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Equity Parentheticals
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28: R16 Supplemental Balance Sheet Data HTML 55K
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock
iKMB
iNew
York Stock Exchange
i0.625% Notes due 2024
iKMB24
iNew
York Stock Exchange
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.iYesx Noo
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). iYesxNoo
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
x
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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).Yesi☐Nox
As of October 18, 2022, there werei337,492,094
shares of the Corporation's common stock outstanding.
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. iAccounting
Policies
Basis of Presentation
The accompanying unaudited interim 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 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, 2021. The terms "Corporation,""Kimberly-Clark,""K-C,""we,""our" and "us" refer to Kimberly-Clark Corporation and its consolidated subsidiaries.
Highly Inflationary Accounting
GAAP guidance requires the use of highly inflationary accounting for countries whose cumulative three-year inflation exceeds 100 percent. Under highly inflationary accounting, the countries’ functional currency becomes the U.S. dollar, and its income statement and balance sheet are measured in U.S. dollars using both current and historical rates of exchange. In the second quarter of 2018, published inflation indices indicated that the three-year cumulative inflation
in Argentina exceeded 100 percent, and as of July 1, 2018, we elected to adopt highly inflationary accounting for our subsidiaries in Argentina (“K-C Argentina”). The effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in Other (income) and expense, net and was not material. As of September 30, 2022, K-C Argentina had a small net peso monetary position. Net sales of K-C Argentina were approximately ii1/percent of our consolidated net sales for the nine months ended September 30, 2022 and 2021.
In the first quarter of 2022, published inflation indices indicated that the three-year cumulative inflation in Turkey exceeded 100 percent, and as of April 1, 2022, we elected to adopt highly inflationary accounting for our subsidiary in Turkey (“K-C Turkey”). The effect of changes in exchange rates on lira-denominated monetary assets and liabilities has been reflected in earnings in Other (income) and expense, net and was not material. As of September 30, 2022, K-C Turkey had a small net lira monetary position. Net sales of K-C Turkey were less than i1
percent of our consolidated net sales for the nine months ended September 30, 2022.
Recently Issued Accounting Standard
In September 2022, the Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) No. 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50). The new guidance requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of the financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the provision on roll
forward information, which is effective for fiscal years beginning after December 15, 2023. As the guidance requires only additional disclosures, the effects of this standard on our financial position, results of operations and cash flows are not expected to be material.
Note 2. i2022 Acquisition
On
February 24, 2022, we completed our acquisition of a majority and controlling share of Thinx Inc. (“Thinx”), an industry leader in the reusable period and incontinence underwear category, for total consideration of $i181 consisting of cash of $i53,
the fair value of our previously held equity investment of $i127, and certain share-based award costs of $i1.
We previously accounted for our ownership interest in Thinx as an equity method investment, but upon increasing our ownership toi58%, we began consolidating the operations of Thinx into our financial statements at the end of the first quarter of 2022. The consolidated results of operations for Thinx are reported in our Personal Care business segment on a one-month lag. The share of Thinx net income and equity attributable to the third-party minority owner
of Thinx is classified in our consolidated income statement within Net income attributable to noncontrolling interests and in our consolidated balance sheet within Redeemable Common and Preferred Securities of Subsidiaries. This noncontrolling equity interest is measured at the estimated redemption value, which approximates fair value.
7
We have substantially completed an initial purchase price allocation in which we utilized several generally accepted valuation methodologies to estimate the fair value of certain acquired assets. The primary valuation methods included two forms of the Income Approach (i.e., the multi-period excess earnings method [distributor method] and
the relief-from-royalty method). These valuation methodologies are commonly used to value similar identifiable intangible assets in the Consumer Packaged Goods industry. All of the selected valuation methodologies incorporate unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy in Accounting Standard Codification 820, Fair Value Measurements. In connection with these valuation methodologies, we are required to make estimates and assumptions regarding market comparable companies, revenue growth rates, operating margins, distributor and customer attrition rates, royalty rates, distributor margins, discount rates, etc., which are primarily based on cash flow forecasts, business plans, economic projections and other information available to market participants.
