1
PACCAR Inc and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Tables in millions)
RESULTS OF OPERATIONS:
1993 1992 1991
-------- -------- --------
Net sales $ 3,378.9 $ 2,576.8 $ 2,159.6
Income before
effect of
accounting change 142.2 65.2 39.8
Accounting change 15.4
--------- --------- ---------
Net Income $ 142.2 $ 65.2 $ 55.2
========= ========= =========
OVERVIEW:
Net sales for the year were $3.4 billion, an increase of 31% over 1992, and 56%
over 1991. Net income grew to $142.2 million in 1993, a 118% improvement over
the prior year and a 158% increase compared to 1991. Net income for 1993 would
have been $3.5 million higher, or nine cents per share, had it not been for the
increase in the U.S. corporate tax rate. The Truck and Financial Services
segments provided most of the increase in net income. However, 1993 marked a
year of continued improvement for virtually all of the Company's operations.
In the United States, the primary basis of PACCAR's performance was a
strong Class 8 truck market. The strength of this market was attributable to a
vigorous replacement cycle, favorable interest rates and modest gains in
freight tonnage. Current indicators are that heavy-duty truck sales will
remain strong through the first half of 1994 and probably through the second
half, depending on continued expansion of the U.S. economy.
Gradually improving economies, expanded Company presence and more
aggressive marketing benefited PACCAR's operations outside the United States.
The Company expects further growth from its foreign operations as it continues
to look to new international markets for its products.
PACCAR's commitment to customer satisfaction, financial strength and
continuous improvement provides the foundation necessary to meet present and
future market opportunities.
TRUCKS
The Truck segment includes all of the Company's domestic and international
truck and truck parts operations.
1993 1992 1991
-------- -------- --------
Truck revenues $ 3,130.9 $ 2,322.7 $ 1,891.2
--------- --------- ---------
Pretax Income $ 194.0 $ 77.9 $ 58.4
========= ========= =========
1993 COMPARED TO 1992:
PACCAR's worldwide truck operations earned $194.0 million before tax in 1993 on
net sales of $3.1 billion. In 1992, the Company's truck operations generated
pretax income of $77.9 million on net sales of $2.3 billion. PACCAR and its
Mexican affiliate sold over 44,000 trucks worldwide, compared to 34,000 in
1992. In 1993, this segment provided 88% of consolidated revenues, compared to
84% in 1992.
In the United States, a larger overall market, combined with an increase
in the Company's market share, contributed to PACCAR's achievements in 1993.
Class 8 truck industry volumes in the United States grew from about 125,000
units in 1992 to approximately 155,000 units in 1993. PACCAR's share of the
U.S. market for Class 8 trucks approximated 22% of registrations in 1993,
compared to 21% in 1992.
Reduced unit costs arising from better utilization of production capacity
and modest increases in sales prices enhanced current year gross margins. In
1993, PACCAR operated its truck plants at near capacity, brought on-line a new
state-of-the-art production facility and relocated a major division
headquarters. Despite the sustained high level of production in 1993, the
Company begins 1994 with backlogs well above prior year levels.
Outside the United States, PACCAR's foreign truck operations increased
revenues and profits compared to 1992. Results improved significantly in
Canada, Australia and the United Kingdom. Partially offsetting these advances
were reduced equity earnings in the Company's Mexican affiliate, VILPAC, S.A.
The Mexican Class 8 truck market continued to decline in 1993 as a result of
the slower economy. VILPAC, S.A. retained the largest share of the country's
heavy-duty truck market, and Mexican operations continue to account for a
significant portion of PACCAR's foreign
21
2
PACCAR Inc and Subsidiaries
profits. In January 1994, PACCAR acquired additional shares of VILPAC,
S.A., bringing its ownership interest to 55%. As a result, beginning in 1994
the Company will account for VILPAC, S.A. on the consolidated basis.
Revenues from U.S. export sales in 1993 through PACCAR International
Division were higher than in 1992. Operating margins were lower in 1993 due to
less demand for highly specialized vehicles.
PACCAR's truck parts revenues and profits increased again in 1993
primarily because of a better overall truck market and an increase in market
share. Sales of truck parts remain a steady base of profitability for the Truck
segment.
1992 COMPARED TO 1991:
In 1992, PACCAR's worldwide truck operations' net sales and income before tax
increased 23% and 33%, respectively, over 1991 levels. The improvement in 1992
resulted principally from an upturn in the truck replacement cycle which
boosted Class 8 sales volumes. In 1992, PACCAR and its Mexican affiliate sold
34,000 trucks worldwide, compared to 30,000 in 1991.
PACCAR's share of the U.S. market for Class 8 trucks was 21% of
registrations in 1992, compared to 22% in 1991. The decline in market share was
primarily attributable to competitive conditions in the marketplace and the
Company's unwillingness to pursue some low-margin business.
In 1992, results improved in Canada, Australia and the United Kingdom.
These advancements were offset by reduced equity earnings in VILPAC. A smaller
Class 8 truck market in Mexico was largely responsible for the decline in
earnings from the record levels achieved in 1991. In spite of this, Mexican
operations accounted for the major portion of foreign profits in 1992 and 1991.
AUTO PARTS
The Auto Parts segment consists of the Company's retail auto parts operations,
located on the West Coast.
1993 1992 1991
------- ------- -------
Auto Parts revenues $ 172.9 $ 174.4 $ 194.7
------- ------- -------
Pretax Income (Loss) $ 2.2 $ (4.6) $ (8.0)
======= ======= =======
1993 COMPARED TO 1992:
Auto Parts segment sales totaled $172.9 million in 1993, compared to $174.4
million in 1992. Sales volume gains, due to modest increases in same store
sales and selected new store openings, partially offset the overall decline in
sales resulting from the closing of unprofitable stores and decline in total
number of stores.
Segment pretax earnings were $2.2 million in 1993, compared to a pretax
loss of $4.6 million in 1992. The segment attained profitability primarily as a
result of operating efficiencies, improved systems and better merchandising.
The Company expects this segment's performance will continue to benefit from
these actions.
1992 COMPARED TO 1991:
For the Auto Parts segment, 1992 sales fell below 1991 levels. Sales volumes
decreased in 1992, primarily because of restructuring actions taken to withdraw
from the wholesale auto parts market and to close the Los Angeles area retail
stores. Successful implementation of cost-reduction programs helped the
segment to significantly cut its operating losses in 1992 compared to 1991.
OTHER PRODUCTS
PACCAR's other product lines include winches and oilfield equipment. As a
group, revenue from these products decreased during the three-year period ended
in 1993 due to weakness in most of their markets. While combined pretax income
decreased in 1992 compared to 1991, results improved in 1993.
INVESTMENTS
Investment income remained relatively stable between 1993 and 1992. Because of
higher interest rates, 1991 investment income exceeded levels attained in
either 1992 or 1993.
