Kimberly-Clark 2010 Annual Report Download - page 57

KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
on the specified redemption dates, then the loans would become payable to the financing subsidiary to the extent
necessary to enable the financing subsidiary to pay the redemption value. Our credit ratings are above this level
as of February 23, 2011, and we do not anticipate they will be downgraded below this level in the near future.
In addition, our subsidiary in Central America has outstanding redeemable common securities that are held
by a noncontrolling interest. The fair value of the redeemable common securities of $35 million and $41 million
at December 31, 2010 and 2009, respectively, was based on various inputs, including an independent third-party
appraisal, adjusted for current market conditions.
Note 10. Stock-Based Compensation
We have a stock-based Equity Participation Plan and an Outside Directors’ Compensation Plan (the
“Plans”), under which we can grant stock options, restricted shares and restricted share units to employees and
outside directors. As of December 31, 2010, the number of shares of common stock available for grants under the
Plans aggregated 10.8 million shares.
Stock options are granted at an exercise price equal to the fair market value of our 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-vested restricted share units and performance-based restricted share units granted to
employees are valued at the closing market price of our common stock on the grant date and vest generally over
three years. The number of performance-based share units that ultimately vest ranges from zero to 200 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 our 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 our Board.
At the time stock options are exercised or restricted shares and restricted share units become payable,
common stock is issued from our accumulated treasury shares. 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 Kimberly-
Clark’s common stock. These cash dividends and dividend equivalents, net of estimated forfeitures, are charged
to retained earnings.
Stock-based compensation costs of $52 million, $86 million and $47 million and related deferred income
tax benefits of $19 million, $28 million and $15 million were recognized for 2010, 2009 and 2008, respectively.
The fair value of stock option awards was determined using a Black-Scholes-Merton option-pricing model
utilizing a range of assumptions related to dividend yield, volatility, risk-free interest rate, and employee exercise
behavior. Dividend yield is based on historical experience and expected future dividend actions. Expected
volatility is based on a blend of historical volatility and implied volatility from traded options on Kimberly-
Clark’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time
of grant. We estimate forfeitures based on historical data.
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