PACCAR 2011 Annual Report Download - page 46

 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%, 2011 net pension expense would increase
to $63.5 million from $48.2 million and the projected benefit obligation would increase $148.3 million to $1.96
billion from $1.81 billion.
Income Taxes
Income taxes are disclosed in Note M 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 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, 2011.