Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K 

x
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
or
o
Transition Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
For the transition period from                  to        

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12032395&doc=16
KIMBERLY-CLARK CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
1-225
39-0394230
(State or other jurisdiction of incorporation)
(Commission file number)
(I.R.S. Employer Identification No.)
 
 
 
P.O. Box 619100, Dallas, Texas
 
75261-9100
(Address of principal executive offices)
 
(Zip code)
Registrant's telephone number, including area code: (972) 281-1200
Securities registered pursuant to Section 12(b) of the Act:
Common Stock—$1.25 Par Value
 
New York Stock Exchange
(Title of each class)
 
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes    x    No    o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes    o    No    x
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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    x    No    o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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" and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer   o
Non-accelerated filer   o(Do not check if a smaller reporting company)
 
Smaller reporting company  o
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).           Yes  o    No  x
The aggregate market value of the registrant's common stock held by non-affiliates on June 30, 2017 (based on closing stock price on the New York Stock Exchange as of such date) was approximately $45.6 billion.
As of February 1, 2018, there were 350,706,285 shares of Kimberly-Clark common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the definitive Proxy Statement for Kimberly-Clark's Annual Meeting of Stockholders to be held on May 10, 2018 is incorporated by reference into Part III.



KIMBERLY-CLARK CORPORATION
TABLE OF CONTENTS
 
 
 
Page
Part I
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
Part II
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
Part III
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Part IV
 
 
Item 15.
Item 16.
 
 

 
 


 
 
KIMBERLY-CLARK CORPORATION - 2017 Annual Report

PART I




ITEM 1.    BUSINESS
Kimberly-Clark Corporation was incorporated in Delaware in 1928. We are a global company focused on leading the world in essentials for a better life through product innovation and building our personal care, consumer tissue and K-C Professional brands. We are principally engaged in the manufacturing and marketing of a wide range of products mostly made from natural or synthetic fibers using advanced technologies in fibers, nonwovens and absorbency. Unless the context indicates otherwise, the terms "Corporation," "Kimberly-Clark," "K-C," "we," "our" and "us" refer to Kimberly-Clark Corporation and its consolidated subsidiaries.
For financial information by business segment and geographic area, including revenue, profit and total assets of each reportable segment, and information about our principal products and markets, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") and Item 8, Note 13 to the consolidated financial statements.
Dollar amounts are reported in millions, except per share dollar amounts, unless otherwise noted.
Recent Developments
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code which impacted 2017, including, but not limited to, reducing the U.S. federal corporate tax rate and requiring a one-time transition tax on certain undistributed earnings of foreign subsidiaries.  See additional information in MD&A and Item 8, Note 11 to the consolidated financial statements.
On January 23, 2018, we announced a new global restructuring program. The 2018 Global Restructuring Program will reduce our structural cost base by streamlining and simplifying our manufacturing supply chain and overhead organization.  The restructuring is expected to be completed by the end of 2020, with total costs anticipated to be $1.7 billion to $1.9 billion pre-tax ($1.35 billion to $1.5 billion after tax). Cash costs are expected to be $900 to $1.0 billion. In addition, we expect to incur $600 to $700 of incremental capital spending to implement the restructuring. Workforce reductions are expected to be in the range of 5,000 to 5,500. The restructuring is expected to impact all of our business segments and our organizations in all major geographies. The restructuring is expected to generate annual pre-tax cost savings of $500 to $550 by the end of 2021. See additional information in MD&A and Item 8, Note 15 to the consolidated financial statements.
Description of Kimberly-Clark
We are organized into operating segments based on product groupings. These operating segments have been aggregated into three reportable global business segments as follows:
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, and other related products.  Products in this segment are sold under the Huggies, Pull-Ups, Little Swimmers, GoodNites, DryNites, Kotex, U by Kotex, Intimus, Depend, Plenitud, Poise and other brand names.
Consumer Tissue offers a wide variety of innovative solutions and trusted brands that touch and improve people's lives every day.  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 ("KCP") 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 Jackson Safety, are well-known for quality and trusted to help people around the world work better.
These reportable segments were determined in accordance with how our chief operating decision maker and our executive managers develop and execute our global strategies to drive growth and profitability of our personal care, consumer tissue and KCP operations. 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.
Products for household use are sold directly to supermarkets, mass merchandisers, drugstores, warehouse clubs, variety and department stores and other retail outlets, as well as through other distributors and e-commerce. Products for away-from-home


 
1
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


use are sold through distributors and directly to manufacturing, lodging, office building, food service, and high volume public facilities.
Net sales to Walmart Inc. as a percent of our consolidated net sales were approximately 14 percent in 2017, 2016 and 2015.
Patents and Trademarks
We own various patents and trademarks registered domestically and in many foreign countries. We consider the patents and trademarks that we own and the trademarks under which we sell certain of our products to be material to our business. Consequently, we seek patent and trademark protection by all available means, including registration.
Raw Materials
Cellulose fiber, in the form of kraft pulp or fiber recycled from recovered waste paper, is the primary raw material for our tissue products, and in the form of fluff pulp is a component of disposable diapers, training and youth pants, feminine pads and incontinence care products.
Polypropylene and other synthetics and chemicals are the primary raw materials for manufacturing nonwoven fabrics, which are used in disposable diapers, training and youth pants, wet wipes, feminine pads, incontinence care products, and away-from-home wipers and apparel. Superabsorbent materials are important components of disposable diapers, training and youth pants and incontinence care products.
Raw materials are purchased from third parties, and we consider the supply to be adequate to meet the needs of our businesses. See Item 1A, "Risk Factors."
Competition
We have several major competitors in most of our markets, some of which are larger and more diversified than us. The principal methods and elements of competition include brand recognition and loyalty, product innovation, quality and performance, price, and marketing and distribution capabilities. For additional discussion of the competitive environment in which we conduct our business, see Item 1A, "Risk Factors."
Research and Development
Research and development expenditures are directed toward new or improved personal care, tissue, wiping, safety and nonwoven materials. Consolidated research and development expense was $311 in 2017, $328 in 2016 and $324 in 2015.
Foreign Market Risks
We operate and market our products globally, and our business strategy includes targeted growth in Asia, Latin America, Eastern Europe, the Middle East and Africa, with a particular emphasis in China, Eastern Europe and Latin America. See Item 1A, "Risk Factors" for a discussion of foreign market risks that may affect our financial results.
Environmental Matters
Total capital expenditures for voluntary environmental controls or controls necessary to comply with legal requirements relating to the protection of the environment at our facilities are expected to be $30 and $12 in 2018 and 2019, respectively. Total operating expenses for environmental compliance, including pollution control equipment operation and maintenance costs, governmental fees, and research and engineering costs are expected to be $112 and $118 in 2018 and 2019, respectively.
Total environmental capital expenditures and operating expenses are not expected to have a material effect on our total capital and operating expenditures, consolidated earnings or competitive position. Current environmental spending estimates could be modified as a result of changes in our plans, changes in legal requirements, including any requirements related to global climate change, or other factors.
Employees
In our consolidated operations, we had approximately 42,000 employees as of December 31, 2017.


 
2
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


Available Information
We make financial information, news releases and other information available on our corporate website at www.kimberly-clark.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on this website as soon as reasonably practicable after we file these reports and amendments with, or furnish them to, the Securities and Exchange Commission ("SEC"). The information contained on or connected to our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the SEC. Stockholders may also contact Stockholder Services, P.O. Box 612606, Dallas, Texas 75261-2606 or call 972-281-5317 to obtain a hard copy of these reports without charge.
ITEM 1A.    RISK FACTORS
Our business faces many risks and uncertainties that we cannot control. Any of the risks discussed below, as well as factors described in other places in this Form 10-K, or in our other filings with the SEC, could adversely affect our business, consolidated financial position, results of operations or cash flows. In addition, these items could cause our future results to differ from those in any of our forward-looking statements. These risks are not the only ones we face. Other risks that we do not presently know about or that we presently believe are not material could also adversely affect us.
Intense competition for sales of our products, changes in consumer purchasing patterns and the inability to innovate or market our products effectively could have an adverse effect on our financial results.
We operate in highly competitive domestic and international markets against well-known, branded products and low-cost or private label products. Inherent risks in our competitive strategy include uncertainties concerning trade and consumer acceptance, the effects of consolidation within retailer and distribution channels, a growing e-commerce marketplace, customers' and competitors' actions. Our competitors for these markets include global, regional and local manufacturers, including private label manufacturers. Some of these competitors may have better access to financial resources and greater market penetration, which enable them to offer a wider variety of products and services at more competitive prices. Alternatively, some of these competitors may have significantly lower product development and manufacturing costs, particularly with respect to private label products, allowing them to offer products at a lower price. The actions of these competitors could adversely affect our financial results. It may be necessary for us to lower prices on our products and increase spending on advertising and promotions, which could adversely affect our financial results.
We may be unable to anticipate or adequately respond to changes in consumer demand for our products. Demand for our products may change based on many factors, including shifting consumer purchasing patterns to lower cost options such as private-label products and mid to lower-tier value products, low birth rates in certain countries due to slow economic growth or other factors, negative consumer response to pricing actions, consumer shifts in distribution from traditional retailers to e-tailers, or other changes in consumer trends or habits. If we experience lower sales due to changes in consumer demand for our products, our earnings could decrease.
Our ability to develop new products is affected by whether we can successfully anticipate consumer needs and preferences, develop and fund technological innovations, and receive and maintain necessary patent and trademark protection. In addition, we incur substantial development and marketing costs in introducing new and improved products and technologies. The introduction of a new consumer product (whether improved or newly developed) usually requires substantial expenditures for advertising and marketing to gain recognition in the marketplace. If a product gains consumer acceptance, it normally requires continued advertising and promotional support to maintain its relative market position. Some of our competitors may spend more aggressively on advertising and promotional activities, introduce competing products more quickly and respond more effectively to changing business and economic conditions. We may not be successful in developing new or improved products and technologies necessary to compete successfully in the industry, and we may not be successful in advertising, marketing, timely launching and selling our products. Also, if we fail to perfect or successfully assert our intellectual property rights, we may be less competitive, which could adversely affect our business, financial results and financial condition.
Increasing dependence on key retailers in developed markets and the emergence of new sales channels may adversely affect our business.
Our products are sold in a highly competitive global marketplace, which continues to experience increased concentration and the growing presence of large-format retailers, discounters and e-tailers. With the consolidation of retail trade, both traditional retailers and e-tailers, especially in developed markets such as the U.S., Europe and Australia, we are increasingly dependent on key


