Kimberly-Clark 2008 Annual Report Download - page 53

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PART II
(Continued)
Property and Depreciation
Estimating the useful lives of property, plant and equipment requires the exercise of management judgment,
and actual lives may differ from these estimates. Changes to these initial useful life estimates are made when
appropriate. Property, plant and equipment are tested for impairment in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances
indicate that the carrying amounts of such long-lived assets may not be recoverable from future net pretax cash
flows. Impairment testing requires significant management judgment including estimating the future success of
product lines, future sales volumes, growth rates for selling prices and costs, alternative uses for the assets and
estimated proceeds from disposal of the assets. Impairment testing is conducted at the lowest level where cash
flows can be measured and are independent of cash flows of other assets. An asset impairment would be
indicated if the sum of the expected future net pretax cash flows from the use of the asset (undiscounted and
without interest charges) is less than the carrying amount of the asset. An impairment loss would be measured
based on the difference between the fair value of the asset and its carrying amount. The determination of fair
value is based on an expected present value technique in which multiple probability-weighted cash flow
scenarios that reflect a range of possible outcomes and a risk-free rate of interest are used to estimate fair value.
The estimates and assumptions used in the impairment analysis are consistent with the business plans,
including the strategic cost reduction plan, and estimates used to manage business operations and to make
acquisition and divestiture decisions. The use of different assumptions would increase or decrease the estimated
fair value of the asset and the impairment charge. Actual outcomes may differ from the estimates. For example, if
the Corporation’s products fail to achieve volume and pricing estimates or if market conditions change or other
significant estimates are not realized, then revenue and cost forecasts may not be achieved, and additional
impairment charges may be recognized.
Goodwill and Other Intangible Assets
The carrying amount of goodwill is tested annually as of the beginning of the fourth quarter and whenever
events or circumstances indicate that impairment may have occurred. Impairment testing is performed in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Impairment testing is conducted at the
operating segment level of the Corporation’s businesses and is based on a discounted cash flow approach to
determine the fair value of each operating segment. The determination of fair value requires significant
management judgment including estimating future sales volumes, selling prices and costs, changes in working
capital, investments in property and equipment and the selection of an appropriate discount rate. Sensitivities of
these fair value estimates to changes in assumptions for sales volumes, selling prices and costs are also tested. If
the carrying amount of an operating segment that contains goodwill exceeds fair value, a possible impairment
would be indicated. If a possible impairment is indicated, the implied fair value of goodwill would be estimated
by comparing the fair value of the net assets of the unit excluding goodwill to the total fair value of the unit. If
the carrying amount of goodwill exceeds its implied fair value, an impairment charge would be recorded.
Judgment is used in assessing whether goodwill should be tested more frequently for impairment than annually.
Factors such as unexpected adverse economic conditions, competition, product changes and other external events
may require more frequent assessments. The Corporation’s annual goodwill impairment testing has been
completed and it has been determined that its $2.7 billion of goodwill is not impaired.
The Corporation has no intangible assets with indefinite useful lives. At December 31, 2008, the
Corporation has other intangible assets with a gross carrying amount of approximately $307 million and a net
carrying amount of about $121 million. These intangibles are being amortized over their estimated useful lives
and are tested for impairment whenever events or circumstances indicate that impairment may have occurred. If
the carrying amount of an intangible asset is not recoverable based on estimated future undiscounted cash flows,
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