i
The
total purchase price consideration was allocated to the net assets acquired based upon their respective estimated fair values as follows:
Current Assets
$
i28
Property,
Plant and Equipment, Net
i2
Goodwill
i297
Other
Intangible Assets, Net
i123
Other Assets
i4
Current
Liabilities
(i17)
Deferred Income Taxes
(i18)
Other
Liabilities
(i4)
Fair value of net assets acquired
i415
Less
fair value of non-controlling interest
(i234)
Total purchase price consideration
$
i181
/
Other
Intangible Assets, Net includes brands and customer relationships which have estimated useful lives of 4 to 15 years, primarily 15 years. Based on the carrying value of these finite-lived assets as of September 30, 2022, amortization expense per year for each of the next five years is estimated to be approximately $iiiii8////.
Goodwill
of $i297 was allocated to the Personal Care business segment. The goodwill is primarily attributable to future growth opportunities and any intangible assets that did not qualify for separate recognition. For tax purposes, the acquisition of additional Thinx shares was treated as a stock acquisition, and the goodwill acquired is not tax deductible.
The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in adjustments to the preliminary values discussed above. We continue to evaluate
potential contingencies that may have existed as of the acquisition date and expect to finalize the purchase price allocation no later than the first quarter of 2023.
As a result of this transaction during the quarter ended March 31, 2022, an $i85 non-recurring, non-cash gain was recognized in Other (income) expense, net as a result of the remeasurement of the carrying
value of our previously held equity investment to fair value, and related transaction and integration costs of $i21 were recorded in Marketing, research and general expenses. This recognition resulted in a net benefit of $i64
pre-tax ($i68 after tax) being included in our consolidated income statement for the quarter ended March 31, 2022. In addition, we removed the non-cash gain impact from Operating Activities in our consolidated cash flow statements for the nine months ended September 30, 2022.
Pro forma
results of operations have not been presented as the impact on our consolidated financial statements is not material.
8
Note 3. iFair 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 nine months ended September 30, 2022 and for the full year 2021, there were no significant transfers to or from level 3 fair value determinations.
Derivative assets and liabilities are measured on a recurring basis at fair value. At September 30, 2022 and December 31, 2021, derivative assets were $i283 and $i65,
respectively, and derivative liabilities were $i131 and $i41, respectively. 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 commodity price
quotations, respectively. The fair values of hedging instruments used to manage foreign currency risk are 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 6.
Redeemable common and preferred securities of subsidiaries are measured on a recurring basis at their estimated redemption values, which approximate fair value. As of September 30, 2022 and December 31, 2021, the securities were valued at $i260
and $i26, respectively. No redeemable common securities were outstanding at December 31, 2021. The securities are not traded in active markets, and their measurement is considered a level 3 measurement.
Company-owned life insurance ("COLI") assets are measured on a recurring basis at fair value. COLI assets were $i63
and $i72 at September 30, 2022and December 31, 2021, 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.
i
The
following table includes the fair value of our financial instruments for which disclosure of fair value is required:
(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. Time deposits 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.
/
9
Note 4. iEarnings
Per Share ("EPS")
There are no adjustments required to be made to net income for purposes of computing EPS. iThe average number of common shares outstanding is reconciled to those used in the basic and diluted EPS computations as follows:
Three
Months Ended September 30
Nine Months Ended September 30
(Millions of shares)
2022
2021
2022
2021
Basic
i337.6
i336.8
i337.3
i337.4
Dilutive
effect of stock options and restricted share unit awards
i0.7
i0.7
i1.0
i1.0
Diluted
i338.3
i337.5
i338.3
i338.4
The
impact of 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 was insignificant. The number of common shares outstanding as of September 30, 2022 and 2021 was i337.5 million and i336.7
million, respectively.
Note 5. iStockholders' Equity
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 nine months ended September 30, 2022 was primarily due to the
weakening of certain foreign currencies versus the U.S. dollar.
i
The changes in the components of AOCI attributable to Kimberly-Clark, net of tax, are as follows:
(a) Included
in computation of net periodic benefit costs.
/
Note 6. iObjectives 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.
At September 30, 2022 and December 31, 2021, derivative assets were $i283 and $i65,
respectively, and derivative liabilities were $i131 and $i41, respectively, primarily comprised of foreign currency exchange contracts. Derivative assets are recorded in
10
Other
current assets or Other Assets, as appropriate, and derivative liabilities are recorded in Accrued expenses and other current liabilities or Other Liabilities, as appropriate.
