Kimberly-Clark 2007 Annual Report Download - page 56

PART II
(Continued)
exercise of significant management judgment. The resulting present values are then allocated to the various
participants in each VIE in accordance with their beneficial interests. The participant that is allocated the
majority of the present value of the variability is the primary beneficiary and is required to consolidate the VIE
under FIN 46R.
Deferred Income Taxes and Potential Assessments
As of December 31, 2007, the Corporation had recorded deferred tax assets related to income tax loss
carryforwards, income tax credit carryforwards and capital loss carryforwards totaling $718.0 million and had
established valuation allowances against these deferred tax assets of $304.5 million, thereby resulting in a net
deferred tax asset of $413.5 million. As of December 31, 2006, the net deferred tax asset was $409.1 million.
These carryforwards are primarily in non-U.S. taxing jurisdictions and in certain states in the U.S. Foreign tax
credits earned in the U.S. in current and prior years, which cannot be used currently, also give rise to net deferred
tax assets. In determining the valuation allowances to establish against these deferred tax assets, the Corporation
considers many factors, including the specific taxing jurisdiction, the carryforward period, income tax strategies
and forecasted earnings for the entities in each jurisdiction. A valuation allowance is recognized if, based on the
weight of available evidence, the Corporation concludes that it is more likely than not that some portion or all of
the deferred tax asset will not be realized.
As of December 31, 2007, in accordance with Accounting Principles Board (“APB”) Opinion No. 23,
Accounting for Income Taxes, Special Areas, U.S. income taxes and foreign withholding taxes have not been
provided on approximately $4.4 billion of unremitted earnings of subsidiaries operating outside the U.S. These
earnings are considered by management to be invested indefinitely. However, they would be subject to income
tax if they were remitted as dividends, were lent to the Corporation or a U.S. affiliate, or if the Corporation were
to sell its stock in the subsidiaries. It is not practicable to determine the amount of unrecognized deferred U.S.
income tax liability on these unremitted earnings. We periodically determine whether our non-U.S. subsidiaries
will invest their undistributed earnings indefinitely and reassess this determination as appropriate. See Item 8,
Note 15 to the Consolidated Financial Statements for disclosure of previously unremitted earnings that were
repatriated in 2005 under the provisions of the American Jobs Creation Act.
The Corporation accrues net liabilities for current income taxes for potential assessments, which at
December 31, 2007 and January 1, 2007 were $322.6 million and $388.7 million, respectively. The accruals
relate to uncertain tax positions in a variety of taxing jurisdictions and are based on what management believes
will be the resolution of these positions, in accordance with the provisions of FIN 48, Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement 109, Accounting for Income Taxes. These liabilities may
be affected by changing interpretations of laws, rulings by tax authorities, or the expiration of the statute of
limitations. The Corporation’s U.S. federal income tax returns have been audited through 2003. IRS assessments
of additional taxes have been paid through 2001. Refund actions are pending with the IRS Appeals Office for the
years 2002 and 2003. Management currently believes that the ultimate resolution of these matters, individually or
in the aggregate, will not have a material effect on the Corporation’s business, financial condition, results of
operations or liquidity.
Loss Contingencies
The outcome of loss contingencies and legal proceedings and claims brought against the Corporation is
subject to uncertainty. SFAS No. 5, Accounting for Contingencies, requires that an estimated loss contingency be
accrued by a charge to earnings if it is probable that an asset has been impaired or a liability has been incurred
and the amount can be reasonably estimated. Disclosure of the contingency is required if there is at least a
reasonable possibility that a loss has been incurred. Determination of whether to accrue a loss requires evaluation
36