PACCAR 2010 Annual Report Download - page 54

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on the straight-line basis to the lower of the estimated residual value or guarantee value. Lease and guarantee periods
generally range from three to seven years. Estimated useful lives of the equipment range from five to eight years.
The Company reviews residual values of equipment on operating leases periodically to determine that recorded
amounts are appropriate.
Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation is computed
principally by the straight-line method based on the estimated useful lives of the various classes of assets. Certain
production tooling is amortized on a unit of production basis.
Long-lived Assets, Goodwill and Other Intangible Assets: The Company evaluates the carrying value of property,
equipment and other intangible assets when events and circumstances warrant such a review. Goodwill is tested
for impairment at least on an annual basis. Impairment charges were insignificant during the three years ended
December 31, 2010.
Derivative Financial Instruments: Derivative financial instruments are used to hedge exposures to fluctuations in
interest rates and foreign currency exchange rates. Certain derivative instruments designated as either cash flow
hedges or fair value hedges are subject to hedge accounting. Derivative instruments that are not subject to hedge
accounting are held as economic hedges. The Company’s policies prohibit the use of derivatives for speculation or
trading. At inception of each hedge relationship, the Company documents its risk management objectives,
procedures and accounting treatment. Exposure limits and minimum credit ratings are used to minimize the risks
of counterparty default. The Company had no material exposures to default at December 31, 2010.
The Company uses regression analysis to assess effectiveness of interest-rate contracts on a quarterly basis. For
foreign-exchange contracts, the Company performs quarterly assessments to ensure that critical terms continue to
match. All components of the derivative instrument’s gain or loss are included in the assessment of hedge
effectiveness. Gains or losses on the ineffective portion of cash flow hedges are recognized currently in earnings.
Hedge accounting is discontinued prospectively when the Company determines that a derivative financial
instrument has ceased to be a highly effective hedge.
Foreign Currency Translation: For most of PACCAR’s foreign subsidiaries, the local currency is the functional
currency. All assets and liabilities are translated at year-end exchange rates and all income statement amounts are
translated at the weighted average rates for the period. Translation adjustments are record ed in accumulated other
comprehensive income (loss), a component of stockholders’ equity. PACCAR uses the U.S. dollar as the functional
currency for its Mexican subsidiaries. Accordingly, inventories, cost of sales, property, plant and equipment, and
depreciation are remeasured at historical rates and resulting adjustments are included in net income.
Earnings per Share: Basic earnings per common share are computed by dividing earnings by the weighted average
number of commons shares outstanding, plus the effect of any participating securities. Diluted earnings per
common share are computed assuming that all potentially dilutive securities are converted into common shares
under the treasury stock method. The dilutive and antidilutive options are shown separately in the table below.
Year Ended December 31 2010 2009 2008
Additional shares 1,339,300 1,103,600 1,721,300
Antidilutive options 1,642,600 2,290,400 1,397,800
Reclassifications: The Company has made the following reclassifications to prior years to conform to the 2010
presentation. The Company has reclassified the impairment losses related to repossessed equipment on operating
lease in the Financial Services segment from “Provision for losses on receivables” to “Depreciation and other” in
the Consolidated Statements of Income and Consolidated Statements of Cash Flows. In addition, the Company has
reclassified proceeds for the sale of repossessed assets relating to finance receivables from “Collections on retail
loans and direct financing leases” to “Proceeds from asset disposals” in the Consolidated Statements of Cash Flows.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2010, 2009 and 2008 (currencies in millions)