Kimberly-Clark 2007 Annual Report Download - page 53

PART II
(Continued)
8.27 percent in 2007 compared with 8.28 percent in 2006 and will be 8.23 percent in 2008. The expected long-
term rate of return on pension fund assets was determined based on projected long-term returns of broad equity
and bond indices. The U.S. plan’s historical 15-year and 20-year compounded annual returns of 10.1 percent and
10.3 percent, respectively, which have been in excess of these broad equity and bond benchmark indices, were
also considered. On average, the investment managers for each of the plans comprising the Principal Plans are
anticipated to generate annual long-term rates of return of at least 8.4 percent. The expected long-term rate of
return on the assets in the Principal Plans is based on an asset allocation assumption of about 70 percent with
equity managers, with expected long-term rates of return of approximately 10 percent, and about 30 percent with
fixed income managers, with an expected long-term rate of return of about 6 percent. Actual asset allocation is
regularly reviewed and it is periodically rebalanced to the targeted allocation when considered appropriate. Long-
term rate of return assumptions continue to be evaluated at least annually and are adjusted as necessary.
Pension expense is determined using the fair value of assets rather than a calculated value that averages
gains and losses (“Calculated Value”) over a period of years. Investment gains or losses represent the difference
between the expected return calculated using the fair value of assets and the actual return based on the fair value
of assets. The variance between actual and expected gains and losses on pension assets is recognized in pension
expense more rapidly than it would be if a Calculated Value was used for plan assets. As of December 31, 2007,
the Principal Plans had cumulative unrecognized investment losses and other actuarial losses of approximately
$1.1 billion. These unrecognized net losses may increase future pension expense if not offset by (i) actual
investment returns that exceed the assumed investment returns, or (ii) other factors, including reduced pension
liabilities arising from higher discount rates used to calculate pension obligations, or (iii) other actuarial gains,
including whether such accumulated actuarial losses at each measurement date exceed the “corridor” determined
under SFAS No. 87, Employers’ Accounting for Pensions.
The discount (or settlement) rates used to determine the present values of the Corporation’s future U.S. and
Canadian pension obligations at December 31, 2007 were based on yield curves constructed from a portfolio of
high quality corporate debt securities with maturities ranging from 1 year to 30 years. Each year’s expected
future benefit payments were discounted to their present value at the appropriate yield curve rate thereby
generating the overall discount rates for the U.S. and Canadian pension obligations. For the U.K. plans, discount
rates are established using a U.K. bond index comprised of high quality corporate debt securities with a duration
approximately equal to the pension obligations. The weighted-average discount rate for the Principal Plans
increased to 6.20 percent at December 31, 2007 from 5.71 percent at December 31, 2006.
Consolidated pension expense is estimated to approximate $94 million in 2008. This estimate reflects the
effect of the actuarial losses and is based on an expected weighted-average long-term rate of return on assets in
the Principal Plans of 8.48 percent, a weighted-average discount rate for the Principal Plans of 6.20 percent and
various other assumptions. Pension expense beyond 2008 will depend on future investment performance, the
Corporation’s contributions to the pension trusts, changes in discount rates and various other factors related to
the covered employees in the plans.
If the expected long-term rates of return on assets for the Principal Plans were lowered by 0.25 percent, our
annual pension expense would increase by approximately $11 million. If the discount rate assumptions for these
same plans were reduced by 0.25 percent, annual pension expense would increase by approximately $13 million
and the December 31, 2007 pension liability would increase by about $157 million.
The fair value of the assets in the Corporation’s defined benefit plans was $4.7 billion and $4.6 billion at
December 31, 2007 and December 31, 2006, respectively. The projected benefit obligations of the defined
benefit plans exceeded the fair value of plan assets by approximately $.8 billion and $1.1 billion at December 31,
2007 and December 31, 2006, respectively. On a consolidated basis, the Corporation contributed about
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