PACCAR 2011 Annual Report Download - page 76

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011, 2010 and 2009 (currencies in millions)
Level 2 – Valuations are based on quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active, and model-based valuation techniques for which
all significant assumptions are observable in the market.
Level 3 – Valuations are based on model-based techniques for which some or all of the assumptions are obtained
from indirect market information that is significant to the overall fair value measurement and which require a
significant degree of management judgment. The Company has no financial instruments requiring Level 3
valuation.
The Company uses the following methods and assumptions to measure fair value for assets and liabilities subject to
recurring fair value measurements.
Marketable Securities: The Company’s marketable debt securities consist of municipal bonds, government
obligations, investment-grade corporate obligations, commercial paper, asset-backed securities and term deposits.
The fair value of U.S. government obligations is based on quoted prices in active markets. These are categorized as
Level 1. The fair value of non U.S. government bonds, municipal bonds, corporate bonds, asset-backed securities,
commercial paper and term deposits is estimated using an industry standard valuation model, which is based on
the income approach. The significant inputs into the valuation model include quoted interest rates, yield curves,
credit rating of the security and other observable market information. These are categorized as Level 2.
Derivative Financial Instruments: The Company’s derivative contracts consist of interest-rate swaps, cross currency
swaps and foreign currency exchange contracts. These derivative contracts are traded over the counter and their fair
value is determined using industry standard valuation models, which are based on the income approach. The
significant inputs into the valuation models include market inputs such as interest rates, yield curves, currency
exchange rates, credit default swap spreads and forward spot rates. These contracts are categorized as Level 2.
PACCAR’s assets and liabilities subject to recurring fair value measurements are either Level 1 or Level 2 as follows:
At December 31, 2011 LEVEL 1 LEVEL 2 TOTAL
Assets:
Marketable debt securities
U.S. tax-exempt securities $ 294.4 $ 294.4
U.S. corporate securities 27.5 27.5
U.S. government and agency securities $ 1.9 1.9
Non-U.S. government securities 367.1 367.1
Non-U.S. corporate securities 148.3 148.3
Other debt securities 70.9 70.9
Total marketable debt securities $ 1.9 $ 908.2 $ 910.1
Derivatives
Interest-rate swaps $ 1.4 $ 1.4
Cross currency swaps .8 .8
Foreign-exchange contracts .2 .2
Total derivative assets $ 2.4 $ 2.4
Liabilities:
Derivatives
Cross currency swaps $ 74.7 $ 74.7
Interest-rate swaps 33.3 33.3
Foreign-exchange contracts 2.5 2.5
Total derivative liabilities $ 110.5 $ 110.5
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