 
3
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


customers, and some of these customers, including large-format retailers and large e-tailers, may have significant bargaining power. They may use this leverage to demand higher trade discounts or allowances which could lead to reduced profitability. We may also be negatively affected by changes in the policies of our retail trade customers, such as inventory de-stocking, limitations on access to shelf space, delisting of our products, additional requirements related to safety, environmental, social and other sustainability issues, and other conditions. If we lose a significant customer or if sales of our products to a significant customer materially decrease, our business, financial condition and results of operations may be adversely affected.
There is no guarantee that our ongoing efforts to reduce costs will be successful.
We continue to implement plans to improve our competitive position by achieving cost reductions in our operations, including implementing restructuring programs in functions or areas of our business where we believe such opportunities exist. On January 23, 2018, we announced a new global restructuring program. The 2018 Global Restructuring Program will reduce our structural cost base by streamlining and simplifying our manufacturing supply chain and overhead organization. In addition, we expect ongoing cost savings from our continuous improvement activities. We anticipate these cost savings will result from reducing material costs and manufacturing waste and realizing productivity gains, distribution efficiencies and overhead reductions in each of our business segments and in our corporate functions. Any negative impact these plans have on our relationships with employees, suppliers or customers or any failure to generate the anticipated efficiencies and savings could adversely affect our financial results.
Significant increases in prices for raw materials, energy, transportation or other necessary supplies or services, without corresponding increases in our selling prices, could adversely affect our financial results.
Increases in the cost and availability of raw materials, including pulp and petroleum-based materials, the cost of energy, transportation and other necessary services, supplier constraints, an inability to maintain favorable supplier arrangements and relations or an inability to avoid disruptions in production output could have an adverse effect on our financial results.
Cellulose fiber, in the form of kraft pulp or recycled fiber from recovered waste paper, is used extensively in our tissue products and is subject to significant price fluctuations. Cellulose fiber, in the form of fluff pulp, is a key component in our personal care products. In past years, pulp prices have experienced significant volatility. Increases in pulp prices or limits in the availability of recycled fiber could adversely affect our earnings if selling prices for our finished products are not adjusted or if these adjustments significantly trail the increases in pulp prices. We have not used derivative instruments to manage these risks.
A number of our products, such as diapers, training and youth pants, feminine pads, incontinence care products and disposable wipes, contain certain materials that are principally derived from petroleum. These materials are subject to price fluctuations based on changes in petroleum prices, availability and other factors, with these prices experiencing significant volatility in recent years. We purchase these materials from a number of suppliers. Significant increases in prices for these materials could adversely affect our earnings if selling prices for our finished products are not adjusted, if these adjustments significantly trail the increases in prices for these materials, or if we do not utilize lower priced substitutes for these materials.
Our manufacturing operations utilize electricity, natural gas and petroleum-based fuels. To ensure we use all forms of energy efficiently and cost-effectively, we maintain energy efficiency improvement programs at our manufacturing sites. Our contracts with energy suppliers vary as to price, payment terms, quantities and duration. Our energy costs are also affected by various market factors including the availability of supplies of particular forms of energy, energy prices and local and national regulatory decisions (including actions taken to address climate change and related market responses). There can be no assurance that we will be fully protected against substantial changes in the price or availability of energy sources.
Our international operations are subject to foreign market risks, including changes in foreign currency exchange rates, currency restrictions and political, social and economic instability, which may adversely affect our financial results.
Our strategy includes operations growth outside the U.S., especially in developing markets such as China, Eastern Europe and Latin America. About half of our net sales come from markets outside the U.S. We and our equity companies have manufacturing facilities in 38 countries, and sell products in more than 175 countries. Our results may be substantially affected by a number of foreign market risks:
Exposure to the movement of various currencies against each other and the U.S. dollar. A portion of the exposures, arising from transactions and commitments denominated in non-local currencies, is systematically managed through foreign currency forward and swap contracts. We do not generally hedge our translation exposure with respect to foreign operations.


 
4
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


Increases in currency exchange restrictions. These restrictions could limit our ability to repatriate earnings from outside the U.S. or obtain currency exchange for U.S. dollar inputs to continue operating in certain countries.
Adverse political conditions. Risks related to political instability, expropriation, new or revised legal or regulatory constraints, difficulties in enforcing contractual and intellectual property rights, and potentially adverse tax consequences, including consequences from Brexit, could adversely affect our financial results.
Increases in dollar-based input costs for operations outside the U.S. due to weaker foreign exchange rates versus the U.S. dollar. There can be no assurance that we will be protected against substantial foreign currency fluctuations.
The inability to effectively manage foreign market risk could adversely affect our business, consolidated financial condition, results of operations or liquidity.
If our information technology systems suffer interruptions, failures or breaches, our business operations could be disrupted and we could face financial and reputational damage.
Our information technology systems, some of which are dependent on services provided by third parties, serve an important role in the efficient and effective operation and administration of our business. These systems could be damaged or cease to function properly due to any number of causes, such as catastrophic events, power outages, security breaches, computer viruses or cyber-based attacks. While we have contingency plans in place to prevent or mitigate the impact of these events, if they were to occur and our disaster recovery plans do not effectively address the issues on a timely basis, we could suffer interruptions in our ability to manage our operations, which may adversely affect our business and financial results.
Increased cyber-security threats and computer crime also pose a potential risk to the security of our information technology systems, including those of third party service providers with whom we have contracted, as well as the confidentiality, integrity and availability of the data stored on those systems. Any breach in our information technology security systems could result in the disclosure or misuse of confidential or proprietary information, including sensitive customer, supplier, employee or investor information maintained in the ordinary course of our business. Any such event could cause damage to our reputation, loss of valuable information or loss of revenue and could result in large expenditures to investigate or remediate, to recover data, to repair or replace networks or information systems, or to protect against similar future events.
Disruption in our supply chain or the failure of third-party providers to satisfactorily perform could adversely impact our operations.
Our ability to manufacture, distribute and sell products is critical to our operations. These activities are subject to inherent risks such as natural disasters, power outages, fires or explosions, labor strikes, terrorism, pandemics, import restrictions, regional economic, business, environmental or political events, governmental regulatory requirements or nongovernmental voluntary actions in response to global climate change or other concerns regarding the sustainability of our business, which could impair our ability to manufacture or sell our products. This interruption, if not mitigated in advance or otherwise effectively managed, could adversely impact our business, financial condition and results of operations, as well as require additional resources to address.
In addition, third parties manufacture some of our products and provide certain administrative services. Disruptions or delays at these third-party manufacturers or service providers due to the reasons above or the failure of these manufacturers or service providers to otherwise satisfactorily perform, could adversely impact our operations, sales, payments to our suppliers, employees, and others, and our ability to report financial and management information on a timely and accurate basis.
Government regulations and enforcement, and potential litigation, could have an adverse effect on our financial results.
As a global company, we are subject to many laws and governmental regulations across all of the countries in which we do business, including laws and regulations involving marketing, antitrust, anti-bribery or anti-corruption, product liability, environmental, intellectual property or other matters, as well as potential litigation or administrative actions.
If we are unable to comply with all laws and regulations, it could negatively impact our reputation and our business results. We cannot provide assurance that our internal control policies and procedures, and ethics and compliance program will always protect us from acts committed by our employees or agents. Adverse regulatory action, including a recall, regulatory or other governmental investigation, or product liability or other litigation may also adversely affect our financial condition and business operations. Although we believe that none of these proceedings or requirements will have a material adverse effect on us, the outcome of these proceedings may not be as expected.


 
5
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


In addition, new or revised laws or regulations may alter the environment in which we do business, including the United Kingdom's withdrawal from the European Union, which could adversely impact our financial results. For example, new legislation or regulations may result in increased costs to us, directly for our compliance, or indirectly to the extent suppliers increase prices of goods and services because of increased compliance costs, excise taxes or reduced availability of raw materials.
Damage to the reputation of Kimberly-Clark or to one or more of our brands could adversely affect our business.
Developing and maintaining our reputation, as well as the reputation of our brands, is a critical factor in our relationship with consumers, customers, suppliers and others. Our inability to address adverse publicity or other issues, including concerns about product safety, quality, efficacy or similar matters, or breaches of consumer, customer, supplier, employee or other confidential information, real or perceived, could negatively impact sentiment towards us and our products and brands, and our business and financial results could suffer. Consumers increasing use and reliance on social media for information could increase the risk of adverse publicity, potentially with negative perception of our products or brands. Our business and results could also be negatively impacted by the effects of a significant product recall, product-related litigation, allegations of product tampering or contamination, or the distribution and sale of counterfeit products. 
New or revised tax regulations could have an adverse effect in our financial results.
We are subject to income tax requirements in various jurisdictions in the U.S. and internationally. Many of these jurisdictions have made changes to their tax policies, including tax reform in the U.S. that was enacted in December 2017. Overall, the impact of U.S. tax reform should reduce our effective tax rate; however, additional guidance or interpretations of the Tax Act could negatively impact our financial results. Other jurisdictions are contemplating changes or have unpredictable enforcement activity. Increases in applicable tax rates, implementation of new taxes, changes in applicable tax laws and interpretations of these tax laws and actions by tax authorities in jurisdictions in which we operate could reduce our after tax income and have an adverse effect on our results of operations.
The 2014 spin-off of our health care business could result in substantial tax liability to us and our stockholders.
On October 31, 2014, we completed the spin-off of our health care business, creating a stand-alone, publicly traded health care company, Halyard Health, Inc. ("Halyard"). Historically, the IRS provided companies seeking to perform a spin-off transaction with an advance ruling that the proposed spin-off transaction would qualify for tax-free treatment. However, the IRS no longer provides such advance rulings. Prior to completing the spin-off of our health care business, we obtained an opinion of counsel that neither we nor our U.S. stockholders will recognize taxable income, gain or loss for U.S. federal income tax purposes as a result of the spin-off. The opinion of counsel is based on certain statements and representations made by us, which, if incomplete or inaccurate in any material respect, could invalidate the opinion of counsel. In addition, this opinion is not binding on the IRS. Accordingly, the IRS or the courts may reach conclusions with respect to the spin-off that are different from the conclusions reached in the opinion of counsel.
If the spin-off and certain related transactions were determined to be taxable, we would be subject to a substantial tax liability. In addition, if the spin-off were deemed taxable, each U.S. holder of our common stock who received shares of Halyard would generally be treated as receiving a taxable distribution of property in an amount equal to the fair market value of the shares received.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.
ITEM 2.    PROPERTIES
At December 31, 2017, we own or lease:
our principal executive office located in the Dallas, Texas metropolitan area;
four operating segment and geographic headquarters at two U.S. and two international locations; and
four global business service centers at one U.S. and three international locations.


