kmb-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 1-225

KIMBERLY CLARK CORPORATON

(Exact name of registrant as specified in its charter)


Delaware						39-0394230
(State or other jurisdiction of incorporation)						(I.R.S. Employer Identification No.)

P.O. Box 619100

Dallas, TX

75261-9100

(Address of principal executive offices)

(Zip code)

(972) 281-1200

(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
Common Stock	KMB	New York Stock Exchange
0.625% Notes due 2024	KMB24	New 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. Yes x No o

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). Yes x No o

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.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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). Yes ☐ No x

As of October 15, 2020, there were 340,136,715 shares of the Corporation's common stock outstanding.

Table of Contents


PART I – FINANCIAL INFORMATION			1

Item 1. Financial Statements			1

UNAUDITED CONSOLIDATED INCOME STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019			1
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019			2
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2020 (UNAUDITED) AND DECEMBER 31, 2019			3
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019			4
UNAUDITED CONSOLIDATED CASH FLOW STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019			6
UNAUDITED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS			7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			15

Item 4. Controls and Procedures			23

PART II – OTHER INFORMATION			24

Item 1. Legal Proceedings			24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			24

Item 6. Exhibits			25

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(Unaudited)


	Three Months Ended September 30						Nine Months Ended September 30
(Millions of dollars, except per share amounts)	2020		2019		2020		2019
Net Sales	$	4,683	$	4,640	$	14,304	$	13,867
Cost of products sold	3,093		3,085		9,146		9,398
Gross Profit	1,590		1,555		5,158		4,469
Marketing, research and general expenses	919		815		2,636		2,395
Other (income) and expense, net	5		(175)		27		(166)
Operating Profit	666		915		2,495		2,240
Nonoperating expense	(40)		(11)		(57)		(33)
Interest income	2		3		6		8
Interest expense	(62)		(66)		(188)		(198)
Income Before Income Taxes and Equity Interests	566		841		2,256		2,017
Provision for income taxes	(114)		(192)		(510)		(467)
Income Before Equity Interests	452		649		1,746		1,550
Share of net income of equity companies	31		31		104		91
Net Income	483		680		1,850		1,641
Net income attributable to noncontrolling interests	(11)		(9)		(37)		(31)
Net Income Attributable to Kimberly-Clark Corporation	$	472	$	671	$	1,813	$	1,610

Per Share Basis
Net Income Attributable to Kimberly-Clark Corporation
Basic	$	1.38	$	1.95	$	5.32	$	4.68
Diluted	$	1.38	$	1.94	$	5.30	$	4.65

See notes to the unaudited interim consolidated financial statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30						Nine Months Ended September 30
(Millions of dollars)	2020		2019		2020		2019
Net Income	$	483	$	680	$	1,850	$	1,641
Other Comprehensive Income (Loss), Net of Tax
Unrealized currency translation adjustments	38		(170)		(236)		(148)
Employee postretirement benefits	—		16		39		38
Other	(3)		2		5		(18)
Total Other Comprehensive Income (Loss), Net of Tax	35		(152)		(192)		(128)
Comprehensive Income	518		528		1,658		1,513
Comprehensive (income) loss attributable to noncontrolling interests	(16)		1		(34)		(15)
Comprehensive Income Attributable to Kimberly-Clark Corporation	$	502	$	529	$	1,624	$	1,498

See notes to the unaudited interim consolidated financial statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(2020 Data is Unaudited)


(Millions of dollars)	September 30, 2020		December 31, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	1,518	$	442
Accounts receivable, net	2,125		2,263
Inventories	1,787		1,790
Other current assets	645		562
Total Current Assets	6,075		5,057
Property, Plant and Equipment, Net	7,497		7,450
Investments in Equity Companies	333		268
Goodwill	1,418		1,467
Other Assets	1,208		1,041
TOTAL ASSETS	$	16,531	$	15,283