22
3
PACCAR Inc and Subsidiaries
FINANCIAL SERVICES
The Financial Services segment, including PACCAR Financial Corp., PACCAR
Leasing and the Company's finance subsidiaries in Canada, Australia and the
United Kingdom, derives earnings from financing the sale of PACCAR and other
products.
1993 1992 1991
------- ------- -------
Financial Services
revenues $ 162.6 $ 158.4 $ 179.2
------- ------- -------
Pretax Income $ 40.2 $ 26.0 $ 12.8
======= ======= =======
1993 COMPARED TO 1992:
The Company's Financial Services operations earned $40.2 million before tax in
1993, up 55% compared to 1992. Pretax income improved primarily as a result of
growth in the portfolio, higher net finance margins and lower provisions for
loan losses.
In 1993, the Financial Services segment experienced record new business
volume due primarily to PACCAR's strong heavy-duty truck sales and this
segment's increased market share of such sales. The overall credit quality of
the loan and lease receivable portfolio improved in 1993 due to stronger
economic conditions and a continued focus on credit controls. The reserve for
credit losses increased in 1993, reflecting the growth in the portfolio.
1992 COMPARED TO 1991:
The Company's Financial Services segment earned $26.0 million before tax in
1992, more than double 1991 results. The increase in pretax earnings primarily
reflected improved credit controls and better interest margins.
LIQUIDITY AND CAPITAL RESOURCES:
1993 1992 1991
------- ------- -------
Cash and equivalents $ 223.2 $ 250.4 $ 294.9
Marketable securities 235.7 214.3 201.4
------- ------- -------
$ 458.9 $ 464.7 $ 496.3
======= ======= =======
During 1993, the Company generated cash from operations of $202 million, an
increase of over $50 million from a year ago. Total cash and marketable
securities amounted to $458.9 million at December 31, 1993. The Company's
liquidity and earnings from investment of excess cash continue to provide
financial stability and strength.
TRUCKS, AUTO PARTS AND OTHER
Cash for working capital, capital expenditures and research and development has
been provided by operations. Management expects this to continue.
Capital expenditures for 1993 totaled $82 million, of which a major
portion related to the completion of the new Kenworth manufacturing facility.
Over the last five years (1989 through 1993), the Company's worldwide capital
spending, excluding the Financial Services segment, totaled over $300 million.
During the next several years, the pace of spending for capital projects at
PACCAR is expected to continue at similar levels.
Year-end ratios of current assets to current liabilities were 1.7 for
1993, 1.9 for 1992 and 2.0 in 1991. The principal reasons for the decline in
the 1993 current ratio have been the utilization of cash for the funding of
capital expenditures and the accrual for the special year-end cash dividend.
Cash generated in foreign operations is generally reinvested in those
operations when there is potential for a favorable return on investment. During
the last three years, some excess cash has been withdrawn in the form of
dividends from the Company's operations in Mexico.
23
4
PACCAR Inc and Subsidiaries
FINANCIAL SERVICES
The Financial Services companies rely heavily on funds borrowed in capital
markets as well as funds generated from collections on loans and leases.
Transactions with PACCAR, such as capital contributions and intercompany loans,
are an additional source of funds.
In 1993, PACCAR Financial Corp. completed the filing of a new shelf
registration under which up to $1 billion of medium-term notes can be issued as
needed. At the end of 1993, $980 million of this registration was still
available for issuance. To reduce exposure to fluctuations in interest rates,
the Financial Services companies pursue a policy of generally matching the
interest rate characteristics of their debt with their receivable portfolio. As
a part of this policy, the companies use interest-rate swaps and other hedging
instruments.
PACCAR believes its Financial Services companies have sufficient
financial capabilities to continue funding receivables and servicing debt
through internally generated funds, lines of credit and access to public and
private debt markets.
IMPACT OF RECENTLY ISSUED
ACCOUNTING RULES:
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," and No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," are effective beginning January 1, 1994. Adoption
of these standards will not have a material impact on the Company's financial
position or results of operations.
IMPACT OF ENVIRONMENTAL PROJECTS:
The Company, its competitors and industry in general are subject to various
federal, state and local requirements relating to the environment. The Company
believes its policies, practices and procedures are designed to prevent
unreasonable risk of environmental damage and that its handling, use and
disposal of hazardous or toxic substances have been in accordance with
environmental laws and regulations enacted at the time such use and disposal
occurred.
Expenditures were approximately $9 million in 1993, $10 million in 1992
and $12 million in 1991 for costs related to environmental activities. The
Company does not anticipate that the effects on future operations or cash flows
would be materially greater than recent experience.
The Company is involved in various stages of investigations and cleanup
actions related to environmental matters. In certain of these matters, the
Company has been designated as a Potentially Responsible Party by the U.S.
Environmental Protection Agency (EPA) or by a state-level environmental
agency. At certain of these sites the Company, together with other parties, is
participating with the EPA in cleanup studies and the determination of remedial
action.
The Company has provided for the estimated costs to complete cleanup
actions where it is probable that the Company will incur such costs and such
amounts can be reasonably estimated. At December 31, 1993, the reserve
established to provide for estimated future environmental cleanup costs was $27
million. The Company believes future recoveries from insurance carriers and
others could be significant; however, such potential recoveries do not
currently meet the criteria for recognition. While the timing and amount of the
ultimate net costs associated with environmental cleanup matters cannot be
determined, management does not expect that these matters will have a material
adverse effect on the Company's consolidated financial position.