Foreign Currency Exchange Rate Risk
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 borrowings. A portion of our balance sheet translation exposure for certain affiliates, which results from changes in translation rates between the affiliates’ functional currencies and the U.S. dollar, is hedged with cross-currency swap contracts and certain foreign denominated debt which are designated as net investment 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.
Derivative instruments are entered into 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 as cash flow hedges.
Interest Rate Risk
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 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.
Commodity Price Risk
We use derivative instruments, such as forward 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. In addition, we utilize negotiated contracts
of varying durations along with strategic pricing mechanisms to manage volatility for a portion of our commodity costs.
Fair Value Hedges
Derivative instruments that are designated and qualify as fair value hedges are predominantly used to manage interest rate risk. The fair values of these interest rate derivative instruments are recorded as an asset or liability, as appropriate, with the offset recorded in Interest expense. The offset to the change in fair values of the related debt is also recorded in Interest expense. 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 September 30, 2022, the aggregate notional values and carrying values of debt subject to outstanding interest rate contracts
designated as fair value hedges were $i525 and $i465, respectively. For the nine months ended September 30, 2022 and 2021, gains or losses recognized in Interest expense for
interest rate swaps were not significant.
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, 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 income statement line and period that the hedged exposure affects earnings. As of September 30, 2022, 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 2022 and future periods. During 2022, we increased the notional level of our foreign currency designated cash flow hedges to help mitigate the impacts of significantly increased macroeconomic foreign
currency rate fluctuations, and as of September 30, 2022, the aggregate notional value of outstanding foreign exchange derivative contracts designated as cash flow hedges was $i2,106. For the nine months ended September 30, 2022 and 2021, no significant gains or losses were reclassified into Interest expense, Cost of products sold or Other (income)
and expense, net as a result of the discontinuance of cash flow hedges due to the original forecasted transaction no longer being probable of occurring. At September 30, 2022, amounts to be reclassified from AOCI into Interest expense, Cost of products sold or Other (income) and expense, net during the next twelve months are not expected to be material. The maximum maturity of cash flow hedges in place at September 30, 2022 is September 2025.
Net Investment Hedges
For derivative instruments that are designated and qualify as net investment hedges, the aggregate notional value was $i1.3 billion
at September 30, 2022. We exclude the interest accruals on cross-currency swap contracts and the forward points on foreign exchange forward contracts from the assessment and measurement of hedge effectiveness. We recognize the interest accruals on cross-currency swap contracts in earnings within Interest expense. We amortize the forward points on foreign exchange contracts into earnings within Interest expense over the life of the hedging relationship. Changes in fair value of net investment hedges are recorded in AOCI and offset the change
in the value of the net investment being hedged. For the nine
11
months ended September 30, 2022, unrealized gains of $i176 related to net investment hedge fair value changes were recorded in AOCI and no significant amounts
were reclassified from AOCI to Interest expense.
No significant amounts were excluded from the assessment of net investment, fair value or cash flow hedge effectiveness as of September 30, 2022.
Undesignated Hedging Instruments
Gains or losses on undesignated foreign exchange hedging instruments are immediately recognized in Other (income) and expense, net. Losses of $i13
and $i2 were recorded in the three months ended September 30, 2022 and 2021, respectively. Losses of $i48
and $i8 were recorded in the nine months ended September 30, 2022 and 2021, 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 September 30, 2022, the notional value of these undesignated
derivative instruments was approximately $i2.1 billion.
Note 7. iBusiness
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 ongoing operations of the business segments, including
the costs of corporate decisions related to the 2018 Global Restructuring Program which was completed in 2021.
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, reusable underwear and other related products. Products in this segment are sold under the Huggies, Pull-Ups, Little Swimmers, GoodNites, DryNites, Sweety, Kotex, U by Kotex, Intimus, Thinx, Depend, Plenitud, Softex, Poise and other brand names.
•Consumer
Tissue offers a wide variety of innovative solutions and trusted brands that responsibly improve everyday living for families around the world. 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 KleenGuard are well known for quality and trusted to help people around the world work better.
