Kimberly-Clark Corporation (KMB)

Solution to Continuing Case, Chapter 10

REFORMULATED BALANCE SHEET
(The 2008 reformulated balance sheet is added here, from the 2008 10-K.)

KIMBERLY-CLARK CORPORATION
Reformulated Balance Sheets
(in millions)
2010

2009

2008

Net Operating Assets

Operating Assets
Cash and cash equivalents (1)

26

26

Accounts receivable, net

2,472

2,566

Inventories

2,373

2,033

187

136

8,356
374
3,403
287
925

8,033
355
3,275
310
1,096

18,403

17,830

Deferred income taxes

Property, plant and equipment
Investments in Equity Companies (3)
Goodwill
Other intangible assets
Other Assets (2)
Operating Assets

$
26
2,56
1
2,44
4
21
7
8,09
4
390
2,942
-----1,049
17,72
3

Operating Liabilities
Trade accounts payable
Accrued expenses
Accrued income taxes
Deferred Income Taxes
Noncurrent Employee Benefit and Other Obligations (2)
Net Operating Assets
Net Financial Obligations
Cash equivalent
Notes receivable (4)
Debt payable within one year
Long-Term Debt
Preferred Securities of Subsidiary
CSE and Minority Interest
Minority Owners Interests in Subsidiaries
Common Stockholders' Equity (5)

(1)
(2)
(3)
(4)
(5)

2,206
1,909
364
369
2,034

(850)
(611)
344
5,120
1,047

6,882
11,521

5,050
6,471
285
$6,186

1,920
2,064
247
377
2,207

(772)
(607)
610
4,792
1,052

6,815
11,015

1,449
2,102
344
370
1,747 6,012
11,711

5,075
5,940
284
$5,656

(447)
(271)
1,098
4,394
1,005 5,779
5,932
484
5,448

Treat $26 million Cash as operating assets. This is approximately 0.25% of sales.
Treat items labeled other as operating activities
Equity investments are classified as operating assets
Footnotes indicate that the short-term and long-term notes receivable are interest-bearing financial assets, not trade receiveables.
Common shareholders equity includes dividends payable and excludes noncontrolling interest. See reformulated equity statement in
Chapter 7 solution. Preferred equity is an obligation (like debt) from the common shareholders point of view.

REFORMULATED INCOME STATEMENT

KIMBERLY-CLARK CORPORATION
Reformulated Income Statements
(in millions)
2010

Net Sales
Cost of products sold
Gross Margin
Operating expenses
Advertising expenses
Research & development expenses
General expenses
Other expense, net
Operating income from sales, before tax
Taxes
Tax as reported
Tax on financial items
Operating income from sales, after tax
Other operating income (expense)
Share of net income of equity companies
Translation gain
Pension adjustment
Extraordinary loss and Other
Stock option compensation

2009

$19,746
13,196
6,550
698
317
2,658
104

788
82

3,777
2,773

870
1,903
181
326
57
(16)
49

2008

$ 19,115
12,695
6,420
559
301
2,638
97

746
92

3,595
2,825

838
1,987
164
619
(32)
3
74

$ 19,415
13,557
5,858
551
297
2,443
20

618
95

3,311
2,547

713
1,834
166
(900)
687
(16)
30

Total other operating income

Total operating income
Financing expense (income)
Interest income
Interest expense
Tax benefits (at 36.8%)
Net Interest after tax
Total financial expense
Income before minority interest
Minority Interest in income
Comprehensive income to
common shareholders

597
2,500
(20)
243

223
(82)
141
141
2,359
100

828
2,815
(26)
275

$ 2,259

249
(92)
157
157
2,658
110
$ 2,548

(33)
1,801
(46)
304

258
(95)
163
163
1,638
139
$ 1,499

Note:
1. The comprehensive income equals that calculated in the equity statement in Chapter 8.
2. Tax is allocated at the statutory tax rate of 36.8%.
3. Preferred dividends from preferred stock in subsidiaries are reported in interest expense.
The story
The common shareholders equity of $6,186 million in 2010 consists of an investment in net operating assets of $11,521 million less
the claim of net debtholders of $5,050 million and minority interest in subsidiaries of $285 million. The net operating assets generated
$2,500 million in operating income during 2010 of which $1,903 million came directly from sales. After net of financial expenses and
minority interests, the shareholders earned a total of $2,259 in 2010.

COMMON SIZE ANALYSIS

The common size analysis is straightforward, requiring only the division of the numbers above by the appropriate scalar. The common
size analysis of the income statement gives various profit margin measures. So, for example
Operating profit margin from sales (after tax) = $1,903/$19,746 = $9.64%.
Financial leverage at the end of 2010, FLEV = NFO/Equity = $5,050/$6,471 = 0.780
(The equity here is total equity: CSE + minority interest in the equity of subsidiaries).
Operating liability leverage = OL/NOA = $6,882/$11,521 = 0.597%
Stock Options Outstanding
The stock compensation footnote (Note 10) informs that there are 25,793 options outstanding at the end of 2010 at a weighted exercise
price of $61.62. With the stock price at $65.24, these are in the money. A stock option overhang is apparent. This missing liability
from the balance sheet must be accommodated when we come to valuation (in Chapter 14).