 
6
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


The locations of our and our equity affiliates' principal production facilities by major geographic areas of the world are as follows: 
Geographic Area:
Number of
Facilities
North America (in 16 states in the U.S.)
32

Outside North America
61

Total (in 38 countries)
93

Many of these facilities produce multiple products. Consumer tissue and KCP products are produced in 55 facilities and personal care products are produced in 51 facilities. The list of properties above has not been reduced for any manufacturing facilities contemplated for closure or sale in the 2018 Global Restructuring Program. We believe that our and our equity affiliates' facilities are suitable for their purpose, adequate to support their businesses and well maintained.
ITEM 3.    LEGAL PROCEEDINGS
See Item 8, Note 9 to the consolidated financial statements, which is incorporated in this Item 3 by reference, for information on legal proceedings.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of our executive officers as of February 8, 2018, together with certain biographical information, are as follows:
Achal Agarwal, 58, was elected President, K-C Asia-Pacific in 2012. He is responsible for our consumer business in our Asia-Pacific region. From 2008 to 2012, his title was President, K-C North Asia. Mr. Agarwal joined Kimberly-Clark from PepsiCo, Inc. where he served from March 2008 to June 2008 as Business Unit General Manager, Sub-Saharan Africa Beverages and Snacks and as Chief Operating Officer, Greater China Beverages from 2005 to February 2008.
Larry P. Allgaier, 59, was elected Group President, K-C North America in April 2017. Mr. Allgaier joined Kimberly-Clark from Mars Incorporated, a manufacturer of confectionery, pet food, and other food products, where he served from 2016 to 2017 as President, Global Veterinary Health, and from 2012 to 2015 as President, North America Petcare. Prior to joining Mars, Mr. Allgaier served from 2009 to 2012 as Chief Executive Officer of New Chapter, Inc., a vitamin, mineral and supplement company, and from 2003 to 2009 as President and Chief Executive Officer of the Over the Counter Medicines Unit at Novartis AG. He began his career at The Procter & Gamble Company.
J. Scott Boston, 55, was elected Senior Vice President and Chief Human Resources Officer in January 2017. He is responsible for the design and implementation of all human capital strategies for Kimberly-Clark, including global compensation and benefits, talent management, diversity and inclusion, organizational effectiveness and corporate health services. From 2011 to April 2016, his title was Vice President HR-K-C International and from April 2016 to December 2017, his title was Vice President of Global Talent Management, HR Strategy & Operations. Prior to joining Kimberly-Clark, Mr. Boston served as Senior Vice President, Human Resources, for McKesson Corporation.
Gustavo Calvo Paz, 56, was elected President, K-C Europe, Middle East & Africa in 2014. He is responsible for our consumer business in our Europe, Middle East & Africa region. From 2010 to 2014, he served as President, K-C Middle East, Eastern Europe & Africa. Mr. Calvo Paz joined Kimberly-Clark in 1996 and has held a number of positions with increasing responsibility within our international business operations.
Sergio Cruz, 51, was elected President, K-C Latin America in January 2017. He is responsible for our consumer business in our Latin America region. From 2014 to January 2017, Mr. Cruz served as Vice President, K-C Latin America - Brazil and from 2011 to 2013, he served as Managing Director, K-C Eastern Europe. Mr. Cruz joined Kimberly-Clark in 2005 and has held a number of positions with increasing responsibility within our international business operations.
Thomas J. Falk, 59, was elected Chairman of the Board and Chief Executive Officer in 2003 and President and Chief Executive Officer in 2002. Prior to that, he served as President and Chief Operating Officer since 1999. Mr. Falk previously had been elected Group President - Global Tissue, Pulp and Paper in 1998, where he was responsible for our global tissue businesses. Earlier in


 
7
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


his career, Mr. Falk had responsibility for our North American Infant Care, Child Care and Wet Wipes businesses. Mr. Falk joined Kimberly-Clark in 1983 and has held other senior management positions. He has been a director of Kimberly-Clark since 1999. He also serves on the board of directors of Lockheed Martin Corporation, Catalyst Inc., the Global Consumer Goods Forum, and the University of Wisconsin Foundation, and serves as a governor of the Boys & Girls Clubs of America.
Maria Henry, 51, was elected Senior Vice President and Chief Financial Officer in 2015. Prior to joining Kimberly-Clark, Ms. Henry served as Chief Financial Officer of Hillshire Brands Company, a branded food products company, from 2012 to 2014, and Chief Financial Officer of Sara Lee Corporation’s North American Retail and Food Service business from 2011 to 2012. Prior to joining Sara Lee (the predecessor to Hillshire Brands) in 2011, Ms. Henry was Executive Vice President and Chief Financial Officer of Culligan International, where she was responsible for finance, strategy, business development and information technology. Before Culligan, Ms. Henry served as Chief Financial Officer of Vastera, Inc. She began her career at General Electric. She also serves on the board of directors of General Mills, Inc.
Michael D. Hsu, 53, was elected President and Chief Operating Officer and a member of the Board in January 2017. He is responsible for the day-to-day operations of our business units, along with our global innovation, marketing and supply chain functions. He served as Group President - K-C North America from 2013 to 2016, where he was responsible for our consumer business in North America, as well as leading the development of new business strategies for global nonwovens. From 2012 to 2013, his title was Group President - North America Consumer Products. Prior to joining Kimberly-Clark, Mr. Hsu served as Executive Vice President and Chief Commercial Officer of Kraft Foods, Inc., a North American grocery manufacturing and processing conglomerate, from January 2012 to July 2012, as President of Sales, Customer Marketing and Logistics from 2010 to 2012 and as President of its grocery business unit from 2008 to 2010. Prior to that, Mr. Hsu served as President and Chief Operating Officer, Foodservice at H. J. Heinz Company. Mr. Hsu also serves on the board of trustees of United Way U.S.A.
Sandra MacQuillan, 51, was elected Senior Vice President and Chief Supply Chain Officer in 2015. She is responsible for procurement, manufacturing, logistics, quality, safety and sustainability. Ms. MacQuillan joined Kimberly-Clark from Mars Incorporated where she served from 2009 to 2015 as Global Vice President, Supply Chain, responsible for manufacturing, engineering and logistics for Mars’ Global Petcare business.
Jeffrey P. Melucci, 47, was elected Senior Vice President - General Counsel in September 2017. From January 2017 to September 2017, he served as Vice President, Senior Deputy General Counsel and General Counsel of Kimberly-Clark’s Global Operations. From March 2013 to January 2017, he served as Vice President and Deputy General Counsel. He also served as Corporate Secretary from April 2014 to September 2017 and General Counsel of Kimberly-Clark International from March 2013 to December 2016. Mr. Melucci joined Kimberly-Clark from General Electric, where he served in multiple roles of increasing responsibility, most recently as General Counsel - Aviation Systems and Aviation Business Development.
Anthony J. Palmer, 58, was elected President - Global Brands and Innovation in 2012. Previously, he served as Senior Vice President and Chief Marketing Officer from 2006 to 2012. He leads the global development of our consumer categories through marketing, innovation, category and customer development and shopper marketing. In addition, he leads our global marketing, innovation and corporate research and development functions. Prior to joining Kimberly-Clark in 2006, he served in a number of senior marketing and general management roles at Kellogg Company from 2002 to 2006, including as Managing Director of Kellogg's United Kingdom business. He also serves on the board of directors of The Hershey Company.
Kimberly K. Underhill, 53, was elected President of K-C Professional in 2014. From 2011 to 2014, she served as President, Consumer Europe. She is responsible for our global professional business, which includes commercial tissue and wipers, skin care, safety and do-it-yourself products. She joined Kimberly-Clark in 1988 and has held a number of positions with increasing responsibility within research and engineering, operations and marketing. She also serves on the board of directors of Foot Locker, Inc.



 
8
KIMBERLY-CLARK CORPORATION - 2017 Annual Report

PART II


ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The dividend and market price data included in Item 7, MD&A "Unaudited Quarterly Data," are incorporated in this Item 5 by reference.
Quarterly dividends have been paid continually since 1935. Dividends have been paid on or about the second business day of January, April, July and October.
Kimberly-Clark common stock is listed on the New York Stock Exchange. The ticker symbol is KMB.
As of February 1, 2018, we had 20,540 holders of record of our common stock.
For information relating to securities authorized for issuance under equity compensation plans, see Part III, Item 12 of this Form 10-K.
We repurchase shares of Kimberly-Clark common stock from time to time pursuant to publicly announced share repurchase programs. During 2017, we repurchased 7.2 million shares of our common stock at a cost of $900 through a broker in the open market.
The following table contains information for shares repurchased during the fourth quarter of 2017. None of the shares in this table were repurchased directly from any of our officers or directors.
Period (2017)
 
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
October 1 to October 31
 
350,000

 
$
115.44

 
16,375,346

 
23,624,654

November 1 to November 30
 
340,400

 
114.59

 
16,715,746

 
23,284,254

December 1 to December 31
 
172,100

 
119.49

 
16,887,846

 
23,112,154

Total
 
862,500

 
 
 
 
 
 
(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.