24
5
PACCAR Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1993 1992 1991
--------- --------- ---------
(millions except per share data)
MANUFACTURING:
Revenues
Net sales $ 3,378.9 $ 2,576.8 $ 2,159.6
Other 11.6 20.8 35.6
--------- --------- ---------
3,390.5 2,597.6 2,195.2
Costs and Expenses
Cost of sales 2,941.5 2,262.2 1,905.6
Selling, general and administrative 286.5 286.5 276.3
Interest 1.9 2.6 4.3
--------- --------- ---------
3,229.9 2,551.3 2,186.2
--------- --------- ---------
Manufacturing Income Before Income Taxes 160.6 46.3 9.0
FINANCIAL SERVICES:
Revenues 162.6 158.4 179.2
Costs and Expenses
Interest and other 77.7 84.0 106.4
Operating 35.5 34.6 29.8
Provision for losses on receivables 9.2 13.8 30.2
--------- --------- ---------
122.4 132.4 166.4
--------- --------- ---------
Financial Services Income Before Income Taxes 40.2 26.0 12.8
OTHER:
Investment income 17.9 18.0 25.3
Intercompany interest charged to Financial Services 1.1 1.3 1.3
--------- --------- ---------
Total Income Before Income Taxes 219.8 91.6 48.4
Income taxes 77.6 26.4 8.6
--------- --------- ---------
Income Before Cumulative Effect of Change in Accounting Method 142.2 65.2 39.8
Cumulative Effect of Change in Accounting Method 15.4
--------- --------- ---------
Net Income $ 142.2 $ 65.2 $ 55.2
========= ========= =========
Weighted average number of common shares outstanding 38.9 38.9 38.9
========= ========= =========
Per Share Data:
Income before cumulative effect of change in accounting method $ 3.66 $ 1.68 $ 1.02
Cumulative effect of change in accounting method .40
--------- --------- ---------
Net income $ 3.66 $ 1.68 $ 1.42
========= ========= =========
See notes to consolidated financial statements. 25
6
CONSOLIDATED BALANCE SHEETS
December 31
ASSETS 1993 1992
--------- ---------
(millions of dollars)
MANUFACTURING:
Current Assets
Cash and equivalents $ 206.2 $ 235.8
Trade receivables, net of allowance for losses
(1993 - $2.2 and 1992 - $3.0) 182.8 164.4
Marketable securities 235.7 214.3
Inventories 193.7 151.0
Deferred taxes and other current assets 57.0 49.2
--------- ---------
Total Manufacturing Current Assets 875.4 814.7
Investments and other 124.1 115.8
Property, plant and equipment, net 344.4 305.2
--------- ---------
Total Manufacturing Assets 1,343.9 1,235.7
--------- ---------
FINANCIAL SERVICES:
Cash and equivalents 17.0 14.6
Notes, contracts and other receivables,
net of allowance for losses (1993 - $32.9 and 1992 - $30.9) 2,024.6 1,625.1
Less unearned interest (155.9) (141.6)
--------- --------
1,868.7 1,483.5
Equipment on operating leases, net 47.9 45.6
Other assets 13.7 12.7
--------- ---------
Total Financial Services Assets 1,947.3 1,556.4
--------- ---------
$ 3,291.2 $ 2,792.1
26 ========== ==========
7
PACCAR Inc and Subsidiaries
LIABILITIES AND STOCKHOLDERS' EQUITY
1993 1992
--------- ---------
(millions of dollars)
MANUFACTURING:
Current Liabilities
Accounts payable and accrued expenses $ 458.5 $ 403.8
Income taxes 21.3 2.5
Dividend payable 33.8 10.1
Other 2.0 3.6
--------- ---------
Total Manufacturing Current Liabilities 515.6 420.0
Long-term debt 11.7 12.5
Other 72.1 73.8
--------- ---------
Total Manufacturing Liabilities 599.4 506.3
--------- ---------
FINANCIAL SERVICES:
Accounts payable and accrued expenses 49.3 47.4
Commercial paper and bank loans 696.0 572.1
Deferred income taxes and other 129.9 133.5
Long-term debt 709.1 494.4
--------- ---------
Total Financial Services Liabilities 1,584.3 1,247.4
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, no par value - authorized 1,000,000 shares, none issued
Common stock, $12 par value - authorized 100,000,000 shares,
issued 38,856,574 shares 466.3 446.2
Additional paid-in capital 217.9 2.5
Retained earnings 468.6 741.2
Less treasury shares - at cost (110.4)
Foreign currency translation adjustment (45.3) (41.1)
--------- ---------
Total Stockholders' Equity 1,107.5 1,038.4
--------- ---------
$ 3,291.2 $ 2,792.1
========= =========
See notes to consolidated financial statements. 27
8
PACCAR Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Number of Shares Millions of Dollars
----------------------- ---------------------------------------------------------------
Common Additional Treasury Foreign
Stock Treasury Common Paid-In Retained Stock Currency
Issued Stock Stock Capital Earnings At Cost Adjustment Total
---------- --------- ------ --------- -------- ------- ---------- --------
Balance,
December 31, 1990 37,167,848 3,360,455 $446.0 $ 2.0 $702.0 $(110.4) $(20.4) $1,019.2
Net income 55.2 55.2
Cash dividends
declared (37.2) (37.2)
Reissuance of
treasury stock (2,390) .1 .1
Stock options
exercised 12,538 .2 .4 .6
Foreign currency
translation
adjustment (5.6) (5.6)
---------- ---------- ------ ------ ------ ------- ------ --------
Balance,
December 31, 1991 37,180,386 3,358,065 446.2 2.5 720.0 (110.4) (26.0) 1,032.3
Net income 65.2 65.2
Cash dividends
declared (44.0) (44.0)
Foreign currency
translation
adjustment (15.1) (15.1)
---------- ---------- ------ ------ ------ ------- ------ --------
Balance,
December 31, 1992 37,180,386 3,358,065 446.2 2.5 741.2 (110.4) (41.1) 1,038.4
Net income 142.2 142.2
Cash dividends
declared (67.7) (67.7)
Purchase of
treasury stock 33,019 (1.2) (1.2)
Retirement of
treasury stock (3,391,084) (3,391,084) (40.7) (2.5) (68.4) 111.6
Foreign currency
translation
adjustment (4.2) (4.2)
Stock dividend
declared 5,067,272 60.8 217.9 (278.7)
---------- ---------- ------ ------ ------ ------- ------ --------
Balance,
December 31, 1993 38,856,574 -- $466.3 $217.9 $468.6 -- $(45.3) $1,107.5
========== ========== ====== ====== ====== ======= ====== ========
See notes to consolidated financial statements.
28
9
PACCAR Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1993 1992 1991
------- ------- -------
(millions of dollars)
OPERATING ACTIVITIES:
Net income $ 142.2 $ 65.2 $ 55.2
Items included in net income not affecting cash:
Depreciation and amortization 56.7 52.3 55.3
Provision for losses on financial services receivables 9.2 13.8 30.2
Equity in net income of unconsolidated companies (8.1) (12.6) (23.0)
Deferred income tax benefit (9.4) (8.4) (4.9)
Cumulative effect of change in accounting method (15.4)
Other 1.7 .7 .9
Change in operating assets and liabilities:
(Increase) decrease in assets other than cash and equivalents:
Receivables (21.4) (27.9) 7.7
Inventories (44.7) (5.2) 39.5
Deferred taxes and other (4.6) 4.4 3.0
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 60.4 60.5 (15.3)
Income taxes 19.9 2.0 (1.5)
-------- ------- -------
Net Cash Provided by Operating Activities 201.9 144.8 131.7
INVESTING ACTIVITIES:
Loans and finance leases originated (1,059.0) (734.0) (548.4)
Collections on loans and finance leases 701.7 614.4 591.7
Net (increase) decrease in wholesale receivables (54.5) 23.3 46.5
Net change in marketable securities (21.4) (12.9) (52.9)
Purchase of property, plant and equipment (82.4) (81.5) (39.7)
Purchase of equipment for operating leases (26.9) (18.7) (11.6)
Proceeds from asset disposals 31.5 35.1 27.2
Other (15.5) (.3) 4.6
-------- ------- -------
Net Cash Provided by (Used in) Investing Activities (526.5) (174.6) 17.4
FINANCING ACTIVITIES:
Purchase of treasury shares (1.2)
Cash dividends (44.0) (37.2) (33.8)
Net increase in commercial paper and bank loans 118.2 23.0 4.3
Proceeds of long-term debt 390.7 295.7 188.6
Payments of long-term debt (167.6) (295.3) (342.7)
-------- ------- -------
Net Cash Provided by (Used in) Financing Activities 296.1 (13.8) (183.6)
Effect of exchange rate changes on cash 1.3 (.9) .1
-------- ------- -------
Net Decrease in Cash and Equivalents (27.2) (44.5) (34.4)
Cash and equivalents at beginning of year 250.4 294.9 329.3
-------- ------- -------
Cash and equivalents at end of year $ 223.2 $ 250.4 $ 294.9
======== ======= =======
29
See notes to consolidated financial statements.
