Kimberly-Clark 2007 Annual Report Download - page 52

PART II
(Continued)
reporting period. The critical accounting policies used by management in the preparation of the Corporation’s
Consolidated Financial Statements are those that are important both to the presentation of the Corporation’s
financial condition and results of operations and require significant judgments by management with regard to
estimates used. The critical judgments by management relate to consumer and trade promotion and rebate
accruals, pension and other postretirement benefits, retained insurable risks, useful lives for depreciation and
amortization, future cash flows associated with impairment testing for goodwill and long-lived assets and for
determining the primary beneficiary of variable interest entities, deferred income taxes and potential income tax
assessments, and loss contingencies. The Corporation’s critical accounting policies have been reviewed with the
Audit Committee of the Board of Directors.
Promotion and Rebate Accruals
Among those factors affecting the accruals for promotions are estimates of the number of consumer coupons
that will be redeemed and the type and number of activities within promotional programs between the
Corporation and its trade customers. Rebate accruals are based on estimates of the quantity of products
distributors have sold to specific customers. Generally, the estimates for consumer coupon costs are based on
historical patterns of coupon redemption, influenced by judgments about current market conditions such as
competitive activity in specific product categories. Estimates of trade promotion liabilities for promotional
program costs incurred, but unpaid, are generally based on estimates of the quantity of customer sales, timing of
promotional activities and forecasted costs for activities within the promotional programs. Settlement of these
liabilities sometimes occurs in periods subsequent to the date of the promotion activity. Trade promotion
programs include introductory marketing funds such as slotting fees, cooperative marketing programs, temporary
price reductions, favorable end-of-aisle or in-store product displays and other activities conducted by the
customers to promote the Corporation’s products. Promotion accruals as of December 31, 2007 and 2006 were
$347.7 million and $296.8 million, respectively. Rebate accruals as of December 31, 2007 and 2006 were $252.7
million and $214.5 million, respectively.
Pension and Other Postretirement Benefits
Pension Benefits
The Corporation and its subsidiaries in North America and the United Kingdom have defined benefit
pension plans (the “Principal Plans”) and/or defined contribution retirement plans covering substantially all
regular employees. Certain other subsidiaries have defined benefit pension plans or, in certain countries,
termination pay plans covering substantially all regular employees. The funding policy for the qualified defined
benefit plans in North America and the defined benefit plans in the United Kingdom is to contribute assets to the
higher of the accumulated benefit obligation (“ABO”) or regulatory minimum requirements. Subject to
regulatory requirements and tax deductibility limits, any funding shortfall will be eliminated over a reasonable
number of years.
Nonqualified U.S. plans providing pension benefits in excess of limitations imposed by the U.S. income tax
code are not funded. Funding for the remaining defined benefit plans outside the U.S. is based on legal
requirements, tax considerations, investment opportunities, and customary business practices in such countries.
Consolidated pension expense for defined benefit pension plans was $119.8 million in 2007 compared with
$166.9 million for 2006. Pension expense included incremental costs of about $9 million and $11 million in 2007
and 2006, respectively, for special pension benefits related to the strategic cost reductions. Pension expense is
calculated based upon a number of actuarial assumptions applied to each of the defined benefit plans. The
weighted-average expected long-term rate of return on pension fund assets used to calculate pension expense was
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