PACCAR 2012 Annual Report Download - page 79

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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)
Amounts in accumulated other comprehensive (loss) income are reclassified into net income in the same period in
which the hedged transaction affects earnings. Net realized gains and losses from interest-rate contracts are
recognized as an adjustment to interest expense. Net realized gains and losses from foreign-exchange contracts are
recognized as an adjustment to cost of sales or to financial services interest expense, consistent with the hedged
transaction. For the periods ended December 31, 2012, 2011 and 2010, the Company recognized gains on the
ineffective portion of $.5, $.8 and $2.3, respectively.
The following table presents the pre-tax effects of derivative instruments recognized in other comprehensive income
and earnings:
Year Ended December 31, 2012 2011 2010
INTEREST- FOREIGN- interest- foreign- interest- foreign-
RATE EXCHANGE rate exchange rate exchange
CONTRACTS CONTRACTS contracts contracts contracts contracts
Loss (gain) recognized in other comprehensive income:
Truck, Parts and Other $ 1.3 $ (2.3) $ (.2)
Financial Services $ 27.9 $ 55.2 $ 77.0
Total $ 27.9 $ 1.3 $ 55.2 $ (2.3) $ 77.0 $ (.2)
Expense (income) reclassified from accumulated other comprehensive (loss) income into income:
Truck, Parts and Other:
Cost of sales and revenues $ 3.2 $ (4.1) $ (.4)
Interest and other (income) expense, net .2
Financial Services:
Interest and other borrowing expenses $ 19.3 $ 51.8 $ 123.5
Total $ 19.3 $ 3.4 $ 51.8 $ (4.1) $123.5 $ (.4)
The amount of loss recorded in accumulated other comprehensive (loss) income at December 31, 2012 that is
estimated to be reclassified to interest expense or cost of sales in the following 12 months if interest rates and
exchange rates remain unchanged is approximately $44.8, net of taxes. The fixed interest earned on finance
receivables will offset the amount recognized in interest expense, resulting in a stable interest margin consistent
with the Company’s risk management strategy.
Economic Hedges: For other risk management purposes, the Company enters into derivative instruments not
designated as hedges that do not qualify for hedge accounting. These derivative instruments are used to mitigate the
risk of market volatility arising from borrowings and foreign currency denominated transactions. Changes in the
fair value of economic hedges are recorded in earnings in the period in which the change occurs.
The expense or (income) recognized in earnings related to economic hedges is as follows:
Year Ended December 31, 2012 2011 2010
INTEREST- FOREIGN- interest- foreign- interest- foreign-
RATE EXCHANGE rate exchange rate exchange
CONTRACTS CONTRACTS contracts contracts contracts contracts
Truck, Parts and Other:
Cost of sales and revenues $ (.3) $ .2 $ .2
Interest and other (income) expense, net (.5) (2.8) $ .6 8.0
Financial Services:
Interest and other borrowing expenses $ 1.0 .6 $ (4.1) (1.2) (7.8)
Total $ 1.0 $ (.2) $ (4.1) $ (3.8) $ (7.2) $ 8.2