10
PACCAR Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991 (millions of dollars)
A. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its domestic and foreign subsidiaries, all of which
are wholly owned. All significant intercompany accounts and transactions are
eliminated in consolidation.
Investments in VILPAC, S.A., a 49% owned Mexican affiliate, and Wood
Group ESP, Inc., a 21% owned U.S. investee, are stated at cost plus equity in
their undistributed net earnings, which represent the Company's equity in their
net assets.
Cash Equivalents: Cash equivalents consist of all short-term liquid
investments with a maturity at date of purchase of three months or less.
Marketable Securities: Marketable securities are recorded at cost plus
accrued interest which approximates market value.
Inventories: Inventories are stated at the lower of cost or market. Cost
of all inventories in the United Kingdom and the United States is determined
principally by the last-in, first-out (LIFO) method. Cost of all other
inventories is determined by the first-in, first-out (FIFO) method.
Goodwill: Goodwill is amortized on a straight-line basis for periods
ranging from 25 to 27 years. At December 31, 1993 and 1992, goodwill amounted
to $25.1 and $26.5 net of accumulated amortization of $8.0 and $6.7,
respectively. Amortization of goodwill totaled $1.3 in each of the years 1993
through 1991.
Property, Plant and Equipment: Property, plant and equipment are stated
at cost. Depreciation of plant and equipment is computed principally by the
straight-line method based upon the estimated useful lives of the various
classes of assets which range as follows:
Machinery and equipment 5-12 years
Buildings 30-40 years
Foreign Currency Translation: The Company conducts its foreign operations
primarily through wholly owned subsidiaries in Canada, Australia and the United
Kingdom, and through a 49% owned Mexican affiliate.
All foreign assets and liabilities are translated into U.S. dollars at
current exchange rates and all income statement amounts are translated at an
average of the month-end rates. Resulting gains and losses are deferred and
classified as a separate component of stockholders' equity.
Net translation and transaction losses included in net income were
immaterial for the three years ended December 31, 1993.
Environmental: Expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations and which do not contribute to current or
future revenue generation are expensed. Liabilities are recorded when it is
probable the Company will be obligated to pay amounts for environmental site
evaluation, remediation and related costs, and such amounts can be reasonably
estimated. Generally, the timing of these accruals coincides with the earlier
of completion of a feasibility study or the Company's commitment to a formal
plan of action.
Interest Income and Expense: Generally, income from net receivables and
direct financing leases is recognized using the interest (actuarial) method.
Intercompany interest income on cash advances to the financial services
companies is shown as a separate item in the income statement. The
corresponding interest expense is included as interest expense of the Financial
Services segment.
Interest-Rate Contracts: As part of its interest rate risk management
activities, PACCAR enters into interest-rate contracts which generally involve
the exchange of fixed- and floating-rate interest payment obligations without
the exchange of the underlying principal amounts. These contracts are used to
reduce the effect of interest rate fluctuations and to effectively change the
term of variable-rate debt to better match maturities of the Company's
receivables. Net amounts paid or received are reflected as adjustments to
interest expense.
Credit Losses: The provision for losses on notes, contracts and other
receivables is charged to income in an amount sufficient to maintain the
allowance for losses at a level considered adequate to cover anticipated
losses. Past due receivables are reviewed individually and charged to the
allowance when it has been determined that no recovery can reasonably be
expected, either through payment, liquidation of repossessed equipment or from
the proceeds of insurance.
Accounting Change: Effective January 1, 1993, the Company adopted
Financial Accounting Standard (FAS) No. 109, "Accounting for Income Taxes."
Adoption of
30
11
PACCAR Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993,1992 and 1991 (millions of dollars)
this FAS did not have a material impact on the Company. See Note J
for further information.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the 1993 presentation.
B. INVENTORIES
1993 1992
------- -------
Inventories at FIFO cost:
Finished products $ 166.7 $ 150.0
Work in process and raw
materials 147.8 118.0
------- -------
314.5 268.0
Less excess of FIFO cost
over LIFO (120.8) (117.0)
------- -------
$ 193.7 $ 151.0
======= =======
Inventories valued using the LIFO method comprised 85% and 84% of consolidated
inventories at FIFO cost at December 31, 1993 and 1992, respectively. Certain
inventory quantities were reduced, resulting in liquidations of LIFO inventory
quantities carried at the lower costs prevailing in prior years. The effects of
these liquidations increased net income approximately $.2 in 1993, $2.6 in 1992
and $6.1 in 1991.
C. NOTES, CONTRACTS AND OTHER
RECEIVABLES
The Company's notes, contracts and other receivables are as follows:
1993 1992
--------- ---------
Retail notes and contracts $ 1,222.0 $ 853.0
Wholesale financing 150.0 96.2
Direct financing leases 669.5 693.3
Interest and other receivables 16.0 13.5
--------- ---------
2,057.5 1,656.0
Less allowance for losses (32.9) (30.9)
--------- ---------
2,024.6 1,625.1
Unearned interest:
Retail notes and contracts (76.7) (48.3)
Direct financing leases (79.2) (93.3)
--------- ---------
(155.9) (141.6)
--------- ---------
$ 1,868.7 $ 1,483.5
========= =========
Terms for substantially all retail notes, contracts and direct financing
leases range up to 60 months. Wholesale financing receivables are generally due
within 12 months. Repayment experience indicates some receivables will be paid
prior to contracted maturity, while others will be extended or renewed.
Annual payments due on retail notes and contracts for the five years
beginning January 1, 1994, are $450.0, $354.5, $250.8, $127.3, $37.5 and $1.9
thereafter.
The Company's net investments in direct financing leases of
transportation equipment are as follows:
1993 1992
------- -------
Minimum lease payments
receivable $ 618.1 $ 651.0
Estimated residual value
of leased equipment 51.4 42.3
------- -------
669.5 693.3
Less unearned interest (79.2) (93.3)
------- -------
Net investment in direct
financing leases $ 590.3 $ 600.0
======= =======
Annual minimum lease payments due on direct financing leases for the five
years beginning January 1, 1994, are $203.8, $165.4, $121.3, $74.3, $38.7 and
$14.6 thereafter.