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Debt payable within one year	$	517	$	1,534
Trade accounts payable	2,995		3,055
Accrued expenses and other current liabilities	2,230		1,978
Dividends payable	360		352
Total Current Liabilities	6,102		6,919
Long-Term Debt	7,851		6,213
Noncurrent Employee Benefits	873		897
Deferred Income Taxes	500		511
Other Liabilities	599		520
Redeemable Preferred Securities of Subsidiaries	29		29
Stockholders' Equity
Kimberly-Clark Corporation
Preferred stock - no par value - authorized 20.0 million shares, none issued	—		—
Common stock - $1.25 par value - authorized 1.2 billion shares; issued 378.6 million shares at September 30, 2020 and December 31, 2019	473		473
Additional paid-in capital	610		556
Common stock held in treasury, at cost - 38.2 and 37.1 million shares at September 30, 2020 and December 31, 2019, respectively	(4,661)		(4,454)
Retained earnings	7,395		6,686
Accumulated other comprehensive income (loss)	(3,482)		(3,294)
Total Kimberly-Clark Corporation Stockholders' Equity	335		(33)
Noncontrolling Interests	242		227
Total Stockholders' Equity	577		194
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	16,531	$	15,283

See notes to the unaudited interim consolidated financial statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


	Three Months Ended September 30, 2020
(Millions of dollars, shares in thousands, except per share amounts)	Common Stock Issued							Additional Paid-in Capital	Treasury Stock							Retained Earnings	Accumulated Other Comprehensive Income (Loss)				Non-controlling Interests	Total Stockholders' Equity
		Shares			Amount				Shares		Amount
Balance at June 30, 2020	378,597		$	473		$	554	37,574	$	(4,545)		$	7,299	$	(3,513)		$	227	$	495
Net income in stockholders' equity, excludes redeemable interests' share	—		—			—		—	—			472		—			10		482
Other comprehensive income, net of tax, excludes redeemable interests' share	—		—			—		—	—			—		30			6		36
Stock-based awards exercised or vested	—		—			(2)		(672)	79			—		—			—		77
Shares repurchased	—		—			—		1,280	(195)			—		—			—		(195)
Recognition of stock-based compensation	—		—			45		—	—			—		—			—		45
Dividends declared ($1.07 per share)	—		—			—		—	—			(365)		—			—		(365)
Other	—		—			13		—	—			(11)		1			(1)		2
Balance at September 30, 2020	378,597		$	473		$	610	38,182	$	(4,661)		$	7,395	$	(3,482)		$	242	$	577


	Nine Months Ended September 30, 2020
(Millions of dollars, shares in thousands, except per share amounts)	Common Stock Issued							Additional Paid-in Capital	Treasury Stock							Retained Earnings	Accumulated Other Comprehensive Income (Loss)				Non-controlling Interests	Total Stockholders' Equity
		Shares			Amount				Shares		Amount
Balance at December 31, 2019	378,597		$	473		$	556	37,149	$	(4,454)		$	6,686	$	(3,294)		$	227	$	194
Net income in stockholders' equity, excludes redeemable interests' share	—		—			—		—	—			1,813		—			34		1,847
Other comprehensive income, net of tax, excludes redeemable interests' share	—		—			—		—	—			—		(189)			(2)		(191)
Stock-based awards exercised or vested	—		—			(54)		(2,294)	266			—		—			—		212
Shares repurchased	—		—			—		3,327	(473)			—		—			—		(473)
Recognition of stock-based compensation	—		—			98		—	—			—		—			—		98
Dividends declared ($3.21 per share)	—		—			—		—	—			(1,095)		—			(17)		(1,112)
Other	—		—			10		—	—			(9)		1			—		2
Balance at September 30, 2020	378,597		$	473		$	610	38,182	$	(4,661)		$	7,395	$	(3,482)		$	242	$	577

See notes to the unaudited interim consolidated financial statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