 
9
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


ITEM 6.
SELECTED FINANCIAL DATA
 
Year Ended December 31
 
2017(a)
 
2016(b)
 
2015(c)
 
2014(d)
 
2013(e)
Net Sales
$
18,259

 
$
18,202

 
$
18,591

 
$
19,724

 
$
19,561

Gross Profit
6,553

 
6,651

 
6,624

 
6,683

 
6,609

Operating Profit
3,299

 
3,317

 
1,613

 
2,521

 
2,903

Share of Net Income of Equity Companies
104

 
132

 
149

 
146

 
205

Income from Continuing Operations
2,319

 
2,219

 
1,066

 
1,545

 
2,018

Income from Discontinued Operations, Net of Income Taxes

 

 

 
50

 
203

Net Income
2,319

 
2,219

 
1,066

 
1,595

 
2,221

Net Income Attributable to Noncontrolling Interests in Continuing Operations
(41
)
 
(53
)
 
(53
)
 
(69
)
 
(79
)
Net Income Attributable to Kimberly-Clark Corporation
2,278

 
2,166

 
1,013

 
1,526

 
2,142

Per Share Basis
 
 
 
 
 
 
 
 
 
Net Income Attributable to Kimberly-Clark Corporation
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
 
Continuing operations
6.44

 
6.03

 
2.78

 
3.94

 
5.05

Discontinued operations

 

 

 
0.13

 
0.53

Net income
6.44

 
6.03

 
2.78

 
4.07

 
5.58

 
 
 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
 
 
Continuing operations
6.40

 
5.99

 
2.77

 
3.91

 
5.01

Discontinued operations

 

 

 
0.13

 
0.52

Net income
6.40

 
5.99

 
2.77

 
4.04

 
5.53

 
 
 
 
 
 
 
 
 
 
Cash Dividends
 
 
 
 
 
 
 
 
 
Declared
3.88

 
3.68

 
3.52

 
3.36

 
3.24

Paid
3.83

 
3.64

 
3.48

 
3.33

 
3.17

 
 
 
 
 
 
 
 
 
 
Total Assets
15,151

 
14,602

 
14,842

 
15,526

 
18,919

Long-Term Debt
6,472

 
6,439

 
6,106

 
5,630

 
5,386

Total Stockholders' Equity
882

 
117

 
40

 
999

 
5,140


(a)
Results include other expense of $24 and an income tax benefit of $85 for 2017 U.S. tax reform and related matters. See Item 8, Notes 4 and 11 to the consolidated financial statements for details.
(b)
Results include other income of $11 related to an updated assessment of the deconsolidation of our Venezuelan operations. Additionally, results were negatively impacted by pre-tax charges of $35, $27 after tax, related to the 2014 Organization Restructuring. See Item 8, Notes 1 and 2 to the consolidated financial statements for details.
(c)
Results include pre-tax charges related to pension settlements of $1,358, $835 after tax, a $45 nondeductible charge related to the remeasurement of the Venezuelan balance sheet and a pre-tax charge of $108, $102 after tax, related to the deconsolidation of our Venezuelan operations. Additionally, results were negatively impacted by pre-tax charges of $63, $42 after tax, related to the 2014 Organization Restructuring, and nondeductible charges of $23 related to the restructuring of operations in Turkey. Also included is an income tax charge of $49 related to prior years as a result of an updated assessment of uncertain tax positions in certain of our international operations. See Item 8, Notes 1, 2, 6 and 11 to the consolidated financial statements for details.
(d)
Results include pre-tax charges of $133, $95 after tax, related to the 2014 Organization Restructuring, pre-tax charges of $33, $30 after tax, related to European strategic changes, a nondeductible charge of $462 related to the remeasurement of the Venezuelan balance sheet and a nondeductible charge of $35, $17 attributable to Kimberly-Clark Corporation, related to a regulatory dispute in the Middle East. Additionally, results were negatively impacted by pre-tax charges of $157, $138 after tax, for transaction and related costs associated with the spin-off of the health care business (classified in discontinued operations).
(e)
Results include pre-tax charges of $81, $66 after tax, related to European strategic changes. Additionally, results were negatively impacted by a $36 pre-tax charge, $26 after tax, related to the devaluation of the Venezuelan bolivar.



 
10
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
This MD&A is intended to provide investors with an understanding of our recent performance, financial condition and prospects. This discussion and analysis compares 2017 results to 2016, and 2016 results to 2015. The reference to "N.M." indicates that the calculation is not meaningful. In addition, we provide commentary regarding organic sales growth, which describes the impact of changes in volume, product mix and net selling prices on net sales. Changes in foreign currency rates and acquisitions and divestitures also impact the year-over-year change in net sales. Dollar amounts are reported in millions, except per share dollar amounts, unless otherwise noted.
The following will be discussed and analyzed:
Overview of Business
Overview of 2017 Results
Results of Operations and Related Information
Unaudited Quarterly Data
Liquidity and Capital Resources
Critical Accounting Policies and Use of Estimates
Legal Matters
New Accounting Standards
Business Outlook
Information Concerning Forward-Looking Statements
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, adjusted other (income) and expense, net, 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 to 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 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:
U.S. Tax Reform Related Matters - In the fourth quarter of 2017, we recognized a net benefit as a result of U.S. tax reform and related activities.
2014 Organization Restructuring - In 2014, we initiated this restructuring in order to improve organization efficiency and offset the impact of stranded overhead costs resulting from the 2014 spin-off of our health care business. As a result, we recognized restructuring charges in 2014, 2015 and 2016. Restructuring actions were completed by December 31, 2016. See Item 8, Note 2 to the consolidated financial statements for details.
Adjustments Related to Venezuelan Operations - Results in 2016 and 2015 include adjustments for the deconsolidation of our Venezuelan operations, and in 2015 include charges for remeasuring the local currency balance sheet in Venezuela. See Item 8, Note 1 to the consolidated financial statements for details.


 
11
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


Pension Settlement Charges - In 2015, we recorded settlement-related charges from certain actions taken for our U.S. pension plan. See Item 8, Note 6 to the consolidated financial statements for details.
Uncertain Tax Positions Adjustment - In 2015, we updated our assessment of uncertain tax positions for certain international operations, and recorded a charge related to prior years in provision for income taxes. See Item 8, Note 11 to the consolidated financial statements for details.
Turkey Restructuring - In 2015, we recorded charges related to the restructuring of our operations in Turkey.
Overview of Business
We are a global company focused on leading the world in essentials for a better life, with manufacturing facilities in 36 countries and products sold in more than 175 countries. Our products are sold under well-known brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend. We have three reportable business segments: Personal Care, Consumer Tissue and KCP. These business segments are described in greater detail in Item 8, Note 13 to the consolidated financial statements.
In operating our business, we seek to:
manage our portfolio to balance growth, profit margin and cash flow,
invest in our brands, innovation and growth initiatives,
deliver sustainable cost reductions, and
provide disciplined capital management to improve return on invested capital and return cash to shareholders.
We describe our business outside North America in two groups – Developing and Emerging Markets and Developed Markets. Developing and Emerging 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.
Highlights for 2017 include the following:
Net sales of $18.3 billion increased slightly compared to 2016. Favorable changes in foreign currency exchange rates benefited sales by less than 1 percent.
In North America, organic sales were down 2 percent in consumer products and similar year-on-year in K-C Professional.
Outside North America, organic sales increased 3 percent in developing and emerging markets but fell 3 percent in developed markets.
We achieved $450 of cost savings from our ongoing FORCE (Focused On Reducing Costs Everywhere) program.
Diluted earnings per share were $6.40 in 2017 compared to $5.99 in 2016, including a net benefit from the 2017 U.S. tax reform and related matters.
We continued to focus on generating cash flow and allocating capital to shareholders. We raised our dividend in 2017 by 5.4 percent, the 45th consecutive annual increase in our dividend. Altogether, share repurchases and dividends in 2017 amounted to $2.3 billion.
We are subject to risks and uncertainties, which can affect our business operations and financial results. See Item 1A, "Risk Factors" in this Form 10-K for additional information.
Overview of 2017 Results
Net sales of $18.3 billion increased slightly compared to prior year, as changes in foreign currency exchange rates benefited sales by less than 1 percent.
Operating profit and Net Income Attributable to Kimberly-Clark Corporation were $3,299 and $2,278 in 2017 and $3,317 and $2,166 in 2016, respectively.
Diluted earnings per share were $6.40 in 2017 compared to $5.99 in 2016. Results in 2017 included a net benefit of $0.17 as a result of U.S. tax reform and related activities.


 
12
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


Results of Operations and Related Information
This section presents a discussion and analysis of net sales, operating profit and other information relevant to an understanding of 2017 results of operations.
Consolidated
Selected Financial Results
Year Ended December 31
 
2017
 
2016
 
Change
2017 vs. 2016
 
2015
 
Change
2016 vs. 2015
Net Sales:
 
 
 
 
 
 
 
 
 
North America
$
9,390

 
$
9,545

 
-2
 %
 
$
9,531

 

Outside North America
9,186

 
8,964

 
+2
 %
 
9,458

 
-5
 %
Intergeographic sales
(317
)
 
(307
)
 
+3
 %
 
(398
)
 
-23
 %
Total Net Sales
18,259

 
18,202

 

 
18,591

 
-2
 %
Operating Profit:
 
 
 
 
 
 
 
 
 
North America
2,283

 
2,322

 
-2
 %
 
2,180

 
+7
 %
Outside North America
1,291

 
1,255

 
+3
 %
 
1,368

 
-8
 %
Corporate & Other(a)
(248
)
 
(252
)
 
N.M.

 
(367
)
 
N.M.

Other (income) and expense, net(a)
27

 
8

 
N.M.

 
1,568

 
N.M.

Total Operating Profit
3,299

 
3,317

 
-1
 %
 
1,613

 
+106
 %
Provision for income taxes
(776
)
 
(922
)
 
-16
 %
 
(418
)
 
+121
 %
Share of net income of equity companies
104

 
132

 
-21
 %
 
149

 
-11
 %
Net Income Attributable to Kimberly-Clark Corporation
2,278

 
2,166

 
+5
 %
 
1,013

 
+114
 %
Diluted Earnings per Share
6.40

 
5.99

 
+7
 %
 
2.77

 
+116
 %
(a)
Corporate & Other and Other (income) and expense, net includes income and expenses not associated with the business segments, including adjustments as indicated in the Non-GAAP Reconciliations.
GAAP to Non-GAAP Reconciliations of Selected Financial Results
 
 
Twelve Months Ended December 31, 2017
 
 
As
Reported
 
U.S. Tax Reform Related Matters
 
As
Adjusted
Non-GAAP
Other (income) and expense, net
 
$
27

 
$
24

 
$
3

Operating Profit
 
3,299

 
(24
)
 
3,323

Income before income taxes and equity interests
 
2,991

 
(24
)
 
3,015

Provision for income taxes
 
(776
)
 
85

 
(861
)
Effective tax rate
 
25.9
%
 

 
28.6
%
Net Income Attributable to Kimberly-Clark Corporation
 
2,278

 
61

 
2,217

Diluted Earnings per Share
 
6.40

 
0.17

 
6.23



 
13
KIMBERLY-CLARK CORPORATION - 2017 Annual Report



 
 
Twelve Months Ended December 31, 2016
 
 
As
Reported
 
Charges for 2014 Organization Restructuring
 
Adjustment Related to Venezuelan Operations
 
As
Adjusted
Non-GAAP
Cost of products sold
 
$
11,551

 
$
6

 
$

 
$
11,545

Marketing, research and general expenses
 
3,326

 
32

 

 
3,294

Other (income) and expense, net
 
8

 
(3
)
 
(11
)
 
22

Operating Profit
 
3,317

 
(35
)
 
11

 
3,341

Income before income taxes and equity interests
 
3,009

 
(35
)
 
11

 
3,033

Provision for income taxes
 
(922
)
 
8

 

 
(930
)
Effective tax rate
 
30.6
%
 

 