The Company's customers are principally concentrated in the
transportation industry. Generally, financial services receivables are
collateralized by financed equipment.
D. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment include the following:
1993 1992
------- -------
Land $ 22.7 $ 22.7
Buildings 293.6 280.3
Machinery and equipment 352.8 302.0
------- -------
669.1 605.0
Less allowance for depreciation (324.7) (299.8)
------- -------
$ 344.4 $ 305.2
======= =======
31
12
PACCAR Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991 (millions of dollars)
E. EQUIPMENT ON OPERATING LEASES
Equipment on operating leases is recorded at cost and is depreciated on the
straight-line basis to its estimated residual value. Estimated useful lives are
three to five years.
1993 1992
------ ------
Trucks and other $ 65.4 $ 64.4
Less allowance for depreciation (17.5) (18.8)
------ ------
$ 47.9 $ 45.6
====== ======
Original terms of operating leases generally range up to 58 months.
Annual minimum lease payments due on operating leases for each year beginning
January 1, 1994, are $10.8, $7.9, $5.0, $1.2 and $.1 thereafter.
F. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
1993 1992
------- -------
Manufacturing:
Accounts payable $ 281.2 $ 235.9
Salaries and wages 57.5 48.2
Warranty and self-insurance
reserves 69.3 56.1
Other 50.5 63.6
------- -------
$ 458.5 $ 403.8
======= =======
Financial Services:
Accounts payable $ 36.7 $ 35.7
Salaries and wages .4 .3
Other 12.2 11.4
------- -------
$ 49.3 $ 47.4
======= =======
G. UNCONSOLIDATED COMPANIES
A 49% owned affiliate, VILPAC, S.A., manufactures trucks in Mexico. A 21% owned
U.S. investee, Wood Group ESP, Inc., manufactures and services oilfield
equipment primarily in the United States. PACCAR's investments in these
unconsolidated companies are accounted for by the equity method. Summarized
financial information for these companies follows:
1993 1992 1991
------- ------- -------
Current assets $ 156.4 $ 164.9 $ 133.9
Property, plant and
equipment and
other assets 29.8 26.1 14.2
Current liabilities 74.3 79.8 62.4
Noncurrent liabilities 2.0 9.9 13.8
Net sales 257.2 307.7 381.7
Cost of sales 210.2 247.7 289.6
PACCAR's share
of net assets $ 48.1 $ 43.5 $ 35.2
------- ------- -------
PACCAR's share of unconsolidated companies net income is included in
other manufacturing revenues in the accompanying consolidated statements of
income.
In January 1994, the Company increased its ownership interest in VILPAC,
S.A. to 55%.
H. RETIREMENT PLANS
The Company has several defined benefit pension plans, including
union-negotiated and multi-employer plans, which cover substantially all
employees. Benefits under the plans are generally based on an employee's
highest compensation levels and total years of service. The Company's policy is
to fund its plans based on legal requirements, tax considerations, local
practices and investment opportunities.
Pension expense for all plans was $10.0 in 1993, $8.0 in 1992 and $7.2
in 1991.
The following data relates to all plans of the Company except for certain
union-negotiated and supplemental retirement plans. For all years presented,
the plan obligation discount rates and expected long-term rates of return on
assets were 8.0%, and the assumed annual rates of increase in future
compensation were 5.75%.
32
13
PACCAR Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991 (millions of dollars)
1993 1992 1991
------- ------- -------
Funded status at
December 31:
Vested benefit
obligation $ 165.1 $ 150.3 $ 142.4
Accumulated
benefit
obligation 167.0 153.6 145.5
======= ======= =======
Plan assets at
fair value $ 248.2 $ 216.0 $ 209.5
Projected benefit
obligation 208.5 183.5 175.0
------- ------- -------
Excess of
plan assets 39.7 32.5 34.5
Unrecognized
net asset (15.2) (20.7) (17.1)
Unrecognized net
experience gain (30.5) (23.2) (26.5)
Unrecognized prior
service cost 8.3 9.8 9.5
------- ------- -------
Pension (liability)/
prepaid expense $ 2.3 $ (1.6) $ .4
======= ======= =======
Components of
pension expense:
Service cost $ 9.6 $ 8.1 $ 7.5
Interest cost 15.4 13.6 12.6
Return on assets (28.1) (12.8) (31.0)
Net amortization
and deferrals 8.4 (4.7) 14.6
------- ------- -------
Net pension
expense $ 5.3 $ 4.2 $ 3.7
======= ======= =======
The Company has unfunded supplemental retirement plans for employees
whose benefits under principal salaried retirement plans are reduced because of
compensation deferral elections or limitations under federal tax laws. Pension
expense for these plans was $1.2 in 1993, $1.1 in 1992 and $1.0 in 1991. At
December 31, 1993, the projected benefit obligation for these plans was $8.3. A
corresponding accumulated benefit obligation of $7.2 has been recognized as a
liability in the balance sheet and is equal to the amount of vested benefits.
The Company has unfunded postretirement medical and life insurance plans
covering approximately one-half of all U.S. employees which reimburse retirees
for approximately 50% of their medical costs from retirement to age 65 and
provide a nominal death benefit. Effective January 1, 1992, the Company adopted
Financial Accounting Standard (FAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The net unrecorded accumulated
postretirement benefit obligation (APBO) at adoption was $10.1, which is being
recognized over 20 years.
1993 1992
----- -----
Components of
retiree expense:
Service cost $ .8 $ .7
Interest cost 1.2 1.1
Amortization of transition
obligation .5 .5
----- -----
Net retiree expense $ 2.5 $ 2.3
===== =====
In 1991, the Company recognized net retiree expense of $2.4 prior to the
adoption of FAS No. 106.
1993 1992
----- -----
Unfunded status
at December 31:
Accumulated benefits:
Actives not eligible to retire $10.5 $ 8.9
Actives eligible to retire 2.8 2.6
Retirees 3.9 4.5
----- -----
$17.2 $16.0
Unrecognized net loss (1.1) (1.1)
Unrecognized transition
obligation (8.4) (8.9)
----- -----
Accrued postretirement
benefits $ 7.7 $ 6.0
===== =====
A discount rate of 8% and a long-term medical inflation rate of 7% were
used in calculating the APBO. A 1% increase in the medical inflation rate
assumption would increase the APBO as of December 31, 1993, by approximately
$2.1 and the 1993 expense provision by approximately $.3.
33
14
PACCAR Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991 (millions except per share data)
I. OTHER BENEFIT PLANS
The Company has a savings investment plan whereby it matches employee
contributions of 2% to 5% of base wages. Provisions for this plan and for
incentive compensation (for numerous key employees) and profit-sharing plans
were $17.7 in 1993, $15.3 in 1992 and $15.4 in 1991.
In 1992, the Company began a new long-term incentive compensation plan.
