Kimberly-Clark 2007 Annual Report Download - page 86

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
near future or in the strategies it employs to manage them. In addition, many of the Corporation’s non-U.S.
operations buy the majority of their inputs and sell the majority of their outputs in their local currency, thereby
minimizing the effect of currency rate changes on their local operating profit margins.
Foreign Currency Translation Risk Management
Translation adjustments result from translating foreign entities’ financial statements to U.S. dollars from
their functional currencies. Translation exposure, which results from changes in translation rates between
functional currencies and the U.S. dollar, generally is not hedged. There are no net investment hedges in place at
December 31, 2007. The risk to any particular entity’s net assets is minimized to the extent that the entity is
financed with local currency borrowing.
Interest Rate Risk Management
Interest rate risk is managed using a portfolio of variable- and fixed-rate debt composed of short- and long-
term instruments and interest rate swaps. The objective is to maintain a cost-effective mix that management
deems appropriate. The fair value of hedging instruments was $15.6 million in assets at December 31, 2007 and
$13.3 million in assets and $7.9 million in liabilities at December 31, 2006. Management does not foresee or
expect any significant changes in its exposure to interest rate fluctuations in the near future or in the strategies it
employs to manage them.
Commodity Price Risk Management
The Corporation is subject to commodity price risk, the most significant of which relates to the prices of
pulp, polypropylene, petroleum and natural gas.
Selling prices of tissue products are influenced, in part, by the market price for pulp, which is determined by
industry supply and demand. On a worldwide basis, the Corporation sources approximately 8 percent of its virgin
fiber needs from internal pulp manufacturing operations. Increases in pulp prices could adversely affect earnings
if selling prices are not adjusted or if such adjustments significantly trail the increases in pulp prices. Derivative
instruments have not been used to manage pulp price risk.
Polypropylene is subject to price fluctuations based on changes in petroleum prices, availability and other
factors. A number of the Corporation’s products, such as diapers, training and youth pants, and incontinence care
products contain certain polypropylene materials. The Corporation purchases these materials from a number of
suppliers. Significant increases in prices for these materials could adversely affect the Corporation’s earnings if
selling prices for its finished products are not adjusted or if adjustments significantly trail the increases in prices
for these materials. Derivative instruments have not been used to manage these risks.
The Corporation’s distribution costs for its finished products are subject to fluctuations in petroleum prices
and other factors. The Corporation utilizes a number of providers of transportation services. Significant increases
in prices for these services could adversely affect the Corporation’s earnings if selling prices for its finished
products are not adjusted or if adjustments significantly trail the increases in prices for these services. Derivative
instruments have not been used to manage these risks.
The Corporation uses derivative financial instruments to offset a substantial portion of its exposure to
market risk arising from changes in the price of natural gas. Hedging of this risk is accomplished by entering into
forward swap contracts, which are designated as hedges of specific quantities of natural gas expected to be
purchased in future months. These readily marketable swap contracts are recorded in the Corporation’s
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