 
30.7
%
Net Income Attributable to Kimberly-Clark Corporation
 
2,166

 
(27
)
 
11

 
2,182

Diluted Earnings per Share
 
5.99

 
(0.07
)
 
0.03

 
6.03

 
 
Twelve Months Ended December 31, 2015
 
 
As
Reported
 
Charges Related to Venezuelan
Operations
 
Uncertain Tax Positions Adjustment
 
Charges
for Pension
Settlements
 
Charges for 2014 Organization Restructuring
 
Charges for Turkey Restructuring
 
As
Adjusted
Non-GAAP
Cost of products sold
 
$
11,967

 
$
5

 
$

 
$

 
$
23

 
$
22

 
$
11,917

Marketing, research and general expenses
 
3,443

 

 

 

 
40

 
1

 
3,402

Other (income) and expense, net
 
1,568

 
148

 

 
1,358

 

 

 
62

Operating Profit
 
1,613

 
(153
)
 

 
(1,358
)
 
(63
)
 
(23
)
 
3,210

Income before income taxes
  and equity interests
 
1,335

 
(153
)
 

 
(1,358
)
 
(63
)
 
(23
)
 
2,932

Provision for income taxes
 
(418
)
 
6

 
(49
)
 
523

 
21

 

 
(919
)
Effective tax rate
 
31.3
%
 

 

 

 

 

 
31.3
%
Net Income Attributable to Kimberly-Clark Corporation
 
1,013

 
(147
)
 
(49
)
 
(835
)
 
(42
)
 
(23
)
 
2,109

Diluted Earnings per Share(a)
 
2.77

 
(0.40
)
 
(0.13
)
 
(2.28
)
 
(0.11
)
 
(0.06
)
 
5.76

(a) "As Adjusted Non-GAAP" does not equal "As Reported" plus adjustments as a result of rounding.
Analysis of Consolidated Results
Net Sales
 
Percent Change
 
Adjusted Operating Profit
 
Percent Change
 
 
2017 vs. 2016
 
2016 vs. 2015
 
 
 
2017 vs. 2016
 
2016 vs. 2015
Volume
 
1

 
2

 
Volume
 
1

 
5

Net Price
 
(1
)
 

 
Net Price
 
(8
)
 
(1
)
Mix/Other
 

 

 
Input Costs
 
(11
)
 
2

Currency
 
1

 
(4
)
 
Cost Savings
 
13

 
14

Total(a)
 

 
(2
)
 
Currency Translation
 
1

 
(3
)
 
 
 
 
 
 
Other(c)
 
3

 
(13
)
Organic(b)
 

 
2

 
Total
 
(1
)
 
4

(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)
Includes the impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.


 
14
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


2017 vs. 2016
Net sales of $18.3 billion were up slightly compared to the year-ago period. Favorable foreign currency rates benefited sales by less than 1 percent. Organic sales were similar year-on-year, as sales volumes increased about 1 percent. Changes in product mix increased sales slightly, while changes in net selling prices decreased sales by more than 1 percent. Operating profit was $3,299 in 2017 and $3,317 in 2016. Adjusted operating profit was $3,323 in 2017 and $3,341 in 2016. Results were impacted by lower net selling prices and $355 of higher input costs. The comparison benefited from volume growth, $450 of FORCE cost savings and lower marketing, research and general spending.
The effective tax rate of 25.9 percent in 2017 decreased compared to 30.6 percent in 2016. The rate in 2017 included a net benefit as a result of U.S. tax reform and related activity. This amount included a net expense of $278 for the transition tax and a net benefit of $202 for the remeasurement of deferred taxes associated with the corporate rate reduction and our reassessment of permanently reinvested earnings. In addition, it included a net benefit of $152 for certain tax planning actions that were taken in the fourth quarter of 2017 in anticipation of the enactment of the Tax Act. See additional details in Item 8, Note 11 to the consolidated financial statements. The adjusted effective rate was 28.6 percent in 2017 and 30.7 percent in 2016.
Our share of net income of equity companies was $104 in 2017 and $132 in 2016. Kimberly-Clark de Mexico, S.A.B. de C.V. ("KCM") results in 2017 were impacted by higher input costs, partially offset by benefits from sales growth and cost savings.
Diluted earnings per share was $6.40 in 2017 and $5.99 in 2016 and adjusted earnings per share were $6.23 in 2017 and $6.03 in 2016. The change was driven by a lower share count and higher earnings.
2016 vs. 2015
Net sales of $18.2 billion decreased 2 percent compared to 2015, as changes in foreign currency exchange rates reduced sales by about 4 percent. Organic sales increased approximately 2 percent due to higher volumes. Operating profit was $3,317 in 2016 versus $1,613 in 2015. Results in 2015 included $1,358 of pension settlement charges and $153 of charges related to our Venezuelan operations. Adjusted operating profit of $3,341 in 2016 increased 4 percent compared to $3,210 in 2015. Results in 2016 included benefits from organic sales growth, $435 of FORCE cost savings and $70 of savings from the 2014 Organization Restructuring. In addition, input costs were $65 lower. Translation effects due to changes in foreign currency exchange rates lowered operating profit by $90 and transaction effects also negatively impacted results.
Adjusted other (income) and expense, net of $22 in 2016 decreased compared to $62 in 2015 due to higher currency transaction losses in 2015. The decrease in our effective tax rate of 30.6 percent in 2016 compared to 31.3 percent in 2015 is primarily due to certain planning initiatives. Our share of net income of equity companies was $132 in 2016 and $149 in 2015. KCM results in 2016 compared to 2015 were negatively impacted by a weaker Mexican peso and higher input costs, partially offset by benefits from organic sales growth and cost savings.
Diluted earnings per share were $5.99 in 2016 and $2.77 in 2015. The increase in adjusted earnings per share of $6.03 in 2016 compared to $5.76 in 2015 was due to higher earnings and lower share counts.


 
15
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


Business Segments
Personal Care
 
 
2017
 
2016
 
2015
 
 
 
2017
 
2016
 
2015
Net Sales
 
$
9,078

 
$
9,046

 
$
9,204

 
Operating Profit
 
$
1,907

 
$
1,857

 
$
1,885

Net Sales
 
Percent Change
 
Operating Profit
 
Percent Change
 
 
2017 vs. 2016
 
2016 vs. 2015
 
 
 
2017 vs. 2016
 
2016 vs. 2015
Volume
 
1

 
4

 
Volume
 
2

 
8

Net Price
 
(2
)
 
(1
)
 
Net Price
 
(9
)
 
(4
)
Mix/Other
 
1

 

 
Input Costs
 
(7
)
 
2

Currency
 
1

 
(5
)
 
Cost Savings
 
14

 
14

Total(a)
 

 
(2
)
 
Currency Translation
 
1

 
(3
)
 
 
 
 
 
 
Other(c)
 
2

 
(18
)
Organic(b)
 
(1
)
 
3

 
Total
 
3

 
(1
)
(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)
Includes the impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
2017 vs. 2016
Net sales of $9.1 billion was up slightly compared to 2016. Favorable currency rates and higher sales volumes increased sales by 1 percent each, while changes in net selling prices decreased sales by 2 percent. Operating profit of $1,907 increased 3 percent. The comparison benefited from volume growth, cost savings and reduced marketing, research and general spending, mostly offset by lower net selling prices and input cost inflation.
Net sales in North America decreased 2 percent. Changes in net selling prices reduced sales by more than 1 percent, including higher promotion spending in most categories, and volumes decreased slightly. Adult care volumes increased mid-single digits, including benefits from market growth and innovations on our Poise and Depend brands. On the other hand, volumes in the infant and child care mega-category were down low single digits. Although volumes increased in Pull-Ups training pants, Huggies diaper volumes were down, impacted by competitive activity and a lower U.S. birth rate.
Net sales in developing and emerging markets increased 6 percent as sales volumes increased 5 percent and favorable currency rates increased sales by 1 percent. Sales benefited by 1 percent from changes in product mix and an additional slight benefit from our acquisition of our joint venture in India, offset by lower net selling prices of about 2 percent. The volume increase was driven by gains in Latin America, primarily Argentina and Brazil, China, Eastern Europe and Middle East/Africa.
Net sales in developed markets outside North America decreased about 6 percent. Sales volumes decreased 6 percent and changes in net selling prices decreased sales by 3 percent, partially offset by favorable currency rates of more than 1 percent and improved product mix of 1 percent. The volume declines were mostly in South Korea, which was impacted by a lower birth rate.
2016 vs. 2015
Net sales of $9.0 billion in 2016 decreased 2 percent compared to 2015. Unfavorable currency rates decreased sales by 5 percent while sales volumes increased 4 percent. Changes in net selling prices decreased sales by 1 percent. Operating profit of $1,857 decreased 1 percent. The comparison was impacted by unfavorable currency effects and higher marketing, research and general expenses on a local currency basis, mostly offset by organic sales growth and cost savings.
Net sales in North America increased 2 percent. Sales volumes increased 4 percent, while lower net selling prices reduced sales by 2 percent. Child care volumes increased high-single digits and adult care volumes rose in the mid-single digits, as both businesses benefited from category growth and innovations launched in the last 12 months. Volumes on Huggies baby wipes rose mid-single digits. Huggies diapers volumes were down low-single digits, although market shares were up slightly.