12
i
Information
concerning consolidated operations by business segment is presented in the following tables:
Three
Months Ended September 30
Nine Months Ended September 30
2022
2021
Change
2022
2021
Change
NET SALES
Personal
Care
$
i2,628
$
i2,656
-i1
%
$
i8,067
$
i7,635
+i6
%
Consumer
Tissue
i1,578
i1,541
+i2
%
i4,683
i4,475
+i5
%
K-C
Professional
i836
i797
+i5
%
i2,418
i2,314
+i4
%
Corporate
& Other
i11
i16
N.M.
i43
i51
N.M.
TOTAL
NET SALES
$
i5,053
$
i5,010
+i1
%
$
i15,211
$
i14,475
+i5
%
OPERATING
PROFIT
Personal Care
$
i423
$
i496
-i15
%
$
i1,364
$
i1,431
-i5
%
Consumer
Tissue
i218
i222
-i2
%
i567
i687
-i17
%
K-C
Professional
i119
i96
+i24
%
i294
i332
-i11
%
Corporate
& Other(a)
(i90)
(i150)
N.M.
(i298)
(i386)
N.M.
Other
(income) and expense, net(a)
i15
i7
+i114
%
(i42)
i24
N.M.
TOTAL
OPERATING PROFIT
$
i655
$
i657
i—
$
i1,969
$
i2,040
-i3
%
(a) Corporate
& Other and Other (income) and expense, net include income and expense not associated with the business segments, including the non-cash, non-recurring gain and transaction and integration costs related to the acquisition of a controlling interest in Thinx in 2022 and charges related to the 2018 Global Restructuring Program in 2021. Restructuring charges related to the Personal Care, Consumer Tissue and K-C Professional for the three months ended September 30, 2021 were, $i32, $i42,
and $i10, respectively and for the nine months ended September 30, 2021 were $i71, $i84
and $i19, respectively.
N.M. - Not Meaningful
/i
Sales
of Principal Products:
Three Months Ended September 30
Nine Months Ended September 30
(Billions of dollars)
2022
2021
2022
2021
Baby
and child care products
$
i1.7
$
i1.8
$
i5.5
$
i5.3
Consumer
tissue products
i1.6
i1.5
i4.7
i4.5
Away-from-home
professional products
i0.8
i0.8
i2.4
i2.3
All
other
i1.0
i0.9
i2.6
i2.4
Consolidated
$
i5.1
$
i5.0
$
i15.2
$
i14.5
/
Note
8. iSupplemental Balance Sheet Data
iThe following schedule presents a summary of inventories by major class:
Excess
of FIFO or weighted-average cost over LIFO cost
(i241)
i—
(i241)
(i218)
i—
(i218)
Total
$
i687
$
i1,594
$
i2,281
$
i683
$
i1,556
$
i2,239
/
Inventories
are valued at the lower of cost or 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.
13
iThe following schedule presents a summary of property, plant and equipment, net:
Item
2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Introduction
This management's discussion and analysis ("MD&A") of financial condition and results of operations is intended to provide investors with an understanding of our recent performance, financial condition and prospects. Dollar amounts are reported in millions, except per share dollar amounts, unless otherwise noted. The following will be discussed and analyzed:
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. We have three reportable business segments: Personal Care, Consumer Tissue and K-C Professional. These business segments are described in greater detail in Note 7 to the unaudited interim consolidated financial statements.
On February 24, 2022, we completed our acquisition of a majority and controlling share of Thinx Inc. (“Thinx”), an industry leader in the reusable period and incontinence underwear category, for total consideration of $181
consisting of cash of $53, the fair value of our previously held equity investment of $127, and certain share-based award costs of $1.
This section presents a discussion and analysis of our third quarter 2022 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, net selling prices and product mix on net sales. Change in foreign currency exchange rates, acquisitions and exited businesses also impact the year-over-year change in net sales. Our analysis compares the three and nine months ended September 30, 2022 results to the same periods in 2021.
