PACCAR 2010 Annual Report Download - page 70

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O . D ER IVAT I V E F I N A N C I A L I N S T R U M E N T S
As part of its risk management strategy, the Company enters into derivative contracts to hedge against interest rate
and foreign currency risk.
Interest-Rate Contracts: The Company enters into various interest-rate contracts, including interest-rate swaps and
cross currency interest-rate swaps. Interest-rate swaps involve the exchange of fixed for floating rate or floating for
fixed rate interest payments based on the contractual notional amounts in a single currency. Cross currency
interest-rate swaps involve the exchange of notional amounts and interest payments in different currencies. The
Company is exposed to interest rate and exchange rate risk caused by market volatility as a result of its borrowing
activities. The objective of these contracts is to mitigate the fluctuations on earnings, cash flows and fair value of
borrowings. Net amounts paid or received are reflected as adjustments to interest expense.
At December 31, 2010, the notional amount of the Company’s interest-rate contracts was $2,780.7. Notional
maturities for all interest-rate contracts are $1,138.4 for 2011, $722.8 for 2012, $373.8 for 2013, $339.9 for 2014,
$196.4 for 2015 and $9.4 thereafter. The majority of these contracts are floating to fixed swaps that effectively
convert an equivalent amount of commercial paper and other variable rate debt to fixed rates.
Foreign-Exchange Contracts: The Company enters into foreign-exchange contracts to hedge certain anticipated
transactions and assets and liabilities denominated in foreign currencies, particularly the Canadian dollar, the euro,
the British pound, the Australian dollar and the Mexican peso. The objective is to reduce fluctuations in earnings and
cash flows associated with changes in foreign currency exchange rates. At December 31, 2010, the notional amount
of the outstanding foreign-exchange contracts was $339.3. Foreign-exchange contracts mature within one year.
The following table presents the balance sheet locations and fair value of derivative financial instruments:
At December 31, 2010 2009
ASSETS LIABILITIES assets liabilities
Derivatives designated under hedge accounting:
Interest-rate contracts:
Financial Services:
Other assets $ 9.1 $ 10.8
Deferred taxes and other liabilities $ 107.5 $ 107.1
Foreign-exchange contracts:
Truck and Other:
Other current assets .9 1.1 .1
Accounts payable, accrued expenses and other .2
Total $ 10.0 $ 108.6 $ 10.9 $ 107.3
Economic hedges:
Interest-rate contracts:
Financial Services:
Other assets $ .4
Deferred taxes and other liabilities $ 3.5 $ 9.0
Foreign-exchange contracts:
Truck and Other:
Other current assets $ .1
Accounts payable, accrued expenses and other .3 .2
Financial Services:
Other assets .3
Deferred taxes and other liabilities .2 .1
Total $ .1 $ 4.0 $ .7 $ 9.3
67
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)