”
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As of June 30, 2010, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation’s disclosure controls and procedures were effective as of June 30, 2010. There have been no significant changes during the quarter covered by this report in the Corporation’s internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Corporation repurchases shares of Kimberly-Clark common stock from time to time pursuant to publicly announced share repurchase programs. During 2010, the Corporation anticipates purchasing $700 million to $800 million of its common stock. All share repurchases by the Corporation during the first six months of 2010 were made through a broker in the open market.
The following table contains information for shares repurchased during the second quarter of 2010. None of the shares in this table were repurchased directly from any officer or director of the Corporation.
Period
(2010)
April 1 to 30
May 1 to 31
June 1 to 30
Share repurchases were made pursuant to a share repurchase program authorized by the Corporation’s Board of Directors on July 23, 2007 that allows for the repurchase of 50 million shares in an amount not to exceed $5 billion.
In addition, during April, the Corporation purchased 89,255 shares for a cost of $5,440,515 from current or former employees in connection with the exercise of employee stock options and other awards.
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Exhibit No. (3)a. Amended and Restated Certificate of Incorporation, dated April 30, 2009, incorporated by reference to Exhibit No. (3)a of the Corporation’s Current Report on Form 8-K dated May 1, 2009.
Exhibit No. (3)b. By-Laws, as amended April 30, 2009, incorporated by reference to Exhibit No. (3)b of the Corporation’s Current Report on Form 8-K dated May 1, 2009.
Exhibit No. (4). Copies of instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission on request.
Exhibit No. (10)n. Form of Award Agreements under 2001 Equity Participation Plan, filed herewith.
Exhibit No. (31)a. Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), filed herewith.
Exhibit No. (31)b. Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, filed herewith.
Exhibit No. (32)a. Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, furnished herewith.
Exhibit No. (32)b. Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, furnished herewith.
Exhibit No. (101).INS* XBRL Instance Document
Exhibit No. (101).SCH* XBRL Taxonomy Extension Schema Document
Exhibit No. (101).CAL* XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit No. (101).DEF* XBRL Taxonomy Extension Definition Linkbase Document
Exhibit No. (101).LAB* XBRL Taxonomy Extension Label Linkbase Document
Exhibit No. (101).PRE* XBRL Taxonomy Extension Presentation Linkbase Document
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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.
(Registrant)
/s/ Mark A. Buthman
/s/ Michael T. Azbell
August 9, 2010
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EXHIBIT INDEX
(3)a.
(3)b.
(4).
(10)n.
(31)a.
(31)b.
(32)a.
(32)b.
(101).INS*
(101).SCH*
(101).CAL*
(101).DEF*
(101).LAB*
(101).PRE*