In March 2022, we implemented significant adjustments to our business in Russia and suspended substantially all media,
advertising and promotional activity as well as capital investments in our sole manufacturing facility. Consistent with the humanitarian nature of our products, we are manufacturing and selling only essential items, such as baby diapers and feminine pads, which are critical to the health and hygiene of women, girls and babies, but our ability to manufacture these items may change as the situation evolves. Our Russia business has historically represented approximately 1 to 2 percent of our net sales, operating profit and total assets. We are actively monitoring the situation, and as the business, geopolitical and regulatory environment concerning Russia evolves, our assets may be partially or fully impaired. We are also monitoring the increased risk of cyber-based attacks as a result of the Russian invasion of Ukraine and have implemented heightened cyber-security monitoring of our systems designed to address the evolving threat landscape. We
are experiencing increased input costs as a result of inflation and supply chain complexities related to the Russian invasion that are having a negative impact on our operations. For a more complete discussion of the risks we encounter in our business, please refer to Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021.
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 gross and 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 unaudited interim 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:
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•Pension settlements - In 2022, pension settlement charges were recognized related to lump-sum distributions from pension plan assets exceeding the total of annual service and interest costs resulting in a recognition of deferred actuarial losses.
•Acquisition of controlling interest in Thinx – In the first quarter of 2022, we increased our investment in Thinx. As a result of this transaction, a net benefit was recognized primarily due to the non-recurring, non-cash gain recognized related to the remeasurement of the carrying value of our previously held equity
investment to fair value partially offset by transaction and integration costs. See Item 1, Note 2 to the unaudited interim consolidated financial statements for details.
The non-GAAP financial measures also exclude charges in 2021 for the 2018 Global Restructuring Program as indicated in the reconciliations included later in this MD&A. In 2018, we initiated this restructuring in order to reduce our structural cost base by streamlining and simplifying our manufacturing supply chain and overhead organization. As a result, we recognized restructuring charges in 2018, 2019, 2020 and 2021 for this program. Restructuring actions were completed in 2021.
Overview of Third Quarter 2022 Results
•Net sales of $5.1 billion increased 1 percent compared to the year-ago period, including organic sales growth of 5 percent.
•Operating
profit was $655 in 2022 and $657 in 2021. Net Income Attributable to Kimberly-Clark Corporation was $467 in 2022 compared to $469 in 2021, and diluted earnings per share were $1.38 in 2022 compared to $1.39 in 2021. Results in 2022 include pension settlement charges, compared to 2021 results, which include charges related to the 2018 Global Restructuring Program.
Results of Operations and Related Information
This section presents a discussion and analysis of our third quarter 2022 net sales, operating profit and other information relevant to an understanding of the results of operations.
Consolidated
Selected
Financial Results
Three Months Ended September 30
Nine Months Ended September 30
2022
2021
Percent Change
2022
2021
Percent Change
Net Sales:
North
America
$
2,682
$
2,692
—
$
7,953
$
7,436
+7
%
Outside North America
2,446
2,399
+2
%
7,471
7,274
+3
%
Intergeographic
sales
(75)
(81)
-7
%
(213)
(235)
-9
%
Total Net Sales
5,053
5,010
+1
%
15,211
14,475
+5
%
Operating
Profit:
North America
519
564
-8
%
1,475
1,561
-6
%
Outside
North America
241
250
-4
%
750
889
-16
%
Corporate & Other(a)
(90)
(150)
N.M.
(298)
(386)
N.M.
Other
(income) and expense, net(a)
15
7
+114
%
(42)
24
N.M.
Total Operating Profit
655
657
—
1,969
2,040
-3
%
Share
of net income of equity companies
29
21
+38
%
81
88
-8
%
Net
Income Attributable to Kimberly-Clark Corporation
467
469
—
1,427
1,457
-2
%
Diluted Earnings per Share
1.38
1.39
-1
%
4.22
4.31
-2
%
(a) Corporate
& Other and Other (income) and expense, net include income and expense not associated with the business segments, including adjustments as indicated in the Non-GAAP Reconciliations.
N.M. - Not Meaningful
16
GAAP to Non-GAAP Reconciliations of Selected Financial Results
Net income attributable to noncontrolling interests
(26)
3
(29)
Net
Income Attributable to Kimberly-Clark Corporation
1,457
(199)
1,656
Diluted Earnings per Share(a)
4.31
(0.59)
4.89
(a) "As
Adjusted Non-GAAP" may not equal "As Reported" plus "Adjustments" as a result of rounding.
