Kimberly-Clark 2007 Annual Report Download - page 51

PART II
(Continued)
See Item 8, Note 5 to the Consolidated Financial Statements for a description of the Corporation’s
Luxembourg-based financing subsidiary, which is consolidated because the Corporation is the primary
beneficiary of the entity.
Real Estate Entities
The Corporation participates in the U.S. affordable housing and historic renovation real estate markets.
Investments in these markets are encouraged by laws enacted by the U.S. Congress and related federal income
tax rules and regulations. Accordingly, these investments generate income tax credits and tax losses that are used
to reduce the Corporation’s income tax liabilities. The Corporation invested in these markets through
(i) partnership arrangements as a limited partner, (ii) limited liability companies as a nonmanaging member and
(iii) investments in various funds in which the Corporation is one of many noncontrolling investors. These
entities borrow money from third parties generally on a nonrecourse basis and invest in and own various real
estate projects.
FIN 46R requires the Corporation to consolidate certain real estate entities because it is the primary
beneficiary of them. The Corporation also consolidates certain other real estate entities pursuant to SFAS No. 94,
Consolidation of All Majority-Owned Subsidiaries. The assets of these entities classified principally as property,
plant and equipment on the Consolidated Balance Sheet at December 31, 2007, have a carrying amount
aggregating $166.4 million that serves as collateral for $117.6 million of obligations of these ventures. Neither
the creditors nor the other beneficial interest holders of these consolidated ventures have recourse to the general
credit of the Corporation, except for $22.2 million of permanent financing debt, which is guaranteed by the
Corporation. As of December 31, 2007, the Corporation has earned income tax credits totaling approximately
$88.8 million on its consolidated real estate entities.
The Corporation accounts for its interests in its nonconsolidated real estate entities by the equity method of
accounting or by the effective yield method, as appropriate, and has accounted for the related income tax credits
and other tax benefits as a reduction in its income tax provision. As of December 31, 2007, the Corporation had
net equity of $14.3 million in its nonconsolidated real estate entities. The Corporation has earned income tax
credits totaling approximately $87.5 million on these nonconsolidated real estate entities. As of December 31,
2007, total permanent financing debt for the nonconsolidated entities was $260.9 million. A total of $21.7 million
of the permanent financing debt is guaranteed by the Corporation and the remainder of this debt is secured solely
by the properties and is nonrecourse to the Corporation. At December 31, 2007, the Corporation’s maximum loss
exposure for its nonconsolidated real estate entities is estimated to be $53.5 million and is comprised of its net
equity in these entities of $14.3 million, its permanent financing guarantees of $21.7 million, and the income tax
credit recapture risk of $17.5 million.
If the Corporation’s investments in all of its real estate entities were to be disposed of at their carrying
amounts, a portion of the tax credits may be recaptured and may result in a charge to earnings. As of
December 31, 2007, this recapture risk is estimated to be $41.8 million. The Corporation has no current intention
of disposing of these investments during the recapture period, nor does it anticipate the need to do so in the
foreseeable future in order to satisfy any anticipated liquidity need. Accordingly, the recapture risk is considered
to be remote.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the
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