The plan provides for grants of cash, stock, stock rights and various types of
stock options to key employees. This plan, which replaced a similar plan that
expired in 1991, provides that stock options on approximately one million
common shares may be granted and that stock appreciation rights (SARs) may be
granted in tandem with all or any part of the options granted. SARs may be
exercised in lieu of related stock options. Stock options
may be granted with an exercise price not less than 85% of the market
value of common stock at the time of grant. All options granted prior to 1991
included a SAR; option grants beginning in 1991 did not. The plans contain
anti-dilution provisions. Consequently, the following option data has been
restated to reflect the Company's 15% stock dividend.
Average
Number Price
------- -------
Outstanding at
December 31, 1990 102,564 $ 26.70
Granted 27,008 30.12
SARs exercised (8,384) 29.40
Stock options exercised (14,419) 18.83
Canceled (5,538) 31.54
------- -------
Outstanding at
December 31, 1991 101,231 28.13
Granted 25,450 43.20
SARs exercised (35,394) 23.26
Canceled (3,190) 32.96
------- -------
Outstanding at
December 31, 1992 88,097 34.26
Granted 24,109 46.64
SARs exercised (13,818) 31.35
Canceled (1,702) 44.65
------- -------
Outstanding at
December 31, 1993 96,686 $ 37.77
------- -------
Total Options Exercisable
at December 31, 1993 49,404 $ 30.95
======= =======
Deferred compensation payable in shares of PACCAR common stock under
provisions of the long-term incentive compensation plan amounted to 56,255
shares at December 31, 1993.
The provisions for the cost of long-term incentive compensation plans
were $2.4 in 1993, $1.5 in 1992 and $2.8 in 1991.
J. INCOME TAXES
1993 1992 1991
------- ------ ------
Income before
income taxes:
Domestic $ 178.9 $ 73.2 $ 29.0
Foreign 40.9 18.4 19.4
------- ------ ------
$ 219.8 $ 91.6 $ 48.4
======= ====== ======
Provision for
income taxes:
Current provision:
Federal $ 66.5 $ 26.9 $ 11.8
Foreign 12.7 4.4 (.2)
State 7.8 3.5 1.9
------- ------ ------
87.0 34.8 13.5
Deferred provision
(benefit):
Federal and state (9.2) (6.9) (6.3)
Foreign (.2) (1.5) 1.4
------ ------ ------
(9.4) (8.4) (4.9)
------ ------ ------
$ 77.6 $ 26.4 $ 8.6
====== ====== ======
Reconciliation of
statutory U.S. tax
to actual provision:
Statutory rate 35% 34% 34%
Statutory tax $ 76.9 $ 31.1 $ 16.4
Effect of:
Rate increase on
deferred taxes 2.2
State income taxes 5.2 2.4 1.2
Equity method
earnings (2.9) (4.2) (7.2)
Foreign tax rates 1.3 1.6 1.7
FSC benefit (1.6) (1.5) (1.0)
Tax-exempt income (4.2) (4.2) (4.6)
Other .7 1.2 2.1
------ ------ ------
$ 77.6 $ 26.4 $ 8.6
====== ====== ======
34
15
PACCAR Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991 (millions of dollars)
December 31, 1993
-----------------
Components of deferred tax assets
(liabilities):
Assets:
Provisions for accrued expenses $ 66.2
Allowance for losses on receivables 11.7
Other 12.9
-------
90.8
Liabilities:
Asset capitalization and depreciation (23.6)
Financing and leasing activities (121.5)
Other (8.0)
-------
(153.1)
-------
Net deferred tax liability $ (62.3)
=======
Classification of deferred tax assets and
liabilities:
Manufacturing:
Deferred taxes and other current assets $ 39.5
Investments and other 4.4
Financial Services:
Deferred income taxes and other (106.2)
-------
Net deferred tax liability $ (62.3)
========
The components of the Company's deferred tax assets and liabilities as of
December 31, 1992, computed in accordance with FAS No. 96, were comparable to
the assets and liabilities as of December 31, 1993, computed in accordance with
FAS No. 109.
In 1991, the Company adopted Financial Accounting Standard (FAS) No. 96,
"Accounting for Income Taxes." The most significant effect of adoption was to
reduce the rates at which deferred tax liabilities were previously recognized
on the balance sheet to the lower rate specified by current federal tax laws.
The cumulative effect of the accounting change relating to periods prior to
January 1, 1991, amounted to $15.4 and is included in 1991 net income. In 1993,
the Company adopted FAS No. 109, also entitled "Accounting for Income Taxes."
The cumulative effect of the change from FAS No. 96 and the effect on
continuing operations were immaterial.
United States income taxes are not provided on undistributed earnings of
the Company's foreign subsidiaries because of the intent to reinvest these
earnings. The amount of undistributed earnings, which are considered to be
indefinitely reinvested, is approximately $128.6 at December 31, 1993. While
the amount of any federal income taxes on these reinvested earnings, if
distributed in the future, is not presently determinable, it is anticipated
that such taxes would be reduced by utilization of tax credits and deductions.
With respect to the Company's Mexican affiliate, U.S. taxes were provided on
earnings expected to be distributed.
Cash paid for income taxes was $70.7 in 1993, $30.9 in 1992 and $19.4
in 1991.
35
16
PACCAR Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991 (millions of dollars)
K. LONG-TERM DEBT
Manufacturing: 1993 1992
------ ------
Industrial Revenue Bonds
- Variable rate $ 9.0 $ 9.0
Capital lease obligations 3.3 3.8
Mortgage notes
payable - 8.8% .3
Less current installments (.6) (.6)
------ ------
$ 11.7 $ 12.5
====== ======
The interest rate on the industrial revenue bonds is variable and was 3.0% at
December 31, 1993.
Annual maturities including capital leases for the five years beginning
January 1, 1994, are $.6, $.5, $.5, $.4 and $.3, respectively.
Financial Services: 1993 1992
------ ------
Medium-Term Notes
- 4.1% to 9.3% fixed $364.1 $230.5
- Variable rate 260.0 154.0
Notes payable to banks
- 4.8% to 15.4% 80.3 96.3
Notes payable to insurance
companies - 9.4% 1.0 8.9
Equipment trust
certificates - 14.5% 3.7 4.7
------ ------
$709.1 $494.4
====== ======
Interest rates on the variable-rate medium-term notes are based on
various indices requested by the investors such as the LIBOR and prime rate.
These notes are generally matched with interest-rate swaps which convert the
effective rates to fixed rates or other floating-rate indices.
Annual maturities for the five years beginning January 1, 1994, are
$261.2, $228.0, $145.3, $64.6 and $10.0, respectively.
At December 31, 1993, there were no restrictions on distributions of
unremitted earnings by the financial services companies to the parent under
terms of the most restrictive loan agreement provisions.