 
16
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


Net sales in developing and emerging markets decreased 6 percent, including an 11 percent negative impact from unfavorable currency rate changes. This was partially offset by sales volume increases of 4 percent and changes in net selling prices that increased sales by 1 percent. Volume growth included gains in China, Eastern Europe, Africa and Central America, while volumes declined in Argentina and Brazil. Net selling prices increased in Argentina and Brazil, but decreased in China.
Net sales in developed markets outside North America decreased 2 percent. Currency rates were unfavorable by 3 percent. Sales volumes increased 2 percent and product mix was favorable 1 percent, while changes in net selling prices decreased sales by 2 percent.
Consumer Tissue
 
 
2017
 
2016
 
2015
 
 
 
2017
 
2016
 
2015
Net Sales
 
$
5,932

 
$
5,967

 
$
6,121

 
Operating Profit
 
$
1,034

 
$
1,117

 
$
1,073

Net Sales
 
Percent Change
 
Operating Profit
 
Percent Change
 
 
2017 vs. 2016
 
2016 vs. 2015
 
 
 
2017 vs. 2016
 
2016 vs. 2015
Volume
 

 

 
Volume
 
(2
)
 
1

Net Price
 
(1
)
 

 
Net Price
 
(5
)
 
2

Mix/Other
 

 
(1
)
 
Input Costs
 
(14
)
 
4

Currency
 
1

 
(2
)
 
Cost Savings
 
11

 
10

Total(a)
 
(1
)
 
(3
)
 
Currency Translation
 

 
(1
)
 
 
 
 
 
 
Other(c)
 
3

 
(12
)
Organic(b)
 
(1
)
 

 
Total
 
(7
)
 
4

(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)
Includes the impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
2017 vs. 2016
Net sales of $5.9 billion decreased slightly compared to prior year. Changes in net selling prices decreased sales by 1 percent, mostly offset by favorable currency rates. Operating profit of $1,034 decreased 7 percent. The comparison was impacted by lower sales and input cost inflation, partially offset by cost savings and reduced marketing, research and general spending.
Net sales in North America decreased about 3 percent compared to prior year. Sales volumes decreased by 2 percent and changes in net selling prices decreased sales slightly. Sales volumes were down in bathroom tissue and facial tissue, and up in paper towels.
Net sales in developing and emerging markets increased 5 percent as sales volumes increased 5 percent, primarily in Latin America. Favorable currency rates increased sales by about 4 percent, while changes in net selling prices and product mix decreased sales by 3 percent and 1 percent, respectively.
Net sales in developed markets outside North America decreased about 1 percent. Changes in net selling prices decreased sales by 1 percent and sales volumes were slightly lower, partially offset by improved product mix.
2016 vs. 2015
Net sales of $6.0 billion in 2016 decreased 3 percent compared to 2015 as unfavorable currency rates and changes in product mix reduced sales by 2 percent and 1 percent, respectively. Operating profit of $1,117 increased 4 percent compared to prior year. The comparison benefited from cost savings and lower input costs, partially offset by unfavorable foreign currency effects.
Net sales in North America were essentially even with the prior year. Sales volumes increased by 1 percent, with increases in all product categories, while product mix was unfavorable by 1 percent.
Net sales in developing and emerging markets decreased 7 percent as unfavorable currency rates reduced sales by about 7 percent. Sales volumes decreased about 4 percent, primarily in Latin America, while changes in net selling prices increased sales by 3 percent.


 
17
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


Net sales in developed markets outside North America decreased 4 percent as unfavorable currency effects reduced sales by 4 percent. Sales volumes increased 1 percent, mostly in Australia, while changes in net selling prices decreased sales by 1 percent.
K-C Professional
 
 
2017
 
2016
 
2015
 
 
 
2017
 
2016
 
2015
Net Sales
 
$
3,208

 
$
3,150

 
$
3,219

 
Operating Profit
 
$
633

 
$
603

 
$
590

Net Sales
 
Percent Change
 
Operating Profit
 
Percent Change
 
 
2017 vs. 2016
 
2016 vs. 2015
 
 
 
2017 vs. 2016
 
2016 vs. 2015
Volume
 
1

 

 
Volume
 
3

 
1

Net Price
 
(1
)
 
1

 
Net Price
 
(3
)
 
4

Mix/Other
 

 
(1
)
 
Input Costs
 
(12
)
 
(1
)
Currency
 
1

 
(2
)
 
Cost Savings
 
12

 
9

Total(a)
 
2

 
(2
)
 
Currency Translation
 
1

 
(2
)
 
 
 
 
 
 
Other(c)
 
4

 
(9
)
Organic(b)
 
1

 

 
Total
 
5

 
2

(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)
Includes the impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
2017 vs. 2016
Net sales of $3.2 billion in 2017 increased 2 percent compared to 2016, including the benefit of favorable currency rates of 1 percent. The combined impact from sales volume growth and changes in net selling prices increased sales by 1 percent. Operating profit of $633 increased 5 percent. The comparison benefited from cost savings and lower marketing, research and general spending, partially offset by input cost inflation.
Net sales in North America increased about 1 percent. Sales volumes increased more than 1 percent, including growth in safety and other product categories. Changes in net selling prices decreased sales by about 1 percent.
Net sales in developing and emerging markets increased 5 percent as favorable currency rates increased sales by 3 percent. Sales volumes increased 1 percent, and the combined impact of changes in product mix and net selling prices increased sales by 1 percent.
Net sales in developed markets outside North America increased 3 percent as sales volumes and higher net selling prices each increased sales by 1 percent. Favorable currency rates benefited sales slightly.
2016 vs. 2015
Net sales of $3,150 in 2016 decreased 2 percent compared to 2015 as unfavorable currency rate changes decreased sales by about 2 percent, partially offset by changes in net selling prices that increased sales by about 1 percent. Operating profit of $603 increased 2 percent. The comparison benefited from higher selling prices and cost savings, partially offset by unfavorable currency effects and higher marketing, research and general expenses on a local currency basis.
Net sales in North America increased 2 percent. Sales volumes increased 1 percent, mostly due to growth in washroom products, and the combined impact of changes in net selling prices and product mix increased sales by 1 percent.
Net sales in developing and emerging markets decreased 3 percent as unfavorable changes in currency rates reduced sales by 8 percent. Changes in net selling prices increased sales by 5 percent and product mix improved sales by 1 percent, while sales volumes decreased by 1 percent.
Net sales in developed markets outside North America were down 5 percent, including a 3 percent negative impact from unfavorable currency rates. Changes in net selling prices reduced sales by 2 percent and sales volumes decreased 1 percent, while product mix increased sales by 1 percent.


 
18
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


2018 Global Restructuring Program
On January 23, 2018, we announced a new global restructuring program. The 2018 Global Restructuring Program will reduce our structural cost base by streamlining and simplifying the company’s manufacturing supply chain and overhead organization.   The program will make our overhead organization structure and manufacturing supply chain less complex and more efficient. 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 sales are concentrated in our consumer tissue business segment. The restructuring is expected to impact all of our business segments and 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 by the end of 2020, with total costs anticipated to be $1.7 billion to $1.9 billion pre-tax ($1.35 billion to $1.5 billion after tax). Cash costs are expected to be $900 to $1.0 billion, primarily related to workforce reductions.  Non-cash charges are primarily related to incremental depreciation and asset write-offs. Annual pre-tax savings from the restructuring are expected to be $500 to $550 by 2021. In addition, to implement this program, we expect to incur incremental capital spending of approximately $600 to $700 by the end of 2020. Restructuring charges in 2018 are expected to be $1.2 billion to $1.35 billion pre-tax ($950 to $1.05 billion after tax). We expect to generate savings of $50 to $70 in 2018.
Unaudited Quarterly Data
 
2017
 
2016
 
Fourth
 
Third
 
Second
 
First
 
Fourth
 
Third
 
Second
 
First
Net Sales
$
4,582

 
$
4,640

 
$
4,554

 
$
4,483

 
$
4,544

 
$
4,594

 
$
4,588

 
$
4,476

Gross Profit
1,598

 
1,659

 
1,644

 
1,652

 
1,678

 
1,670

 
1,664

 
1,639

Operating Profit
812

 
854

 
799

 
834

 
839

 
836

 
838

 
804

Net Income
625

 
579

 
540

 
575

 
518

 
563

 
578

 
560

Net Income Attributable to Kimberly-Clark Corporation
617

 
567

 
531

 
563

 
505

 
550

 
566

 
545

Per Share Basis-Diluted
1.75

 
1.60

 
1.49

 
1.57

 
1.40

 
1.52

 
1.56

 
1.50

Cash Dividends Declared Per Share
0.97

 
0.97

 
0.97

 
0.97

 
0.92

 
0.92

 
0.92

 
0.92

Market Price Per Share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High
123.77

 
130.00

 
134.29

 
136.21

 
125.76

 
138.87

 
138.76

 
136.61

Low
109.67

 
115.91

 
125.55

 
113.71

 
111.30

 
121.20

 
123.52

 
121.50

Close
120.66

 
117.68

 
129.11

 
131.63

 
114.12

 
126.14

 
137.48

 
134.51

Liquidity and Capital Resources
Cash Provided by Operations
Cash provided by operations was $2.9 billion in 2017 compared to $3.2 billion in 2016. The decrease was driven by higher tax payments. Cash provided by operations was $2.3 billion in 2015. The increase in 2016 compared to 2015 was driven by improved working capital and lower pension contributions.


 
19
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


Obligations
The following table presents our total contractual obligations for which cash flows are fixed or determinable. 
 
Total
 
2018
 
2019
 
2020
 
2021
 
2022
 
2023+
Long-term debt
$
6,892

 
$
407

 
$
714

 
$
760

 
$
251

 
$
298

 
$
4,462

Interest payments on long-term debt
3,084

 
222

 
201

 
188

 
170

 
163

 
2,140

Operating leases
610

 
170

 
130

 
99

 
65

 
48

 
98

Unconditional purchase obligations
1,173

 
699

 
206

 
204

 
8

 
5

 
51

Open purchase orders
1,907

 
1,808

 
86

 
10

 
2

 
1

 

Total contractual obligations
$
13,666

 
$
3,306

 
$
1,337

 
$
1,261

 
$
496

 
$
515

 
$
6,751

The unconditional purchase obligations are for the purchase of raw materials, primarily superabsorbent materials, pulp and utilities. Although we are primarily liable for payments on the above operating leases and unconditional purchase obligations, based on historic operating performance and forecasted future cash flows, we believe exposure to losses, if any, under these arrangements is not material.
The open purchase orders displayed in the table represent amounts for goods and services we have negotiated for delivery.
The table does not include amounts where payments are discretionary or the timing is uncertain. The following payments are not included in the table:
We will fund our defined benefit pension plans to meet or exceed statutory requirements and currently expect to contribute up to $100 to these plans in 2018.
Other postretirement benefit payments are estimated using actuarial assumptions, including expected future service, to project the future obligations. Based upon those projections, we anticipate making annual payments for these obligations ranging from $58 in 2018 to more than $60 by 2027.
Accrued income tax liabilities for uncertain tax positions, deferred taxes and noncontrolling interests.
Investing
Our capital spending was $0.8 billion in 2017 and 2016. We expect capital spending to be approximately $1.1 billion in 2018, including incremental spending from the 2018 Global Restructuring Program.
Financing
We issue long-term debt in the public market periodically. Proceeds from the offerings are used for general corporate purposes, including repayment of maturing debt or outstanding commercial paper indebtedness. See Item 8, Note 4 to the consolidated financial statements for details.
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 $547 as of December 31, 2017 (included in debt payable within one year on the consolidated balance sheet). The average month-end balance of short-term debt for the fourth quarter of 2017 was $419 and for the twelve months ended December 31, 2017 was $417. These short-term borrowings provide supplemental funding for supporting 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 pension contributions, dividends and income taxes.
At December 31, 2017, total debt was $7.4 billion compared to $7.6 billion at December 31, 2016.
We maintain a $2.0 billion revolving credit facility which expires in 2021. This facility, currently unused, supports our commercial paper program, and would provide liquidity in the event our access to the commercial paper markets is unavailable for any reason.
We paid $1.4 billion in dividends in 2017. The Board of Directors approved a dividend increase of 3.1 percent for 2018. We repurchase shares of Kimberly-Clark common stock from time to time pursuant to publicly announced share repurchase programs.


