Kimberly-Clark 2008 Annual Report Download - page 78

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KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
accordingly, consolidates the subsidiary in the accompanying Consolidated Financial Statements. The preferred
and common securities of the subsidiary held by the Corporation and the intercompany loans have been
eliminated in consolidation. The return on the Preferred Securities is included in minority owners’ share of
subsidiaries’ net income in the Corporation’s Consolidated Income Statement. The increase in the balance of the
redeemable preferred securities in 2007 is due to the additional Third Party investment mentioned above and the
accrued 2007 return on the Third Party investment that was not paid in 2007. The Preferred Securities, which
have a carrying amount of $1,011 million and an estimated fair value of $1,015 million at December 31, 2008,
are shown as redeemable preferred securities of subsidiary on the Consolidated Balance Sheet.
The Redeemable Preferred Securities are not traded in active markets. Accordingly, their fair values were
calculated using a pricing model that compares the stated spread to the fair value spread to determine the price at
which each of the financial instruments should trade. The model uses the following inputs to calculate fair
values: current benchmark rate, fair value spread, stated spread, maturity date and interest payment dates.
Neither the Third Party nor creditors of the subsidiary have recourse to the general credit of the Corporation.
If the Corporation’s credit rating of A is downgraded below BBB- or Baa3, or if the Third Party elects to have its
preferred securities redeemed on the specified redemption dates, then the loans to the Corporation would become
payable to the financing subsidiary to the extent necessary to enable the financing subsidiary to pay the
redemption value.
Note 8. Stock-Based Compensation
The Corporation has a stock-based Equity Participation Plan and an Outside Directors’ Compensation Plan
(the “Plans”), under which it can grant stock options, restricted shares and restricted share units to employees and
outside directors. As of December 31, 2008, the number of shares of common stock available for grants under the
Plans aggregated 17.6 million shares.
Stock options are granted at an exercise price equal to the market value of the Corporation’s common stock
on the date of grant, and they have a term of 10 years. Stock options granted to employees in the U.S. are subject
to graded vesting whereby options vest 30 percent at the end of each of the first two 12-month periods following
the grant and 40 percent at the end of the third 12-month period. Options granted to certain non-U.S. employees
cliff vest at the end of three or four years.
Restricted shares, time-based restricted share units and performance-based restricted share units granted to
employees are valued at the closing market price of the Corporation’s common stock on the grant date and
generally vest over three to five years. The number of performance-based share units that ultimately vest ranges
from zero to 150 percent of the number granted, based on performance tied to return on invested capital
(“ROIC”) and net sales during the three-year performance period. ROIC and net sales targets are set at the
beginning of the performance period. Restricted share units granted to outside directors are valued at the closing
market price of the Corporation’s common stock on the grant date and vest when they are granted. The restricted
period begins on the date of grant and expires on the date the outside director retires from or otherwise terminates
service on the Corporation’s Board.
At the time stock options are exercised or restricted shares and restricted share units become payable,
common stock is issued from the Corporation’s accumulated treasury shares. Cash dividends are paid on
restricted shares, and cash dividends or dividend equivalents are paid or credited on restricted share units, on the
same date and at the same rate as dividends are paid on the Corporation’s common stock. These cash dividends
and dividend equivalents, net of estimated forfeitures, are charged to retained earnings. Previously paid cash
dividends on subsequently forfeited restricted share units are charged to compensation expense.
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