Kimberly-Clark Corporation — 2009 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2009, filed February 24, 2010. Kimberly-Clark manufactures and markets branded personal care, consumer tissue, K-C Professional and Health Care products in more than 150 countries. Reportable segments are Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care.
The filing also presents unaudited fourth-quarter 2009 results. Key 2009 developments included acquisitions of the remaining interest in CKC, Jackson Products, Baylis Medical’s pain-management business and I-Flow Corporation, as well as a salaried workforce reduction initiative.
Financial performance and key metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Net sales | $19.115 billion | $19.415 billion | Down 1.5% |
| Gross profit | $6.420 billion | $5.858 billion | Up 9.6% |
| Operating profit | $2.825 billion | $2.547 billion | Up 10.9% |
| Net income attributable to Kimberly-Clark | $1.884 billion | $1.690 billion | Up 11.5% |
| Diluted EPS | $4.52 | $4.03 | Up 12.2% |
| Cash provided by operations | $3.481 billion | $2.516 billion | Up 38% |
| Capital spending | $848 million | $906 million | Down 6% |
- Gross margin was approximately 33.6%, compared with 30.2% in 2008. Operating margin was 14.8%, compared with 13.1%.
- Higher net selling prices, approximately $240 million of cost savings and approximately $675 million of deflation in key cost components more than offset lower volumes, approximately $355 million of unfavorable currency effects, $128 million of organization-optimization charges, approximately $155 million of higher pension expense, higher operating costs and increased strategic marketing spending.
- Segment sales were $8.365 billion for Personal Care, $6.409 billion for Consumer Tissue, $3.007 billion for K-C Professional & Other and $1.371 billion for Health Care.
- Segment operating profit was $1.739 billion for Personal Care, $736 million for Consumer Tissue, $464 million for K-C Professional & Other and $244 million for Health Care.
- Year-end cash and cash equivalents were $798 million, compared with $364 million in 2008. Total current assets were $5.864 billion and current liabilities were $4.923 billion.
- Long-term debt was $4.792 billion; total debt and redeemable securities were approximately $6.5 billion, down from $7.0 billion. The ratio of total debt and redeemable securities to capital declined to 53.1% from 62.2%, and pretax interest coverage improved to 8.8 times from 7.3 times.
- The company had a $1.33 billion revolving credit facility, expandable to $1.77 billion, expiring in September 2012. No amounts were borrowed under the facility during 2009.
- Cash dividends declared were $2.40 per share, compared with $2.32 in 2008. No shares were repurchased under the public repurchase program during 2009.
Fourth-quarter 2009 results
| Metric | Q4 2009 | Q4 2008 |
|---|---|---|
| Net sales | $4.982 billion | $4.598 billion |
| Gross profit | $1.666 billion | $1.455 billion |
| Operating profit | $717 million | $623 million |
| Net income attributable to Kimberly-Clark | $492 million | $419 million |
| Diluted EPS | $1.17 | $1.01 |
Fourth-quarter sales increased approximately 8.4%, operating profit increased approximately 15.1% and diluted EPS increased approximately 15.8% versus the fourth quarter of 2008. The filing does not provide a separate fourth-quarter cash-flow statement.
Material changes versus the prior comparable period
- Sales declined despite higher pricing because unfavorable currency effects and lower volumes outweighed price increases. Consumer Tissue sales declined 5.0% and K-C Professional & Other sales declined 5.3%, while Personal Care increased 1.1% and Health Care increased 12.0%.
- Health Care operating profit increased 70.6%, supported by volume growth, cost deflation, manufacturing efficiencies and the I-Flow acquisition. Approximately 35% of the segment’s total volume gain was attributed to higher face-mask demand related to H1N1.
- Consumer Tissue operating profit increased 22.5%, primarily from cost deflation, pricing and cost savings, despite volume declines and production downtime.
- Organization optimization actions reduced the worldwide salaried workforce by approximately 1,600 positions and generated $128 million of pretax charges in 2009. Related savings were approximately $55 million.
- Pension expense increased to $251 million from $97 million. Pension contributions increased to approximately $845 million from $129 million, while the year-end pension funding deficit improved to approximately $1.247 billion from $1.867 billion.
- The company acquired Jackson for approximately $155 million and I-Flow for $262 million, in addition to other acquisitions. Total acquisitions, net of cash acquired, were $458 million versus $98 million in 2008.
Outlook, risks, contingencies and unusual items
Management planned for a slow and modest economic recovery in 2010 and expected sales growth, cost savings and stronger currencies to more than offset inflation in key inputs and increased marketing spending. The company intended to continue targeted growth, innovation, research and customer-development initiatives, reduce costs, maximize cash flow, resume share repurchases and increase its regular quarterly dividend.
- Venezuela was a significant unusual item. The company recorded more than $195 million of pretax losses in 2009 from currency transactions at parallel exchange rates, including approximately $73 million of currency transaction losses in other income and expense. Following the January 2010 devaluation, management estimated a one-time after-tax charge of $60 million to $90 million in the first quarter of 2010.
- Principal risks include intense branded and private-label competition, retailer concentration and pricing pressure, raw-material and energy-cost volatility, foreign exchange exposure, economic weakness, credit-market access, acquisition integration, pension assumptions, legal and environmental matters, and dependence on third-party manufacturers and service providers.
- Contractual obligations totaled $12.490 billion, including $5.295 billion of long-term debt, $2.741 billion of interest payments, $789 million of operating leases, $1.808 billion of unconditional purchase obligations and $1.665 billion of open purchase orders.
- The company expected approximately $240 million of pension contributions in 2010. It also disclosed approximately $500 million of potential preferred-security redemptions in 2011 and another approximately $500 million in 2014 if the holders exercise their redemption rights.
- Management stated that environmental proceedings, the Delcora wastewater matter and other disclosed legal proceedings were not expected to have a material adverse effect. Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether pricing and cost savings can offset continuing volume pressure, competition and inflation in pulp, petroleum-based materials, energy and transportation.
- The realized amount and timing of the expected $60 million to $90 million after-tax Venezuelan devaluation charge and the ongoing effect of Venezuela’s currency regime.
- Integration, earnings contribution and goodwill accounting for Jackson, Baylis and I-Flow, particularly the Health Care growth strategy.
- Future pension contributions and expense, including sensitivity to discount rates, asset returns and the approximately $2.2 billion of unrecognized pension and actuarial losses.
- Debt maturities, preferred-security redemption rights, commercial-paper access and compliance with liquidity needs.
- Progress on resumed share repurchases, dividend growth and management’s 2010 recovery assumptions.