Kimberly-Clark 2007 Annual Report Download - page 46

PART II
(Continued)
Operating profit in North America was even with 2005 as higher sales volumes and cost savings were
offset by lower net selling prices, materials cost inflation and higher manufacturing costs partly related
to product improvements. In Europe, operating results improved due to higher sales volumes, cost
savings and lower marketing, research and general expenses. Operating profit in the developing and
emerging markets increased more than 10 percent primarily due to increased sales volumes and
improved product mix, tempered by increased marketing expenses.
• Operating profit for consumer tissue products decreased 4.1 percent as higher net selling prices were
more than offset by cost inflation, primarily for pulp, increased energy and distribution expenses and
higher marketing, research and general expenses.
In North America, operating profit declined nearly 3 percent due to higher pulp, energy, distribution,
manufacturing and start-up costs that more than offset higher net selling prices. Operating profit in
Europe decreased as higher pulp and energy costs and increased manufacturing expenses more than
offset higher net selling prices and cost savings. In the developing and emerging markets, operating
profit declined as higher pulp, distribution and marketing, research and general expenses more than
offset the increased net selling prices.
• Operating profit for K-C Professional & Other products declined .1 percent because higher pulp, energy
and distribution costs and increased marketing, research and general expenses more than offset higher
net selling prices and cost savings.
• Operating profit for health care products increased 5.4 percent. The higher sales volumes, favorable
product mix and cost savings combined to more than offset raw materials inflation and higher general
expenses.
Other income and (expense), net
Other income and (expense), net increased by $5.1 million in 2006. While currency transaction losses were
lower in 2006 than the prior year, 2005 included income of approximately $22 million from an insurance claim
for partial recovery of damages related to a fire in 2004 at a facility in Europe. Also included in 2006 are the
previously mentioned costs of $8.0 million for facilities disposed of as part of the strategic cost reduction plan.
Additional Income Statement Commentary
Synthetic Fuel Partnerships
As described in Item 8, Note 14 to the Consolidated Financial Statements, the Corporation owns minority
interests in two synthetic fuel partnerships. Pretax losses from participation in these partnerships are reported as
nonoperating expense in the Consolidated Income Statement. The lower level of losses in 2007 and 2006
compared with 2005 was primarily due to the partnerships reducing operations in anticipation of the phase-out of
related income tax credits as the price of crude oil increased during both 2007 and 2006. The Corporation’s
income tax provision was reduced by $80.5 million in 2007, compared with $86.0 million in 2006 resulting from
the income tax credits and tax benefits of these investments. The Corporation’s income tax provision in 2006 was
$148.3 million higher as a result of decreased income tax credits and tax benefits compared with 2005. Diluted
earnings per share benefited by $.03 in 2007 compared with $.04 and $.12 in 2006 and 2005, respectively, from
the synthetic fuel investments.
2007 versus 2006
• Interest expense increased principally due to a higher average level of debt. See Item 8, Note 4 to the
Consolidated Financial Statements for detail on debt issued in the third quarter of 2007.
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