The Company paid cash for interest of $63.9 in 1993, $74.7 in 1992 and
$102.3 in 1991.
The Company enters into various interest-rate contracts including
interest-rate swap, cap and forward-rate agreements. At December 31, 1993, the
Company had 68 interest-rate contracts outstanding with other financial
institutions. The notional amount of these contracts totaled $733.9, with
amounts expiring annually over the next five years. The notional amount is used
to measure the volume of these contracts and does not represent exposure to
credit loss. In the event of default by a counterparty, the risk in these
transactions is the cost of replacing the interest-rate contract at current
market rates. The Company continually monitors its positions and the credit
ratings of its counterparties. Management believes the risk of incurring
losses is remote, and that if incurred, such losses would be immaterial.
L. CREDIT ARRANGEMENTS
The Company has line of credit arrangements of $417.7 which are reviewed
annually for renewal. The unused portion of these credit lines was $389.8 at
December 31, 1993, of which the majority is maintained to support commercial
paper and other short-term borrowings of the financial services companies.
Compensating balances are not required on the lines and service fees are
immaterial.
M. COMMITMENTS AND CONTINGENCIES
The Company is involved in various stages of investigations and cleanup actions
related to environmental matters. In certain of these matters, the Company has
been designated as a Potentially Responsible Party by the U.S. Environmental
Protection Agency or by a state-level environmental agency. The Company has
provided for the estimated costs to investigate and complete cleanup actions
where it is probable that the Company will incur such costs in the future.
At December 31, 1993, the reserve established to provide for estimated
future environmental cleanup costs was $27.4. While neither the timing nor the
amount of the ultimate costs associated with environmental matters can be
determined, management does not expect that these matters will have a material
adverse effect on the Company's consolidated financial position.
At December 31, 1993, PACCAR had standby letters of credit outstanding
totaling $28.6, which guarantee various insurance and financing activities.
36
17
PACCAR Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991 (millions of dollars)
N. LEASES
The Company leases most store locations for its automotive parts sales
operations and various other office space under operating leases. Leases expire
at various dates through the year 2018.
Annual minimum rental payments due under operating leases beginning
January 1, 1994, are $7.9, $7.2, $5.9, $3.8, $2.5 and $8.4 thereafter.
Minimum payments on leases have not been reduced by aggregate minimum
sublease rentals of $6.6 receivable under non-cancelable subleases.
The Company has operating leases which, in addition to minimum annual
rentals, provide for additional rental payments based on sales and certain
expenses.
Total rental expenses under all leases were:
1993 1992 1991
----- ----- -----
Minimum rentals $13.6 $14.6 $15.6
Percentage rentals .6 .8 1.2
Sublease rentals (1.1) (.9) (.8)
----- ----- -----
Total rental expenses $13.1 $14.5 $16.0
===== ===== =====
O. STOCKHOLDERS' EQUITY
Stockholder Rights Plan: The plan provides one right for each share of PACCAR
common stock outstanding. Rights generally become exercisable if a person
publicly announces the intention to acquire 10% or more of PACCAR's common
stock or if a person (Acquiror) acquires such amount of common stock. In all
cases, rights held by the Acquiror are not exercisable. When exercisable, each
right entitles the holder to purchase for one hundred fifty dollars from PACCAR
a fractional share of newly designated Series A Junior Participating Preferred
Stock. Each such fractional preferred share has dividend, liquidation and
voting rights which are no less than those for a share of common stock. Under
certain circumstances the rights may become exercisable for shares of PACCAR
common stock or common stock of the Acquiror having a market value equal to
twice the exercise price of the right. Also under certain circumstances, the
Board of Directors may exchange exercisable rights, in whole or in part, for
one share of PACCAR common stock per right. The rights, which expire in the
year 2000, may be redeemed at one cent per right, subject to certain
conditions. For this plan, 50,000 preferred shares are reserved for issuance.
No shares have been issued.
Stock Repurchases: Pursuant to an escrow agreement covering certain
liabilities in connection with the acquisition of Al's Auto Supply in 1987, the
Company received 33,019 shares of its own common stock on May 11, 1993. This
was accounted for as a treasury stock transaction in the amount of $1.2.
Other Capital Stock Changes: On December 14, 1993, the Board of Directors
declared a resolution to retire the 3,391,084 treasury shares of the Company's
common stock. In a subsequent resolution, the Board declared a 15% common stock
dividend payable on or before February 15, 1994, to stockholders of record on
January 10, 1994, with fractional shares to be paid in cash. This resulted in
the issuance of 5,067,272 additional shares and 1,123.3 fractional shares paid
in cash. For all years presented in this report, all share data has been
restated for the effect of the 15% dividend.
37
18
PACCAR Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991 (millions of dollars)
P. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in determining
its fair value disclosures for financial instruments:
Cash and equivalents: The carrying amount reported in the balance sheet
approximates fair value.
Marketable securities: Marketable securities consist of debt
securities. Fair values are based on quoted market prices.
Financial Services net receivables: For variable-rate loans, including
wholesale financings that reprice frequently with no significant change in
credit risk, fair values are based on carrying values. For fixed-rate loans,
fair values are estimated using discounted cash flow analyses based on interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. The carrying amount of accrued interest and other
receivables approximates its fair value. Direct financing lease receivables and
the related loss provisions are not included in net receivables.
Short- and long-term debt: The carrying amount of the Company's
commercial paper and short-term bank borrowings and floating-rate long-term
debt approximates its fair value. The fair value of the
Company's fixed-rate long-term debt is estimated using discounted cash
flow analyses, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
Off-balance-sheet instruments: Fair values for the Company's
interest-rate contracts are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the counterparties' credit standing.
The carrying amounts of trade payables and receivables approximate their
fair value and have been excluded from the accompanying table.
The carrying amounts and fair values of the Company's financial
instruments are as follows:
Carrying Fair
1993 Amount Value
- ---- -------- --------
Manufacturing:
Cash and equivalents $ 206.2 $ 206.2
Marketable securities 235.7 238.5
Short-term debt 1.7 1.7
Long-term debt 9.0 9.0
Financial Services:
Cash and equivalents 17.0 17.0
Net receivables 1,321.8 1,332.6
Commercial paper and
bank loans 696.0 696.0
Long-term debt 709.1 713.7
The Company's off-balance-sheet financial instruments, consisting
primarily of interest-rate agreements, represented an additional liability of
$3.7 if recorded at fair value at December 31, 1993.
Carrying Fair
1992 Amount Value
- ---- -------- --------
Manufacturing:
Cash and equivalents $ 235.8 $ 235.8
Marketable securities 214.3 217.2
Short-term debt 1.3 1.3
Long-term debt 9.3 9.3
Financial Services:
Cash and equivalents 14.6 14.6
Net receivables 918.8 930.7
Commercial paper and
bank loans 580.4 580.4
Long-term debt 494.4 504.9
The Company's off-balance-sheet financial instruments, consisting
primarily of interest-rate agreements, represented an additional liability of
$6.4 if recorded at fair value at December 31, 1992.