Reformulated Statements for 2002-2004

To provide some more history, here are KMBs reformulated statements for 2002-2004.

KIMBERLY-CLARK CORPORATION
Reformulated Balance Sheets
(in millions)
2004
Net Operating Assets
Operating Assets
Cash and cash equivalents (1)
Accounts receivable, net
Inventories
Deferred income taxes
Land
Buildings
Machinery and equipment
Construction in progress
Accumulated depreciation
Investments in Equity Companies (3)
Goodwill
Other current assets (2)
Other Assets (2)
Unearned compensation
Operating Assets
Operating Liabilities
Trade accounts payable

20.0
2,038.3
1,670.9
278.2
279.6
2,437.9
11,770.6
335.0
(6,832.6)
444.4
2,702.9
380.5
918.3
22.3
16,466.3

983.2

2002

2003

20.0
1,955.1
1,563.4
281.4
276.5
2,272.4
12,061.7
568.9
(6,916.1)
427.7
2,649.1
347.6
1,001.6
27.1
16,536.4

857.9

$ 20.0
2,005.9
1,430.1
191.3
266.0
2,042.9
10,812.5
442.6
(5,944.6)
571.2
2,254.9
205.9
866.4
25.2
15,190.3

844.5

Other payables (2)

Accrued expenses
Accrued income taxes
Deferred Income Taxes
Noncurrent Employee Benefit and Other Obligations (2)
Net Operating Assets
Net Financial Obligations
Cash equivalent
Debt payable within one year
Long-Term Debt
Preferred Securities of Subsidiary
CSE and Minority Interest
Minority Owners Interests in Subsidiaries
Common Stockholders' Equity (4)

265.5
1,431.6
448.0
840.3
1,621.7

(574.0)
1,214.7
2,298.0
722.9

5,590.3
10,876.0

3,661.6
7,214.4
368.4
$ 6,846.0

283.5
1,374.7
367.2
880.6
1,614.4

(270.6)
864.3
2,733.7
567.9

(1) Treat $20 million Cash as operating assets

(2) Treat items labeled "other" as operating activities
(3) Equity investment are classified as operating assets
(4) Common shareholders' equity includes dividends payable and excludes unearned compensation
(which is included in operating assets).

5,378.3
11,158.1

3,895.3
7,262.8
298.3
$ 6,964.5

277.5
1,325.2
404.3
854.2
1,390.0

(474.5)
1,086.6
2,844.0
553.5

5,095.7
10,094.6

4,009.6
6,085.0
255.5
5,829.5

REFORMULATED INCOME STATEMENT

KIMBERLY-CLARK CORPORATION
Reformulated Income Statements
(in millions)

Net Sales
Cost of products sold
Gross Margin
Operating expenses
Advertising expenses
Research & development expenses
General expenses
Other expense, net
Operating income from sales, before tax
Taxes
Tax as reported
Tax on other operating income
Tax on financial items
Operating income from sales, after tax
Other operating income (expense)
Income from Discontinued Operations
Nonoperating expense
Cumulative effect of accounting change
Tax on other operating income
Net other operating income after tax
Share of net income of equity companies
Translation gain
Pension Liability adjustment
Gain (loss) on cash flow hedge

2004
$15,083.2
10,014.7
5,068.5
421.3
279.7
1,809.9
51.2

483.9
45.8
51.5

29.8
(158.4)
-

2,562.1
2,506.4

581.2
1,925.2

(128.6)
45.8
(82.8)
124.8
415.8
(47.8)
(4.2)

2003
$ 14,026.3
9,231.9
4,794.4
401.9
279.1
1,669.3
112.5

484.1
19.5
53.3

50.6
(105.5)
-

2,462.8
2,331.6

556.9
1,774.7

(54.9)
19.5
(35.4)
107.0
742.8
(146.2)
(4.3)

Stock option compensation

Total other operating income
Total operating income
Financing expense (income)
Interest income
Interest expense
Tax benefits (at 35.6%)
Net Interest after tax
Total financial expense
Minority Interest
Comprehensive income

(55.9)
349.9
2,275.1
(17.9)
162.5

144.6
(51.5)
93.1
93.1

(13.6)
650.3
2,425.0
(18.0)
167.8

149.8
(53.3)
96.5
96.5

73.9
$ 2,108.1

55.6
$ 2,272.9

Note:
1. The comprehensive income equals that calculated in the equity statement in Chapter 8.
2. Tax is allocated at the statutory tax rate of 35.6%.