Kimberly-Clark 2010 Annual Report Download - page 38

PART II
(Continued)
As of December 31, 2010, a 10 percent unfavorable change in the exchange rate of the U.S. dollar against
the prevailing market rates of our foreign currency translation exposures would have reduced stockholders’
equity by approximately $810 million. These hypothetical adjustments in UTA are based on the difference
between the December 31, 2010 exchange rates and the assumed rates. In the view of management, the above
UTA adjustments resulting from these assumed changes in foreign currency exchange rates are not material to
our consolidated financial position because they would not affect our cash flow.
Interest Rate Risk
Interest rate risk is managed through the maintenance of a portfolio of variable- and fixed-rate debt
composed of short- and long-term instruments. The objective is to maintain a cost-effective mix that management
deems appropriate. At December 31, 2010, the debt portfolio was composed of approximately 20 percent
variable-rate debt and 80 percent fixed-rate debt.
Two separate tests are performed to determine whether changes in interest rates would have a significant
effect on our financial position or future results of operations. Both tests are based on consolidated debt levels at
the time of the test. The first test estimates the effect of interest rate changes on fixed-rate debt. Interest rate
changes would result in gains or losses in the market value of fixed-rate debt due to differences between the
current market interest rates and the rates governing these instruments. With respect to fixed-rate debt
outstanding at December 31, 2010, a 10 percent decrease in interest rates would have increased the fair value of
fixed-rate debt by about $182 million. The second test estimates the potential effect on future pretax income that
would result from increased interest rates applied to our current level of variable-rate debt. With respect to
variable-rate debt, a 10 percent increase in interest rates would not have a material effect on the future results of
operations or cash flows.
Commodity Price Risk
We are subject to commodity price risk, the most significant of which relates to the price of pulp. 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, we currently supply less than 10 percent of our virgin fiber needs
from internal pulp manufacturing operations. This supply will be outsourced as we exit our pulp manufacturing
operations as part of our pulp and tissue restructuring (see Item 8, Note 19 for additional information). As
previously discussed under Item 1A, “Risk Factors,” 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 these risks.
Our energy, manufacturing and transportation costs are affected by various market factors including the
availability of supplies of particular forms of energy, energy prices and local and national regulatory decisions.
As previously discussed under Item 1A, “Risk Factors,” there can be no assurance we will be fully protected
against substantial changes in the price or availability of energy sources. In addition, we are subject to price risk
for utilities, primarily natural gas, which are used in our manufacturing operations. Derivative instruments are
used to hedge a portion of natural gas price risk in accordance with our risk management policy.
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