Kimberly-Clark 2010 Annual Report Download - page 51

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(c) The notes and the loan are not traded in active markets. Accordingly, their fair values were calculated using a floating rate pricing model
that compared the stated spread to the fair value spread to determine the price at which each of the financial instruments should
trade. The model used the following inputs to calculate fair values: face value, current LIBOR rate, fair value credit spread, stated spread,
maturity date and interest payment dates.
The difference between the carrying amount of the notes and their fair value represents an unrealized loss position for which an other-
than-temporary impairment has not been recognized in earnings because we do not have the intent to sell, and have both the intent and
ability to hold, the notes for a period of time sufficient to allow for an anticipated recovery of fair value to the carrying amount of the
notes.
(d) Short-term debt issued by non-U.S. subsidiaries is recorded at cost, which approximates fair value.
(e) Long-term debt excludes the monetization loan and includes the current portion ($265 million and $503 million as of December 31, 2010
and 2009, respectively) of these debt instruments.
Note 4. Highly Inflationary Accounting for Venezuelan Operations
In 2003, the Venezuelan government enacted currency restrictions which have affected the ability of our
Venezuelan subsidiary (“K-C Venezuela”) to obtain U.S. dollars at the official exchange rate to pay for
significant imports of U.S. dollar-denominated finished goods, raw materials and services to support its
operations. For transactions that did not qualify for settlement at the official exchange rate, an unregulated
market existed for the acquisition and exchange of bolivar- and U.S. dollar-denominated bonds, effectively
resulting in a parallel market exchange rate substantially unfavorable to the official exchange rate.
In instances during 2009 when the U.S. dollar-denominated imports did not receive government approval to
be settled at the official exchange rate of 2.15 bolivars to the U.S. dollar, K-C Venezuela measured the
transactions from U.S. dollars to bolivars at the exchange rate in the parallel market that was used to pay for
these imports. In instances during 2009 when the U.S. dollar-denominated imports received government approval
to be settled at the official exchange rate, K-C Venezuela measured the transactions from U.S. dollars to bolivars
at the official exchange rate. During 2009, K-C Venezuela used the official rate to translate its operating results
from the bolivar functional currency into U.S. dollars, based on its dividend remittance history at that rate.
The cumulative inflation in Venezuela for the three years ended December 31, 2009 was more than
100 percent, based on the Consumer Price Index/National Consumer Price Index. As a result, effective January 1,
2010, K-C Venezuela began accounting for its operations as highly inflationary, as required by GAAP. Under
highly inflationary accounting, K-C Venezuela’s functional currency became the U.S. dollar, and its income
statement and balance sheet are measured into U.S. dollars using both current and historical rates of exchange.
The effect of changes in exchange rates on bolivar-denominated monetary assets and liabilities is reflected in
earnings in other (income) and expense, net. As of December 31, 2010, K-C Venezuela had a bolivar-
denominated net monetary asset position of $99 million.
For the first quarter of 2010, we determined that, under highly inflationary accounting, the parallel exchange
rate was the appropriate exchange rate to measure K-C Venezuela’s bolivar-denominated transactions into U.S.
dollars as this was the rate at which K-C Venezuela had substantially converted the bolivars it generated from its
operations during the first quarter of 2010 into U.S. dollars to pay for its imports.
As a result of the adoption of highly inflationary accounting, we recorded an after-tax charge of $96 million
in first quarter 2010 to remeasure K-C Venezuela’s bolivar-denominated net monetary asset position into U.S.
dollars at a parallel exchange rate of approximately 6 bolivars per U.S. dollar. In the Consolidated Cash Flow
Statement, this non-cash charge was included in Other in Cash Provided by Operations.
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