Kimberly-Clark 2010 Annual Report Download - page 47

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Foreign Currency Translation
The income statements of foreign operations, other than those in highly inflationary economies, are
translated into U.S. dollars at rates of exchange in effect each month. The balance sheets of these operations are
translated at period-end exchange rates, and the differences from historical exchange rates are reflected in
stockholders’ equity as unrealized translation adjustments.
The income statements and balance sheets of operations in highly inflationary economies are translated into
U.S. dollars using both current and historical rates of exchange. The effect of exchange rates on monetary assets
and liabilities is reflected in income. Effective January 1, 2010, we adopted highly inflationary accounting for
our Venezuelan operations. See Note 4 for additional information.
Derivative Instruments and Hedging
All derivative instruments are recorded as assets or liabilities on the balance sheet at fair value. Changes in
the fair value of derivatives are either recorded in the income statement or other comprehensive income, as
appropriate. The gain or loss on derivatives designated as fair value hedges and the offsetting loss or gain on the
hedged item attributable to the hedged risk are included in income in the period that changes in fair value occur.
The effective portion of the gain or loss on derivatives designated as cash flow hedges is included in other
comprehensive income in the period that changes in fair value occur and is reclassified to income in the same
period that the hedged item affects income. The remaining gain or loss in excess of the cumulative change in the
present value of the cash flows of the hedged item, if any, is recognized immediately in income. The gain or loss
on derivatives designated as hedges of investments in foreign subsidiaries is recognized in other comprehensive
income to offset the change in value of the net investments being hedged. Any ineffective portion of net
investment hedges is immediately recognized in income. Certain foreign-currency derivative instruments not
designated as hedging instruments have been entered into to manage a portion of our foreign currency
transactional exposures. The gain or loss on these derivatives is included in income in the period that changes in
their fair values occur. See Note 13 for disclosures about derivative instruments and hedging activities.
New Accounting Standards
Effective January 1, 2010, we adopted new accounting requirements issued by the Financial Accounting
Standards Board (“FASB”) for determining when a company must consolidate a variable interest entity (“VIE”)
in which the company has an interest. Under the new requirements, a company must perform a qualitative
analysis when determining whether it must consolidate a VIE. If the company has an interest in a VIE that
provides it with the power to direct the most significant activities of the VIE, and the obligation to absorb
significant losses or the right to receive significant benefits of the VIE, the company must consolidate the VIE. A
company is required to perform ongoing reassessments to determine if it must consolidate a VIE. This differs
from previous guidance, which prescribed a quantitative analysis to determine whether to consolidate a VIE and
required this analysis be reassessed only when specific events occur.
Adoption of the new accounting requirements had no impact on our Consolidated Financial Statements.
Under the new requirements, we determined that we must continue to consolidate a financing entity used to
monetize long-term notes received from the sale of certain nonstrategic timberlands and our Luxembourg-based
financing subsidiary. Factors considered in making these determinations included the purpose of the entities, the
types and significance of intercompany transactions, and the benefits obtained by us and the nonaffiliated parties
that have invested in these entities. We do not anticipate any changes to these entities that would result in not
continuing to consolidate them. See Notes 2 and 9 for additional details about these consolidated VIEs, including
the carrying and fair values of the significant financial assets, liabilities and redeemable preferred securities of
these consolidated VIEs.
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