Kimberly-Clark 2010 Annual Report Download - page 33

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PART II
(Continued)
The health care cost trend rate is based on a combination of inputs including our recent claims history and
insights from external advisers regarding recent developments in the health care marketplace, as well as
projections of future trends in the marketplace. The annual increase in the consolidated weighted-average health
care cost trend rate is expected to be 7.1 percent in 2011 and to gradually decline to 5.0 percent in 2015 and
thereafter. See Item 8, Note 11 to the Consolidated Financial Statements for disclosure of the effect of a one
percentage point change in the health care cost trend rate.
Retained Insurable Risks
Selected insurable risks are retained, primarily those related to property damage, workers’ compensation,
and product, automobile and premises liability based upon historical loss patterns and management’s judgment of
cost effective risk retention. Accrued liabilities for incurred but not reported events, principally related to
workers’ compensation and automobile liability, are based upon undiscounted loss development factors.
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 whenever events or changes in
circumstances indicate that the carrying amounts of these 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 and eventual
disposition (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 are used to estimate fair value.
The estimates and assumptions used in the impairment analysis are consistent with the business plans 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 our 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 conducted at the
operating segment level of our 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.
29