Restructuring in the 1970s

Darwin E. Smith, who was elected president of Kimberly-Clark in 1971, took on Procter &
Gamble's challenge. Smith decided that to compete properly in consumer product markets
Kimberly-Clark had to prune its coated-paper business. Within one year of taking control of the
company, Smith initiated changes that included the sale or closure of six paper mills and the
sale of more than 300,000 acres of prime northern California land. With cash reserves of more
than $250 million, primarily from the land sale, Smith then inaugurated an aggressive research
campaign. He assembled a talented research and development team by hiring specialists away
from competitors. The company's advertising budget was increased substantially, and plans
were made for the construction of additional production facilities.
Marketing was central to Smith's strategy for growth, as Kimberly-Clark emphasized its
commitment to consumer products. Research and development efforts enlarged the company's
technological base from traditional cellulose fiber-forming technologies to lightweight
nonwovens utilizing synthetic fabrics.
A new premium-priced diaper in an hourglass shape with refastenable tapes was introduced in
1978 under the name Huggies. By 1984, Huggies had captured 50 percent of the higher quality
disposable diaper market. The sudden popularity of the product caught Kimberly-Clark by
surprise, and it was forced to expand production to meet consumer demand.
Diversification in the 1980s
Facial tissue and feminine-care products were also part of Kimberly-Clark's growing consumer
product operations. In 1984, it was estimated that the company's Kleenex brand held 50 percent
of the tissue market. A chemically treated virucidal tissue called Avert was test-marketed that
same year, but the higher price and limited utility of the product prevented it from gaining
widespread popularity. Aimed at health care institutions and at companies as a product to
reduce absenteeism, Avert never really got off the ground, and in 1987 Kimberly-Clark decided
not to mass market the product.
The 1980 toxic shock syndrome scare caused a slump in tampon sales. Kimberly-Clark began
an aggressive advertising campaign on television for Depend incontinence products in the early
1980s. At the time, incontinence products were as unmentionable as feminine-care products
had been some 60 years earlier. The promotion resulted in Depend gaining a profitable share of
the incontinence products market, and it quickly became the best-selling retail incontinence
brand in the United States. In an effort to broaden its position in therapeutic and health care
products, Kimberly-Clark acquired Spenco Medical Corporation in Waco, Texas, that same year.
Although sales from primary growth operations--personal-care products--were increasing,
approximately 25 percent of Kimberly-Clark's sales continued to come from the pulp, newsprint,
and paper businesses. The company further diversified its operations in 1984 by converting its
regularly scheduled executive air-shuttle service into a regional commercial airline.
The company's foray into aviation was initiated by the purchase of a six-seat plane in 1948 to
shuttle executives between company headquarters in Wisconsin and Kimberly-Clark factories
around the country. With six planes in 1969, Smith, then an executive vice-president for finance,
suggested that company air travel be converted from a "cost center into a profit center" by
offering corporate aircraft maintenance services. K-C Aviation, as the subsidiary was called,
later remodeled three DC-9s and in June 1984 initiated flight service between Appleton and
Milwaukee, Wisconsin; Boston; and Dallas, Texas. The fledgling airline, operated under the
name Midwest Express, got off to a rocky start with a 1985 crash in Milwaukee, planes flying 80
percent empty, and large operating losses. By 1989, however, the operation was in the black,
with planes at 66 percent capacity; a $120 million expansion increased the number of
destinations to 15 cities and the airline boasted a fleet of 11 DC-9s.

