Kimberly-Clark 2007 Annual Report Download - page 76

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
for stock options was recognized in the Consolidated Income Statement for periods prior to January 1, 2006, as
all stock options granted had an exercise price equal to the market value of the Corporation’s common stock on
the date of grant.
Effective January 1, 2006, the Corporation adopted the fair value recognition provisions of SFAS No. 123R,
Share-Based Payment, (“SFAS 123R”), using the modified-prospective-transition method. Under that transition
method, compensation cost is recognized in the periods after adoption for (i) all stock option awards granted or
modified after December 31, 2005 based on the grant-date fair value estimated in accordance with the provisions
of SFAS 123R and (ii) all stock options granted prior to but not yet vested as of January 1, 2006, based on the
grant-date fair value estimated in accordance with the original provisions of SFAS 123. Results for prior periods
were not restated. Also in connection with the adoption of SFAS 123R, approximately $37 million was
reclassified from accrued liabilities to additional paid-in capital, as accrued compensation for unvested restricted
share units does not meet the definition of a liability under SFAS 123R.
Stock-based compensation costs of $62.7 million and $67.4 million and related deferred income tax benefits
of approximately $20.3 million and $23.5 million were recognized for 2007 and 2006, respectively. The 2006
compensation cost is net of a cumulative pretax adjustment of $3.9 million resulting from a change in estimating
the forfeiture rate for unvested restricted share and restricted share unit awards as of January 1, 2006, as required
by SFAS 123R.
The fair value of stock option awards granted on or after January 1, 2006 was determined using a Black-
Scholes-Merton option-pricing model utilizing a range of assumptions related to dividend yield, volatility, risk-
free interest rate, and employee exercise behavior. Dividend yield is based on historical experience and expected
future dividend actions. Expected volatility is based on a blend of historical volatility and implied volatility from
traded options on the Corporation’s common stock. Prior to January 1, 2006, volatility was based on historical
experience only. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.
The Corporation estimates forfeitures based on historical data.
The weighted-average fair value of the options granted in 2007 and 2006 were estimated at $11.21 and
$10.10, respectively, per option on the date of grant based on the following assumptions:
2007 2006
Dividend yield ................................................................. 3.20% 3.50%
Volatility ..................................................................... 15.19% 17.84%
Risk-free interest rate ............................................................ 4.62% 5.04%
Expected life—years ............................................................ 6.4 6.0
As of December 31, 2007, the total remaining unrecognized compensation costs and amortization period are
as follows:
Millions
Weighted-
Average
Service
Years
Nonvested stock options ...................................................... $39.6 1.0
Restricted shares and time-based restricted share units ............................... $25.5 1.4
Nonvested performance-based restricted share units ................................. $11.9 1.0
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