 
20
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


During 2017, we repurchased 7.2 million shares of our common stock at a cost of $900 through a broker in the open market. We are targeting full-year 2018 share repurchases between $700 and $900, subject to market conditions.
Management believes 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, payment of dividends, pension plan contributions 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.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. The critical accounting policies we used in the preparation of the consolidated financial statements are those that are important both to the presentation of our financial condition and results of operations and require significant judgments by management with regard to estimates used. The critical judgments by management relate to accruals for sales incentives and trade promotion allowances, pension and other postretirement benefits, deferred income taxes and potential income tax assessments. These critical accounting policies have been reviewed with the Audit Committee of the Board of Directors.
Sales Incentives and Trade Promotion Allowances
Trade promotion programs include introductory marketing funds such as slotting fees, cooperative marketing programs, temporary price reductions, end-of-aisle or in-store product displays and other activities conducted by our customers to promote our products. Rebate and promotion accruals are based on estimates of the quantity of customer sales. Promotion accruals also consider estimates of the number of consumer coupons that will be redeemed and timing and costs of activities within the promotional programs. Generally, the estimates for consumer coupon costs are based on historical patterns of coupon redemption, influenced by judgments about current market conditions such as competitive activity in specific product categories. Our related accounting policies are discussed in Item 8, Note 1 to the consolidated financial statements. The accounting policies for these programs did not materially change with the adoption, on January 1, 2018, of the Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers.
Employee Postretirement Benefits
We have defined benefit pension plans in the U.S. and the United Kingdom (the "Principal Plans") and/or defined contribution retirement plans covering substantially all regular employees. Certain other subsidiaries have defined benefit pension plans or, in certain countries, termination pay plans covering substantially all regular employees. Our related accounting policies and account balances are discussed in Item 8, Note 6 to the consolidated financial statements.
Changes in certain assumptions could affect pension expense and the benefit obligations, particularly the estimated long-term rate of return on plan assets and the discount rates used to calculate the obligations:
Long-term rate of return on plan assets. The expected long-term rate of return is evaluated on an annual basis. In setting these assumptions, we consider a number of factors including projected future returns by asset class relative to the target asset allocation. Actual asset allocations are regularly reviewed and they are periodically rebalanced to the targeted allocations when considered appropriate.
As of December 31, 2017, the Principal Plans had cumulative unrecognized investment and actuarial losses of approximately $1.5 billion. These unrecognized net losses may increase future pension expense if not offset by (i) actual investment returns that exceed the assumed investment returns, (ii) other factors, including reduced pension liabilities arising from higher discount rates used to calculate pension obligations, or (iii) other actuarial gains, including whether such accumulated actuarial losses at each measurement date exceed the "corridor" as required. If the expected long-term rates of return on assets for the Principal Plans were lowered by 0.25 percent, the impact on annual pension expense would not be material in 2018.
Discount rate. The discount (or settlement) rate used to determine the present value of our future U.S. pension obligation at December 31, 2017 was based on a portfolio of high quality corporate debt securities with cash flows that largely match the expected benefit payments of the plan. For the United Kingdom plan, the discount rate was determined based on yield curves constructed from a portfolio of high quality corporate debt securities. Each year's expected future benefit payments were discounted to their present value at the appropriate yield curve rate to determine the pension obligations.


 
21
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


If the discount rate assumptions for these same plans were reduced by 0.25 percent, the increase in annual pension expense would not be material in 2018, and the December 31, 2017 pension liability would increase by about $145.
Other assumptions. There are a number of other assumptions involved in the calculation of pension expense and benefit obligations, primarily related to participant demographics and benefit elections.
Pension expense for defined benefit pension plans is estimated to approximate $35 in 2018. Pension expense beyond 2018 will depend on future investment performance, our contributions to the pension trusts, changes in discount rates and various other factors related to the covered participants in the plans. The estimate of pension expense for 2018 does not include any potential effects related to the 2018 Global Restructuring Program (see Item 8, Note 15 to the consolidated financial statements).
Substantially all U.S. retirees and employees have access to our unfunded health care and life insurance benefit plans. Changes in significant assumptions could affect the consolidated expense and benefit obligations, particularly the discount rates used to calculate the obligations and the health care cost trend rate:
Discount rate. The determination of the discount rates used to calculate the benefit obligations of the plans is discussed in the pension benefit section above, and the methodology for each country is the same as the methodology used to determine the discount rate for that country's pension obligation. If the discount rate assumptions for these plans were reduced by 0.25 percent, the impact to 2018 other postretirement benefit expense and the increase in the December 31, 2017 benefit liability would not be material.
Health care cost trend rate. The health care cost trend rate is based on a combination of inputs including our recent claims history and insights from external advisers regarding recent developments in the health care marketplace, as well as projections of future trends in the marketplace.
Our related accounting policies, account balances and the effects of a one percentage point change in the health care cost trend rate are discussed in Item 8, Note 6 to the consolidated financial statements.
Deferred Income Taxes and Potential Assessments
As a global organization, we are subject to income tax requirements in various jurisdictions in the U.S. and internationally. Changes in certain assumptions related to income taxes could significantly affect consolidated results, particularly with regard to valuation allowances on deferred tax assets, undistributed earnings of subsidiaries outside the U.S. and uncertain tax positions. Our income tax related accounting policies, account balances and matters affecting income taxes are discussed in Item 8, Note 11 to the consolidated financial statements.
Deferred tax assets and related valuation allowances. We have recorded deferred tax assets related to, among other matters, income tax loss carryforwards, income tax credit carryforwards and capital loss carryforwards and have established valuation allowances against these deferred tax assets. These carryforwards are primarily in non-U.S. taxing jurisdictions and in certain states in the U.S. Foreign tax credits earned in the U.S. in current and prior years, which cannot be used currently, also give rise to net deferred tax assets. In determining the valuation allowances to establish against these deferred tax assets, many factors are considered, including the specific taxing jurisdiction, the carryforward period, income tax strategies and forecasted earnings for the entities in each jurisdiction. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Undistributed earnings. Deferred taxes have been recorded for foreign and U.S. state income taxes on $1.0 billion of earnings of foreign consolidated subsidiaries expected to be repatriated.  We do not intend to distribute $4.5 billion of earnings of foreign consolidated subsidiaries taxed as part of the transition tax and have not recorded any deferred taxes related to such amounts for foreign and U.S. state income taxes. We consider any excess of the amount for financial reporting over the tax basis of our investment in our foreign subsidiaries to be indefinitely reinvested. At this time, the determination of deferred tax liabilities on this amount is not practicable.
Uncertain tax positions. We record our global tax provision based on the respective tax rules and regulations for the jurisdictions in which we operate. Where we believe that a tax position is supportable for income tax purposes, the item is included in our income tax returns. Where treatment of a position is uncertain, a liability is recorded based upon the expected most likely outcome taking into consideration the technical merits of the position based on specific tax regulations


 
22
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


and facts of each matter. These liabilities may be affected by changing interpretations of laws, rulings by tax authorities or the expiration of the statute of limitations.
Legal Matters
We are party to certain legal proceedings relating to our former health care business, Halyard, which we spun-off on October 31, 2014. This includes Bahamas Surgery Center v. Kimberly-Clark Corporation, et al., a California consumer class action relating to the sale of surgical gowns. On April 7, 2017, the jury awarded the plaintiff class $3.9 in compensatory damages and $350 in punitive damages against us. We have filed motions challenging the jury’s verdict as we believe it is contrary to the evidence presented at trial and that the punitive damage award is baseless, excessive and not consistent with California and federal laws. Under the terms of the distribution agreement we entered into with Halyard in connection with the spin-off, Halyard is obligated to indemnify us for legal proceedings, claims and other liabilities primarily related to our former health care business.  Halyard and Kimberly-Clark have each filed suits against the other seeking declaratory judgment regarding the scope of these indemnification obligations. We are also party to additional legal proceedings relating to Halyard, including civil actions, qui tam matters, a shareholder derivative suit, a securities class action and certain subpoena and document requests from the federal government. Although the results of litigation and claims cannot be predicted with certainty, we continue to believe that the final outcome of these matters will not have a material adverse effect, individually or in the aggregate, on our business, financial condition, results of operations or liquidity.
New Accounting Standards
See Item 8, Note 1 to the consolidated financial statements for a description of new accounting standards and their anticipated effects on our consolidated financial statements.
Business Outlook
In 2018, we plan to continue to execute our Global Business Plan strategies, which include a focus on targeted growth initiatives, innovation and brand building, cost savings programs and shareholder-friendly capital allocation. In 2018, we expect earnings per share to be $3.90 to $4.50. Adjusted earnings per share are expected to be $6.90 to $7.20, which excludes 2018 Global Restructuring Program charges equivalent to $2.70 to $3.00. Our adjusted earnings per share guidance is based on the assumptions described below:
We expect net sales to increase 1 to 2 percent. We anticipate changes in foreign currency exchange rates to have a neutral to 1 percent positive impact on net sales, and the acquisition of our joint venture in India should benefit sales slightly.
We expect organic sales to increase approximately 1 percent, driven by higher sales volumes. Changes in net selling prices and product mix are expected to be similar, or up slightly, year-on-year.
We expect adjusted operating profit growth of 2 to 5 percent.
We plan to achieve cost savings of approximately $400 from our FORCE program, and $50 to $70 from the 2018 Global Restructuring Program.
We expect inflation in key cost inputs of $300 to $400. We anticipate the majority of the inflation to occur in international markets.
We expect interest expense to be down approximately 20 percent.
We expect an adjusted effective tax rate of 23 to 26 percent.
We expect net income from equity companies similar, or up slightly, year-on-year.
Information Concerning Forward-Looking Statements
Certain matters contained in this report concerning the business outlook, including the anticipated cost savings from our FORCE program, costs and savings from the 2018 Global Restructuring Program, cash flow and uses of cash, growth initiatives, innovations, marketing and other spending, net sales, anticipated currency rates and exchange risks, raw material, energy and other input costs, 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.  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. 


