01—Abstract
Summary
Summary of the 10-K filed February 14, 2014. Cited figures are marked; the original filing is the authoritative source.
Kimberly-Clark Corporation's 2013 Form 10-K reports essentially flat net sales of $21.15 billiona (versus $21.06 billion in 2012), while operating profit rose 19.4% to $3.21 billion and diluted earnings per share increased 25% to $5.53 from $4.42.
The improvement was driven by lower restructuring charges, organic volume growth of 3%, net selling price gains of 1%, and $310 millionb in FORCE cost savings, partially offset by input cost inflation of $205 million and unfavorable currency effects. Net sales were held back by a 2% currency drag and lost sales from European strategic changes and pulp and tissue restructuring. Cash provided by operations was $3.04 billion, and the company repurchased $1.2 billion of stock and paid dividends, totaling $2.4 billion in shareholder returns for 2013.
The company announced in November 2013 that its Board authorized management to pursue a potential tax-free spin-off of its Health Care business, which has approximately $1.6 billionc in annual net sales. The current target is completion by the end of the third quarter of 2014, though the filing states there are no assurances on timing or completion. The filing notes that the IRS will no longer issue advance tax-free spin-off rulings, so the company expects to rely on an opinion of counsel that is not binding on the IRS.
For 2014, management guided GAAP diluted EPS to a range of $5.95 to $6.17d and planned $1.3 billion to $1.5 billion in share repurchases, excluding spin-off costs. The balance sheet shows total assets of $18.92 billion and long-term debt of $5.39 billion at year-end 2013.
Redeemable preferred securities of a subsidiary totaling $500 million are classified as current liabilities because they are due for redemption in December 2014. Goodwill of $3.18 billion was tested and not impaired, and the company disclosed a $36 million pre-tax charge from the Venezuelan bolivar devaluation.
02—Key points
Key Highlights
- Diluted EPS rose 25% to $5.53 in 2013 from $4.42 in 2012; operating profit increased 19.4% to $3,208 million.
- Net sales were essentially flat at $21.15 billion, with organic volume up 3% and net selling prices up 1%, offset by currency (-2%) and lost sales from European changes and pulp/tissue restructuring (-2%).
- FORCE cost savings totaled $310 million in 2013, while input cost inflation reduced operating profit by $205 million.
- Proposed tax-free spin-off of the Health Care business (about $1.6 billion in annual net sales), targeted for completion by end of Q3 2014; the filing notes no assurance on timing or completion.
- Cash provided by operations was $3.04 billion; shareholder returns totaled $2.4 billion, including $1.2 billion in share repurchases and dividends paid of $1.22 billion.
- 2014 guidance calls for GAAP diluted EPS of $5.95 to $6.17, with capital spending of $1.0 to $1.2 billion and share repurchases of $1.3 to $1.5 billion.
- European strategic changes carried $81 million of pre-tax charges in 2013 versus $299 million in 2012, with restructuring expected to finish by December 31, 2014.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Kimberly-Clark kept $0.11.
- Revenue$19.56B100.0%
- Cost of revenue−$12.95B66.2%
- Gross profit$6.61B33.8%
- Operating costs−$3.71B18.9%
- Operating income$2.90B14.8%
- Interest, other & tax−$761.0M3.9%
- Net income$2.14B11.0%
Where FY2013 revenue went
$19.56B- Cost of revenue: $12.95B, 66% of revenue
- Other operating costs: $3.37B, 17% of revenue
- Net income: $2.14B, 11% of revenue
- R&D: $333.0M, 1.7% of revenue
- Interest, other & tax: $761.0M, 3.9% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 14, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $19.56B$19.47B | +0.5% |
| Cost of Revenue | $12.95B$13.34B | −2.9% |
| Gross Profit | $6.61B$6.13B | +7.8% |
| R&D Expenses | $333.00M$335.00M | −0.6% |
| Operating Income | $2.90B$2.38B | +22.1% |
| Interest Expense | $282.00M$285.00M | −1.1% |
| Net Income | $2.14B$1.75B | +22.4% |
| EPS (Basic) | $5.58$4.45 | +25.4% |
| EPS (Diluted) | $5.53$4.42 | +25.1% |
| Shares Outstanding (Basic) | 384.00M393.00M | −2.3% |
| Shares Outstanding (Diluted) | 387.30M396.10M | −2.2% |
05—Questions
Frequently Asked Questions
Why did operating profit grow much faster than net sales in 2013?
Net sales were essentially flat at $21.15 billion versus $21.06 billion, but operating profit rose 19.4% to $3.21 billion. The filing attributes this mainly to lower restructuring charges (2012 included $299 million for European changes and $135 million for pulp and tissue restructuring, versus $81 million for European changes in 2013), $310 million in FORCE cost savings, and organic volume and pricing gains, partly offset by $205 million of input cost inflation.
What is the status of the proposed Health Care spin-off?
Kimberly-Clark's Board authorized management in November 2013 to pursue a potential tax-free spin-off of the Health Care business, which has about $1.6 billion in annual net sales. The current target is completion by the end of Q3 2014, but the filing says there are no assurances on timing or whether it will be completed. The 2014 guidance excludes spin-off transaction and related costs.
What tax risk does the spin-off carry for shareholders?
The IRS announced it would no longer provide advance rulings on tax-free spin-offs. The company expects to obtain an opinion of counsel that neither it nor its shareholders will recognize taxable income, but the filing notes this opinion is not binding on the IRS. If the spin-off were taxable, the company would face a substantial tax liability, and shareholders would be treated as receiving a taxable distribution equal to the fair market value of the shares received.
How much cash did Kimberly-Clark return to shareholders in 2013, and what is planned for 2014?
In 2013 the company repurchased 12.4 million shares for $1.2 billion and paid dividends, with total share repurchases and dividends amounting to $2.4 billion. For 2014, it plans to repurchase $1.3 billion to $1.5 billion of shares, subject to market conditions, and expects to increase the quarterly dividend by 2% to 4% effective April 2014, subject to Board approval.
Are there any near-term debt or obligation items investors should note?
Yes. A $500 million Class A-2 redeemable preferred security issued by a Luxembourg-based financing subsidiary is classified as a current liability because it is due for redemption in December 2014. Scheduled long-term debt maturities are $312 million in 2014 and $353 million in 2015. The company also expects to contribute $100 to $200 million to its defined benefit pension plans in 2014.
06—Continue