In 1985, stating that the state had a bad climate for business, Smith relocated Kimberly-Clark's
headquarters from Wisconsin to Texas. Just before this move Kimberly-Clark was sued by
Procter & Gamble, who claimed that Kimberly-Clark had unlawfully infringed on its patented
disposable diaper waistband material. Huggies had increased its market share to 31 percent,
upsetting Procter & Gamble's Pampers. After nearly two years of litigation, a federal grand jury
ruled against Procter & Gamble. Kimberly-Clark enjoyed further successes in its ongoing diaper
rivalry with Procter & Gamble later in the decade when it introduced the extremely popular
Huggies Pull-Ups disposable training pants in 1989. This product extension helped KimberlyClark trim Procter & Gamble's market share lead, as well as propel Huggies into the number
one position in the disposable diaper market.
1990s and Beyond
Starting in the late 1980s, Kimberly-Clark began another diversification program--this time
geographically, targeting Europe--although the company's largest international growth would
come in the early and mid-1990s. To keep the company growing at a healthy pace, Smith began
to increase Kimberly-Clark's presence in Europe in 1988. From that year to 1992, the company
invested nearly $1 billion in European plants. Although revenues from its European operations
increased steadily, the huge investments (totaling $700 million in 1993 alone) and restructuring
charges that went along with them began to affect the company's profits. Net income of $435.2
million in 1991 fell to $150.1 million in 1992 before recovering slightly to $231 million in 1993.
Meanwhile, the company further reduced its commodity papers operation in 1991 when it sold
Spruce Falls Power and Paper. The following year, Smith, the architect of Kimberly-Clark's
restructuring and diversification efforts since 1972, retired as chairman and was succeeded by
Wayne R. Sanders. The new chairman had worked his way up the ranks and had spearheaded
the risky endeavor of developing Huggies Pull-Ups. The year 1992 also saw the introduction of
Huggies Ultra Trim diapers.
Under Sanders's leadership, it appeared as if the company would divest itself completely of its
commodity papers roots. Kimberly-Clark announced in late 1994 that it would explore the sale of
its North American pulp and newsprint operations. The following year, however, the company
decided not to sell because pulp and newsprint prices rose so high it no longer made economic
sense to do so. Kimberly-Clark did divest its cigarette papers business in mid-1995 by spinning
it off into a company called Schweitzer-Maudit International Inc. after shareholders initiated a
proxy fight in 1994, concerned about the potential costs of liability lawsuits against tobacco,
which were then beginning to gain strength.
In 1995 Sanders engineered the deal that would usher in a new era for the company: the
merger of Kimberly-Clark with the Scott Paper Co. The deal was the logical culmination of
Kimberly-Clark's international expansion, since Scott was globally strong and held the number
one position in tissue in Europe. The $9.4 billion deal led to a 1995 charge of $1.4 billion for
Kimberly-Clark to consolidate the merger, which led to the layoff of 6,000 workers and the sale
of several plants. To pass antitrust muster, Kimberly-Clark had to sell the Scotties facial tissue
operation, two of four tissue plants in the United States, and its Baby Fresh, Wash-a-Bye Baby,
and Kid Fresh brands (which it sold to Procter & Gamble).
The late 1990s would be a period of transition for Kimberly-Clark as it worked to integrate the
Scott Paper operations into its own. The company hoped that its newfound international clout,
however, would make it a more formidable rival of the industry leader, Procter & Gamble, for
years to come.
Principal Subsidiaries: Avent, Inc.; Carlton Paper Corporation Limited (South Africa; 50%);
Chengdu Comfort & Beauty Sanitary Articles Co., Ltd. (China; 98.1%); CPM Inc.; Handan
Comfort & Beauty (Group) Co., Ltd. (China; 90%); Housing Horizons, LLC; Kimberly-Clark Inova
a.s. (Czech Republic); K-C Aviation Inc.; Kimberly-Clark Argentina S.A. (51%); Kimberly-Clark
Benelux Operations B.V. (Netherlands); Kimberly-Clark Canada Inc.; Kimberly-Clark de Centro
America, S.A. (El Salvador, 75%); Kimberly-Clark Costa Rica, S.A. (75%); Kimberly-Clark Far
East Pte. Limited (Singapore); Kimberly-Clark GmbH (Germany); Kimberly-Clark International,

S.A. (Panama); Kimberly-Clark Limited (U.K.); Kimberly-Clark Malaysia Sendirian Berhad

(51%); Kimberly-Clark Peru, S.A. (68%); Kimberly-Clark Philippines Inc. (87%); Kimberly-Clark
Puerto Rico, Inc.; Kimberly-Clark Sopalin, S.A. (France); Kimberly-Clark Thailand Limited;
Kunming Comfort & Beauty Hygienic Products Co., Ltd. (China; 97.9%); Nanjing Comfort &
Beauty Sanitary Products Co., Ltd. (China; 97.9%); Scott Continental N.V. (Belgium); Scott
GmbH (Germany); Scott Iberica, S.A. (Spain; 99.7%); Scott India; Scott Japan Limited; Scott
Limited (U.K.); Scott Paper Indonesia; Scott Paper B.V. (Netherlands); Scott Paper Limited
(Canada; 50.1%); Scott Paper Company; Scott Paper Company de Costa Rica, S.A. (51%);
Scott Paper Company - Honduras, S.A. de C.V.; Scott Paper GmbH (Germany); Scott Paper
(Guangzhou) Limited (China; 75%); Scott Paper (Hong Kong) Limited; Scott Paper (Malaysia)
Sdn. Bhd.; Scott Paper Portugal Lda.; Scott Paper (Shanghai) Co., Ltd. (China; 56%); Scott
Paper (Singapore) Pte. Ltd.; Scott S.N.C. (France); Scott S.p.A. (Italy); Taiwan Scott Paper
Corporation (66.7%); Thai-Scott Paper Company Limited (Thailand; 99.6%); Venekim, C.A.
(Venezuela; 60%); YuHan-Kimberly, Limited (South Korea, 60%).
Principal Operating Units: Health Care and Nonwovens Sector; Household Products Sector;
International Consumer & Service Sector; Logistics Sector; North American Pulp & Paper
Sector; Personal Care Sector; Service & Industrial Sector; U.S. Pulp and Newsprint.