 
23
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


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 fluctuations in foreign currency exchange rates, the prices and availability of our raw materials, potential competitive pressures on selling prices for our products, energy costs and retail trade customer actions, as well as general economic and political conditions globally and in the markets in which we do business, could affect the realization of these estimates.
The factors described under Item 1A, "Risk Factors" in this Form 10-K, or in our other SEC filings, among others, could cause our future results to differ from those expressed in any forward-looking statements made by us or on our behalf. Other factors not presently known to us or that we presently consider immaterial could also affect our business operations and financial results.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a multinational enterprise, we are exposed to risks such as changes in foreign currency exchange rates, interest rates and commodity prices. A variety of practices are employed to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. Derivative instruments are used only for risk management purposes and not for speculation. Foreign currency derivative instruments are primarily entered into with major financial institutions. Our credit exposure under these arrangements is limited to agreements with a positive fair value at the reporting date. Credit risk with respect to the counterparties is actively monitored but is not considered significant since these transactions are executed with a diversified group of financial institutions.
Presented below is a description of our risks (foreign currency risk and interest rate risk) together with a sensitivity analysis, performed annually, of each of these risks based on selected changes in market rates and prices. These analyses reflect management's view of changes which are reasonably possible to occur over a one-year period. Also included is a description of our commodity price risk.
Foreign Currency Risk
A portion of our foreign currency risk is managed by the systematic use of foreign currency forward and swap contracts. The use of these instruments allows the management of transactional exposures to exchange rate fluctuations because the gains or losses incurred on the derivative instruments will offset, in whole or in part, losses or gains on the underlying foreign currency exposure.
Foreign currency contracts and transactional exposures are sensitive to changes in foreign currency exchange rates. An annual test is performed to quantify the effects that possible changes in foreign currency exchange rates would have on annual operating profit based on our foreign currency contracts and transactional exposures at the current year-end. The balance sheet effect is calculated by multiplying each affiliate's net monetary asset or liability position by a 10 percent change in the foreign currency exchange rate versus the U.S. dollar.
As of December 31, 2017, a 10 percent unfavorable change in the exchange rate of the U.S. dollar against the prevailing market rates of foreign currencies involving balance sheet transactional exposures would not be material to our consolidated financial position, results of operations or cash flows. This hypothetical loss on transactional exposures is based on the difference between the December 31, 2017 rates and the assumed rates.
The translation of the balance sheets of non-U.S. operations from local currencies into U.S. dollars is also sensitive to changes in foreign currency exchange rates. Consequently, an annual test is performed to determine if changes in currency exchange rates would have a significant effect on the translation of the balance sheets of non-U.S. operations into U.S. dollars. These translation gains or losses are recorded as unrealized translation adjustments ("UTA") within stockholders' equity. The hypothetical change in UTA is calculated by multiplying the net assets of these non-U.S. operations by a 10 percent change in the currency exchange rates. As of December 31, 2017, a 10 percent unfavorable change in the exchange rate of the U.S. dollar against the prevailing market rates of our foreign currency translation exposures would have reduced stockholders' equity by approximately $750. In the view of management, the above potential UTA adjustments resulting from these assumed changes in foreign currency exchange rates are not material to our consolidated financial position because they would not affect our cash flow.
Interest Rate Risk
Interest rate risk is managed through the maintenance of a portfolio of variable- and fixed-rate debt composed of short- and long-term instruments. The objective is to maintain a cost-effective mix that management deems appropriate. At December 31, 2017, the long-term debt portfolio was comprised of primarily fixed-rate debt.


 
24
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


In order to determine the impact of changes in interest rates on our financial position or future results of operations, we calculated the increase or decrease in the market value of fixed-rate debt using a 10 percent change in current market interest rates and the rates governing these instruments. At December 31, 2017, a 10 percent decrease in interest rates would have increased the fair value of fixed-rate debt by about $285, which would not have a significant impact on our financial statements as we do not record debt at fair value.
Commodity Price Risk
We are subject to commodity price risk, the most significant of which relates to the price of pulp. Selling prices of tissue products are influenced, in part, by the market price for pulp. As previously discussed under Item 1A, "Risk Factors," increases in pulp prices could adversely affect earnings if selling prices are not adjusted or if such adjustments significantly trail the increases in pulp prices. Derivative instruments have not been used to manage these risks.
Our energy, manufacturing and transportation costs are affected by various market factors including the availability of supplies of particular forms of energy, energy prices and local and national regulatory decisions. As previously discussed under Item 1A, "Risk Factors," there can be no assurance we will be fully protected against substantial changes in the price or availability of energy sources. In addition, we are subject to price risk for utilities and manufacturing inputs, used in our manufacturing operations. Derivative instruments are used in accordance with our risk management policy to hedge a limited portion of the price risk.


 
25
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
 
 
Year Ended December 31
(Millions of dollars, except per share amounts)
 
2017
 
2016
 
2015
Net Sales
 
$
18,259

 
$
18,202

 
$
18,591

Cost of products sold
 
11,706

 
11,551

 
11,967

Gross Profit
 
6,553

 
6,651

 
6,624

Marketing, research and general expenses
 
3,227

 
3,326

 
3,443

Other (income) and expense, net
 
27

 
8

 
1,568

Operating Profit
 
3,299

 
3,317

 
1,613

Interest income
 
10

 
11

 
17

Interest expense
 
(318
)
 
(319
)
 
(295
)
Income Before Income Taxes and Equity Interests
 
2,991

 
3,009

 
1,335

Provision for income taxes
 
(776
)
 
(922
)
 
(418
)
Income Before Equity Interests
 
2,215

 
2,087

 
917

Share of net income of equity companies
 
104

 
132

 
149

Net Income
 
2,319

 
2,219

 
1,066

Net income attributable to noncontrolling interests
 
(41
)
 
(53
)
 
(53
)
Net Income Attributable to Kimberly-Clark Corporation
 
$
2,278

 
$
2,166

 
$
1,013

 
 
 
 
 
 
 
Per Share Basis
 
 
 
 
 
 
Net Income Attributable to Kimberly-Clark Corporation
 
 
 
 
 
 
Basic
 
$
6.44

 
$
6.03

 
$
2.78

Diluted
 
$
6.40

 
$
5.99

 
$
2.77

 
 
 
 
 
 
 
Cash Dividends Declared
 
$
3.88

 
$
3.68

 
$
3.52

 

















See notes to the consolidated financial statements.


 
26
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
 
Year Ended December 31
(Millions of dollars)
 
2017
 
2016
 
2015
Net Income
 
$
2,319

 
$
2,219

 
$
1,066

Other Comprehensive Income (Loss), Net of Tax
 
 
 
 
 
 
   Unrealized currency translation adjustments
 
517

 
(107
)
 
(922
)
   Employee postretirement benefits
 
118

 
(113
)
 
942

   Other
 
(45
)
 
15

 
5

Total Other Comprehensive Income (Loss), Net of Tax
 
590

 
(205
)
 
25

Comprehensive Income
 
2,909

 
2,014

 
1,091

   Comprehensive income attributable to noncontrolling interests
 
(76
)
 
(44
)
 
(33
)
Comprehensive Income Attributable to Kimberly-Clark Corporation
 
$
2,833

 
$
1,970

 
$
1,058














































See notes to the consolidated financial statements.


 
27
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
 
 
December 31
(Millions of dollars)
 
2017
 
2016
ASSETS
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
616

 
$
923

Accounts receivable, net
 
2,315

 
2,176

Inventories
 
1,790

 
1,679

Other current assets
 
490

 
337

Total Current Assets
 
5,211

 
5,115

Property, Plant and Equipment, Net
 
7,436

 
7,169

Investments in Equity Companies
 
233

 
257

Goodwill
 
1,576

 
1,480

Other Assets
 
695

 
581

TOTAL ASSETS
 
$
15,151

 
$
14,602

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current Liabilities
 
 
 
 
Debt payable within one year
 
$
953

 
$
1,133

Trade accounts payable
 
2,834

 
2,609

Accrued expenses
 
1,730

 
1,775

Dividends payable
 
341

 
329

Total Current Liabilities
 
5,858

 
5,846

Long-Term Debt
 
6,472

 
6,439

Noncurrent Employee Benefits
 
1,184

 
1,301

Deferred Income Taxes
 
395

 
532

Other Liabilities
 
299

 
309

Redeemable Preferred Securities of Subsidiaries
 
61

 
58

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 December 31, 2017 and 2016
 
473

 
473

Additional paid-in capital
 
776

 
697

Common stock held in treasury, at cost - 27.5 and 22.0 million
shares at December 31, 2017 and 2016, respectively
 
(4,431
)
 
(3,629
)
Retained earnings
 
6,730

 
5,831

Accumulated other comprehensive income (loss)
 
(2,919
)
 
(3,474
)
Total Kimberly-Clark Corporation Stockholders' Equity (Deficit)
 
629

 
(102
)
Noncontrolling Interests
 
253

 
219

Total Stockholders' Equity
 
882

 
117

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
15,151

 
$
14,602






See notes to the consolidated financial statements.


 
28
KIMBERLY-CLARK CORPORATION - 2017 Annual Report


KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Millions of dollars, shares in thousands)
 
Common Stock
Issued
 
Additional
Paid-in
Capital
 
Treasury Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance at December 31, 2014
 
428,597

 
$
536

 
$
632

 
63,261

 
$
(5,597
)
 
$
8,470

 
$
(3,312
)
 
$
270

Net income in stockholders' equity
 

 

 

 

 

 
1,013

 

 
48

Other comprehensive income, net of tax
 

 

 

 

 

 

 
45

 
(20
)
Stock-based awards exercised or vested
 

 

 
(47
)
 
(2,888
)
 
186

 

 

 

Income tax benefits on stock-based compensation
 

 

 
32

 

 

 

 

 

Shares repurchased
 

 

 

 
7,364

 
(833
)
 

 

 

Shares retired
 
(50,000
)
 
(63
)
 

 
(50,000
)
 
3,272

 
(3,209
)
 

 

Recognition of stock-based compensation
 

 

 
75

 

 

 

 

 

Dividends declared
 

 

 

 

 

 
(1,280
)
 

 
(36
)
Shares purchased from noncontrolling interest
 

 

 
(94
)
 

 

 

 
(12
)
 
(45
)
Other
 

 

 
11

 

 

 

 
1

 
(3
)
Balance at December 31, 2015
 
378,597

 
473

 
609

 
17,737

 
(2,972
)
 
4,994

 
(3,278
)
 
214

Net income in stockholders' equity
 

 

 

 

 

 
2,166

 

 
49

Other comprehensive income, net of tax