Analysis of Consolidated Results
Net
Sales
Percent Change
Adjusted Operating Profit
Percent Change
Three Months Ended September 30
Nine Months Ended September 30
Three Months Ended September 30
Nine Months Ended September 30
Volume
(5)
(1)
Volume
(13)
(7)
Net
Price
9
8
Net Price
63
52
Mix/Other
1
1
Input
Costs
(48)
(55)
Currency
(4)
(3)
Cost Savings(c)
11
8
Total(a)
1
5
Currency
Translation
(2)
(2)
Other(d)
(23)
(10)
Organic(b)
5
8
Total
(12)
(14)
(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) Benefits of the FORCE (Focused On Reducing Costs Everywhere) program.
(d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Net sales in the third quarter of $5.1 billion increased 1 percent compared to the year-ago period. Organic sales increased 5 percent as changes in net selling prices and product mix increased sales by 9 percent and 1 percent, respectively, while volumes declined 5 percent. Changes in foreign currency exchange rates reduced sales by 4 percent.
In
North America, organic sales decreased 2 percent in consumer products and increased 5 percent in K-C Professional. Outside North America, organic sales rose 11 percent in both D&E and developed markets.
Operating profit in the third quarter was $655 in 2022 and $657 in 2021. Excluding the charges related to the 2018 Global Restructuring Program, 2021 adjusted operating profit was $745. Results were impacted by $360 of higher input costs, lower volumes, higher marketing, research and general expense as well as unfavorable foreign currency effects. Results benefited from higher net selling prices and $80 of cost savings from our FORCE program.
The third quarter effective tax rate was 22.4 percent in 2022 and 21.6 percent in 2021. The third quarter adjusted effective tax was 22.3 percent in 2022 and 20.9 percent in 2021.
Our share
of net income of equity companies in the third quarter was $29 in 2022 and $21 in 2021.
Diluted net income per share for the third quarter was $1.38 in 2022 and $1.39 in 2021. Third quarter adjusted earnings per share were $1.40 in 2022, a decrease of 14 percent compared to $1.62 in 2021.
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Year-to-date net sales of $15.2 billion increased 5 percent compared to the year ago period. Organic sales increased 8 percent, as changes in net selling prices and product mix increased sales by 8 percent and 1 percent, respectively, and volumes declined 1 percent. Changes in foreign currency exchange rates decreased sales by 3 percent. Year-to-date operating profit was $1,969 in 2022 and $2,040 in 2021. Results in 2022 include
the net benefit of the acquisition of a controlling interest of Thinx, and results in 2021 include charges related to the 2018 Global Restructuring Program. Year-to-date adjusted operating profit was $1,905 in 2022 and $2,225 in 2021. Results were impacted by over $1.2 billion of higher input costs, higher marketing, research and general spending and unfavorable foreign currency effects. Results benefited from organic sales growth, $175 of FORCE savings and lower other manufacturing costs.
Through nine months, diluted net income per share was $4.22 in 2022 and $4.31 in 2021. Year-to-date adjusted earnings per share were $4.09 in 2022, a decrease of 16 percent compared to $4.89 in 2021.
Results by Business Segments
Personal Care
Three
Months Ended September 30
Nine Months Ended September 30
Three Months Ended September 30
Nine Months Ended September 30
2022
2021
2022
2021
2022
2021
2022
2021
Net
Sales
$
2,628
$
2,656
$
8,067
$
7,635
Operating Profit
$
423
$
496
$
1,364
$
1,431
Net
Sales
Percent Change
Percent Change
Operating Profit
Percent Change
Percent Change
Volume
(7)
(2)
Volume
(14)
(5)
Net
Price
8
8
Net Price
44
45
Mix/Other
1
2
Input
Costs
(29)
(37)
Acquisition/Exited
Businesses(e)
1
—
Cost Savings(c)
7
6
Currency
(4)
(3)
Currency
Translation
(2)
(3)
Total(a)
(1)
6
Other(d)
(21)
(11)
Organic(b)
2
8
Total
(15)
(5)
(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) Benefits of the FORCE program.
(d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
(e) Combined impact of the acquisition of Thinx Inc. and exited businesses in conjunction with the 2018 Global Restructuring Program.
