Kimberly-Clark 2007 Annual Report Download - page 75

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Approximately 98 percent of the total cash contributed to the entity has been loaned to the Corporation.
These long-term loans bear fixed annual interest rates. The funds remaining in the financing subsidiary are
invested in equity-based exchange traded funds. The preferred and common securities of the subsidiary held by
the Corporation and the intercompany loans have been eliminated in the Consolidated Financial Statements. The
return on the Preferred Securities is included in minority owners’ share of subsidiaries’ net income in the
Corporation’s Consolidated Income Statement. The increase in the balance of the redeemable preferred securities
in 2007 is due to the additional Third Party investment mentioned above and the accrued 2007 return on the
Third Party investment that was not paid in 2007. The Preferred Securities, which have an estimated fair value of
$1.0 billion at December 31, 2007, are shown as redeemable preferred securities of subsidiary on the
Consolidated Balance Sheet.
Neither the Third Party nor creditors of the subsidiary have recourse to the general credit of the Corporation.
If the Third Party elects to have its preferred securities redeemed, then the loans to the Corporation would
become payable to the financing subsidiary to the extent necessary to enable the financing subsidiary to pay the
redemption value.
Note 6. Stock-Based Compensation
The Corporation has a stock-based Equity Participation Plan and an Outside Directors’ Compensation Plan
(the “Plans”), under which it can grant stock options, restricted shares and restricted share units to employees and
outside directors. As of December 31, 2007, the number of shares of common stock available for grants under the
Plans aggregated 21.3 million shares.
Stock options are granted at an exercise price equal to the market value of the Corporation’s common stock
on the date of grant, and they have a term of 10 years. Stock options granted to employees in the U.S. are subject
to graded vesting whereby options vest 30 percent at the end of each of the first two 12-month periods following
the grant and 40 percent at the end of the third 12-month period. Options granted to certain non-U.S. employees
cliff vest at the end of three or four years.
Restricted shares, time-based restricted share units and performance-based restricted share units granted to
employees are valued at the closing market price of the Corporation’s common stock on the grant date and
generally vest over three to five years. The number of performance-based share units that ultimately vest ranges
from zero to 150 percent of the number granted, based on performance measures tied to return on invested capital
(“ROIC”) during the three-year performance period. ROIC targets are set at the beginning of the performance
period. Restricted share units granted to outside directors are valued at the closing market price of the
Corporation’s common stock on the grant date and vest when they are granted. The restricted period begins on
the date of grant and expires on the date the outside director retires from or otherwise terminates service on the
Corporation’s Board.
At the time stock options are exercised or restricted shares and restricted share units become payable,
common stock is issued from the Corporation’s accumulated treasury shares. Cash dividends are paid on
restricted shares, and cash dividends or dividend equivalents are paid or credited on restricted share units, on the
same date and at the same rate as dividends are paid on the Corporation’s common stock. These cash dividends
and dividend equivalents, net of estimated forfeitures, are charged to retained earnings. Previously paid cash
dividends on subsequently forfeited restricted share units are charged to compensation expense.
Prior to January 1, 2006, the Corporation accounted for these plans under the recognition and measurement
provisions of APB No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations, as
permitted by SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). No compensation cost
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