PACCAR 2009 Annual Report Download - page 41

38 Pension Benefits
The Company’s accounting for employee pension benefit costs and obligations is based on management
assumptions about the future used by actuaries to estimate net costs and liabilities. These assumptions include
discount rates, long-term rates of return on plan assets, inflation rates, retirement rates, mortality rates and other
factors. Management bases these assumptions on historical results, the current environment and reasonable
estimates of future events.
The discount rate for pension benefits is based on market interest rates of high-quality corporate bonds with a
maturity profile that matches the timing of the projected benefit payments of the plans. Changes in the discount rate
affect the valuation of the plan benefits obligation and funded status of the plans. The long-term rate of return on
plan assets is based on projected returns for each asset class and relative weighting of those asset classes in the plans.
Because differences between actual results and the assumptions for returns on plan assets, retirement rates and
mortality rates are accumulated and amortized into expense over future periods, management does not believe
these differences or a typical percentage change in these assumptions worldwide would have a material effect on its
financial results in the next year. The most significant assumption which could negatively affect pension expense is
a decrease in the discount rate. If the discount rate was to decrease .5%, 2009 net pension expense would increase
to $36.8 million from $25.3 million, and the projected benefit obligation would increase $97.1 million to $1,421.9
million from $1,324.8 million.
Income Taxes
The accounting for income taxes is discussed in Note N of the consolidated financial statements. The Company
calculates income tax expense on pretax income based on current tax law. Deferred tax assets and liabilities are
recorded for future tax consequences on temporary differences between recorded amounts in the financial statements
and their respective tax basis. The determination of income tax expense requires management estimates and involves
judgment regarding indefinitely reinvested foreign earnings, jurisdictional mix of earnings and future outcomes
regarding tax law issues included in tax returns. The Company updates its assumptions based on all of these factors
each quarter as well as new information on tax laws and differences between estimated tax returns and actual returns
when filed. If the Company’s assessment of these matters changes, the effect is accounted for in earnings in the
period the change is made.
FORWARD-LOOKING STATEMENTS:
Certain information presented in this report contains forward-looking statements made pursuant to the Private
Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties that may affect actual results.
Risks and uncertainties include, but are not limited to: a significant decline in industry sales; competitive pressures;
reduced market share; reduced availability of or higher prices for fuel; increased safety, emissions, or other regulations
resulting in higher costs and/or sales restrictions; currency or commodity price fluctuations; lower used truck prices;
insufficient or under-utilization of manufacturing capacity; supplier interruptions; insufficient liquidity in the
capital markets; fluctuations in interest rates; changes in the levels of the Financial Services segment new business
volume due to unit fluctuations in new PACCAR truck sales; changes affecting the profitability of truck owners and
operators; price changes impacting equipment costs and residual values; insufficient supplier capacity or access to
raw materials; labor disruptions; shortages of commercial truck drivers; increased warranty costs or litigation; or
legislative and governmental regulations. A more detailed description of these and other risks is included under the
heading Part 1, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2009.