Kimberly-Clark 2008 Annual Report Download - page 46

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PART II
(Continued)
nonoperating expense in the Consolidated Income Statement. The partnerships were dissolved in 2008 at no cost
to the Corporation. The Corporation’s income tax provision was reduced by $81 million in 2007, compared with
$87 million in 2006 resulting from the income tax credits and tax benefits of these investments. Diluted earnings
per share benefited by $.03 in 2007 compared with no benefit in 2008. The diluted earnings per share benefit in
2006 was $.04.
2008 versus 2007
• Interest expense increased due to a higher average level of debt partially offset by lower average interest
rates. See Item 8, Note 6 to the Consolidated Financial Statements for detail on debt activity.
• The Corporation’s effective income tax rate was 27.0 percent for 2008 compared with 23.2 percent for
2007. The increase was primarily due to: (a) the benefits from the previously mentioned synthetic fuel
credits utilized in 2007 that were not available in 2008; (b) favorable settlements in 2007 of tax issues
related to prior years; and (c) the reversal of valuation allowances in 2007 on deferred tax assets at
certain majority-owned subsidiaries in Latin America based on a sustained improvement in the
subsidiaries’ operating results, partially offset by higher foreign tax credit benefits in 2008.
• The Corporation’s share of net income of equity companies declined by $4 million primarily due to
lower net income at Kimberly-Clark de Mexico, S.A.B. de C.V. (“KCM”). While KCM had higher net
sales, its operating profit and net income were affected by currency transaction losses in the fourth
quarter of 2008 on its more than $300 million of U.S. dollar-denominated liabilities as the Mexican peso
weakened versus the U.S. dollar. The currency transaction losses reduced the Corporation’s share of
KCM’s net income by approximately $23 million for 2008.
• Minority owners’ share of subsidiaries’ net income increased $11 million versus the prior year. The
increase was primarily due to higher returns payable on the redeemable preferred securities issued by
the Corporation’s consolidated financing subsidiary.
• As a result of the Corporation’s ongoing share repurchase program, including the Accelerated Share
Repurchase (“ASR”) program, the average number of common shares outstanding declined, which
benefited 2008 net income by about $.25 per share. This benefit was partially offset by the higher
interest expense associated with the July 2007 debt issuances that funded the ASR program. See Item 8,
Note 10 to the Consolidated Financial Statements for detail on the ASR program.
2007 versus 2006
• Interest expense increased principally due to a higher average level of debt. See Item 8, Note 6 to the
Consolidated Financial Statements for detail on debt issued in the third quarter of 2007.
• The Corporation’s effective income tax rate was 23.2 percent for 2007 compared with 25.4 percent in
2006. The decrease for 2007 was primarily due to the previously mentioned favorable settlements of tax
issues related to prior years and the reversal of valuation allowances on deferred tax assets partially
offset by lower foreign tax credit benefits in 2007.
• The Corporation’s share of net income from equity companies decreased $49 million primarily due to
lower net income at KCM. Included in 2006 results was a gain of $46 million from the sale by KCM of
its pulp and paper business. The remainder of the decline was due to lower operating profit at KCM as
net sales growth did not overcome the effect of higher raw materials costs.
• Minority owners’ share of subsidiaries’ net income increased $33 million primarily due to the minority
owners’ share of the above-mentioned tax benefits at majority-owned subsidiaries.
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