38
19
PACCAR Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991 (millions of dollars)
Q. GEOGRAPHIC AREA AND INDUSTRY SEGMENT DATA
PACCAR operates in three principal industries: Trucks, Auto Parts and
Financial Services. The Truck segment is composed of the manufacture of trucks
and related parts which are sold through a network of company-appointed
dealers. Auto Parts is composed of automotive parts sales and related services
sold through company-operated retail stores. The Financial Services segment is
composed of finance and leasing services provided to truck customers and
dealers. Sales among the industry segments and among geographic areas were
insignificant.
Geographic Area Data 1993 1992 1991
-------- -------- --------
Revenues:
United States $2,999.3 $2,337.4 $2,014.4
Canada 340.1 236.5 195.6
Other 213.7 182.1 164.4
-------- -------- --------
$3,553.1 $2,756.0 $2,374.4
======== ======== ========
Income before taxes:
United States $ 199.8 $ 80.9 $ 43.8
Canada 21.7 5.7 4.4
Other 24.0 20.7 25.2
Corporate expenses (44.7) (35.0) (51.6)
Investment income 17.9 18.0 25.3
Intercompany interest 1.1 1.3 1.3
-------- -------- --------
$ 219.8 $ 91.6 $ 48.4
======== ======== ========
Identifiable assets:
United States $2,341.2 $1,900.7 $1,767.7
Canada 197.0 181.3 206.5
Other 229.6 182.8 187.0
Cash and Marketable
Securities 441.9 450.1 481.0
Corporate 81.5 77.2 95.4
-------- -------- --------
$3,291.2 $2,792.1 $2,737.6
======== ======== ========
Export revenues of
U.S. companies $ 145.1 $ 148.9 $ 128.7
======== ======== ========
Industry Segment Data 1993 1992 1991
-------- -------- --------
Revenues:
Truck $3,130.9 $2,322.7 $1,891.2
Auto Parts 172.9 174.4 194.7
Financial Services 162.6 158.4 179.2
Other 86.7 100.5 109.3
-------- -------- --------
$3,553.1 $2,756.0 $2,374.4
======== ======== ========
Income before taxes:
Truck $ 194.0 $ 77.9 $ 58.4
Auto Parts 2.2 (4.6) (8.0)
Financial Services 40.2 26.0 12.8
Other 9.1 8.0 10.2
Corporate expenses (44.7) (35.0) (51.6)
Investment income 17.9 18.0 25.3
Intercompany interest 1.1 1.3 1.3
-------- -------- --------
$ 219.8 $ 91.6 $ 48.4
======== ======== ========
Depreciation and amortization:
Truck $ 27.7 $ 24.1 $ 24.9
Auto Parts 5.4 4.8 5.1
Financial Services 13.8 13.4 14.2
Other 3.7 4.4 5.2
Corporate 6.1 5.6 5.9
-------- -------- --------
$ 56.7 $ 52.3 $ 55.3
======== ======== ========
Capital expenditures:
Truck $ 72.8 $ 60.7 $ 29.2
Auto Parts 1.2 7.1 4.9
Financial Services 27.0 19.8 12.3
Other 2.7 3.0 3.6
Corporate 5.6 9.6 1.3
-------- -------- --------
$ 109.3 $ 100.2 $ 51.3
======== ======== ========
Identifiable assets:
Truck $ 647.8 $ 531.3 $ 450.4
Auto Parts 98.8 105.3 106.7
Financial Services 1,947.3 1,556.4 1,523.0
Other 73.9 71.8 81.1
Cash and Marketable
Securities 441.9 450.1 481.0
Corporate 81.5 77.2 95.4
-------- -------- --------
$3,291.2 $2,792.1 $2,737.6
======== ======== ========
39
20
PACCAR Inc and Subsidiaries
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
Board of Directors and Stockholders
PACCAR Inc
We have audited the accompanying consolidated balance sheets of PACCAR Inc and
subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PACCAR Inc and
subsidiaries at December 31, 1993 and 1992, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Note J to the consolidated financial statements, in 1991
the Company changed its method of accounting for income taxes.
/s/ERNST & YOUNG
Seattle, Washington
February 4, 1994
40
21
PACCAR Inc and Subsidiaries
QUARTERLY RESULTS (UNAUDITED)
QUARTER
First Second Third Fourth
------- -------- -------- -------
(millions except per share data)
1993
Net Sales $ 761.4 $ 838.0 $ 884.1 $ 895.4
Gross Profit 93.1 102.7 117.1 124.5
Financial Services Income Before Income Taxes 9.2 9.7 10.1 11.2
Net Income 27.4 32.8 36.5 45.5
Weighted Average Number of Common Shares Outstanding 38.9 38.9 38.9 38.9
Net Income Per Share $ .70 $ .85 $ .94 $ 1.17
------- -------- -------- -------
1992
Net Sales $ 588.7 $ 572.5 $ 683.6 $ 732.0
Gross Profit 65.0 69.8 80.5 99.4
Financial Services Income Before Income Taxes 3.8 5.9 7.5 8.8
Net Income 10.8 11.1 18.2 25.1
Weighted Average Number of Common Shares Outstanding 38.9 38.9 38.9 38.9
Net Income Per Share $ .28 $ .28 $ .47 $ .65
------- -------- -------- -------
Weighted average shares and net income per share have been restated to give
effect to a 15% stock dividend declared in 1993. Fourth quarter 1992 net income
includes an after-tax charge of $6.6 for relocation of the Peterbilt Motors
divisional headquarters.
SELECTED FINANCIAL DATA
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(millions except per share data)
Net Sales $3,378.9 $2,576.8 $2,159.6 $2,587.4 $3,331.1
Financial Services Revenue 162.6 158.4 179.2 205.6 207.9
Net Income 142.2 65.2 55.2 63.7 241.9
Total Assets:
Manufacturing 1,343.9 1,235.7 1,214.6 1,234.5 1,344.0
Financial Services 1,947.3 1,556.4 1,523.0 1,671.7 1,723.2
Long-Term Debt:
Manufacturing 11.7 12.5 25.2 30.2 33.2
Financial Services 709.1 494.4 483.7 632.3 672.3
Stockholders' Equity 1,107.5 1,038.4 1,032.3 1,019.2 1,007.3
Per Common Share:
Net Income $ 3.66 $ 1.68 $ 1.42 $ 1.59 $ 6.00
Cash Dividends Declared 1.74 1.13 .96 .87 2.17
All per share amounts have been restated to give effect to a 15% stock dividend
declared in 1993. Net income for 1991 includes a cumulative effect adjustment
for a change in the method of accounting for income taxes of $15.4 million
after-tax ($.40 per share). Net income for 1989 includes a $52.4 million
after-tax gain from sale of a division and a fleet of railcars.
41