	Three Months Ended September 30, 2019
(Millions of dollars, shares in thousands, except per share amounts)	Common Stock Issued							Additional Paid-in Capital	Treasury Stock							Retained Earnings	Accumulated Other Comprehensive Income (Loss)				Non-controlling Interests	Total Stockholders' Equity
		Shares			Amount				Shares		Amount
Balance at June 30, 2019	378,597		$	473		$	510	34,381	$	(4,062)		$	6,170	$	(3,269)		$	228	$	50
Net income in stockholders' equity, excludes redeemable interests' share	—		—			—		—	—			671		—			8		679
Other comprehensive income, net of tax, excludes redeemable interests' share	—		—			—		—	—			—		(142)			(10)		(152)
Stock-based awards exercised or vested	—		—			(3)		(483)	55			—		—			—		52
Shares repurchased	—		—			—		1,562	(215)			—		—			—		(215)
Recognition of stock-based compensation	—		—			24		—	—			—		—			—		24
Dividends declared ($1.03 per share)	—		—			—		—	—			(354)		—			—		(354)
Other	—		—			4		—	—			(2)		(1)			3		4
Balance at September 30, 2019	378,597		$	473		$	535	35,460	$	(4,222)		$	6,485	$	(3,412)		$	229	$	88


	Nine Months Ended September 30, 2019
(Millions of dollars, shares in thousands, except per share amounts)	Common Stock Issued							Additional Paid-in Capital	Treasury Stock							Retained Earnings	Accumulated Other Comprehensive Income (Loss)				Non-controlling Interests	Total Stockholders' Equity
		Shares			Amount				Shares		Amount
Balance at December 31, 2018	378,597		$	473		$	548	33,635	$	(3,956)		$	5,947	$	(3,299)		$	241	$	(46)
Net income in stockholders' equity, excludes redeemable interests' share	—		—			—		—	—			1,610		—			28		1,638
Other comprehensive income, net of tax, excludes redeemable interests' share	—		—			—		—	—			—		(112)			(17)		(129)
Stock-based awards exercised or vested	—		—			(90)		(2,642)	302			—		—			—		212
Shares repurchased	—		—			—		4,467	(568)			—		—			—		(568)
Recognition of stock-based compensation	—		—			72		—	—			—		—			—		72
Dividends declared ($3.09 per share)	—		—			—		—	—			(1,063)		—			(24)		(1,087)
Other	—		—			5		—	—			(9)		(1)			1		(4)
Balance at September 30, 2019	378,597		$	473		$	535	35,460	$	(4,222)		$	6,485	$	(3,412)		$	229	$	88

See notes to the unaudited interim consolidated financial statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED CASH FLOW STATEMENTS

(Unaudited)


	Nine Months Ended September 30
(Millions of dollars)	2020		2019
Operating Activities
Net income	$	1,850	$	1,641
Depreciation and amortization	606		700

Stock-based compensation	101		74
Deferred income taxes	(30)		8
Net (gains) losses on asset dispositions	67		(155)
Equity companies' earnings (in excess of) less than dividends paid	(53)		(31)
Operating working capital	292		(399)
Postretirement benefits	7		(16)
Other	2		(10)
Cash Provided by Operations	2,842		1,812
Investing Activities
Capital spending	(894)		(867)
Proceeds from dispositions of property	5		206
Investments in time deposits	(509)		(353)
Maturities of time deposits	404		287
Other	17		(40)
Cash Used for Investing	(977)		(767)
Financing Activities
Cash dividends paid	(1,087)		(1,054)
Change in short-term debt	(497)		324
Debt proceeds	1,842		700
Debt repayments	(753)		(705)
Proceeds from exercise of stock options	212		211
Acquisitions of common stock for the treasury	(449)		(544)
Other	(40)		(92)
Cash Used for Financing	(772)		(1,160)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(17)		(8)
Change in Cash and Cash Equivalents	1,076		(123)
Cash and Cash Equivalents - Beginning of Period	442		539
Cash and Cash Equivalents - End of Period	$	1,518	$	416

See notes to the unaudited interim consolidated financial statements.

