KMBSolution15 - Kimberly-Clark Corporation(KMB Solution to...

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Kimberly-Clark Corporation (KMB) Solution to Continuing Case, Chapter 15 SPREADSHEET ANALYSIS If you have not done so already, it’s time to get KMB into a spreadsheet. This will make it much easier to see what happens to the valuation as inputs change. BYOAP on the book’s web site will help you a lot. THE 2005 RESTRUCTURING Change the spreadsheet forecasts for this new business plan. You should include the following features: The cost savings of $300 – $350 million should be built into expected profit margins The restructuring costs of $900 - $1,100 million should be recognized in forecasted operating income over the next 3 years The restructurings will reduce net operating assets. By reading the supplementary material below from the 2 nd 10-Q, you will find that 55% of restructuring charges will be in the form of write-downs of assets, with 45% being cash costs. Build in the increased advertising and R&D costs into the pro forma income statements The big unknown is how much in additional sales the increased R&D and advertising will produce. What increase in sales would justify an increase in stock price from the restructuring? The Second Quarter, 2005. Here is the income statement for the second quarter of 2005, referred to in the Case. It will give you some idea of the changes in profit margins from the increased costs: _______________________________________________________________________ _ KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT (Unaudited) Three Months Ended Six Months Ended June 30 June 30 --------------------- --------------------- (Millions of dollars, except 2005 2004 2005 2004 per share amounts) ---------- ---------- ---------- ---------- ----------------------------- Net Sales $ 3,987.1 $ 3,687.3 $ 7,892.9 $ 7,398.8 Cost of products sold 2,664.5 2,432.5 5,263.7 4,888.3 --------- --------- --------- --------- Gross Profit 1,322.6 1,254.8 2,629.2 2,510.5 Marketing, research 688.1 615.6 1,342.0 1,233.4
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and general expenses Other (income) (1.7 ) 14.5 13.4 29.0 expense, net --------- --------- --------- --------- Operating Profit 636.2 624.7 1,273.8 1,248.1 Nonoperating expense (47.9 ) (38.7 ) (94.2 ) (90.2 ) Interest income 8.3 4.0 14.3 8.0 Interest expense (46.3 ) (40.7 ) (90.2 ) (79.4 ) --------- --------- --------- --------- Income Before Income Taxes, Equity Interests and Discontinued 550.3 549.3 1,103.7 1,086.5 Operations Provision for income (140.8 ) (118.2 ) (258.0 ) (225.5 ) taxes Share of net income of 32.3 29.9 66.4 60.8 equity companies Minority owners' share (20.0 ) (18.1 ) (40.2 ) (35.1 ) of subsidiaries' net income --------- --------- --------- --------- Income From Continuing 421.8 442.9 871.9 886.7 Operations Income From Discontinued Operations, Net of Income Taxes - 11.4 - 26.9 --------- --------- --------- --------- Net Income $ 421.8 $ 454.3 $ 871.9 $ 913.6 --------- --------- --------- --------- Per Share Basis: Basic Continuing operations $ .88 $ .89 $ 1.82 $ 1.77 Discontinued - .02 - .05 operations --------- --------- --------- --------- Net Income $ .88 $ .91 $ 1.82 $ 1.82 --------- --------- --------- --------- Diluted Continuing operations $ .88 $ .88 $ 1.81 $ 1.76 Discontinued - .02 - .05 operations --------- --------- --------- --------- Net Income $ .88 $ .90 $ 1.81 $ 1.81 --------- --------- --------- --------- Cash Dividends Declared $ .45 $ .40 $ .90 $ .80 --------- --------- --------- --------- ____________________________________________________________________ If you want to get more detail, look at footnote 9 on the profitability of business segments: Note 9. Description of Business Segments The Corporation is organized into operating segments based on product groupings. These operating segments have been aggregated into three reportable global business segments: Personal Care; Consumer Tissue; and Business-to-Business. The reportable segments are headed by executive officers who report to the Corporation s Chief Executive Officer.
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