Kimberly-Clark Corporation 2011 Form 10-K Summary
Business context and reporting period
Kimberly-Clark is a global branded consumer and health care products company operating through Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. Products are sold in more than 175 countries under brands including Huggies, Kleenex, Scott, Kotex and Depend. This Form 10-K covers the fiscal year ended December 31, 2011; the filing also provides unaudited fourth-quarter data.
The company had approximately 57,000 employees and reported approximately 12% of 2011 sales to Wal-Mart Stores, Inc.
Financial performance and key metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Net sales | $20.846 billion | $19.746 billion | +5.6% |
| Gross profit | $6.152 billion | $6.550 billion | -6.1% |
| Operating profit | $2.442 billion | $2.773 billion | -11.9% |
| Net income attributable to Kimberly-Clark | $1.591 billion | $1.843 billion | -13.7% |
| Diluted EPS | $3.99 | $4.45 | -10.3% |
| Cash provided by operations | $2.288 billion | $2.744 billion | -16.6% |
Approximate reported margins were 29.5% gross, 11.7% operating and 7.6% net attributable to Kimberly-Clark. Operating profit was pressured by $580 million of input-cost inflation, partly offset by $265 million of ongoing cost savings and 2% higher net selling prices.
| 2011 segment | Net sales | Operating profit |
|---|---|---|
| Personal Care | $9.128 billion | $1.526 billion |
| Consumer Tissue | $6.770 billion | $775 million |
| K-C Professional & Other | $3.294 billion | $487 million |
| Health Care | $1.606 billion | $219 million |
Fourth-quarter 2011 net sales were $5.176 billion, operating profit was $611 million, net income attributable to the Corporation was $401 million and diluted EPS was $1.01.
Cash flow, debt and liquidity
- Cash and cash equivalents were $764 million at December 31, 2011, compared with $876 million at year-end 2010.
- Capital spending was $968 million in 2011; management expected 2012 capital spending of $1.0 billion to $1.1 billion.
- Total debt and redeemable securities were approximately $6.7 billion at year-end 2011, compared with $6.5 billion in 2010. Long-term debt was $5.426 billion, with $619 million of scheduled maturities in 2012.
- The company had unused revolving credit facilities of $1.5 billion expiring in October 2016 and $500 million expiring in October 2012, with an option to increase either facility by $500 million. No amounts were drawn in 2011.
- The company paid $1.099 billion of dividends and repurchased $1.246 billion of common stock in 2011. No shares were repurchased during the fourth quarter.
- The company contributed $679 million to defined benefit pension plans, compared with $245 million in 2010. The pension plans were underfunded by approximately $706 million at year-end.
Material changes versus the prior comparable period
- Sales growth reflected favorable currency effects, higher pricing and volume increases, but profit declined because of commodity inflation and restructuring charges.
- International sales growth was strong: K-C International sales increased at a double-digit rate and represented approximately 36% of company sales, up three percentage points from 2010.
- Health Care sales increased 10.0% and operating profit increased 25.9%; Consumer Tissue operating profit increased 17.4%. Personal Care operating profit declined 13.5%.
- Consolidated results included $415 million of pretax pulp and tissue restructuring charges, including $329 million of noncash charges, producing a $289 million after-tax impact. The company also recorded a $32 million nondeductible business tax charge related to a Colombian law change.
- In 2010, results included a $98 million charge related to adopting highly inflationary accounting for Venezuelan operations; this created a favorable comparison in 2011.
- Stockholders’ equity decreased to $5.529 billion from $6.202 billion, primarily reflecting dividends, share repurchases and unfavorable currency and pension-related accumulated other comprehensive income.
Guidance, outlook, risks and unusual items
The company expected challenging economic conditions, particularly in developed markets. It expected commodity inflation to moderate in 2012, but anticipated pressure from foreign currencies weakening against the U.S. dollar. Management planned increased research, development and selling investment, continued cost savings, ongoing share repurchases and a 6% increase in the regular quarterly dividend.
The pulp and tissue restructuring, including the additional North American facility action announced in January 2012, was expected to be substantially completed by December 31, 2012. Cumulative 2011-2012 charges were estimated at $550 million to $600 million pretax, with expected annual operating-profit benefits of at least $75 million in 2013 and $100 million in 2014, partly offset by an expected $250 million to $300 million reduction in annual sales.
- Key risks include pulp, petroleum-based raw material, energy and transportation cost volatility; pricing pressure; private-label competition; retailer concentration; weak economic conditions; foreign exchange movements; and supply-chain disruptions.
- Venezuelan operations remained subject to currency restrictions and highly inflationary accounting. The company’s net investment in K-C Venezuela was approximately $250 million at year-end 2011.
- Legal, environmental, regulatory, tax and product-liability matters were disclosed, but management stated that their ultimate resolution was not expected to have a material adverse effect.
- Unrecognized tax benefits totaled $558 million; management stated that possible resolutions within 12 months could aggregate up to $200 million but were not expected to be material.
- Goodwill of $3.3 billion was tested and determined not to be impaired.
- The filing received unqualified audit opinions, and management and Deloitte & Touche concluded that internal control over financial reporting was effective as of December 31, 2011.
Important facts for investors to verify
- Whether the restructuring achieves the projected cost savings and operating-profit benefits without greater-than-expected sales losses or cash costs.
- Whether pricing and productivity gains can continue to offset pulp, petroleum-based material, energy and distribution inflation.
- The refinancing and liquidity impact of scheduled debt maturities, preferred securities potentially redeemable in December 2014, and commercial-paper market access.
- The effect of pension funding requirements, lower expected pension asset returns and changes in discount rates on future cash flow and earnings.
- Exposure to Venezuelan currency restrictions, foreign exchange translation losses and broader international-market volatility.
- Progress against the planned $900 million to $1.1 billion of 2012 share repurchases and the sustainability of the increased dividend.