Kimberly-Clark 2007 Annual Report Download - page 44

PART II
(Continued)
• Operating profit for personal care products increased 20.0 percent. Cost savings and higher sales
volumes more than offset raw materials cost inflation, the costs for product improvements and increased
general and administrative expenses.
Operating profit in North America increased nearly 13 percent primarily on the strength of higher sales
volumes. Cost savings and slightly higher net selling prices offset the effect of raw materials cost
inflation. Increased operating profit in Europe was driven by cost savings and higher sales volumes,
despite lower net selling prices. Operating profit in the developing and emerging markets increased
more than 25 percent on sales volume growth and cost savings that more than offset increased
marketing and general and administrative expenses.
• Operating profit for consumer tissue products decreased 9.1 percent as higher net selling prices and cost
savings were more than offset by raw materials cost inflation, the costs for product improvements and
higher manufacturing costs.
In North America, operating profit declined more than 15 percent because higher net selling prices were
more than offset by raw materials cost inflation, primarily pulp costs, the costs of product improvements
and higher manufacturing costs. Operating profit in Europe increased due to cost savings and favorable
currency effects tempered by raw materials cost inflation and higher marketing and general and
administrative expenses. In the developing and emerging markets, operating profit declined slightly as
net selling price gains were more than offset by increased pulp costs, higher manufacturing costs and
increased general and administrative expenses.
• Operating profit for K-C Professional & Other products increased 1.3 percent because higher sales
volumes, increased net selling prices and cost savings were substantially negated by cost inflation for
both virgin fiber and wastepaper.
• Operating profit for health care products decreased 7.7 percent as the benefits of cost savings and
favorable currency effects were more than offset by raw materials cost inflation, primarily for
nonwovens, and increased distribution and selling expenses.
Strategic Cost Reduction Plan
During 2007, the Corporation continued to make progress implementing the Strategic Cost Reduction Plan
that supports the targeted growth initiatives announced in July 2005. As previously disclosed, management
expects this plan to reduce costs by streamlining manufacturing and administrative operations, primarily in
North America and Europe, creating a more competitive platform for growth and margin improvement.
Pretax charges totaling $107.2 million, $484.4 million and $228.6 million for these cost reduction initiatives
($61.4 million, $345.0 million and $167.6 million after tax) were recorded in 2007, 2006 and 2005, respectively.
See Item 8, Note 2 to the Consolidated Financial Statements for the detail of the costs recorded by year.
Based on current estimates, the strategic cost reductions are expected to result in cumulative charges of
approximately $880 million to $910 million before tax ($610—$630 million after tax) by the end of 2008. The
change in estimate from the previous range of $950 million to $1.0 billion is primarily due to reduced severances
because of higher attrition, as well as higher than anticipated proceeds from asset sales. The Corporation expects
the Plan will yield anticipated annual pretax savings of at least $350 million by 2009. Continuous productivity
gains over the last several years along with investments in state-of-the-art manufacturing capacity are enabling
the Corporation to consolidate production at fewer facilities. Cash costs related to the sale, closure or
streamlining of operations, relocation of equipment, severance and other expenses are expected to account for
approximately 35 percent of the charges. Noncash charges consist primarily of incremental depreciation and
amortization and asset impairments and write-offs.
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