Third quarter net sales in North America decreased 5 percent. Volumes declined 10 percent, while changes in net selling prices increased sales by 4 percent and the Thinx acquisition increased sales by approximately 2 percent. The volume comparison
reflects elevated shipments in the year ago period to restore retailer inventory levels following supply disruptions. The planned exit of a private label contract earlier this year as well as some reductions in retailer inventory levels late in the quarter also impacted the comparison.
Net sales in D&E markets increased 5 percent. Changes in net selling prices and product mix increased sales by 15 percent and 3 percent, respectively, while volumes declined 6 percent. Changes in foreign currency exchange rates decreased sales by 6 percent. Organic sales growth was strong across Latin America and the Asia Pacific region.
Net sales in developed markets outside North America decreased 4 percent. Changes in foreign currency exchange rates reduced sales by 12 percent. Changes in net selling
prices increased sales by 5 percent and volumes grew 3 percent.
Operating profit of $423 decreased 15 percent. The comparison was impacted by input cost inflation, lower volumes and associated fixed cost under absorption, higher marketing, research and general spending as well as unfavorable foreign currency effects. Results benefited from higher net selling prices and cost savings.
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Consumer Tissue
Three
Months Ended September 30
Nine Months Ended September 30
Three Months Ended September 30
Nine Months Ended September 30
2022
2021
2022
2021
2022
2021
2022
2021
Net
Sales
$
1,578
$
1,541
$
4,683
$
4,475
Operating Profit
$
218
$
222
$
567
$
687
Net
Sales
Percent Change
Percent Change
Operating Profit
Percent Change
Percent Change
Volume
(3)
1
Volume
(7)
(3)
Net
Price
9
7
Net Price
63
46
Mix/Other
—
—
Input
Costs
(62)
(69)
Currency
(4)
(3)
Cost Savings(c)
11
8
Total(a)
2
5
Currency
Translation
(1)
(1)
Other(d)
(6)
2
Organic(b)
7
8
Total
(2)
(17)
(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) Benefits of the FORCE program.
(d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Third quarter net sales in North America increased 5 percent. Changes in net selling prices increased sales by 7 percent, while volumes declined 2 percent. Higher net selling prices were achieved across all sub-segments while volume decline was primarily in bathroom tissue.
Net sales in D&E markets increased 3 percent. Changes in net selling prices and product mix increased sales by 12 percent and 1
percent, respectively, while volumes declined 6 percent. Changes in foreign currency exchange rates decreased sales by 5 percent.
Net sales in developed markets outside North America decreased 2 percent. Changes in foreign currency exchange rates decreased sales by 13 percent. Changes in net selling prices increased sales by approximately 12 percent, while volumes declined 1 percent.
Operating profit of $218 decreased 2 percent. The comparison was impacted by input cost inflation, higher marketing, research and general spending, and unfavorable foreign currency effects. Results benefited from organic sales growth, cost savings and lower other manufacturing costs.
K-C Professional
Three
Months Ended September 30
Nine Months Ended September 30
Three Months Ended September 30
Nine Months Ended September 30
2022
2021
2022
2021
2022
2021
2022
2021
Net
Sales
$
836
$
797
$
2,418
$
2,314
Operating Profit
$
119
$
96
$
294
$
332
Net
Sales
Percent Change
Percent Change
Operating Profit
Percent Change
Percent Change
Volume
(5)
(3)
Volume
(14)
(16)
Net
Price
14
9
Net Price
113
63
Mix/Other
1
1
Input
Costs
(77)
(68)
Currency
(4)
(3)
Cost Savings(c)
21
11
Total(a)
5
4
Currency
Translation
(5)
(2)
Other(d)
(14)
1
Organic(b)
9
7
Total
24
(11)
(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) Benefits of the FORCE program.
(d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
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Third quarter net sales in North America increased 5 percent. Changes in net selling prices and product mix increased sales by 14 percent and approximately 1 percent, respectively, while volumes declined 9 percent. Washroom products sales were up double-digits while sales of safety
products decreased versus a strong year-ago.
Net sales in D&E markets increased 7 percent. Changes in net selling prices increased sales by 8 percent, volumes grew 2 percent, and changes in product mix increased sales by approximately 2 percent. Changes in foreign currency exchange rates decreased sales by 6 percent.