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Accounting 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, 2019. The terms "Corporation," "Kimberly-Clark," "K-C," "we," "our" and "us" refer to Kimberly-Clark Corporation and its consolidated subsidiaries.

Highly Inflationary Accounting in Argentina

GAAP guidance requires the use of highly inflationary accounting for countries whose cumulative three-year inflation exceeds 100 percent. 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”). Under highly inflationary accounting, K-C Argentina’s functional currency became the U.S. dollar, and its income statement and balance sheet have been measured in U.S. dollars using both current and historical rates of exchange. 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, 2020, K-C Argentina had a small net peso monetary position. Net sales of K-C Argentina were approximately 1 percent of our consolidated net sales for the nine months ended September 30, 2020 and 2019.

Recently Adopted Accounting Standards

The Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40). The new guidance reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). We adopted this standard as of January 1, 2020 on a prospective basis. The effects of this standard on our financial position, results of operations and cash flows were not material.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied through December 31, 2022. The effects of this standard on our financial position, results of operations and cash flows are not expected to be material.

Accounting Standards Issued - Not Yet Adopted

The FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, the calculation of the income tax impact of hybrid taxes, tax basis of goodwill after a business combination and recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. For public companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted in interim or annual periods with any adjustments reflected as of the beginning of the annual period that includes that interim period. Additionally, entities that elect early adoption must adopt all the amendments in the same period. Amendments are to be applied prospectively, except for certain amendments that are to be applied either retrospectively or with a modified retrospective approach through a cumulative effect adjustment recorded to retained earnings. The effects of this standard on our financial position, results of operations or cash flows are not expected to be material.

Note 2. 2018 Global Restructuring Program

In January 2018, we announced the 2018 Global Restructuring Program to reduce our structural cost base by streamlining and simplifying our manufacturing supply chain and overhead organization. We expect to close or sell approximately 10 manufacturing facilities and expand production capacity at several others. We expect to exit or divest some lower-margin businesses that generate approximately 1 percent of our net sales. The restructuring is expected to impact our organizations in all major geographies. Workforce reductions are expected to be in the range of 5,000 to 5,500. Certain capital appropriations under the 2018 Global Restructuring Program are being finalized. Accounting for actions related to each appropriation will commence when the appropriation is authorized for execution.

The restructuring is expected to be completed in 2021, with total costs anticipated to be toward the high end of the range of $1.7 billion to $1.9 billion pre-tax ($1.3 billion to $1.4 billion after tax). Cash costs are expected to be $900 to $1.0 billion, primarily related to workforce reductions. Non-cash charges are expected to be $800 to $900 pre-tax and will primarily consist of incremental depreciation, asset write-offs and pension settlement and curtailment charges.

The following net charges were incurred in connection with the 2018 Global Restructuring Program:


	Three Months Ended September 30						Nine Months Ended September 30
	2020		2019		2020		2019
Cost of products sold:
Charges for workforce reductions	$	15	$	1	$	16	$	33

Asset write-offs	50		18		59		45
Incremental depreciation	18		57		86		189
Other exit costs	24		28		76		64
Total	107		104		237		331
Marketing, research and general expenses:
Charges (adjustments) for workforce reductions	1		(4)		(1)		(12)
Other exit costs	24		25		76		78
Total	25		21		75		66
Other (income) and expense, net	(1)		(181)		(1)		(182)
Nonoperating expense	26		—		26		—
Total charges	157		(56)		337		215
Provision for income taxes	(50)		23		(83)		(35)
Net charges	107		(33)		254		180
Net impact related to equity companies and noncontrolling interests	—		—		(1)		1
Net charges attributable to Kimberly-Clark Corporation	$	107	$	(33)	$	253	$	181

Other (income) and expense, net in 2019 includes a pre-tax gain of approximately $182 on the sale of a manufacturing facility and associated real estate which were disposed of as part of the restructuring.

The following summarizes the restructuring liabilities activity:

2020