PACCAR 2012 Annual Report Download - page 56

 A. SIGN I F IC A N T ACCO U N T IN G P OL I C IE S
Description of Operations: PACCAR Inc (the Company or PACCAR) is a multinational company operating in three
principal segments (1) the Truck segment includes the design and manufacture of high-quality, light-, medium- and
heavy-duty commercial trucks, (2) the Parts segment includes the distribution of aftermarket parts for trucks and
related commercial vehicles and (3) the Financial Services segment (PFS) derives its earnings primarily from
financing or leasing PACCAR products in the U.S., Canada, Mexico, Europe and Australia. PACCAR’s sales and
revenues are derived primarily from North America and Europe. The Company also operates in Australia and sells
trucks and parts to customers in Asia, Africa, Middle East and South America.
Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its
wholly owned domestic and foreign subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition:
Truck, Parts and Other: Substantially all sales and revenues of trucks and related aftermarket parts are recorded by
the Company when products are shipped to dealers or customers, except for certain truck shipments that are
subject to a residual value guarantee to the customer. Revenues related to these shipments are recognized on a
straight-line basis over the guarantee period (see Note E). At the time certain truck and parts sales to a dealer are
recognized, the Company records an estimate of any future sales incentive costs related to such sales. The estimate is
based on historical data and announced incentive programs. In the Truck and Parts segments, the Company grants
extended payment terms on selected receivables. Interest is charged for the period beyond standard payment terms.
Interest income is recorded as earned.
Financial Services: Interest income from finance and other receivables is recognized using the interest method.
Certain loan origination costs are deferred and amortized to interest income over the expected life of the contracts,
generally 36 to 60 months, using the straight-line method which approximates the interest method. For operating
leases, rental revenue is recognized on a straight-line basis over the lease term. Rental revenues for the years ended
December 31, 2012, 2011 and 2010 were $551.5, $527.8 and $464.9, respectively. Depreciation and related leased
unit operating expenses were $434.9, $412.5 and $385.6, for December 31, 2012, 2011 and 2010, respectively.
Recognition of interest income and rental revenue is suspended (put on non-accrual status) when the receivable
becomes more than 90 days past the contractual due date or earlier if some other event causes the Company to
determine that collection is not probable. Accordingly, no finance receivables more than 90 days past due were
accruing interest at December 31, 2012 or December 31, 2011. Recognition is resumed if the receivable becomes
current by the payment of all amounts due under the terms of the existing contract and collection of remaining
amounts is considered probable (if not contractually modified) or if the customer makes scheduled payments for
three months and collection of remaining amounts is considered probable (if contractually modified). Payments
received while the finance receivable is impaired or on non-accrual status are applied to interest and principal in
accordance with the contractual terms.
Cash and Cash Equivalents: Cash equivalents consist of liquid investments with a maturity at date of purchase of
90 days or less.
Marketable Debt Securities: The Company’s investments in marketable debt securities are classified as available-
for-sale. These investments are stated at fair value with any unrealized gains or losses, net of tax, included as a
component of accumulated other comprehensive (loss) income.
The Company utilizes third-party pricing services for all of its marketable debt security valuations. The Company
reviews the pricing methodology used by the third-party pricing services including the manner employed to collect
market information. On a periodic basis, the Company also performs review and validation procedures on the pricing
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, 2012, 2011 and 2010 (currencies in millions)