Net sales in developed markets outside North America increased 5 percent. Changes in net selling prices and product mix increased sales by 19 percent and 1 percent, respectively. Changes in foreign currency exchange rates decreased sales by 15 percent.
Operating profit of $119 increased 24 percent. Results benefited from higher net selling prices and cost savings. The comparison was impacted by input cost inflation, lower volumes and unfavorable foreign currency effects.
Liquidity
and Capital Resources
Cash Provided by Operations
Cash provided by operations was $1.7 billion for the first nine months of 2022, consistent with the prior year.
Investing
During the nine months ended September 30, 2022, our capital spending was $679 compared to $734 in the prior year. We now anticipate that full year capital spending will be $0.9 billion to $1.0 billion. Acquisition of business, net of cash acquired of $46 in the first nine months of 2022 reflected the acquisition of a controlling interest of Thinx.
Financing
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 $0.6 billion as of September 30, 2022 (included in Debt payable within one year on the consolidated balance sheet). The average month-end balance of short-term debt for the third quarter of 2022 was $0.7 billion. These short-term borrowings provide supplemental funding to support 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 dividends and income taxes.
We maintain a $2.0 billion revolving credit facility which expires in June 2026 and a $775 revolving credit facility which expires in June 2023. These facilities, currently unused, support our commercial paper program and would provide liquidity in the event our access to the commercial paper markets is unavailable for any reason.
The United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), is in the process of phasing out LIBOR with completion of the phase out expected by June 30, 2023. We have evaluated the potential effect of the elimination of LIBOR and do not expect the effect to be material. Accounting guidance has been issued to ease the transition to alternative reference rates from a financial reporting perspective.
We
repurchase shares of Kimberly-Clark common stock from time to time pursuant to publicly announced share repurchase programs. During the first nine months of 2022, we repurchased 579 thousand shares of our common stock at a cost of $75 through a broker in the open market. We are targeting full-year 2022 share repurchases of approximately $100, subject to market conditions.
We believe 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, pension contributions, dividends 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.
Information
Concerning Forward-Looking Statements
Certain matters contained in this report concerning the business outlook, including raw material, energy and other input costs, 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, including the impact in Argentina and Turkey, 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.
21
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 the war in Ukraine (including the related responses of consumers, customers, and suppliers and sanctions issued by the U.S., the European Union, Russia or other countries), pandemics (including the ongoing COVID-19 outbreak and the related responses of governments, consumers, customers, suppliers and employees), epidemics, fluctuations in foreign currency exchange rates, the prices and availability
of our raw materials, supply chain disruptions, changes in customer preferences, severe weather conditions, government trade or similar regulatory actions, potential competitive pressures on selling prices for our products, energy costs, general economic and political conditions globally and in the markets in which we do business, as well as our ability to maintain key customer relationships, 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, 2021 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.
Item
4. Controls and Procedures
As of September 30, 2022, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2022. There were no changes in our internal control over financial reporting during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
22
PART
II – OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We repurchase shares of Kimberly-Clark common stock from time to time pursuant to publicly announced share repurchase programs. All our share repurchases during the third quarter of 2022 were made through a broker in the open market.
The following table contains information for shares repurchased during the third quarter of 2022. None of the shares in this table were repurchased directly from any of our officers or directors.
Period
(2022)
Total Number
of Shares
Purchased(a)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number
of Shares That May
Yet Be Purchased
Under the Plans or
Programs(b)
July
1 to July 31
46,500
$
133.97
38,743,681
41,256,319
August 1 to August 31
69,300
134.05
38,812,981
41,187,019
September
1 to September 30
76,200
122.16
38,889,181
41,110,819
Total
192,000
(a)Share repurchases were made pursuant to a share repurchase program
authorized by our Board of Directors on November 13, 2014. This program allows for the repurchase of 40 million shares in an amount not to exceed $5 billion (the "2014 Program").
(b)Includes shares under the 2014 Program, as well as available shares under a share repurchase program authorized by our Board of Directors on January 22, 2021 that allows for the repurchase of 40 million shares in an amount not to exceed $5 billion.
Exhibit No. (101).INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Exhibit No. 104 The cover page from this Current Report on Form 10-Q formatted as
Inline XBRL
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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.
