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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
Commission File No. 0-6394
PACCAR INC
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(Exact name of Registrant as specified in its charter)
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<S> <C>
Delaware 91-0351110
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(State of incorporation) (I.R.S. Employer Identification No.)
777 - 106th Ave. N.E., Bellevue, Washington 98004
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (206) 455-7400
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $12 par value
Preferred Stock Purchase Rights
--------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 1995:
Common Stock, $12 par value -- $1,506,723,855
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The number of shares outstanding of the issuer's classes of common stock, as of
March 1, 1995:
Common Stock, $12 par value -- 38,859,281 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December 31,
1994 are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual stockholders meeting to be held
on April 25, 1995 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
PACCAR Inc (the Company), incorporated under the laws of Delaware in
1971, is the successor to Pacific Car and Foundry Company which was
incorporated in Washington in 1924. The Company traces its predecessors to
Seattle Car Manufacturing Company formed in 1905.
In the U.S., the Company's manufacturing operations are conducted
through unincorporated manufacturing divisions and a wholly owned subsidiary.
Each of the divisions and the subsidiary are responsible for at least one of
the Company's products. That responsibility includes new product development,
applications engineering, manufacturing and marketing. Outside the U.S., the
Company manufactures and sells through wholly owned subsidiary companies in
Canada and Australia, in the United Kingdom through a wholly owned U.S.
subsidiary, and through an affiliate in Mexico. In January 1994, the Company
increased its ownership in the Mexican affiliate from 49% to 55%. An export
sales division generally is responsible for export sales. Product financing and
leasing is offered through U.S. and foreign finance subsidiaries. A U.S.
subsidiary is responsible for retail automotive parts sales.
(b) Financial Information About Industry Segments and Geographic
Areas
Information about the Company's industry segments and geographic areas
in response to Items 101(b), (c)(1)(i), and (d) of Regulation S-K appears on
page 39 of the Annual Report to Stockholders for the year ended December 31,
1994 and is incorporated herein by reference.
(c) Narrative Description of Business
The Company has three principal industry segments, (1) manufacture of
heavy-duty trucks and related parts, (2) automotive parts sales and related
services, and (3) finance and leasing services provided to customers and
dealers. Manufactured products also include industrial winches and oilfield
equipment. The Company competes in the truck parts aftermarket primarily
through its dealer network. It sells general automotive parts and accessories
through retail outlets. The Company's finance and leasing activities are
principally related to Company products and associated equipment.
TRUCKS
The Company designs and manufactures trucks which are marketed under
the Peterbilt, Kenworth, and Foden nameplates in the Class 8 diesel category
(having a minimum gross vehicle weight of 33,000 pounds). These vehicles, which
are built in five plants in the U.S. and one each in Australia, Canada, the
United Kingdom and Mexico, are used worldwide for over-the-road and off-highway
heavy-duty hauling of freight, petroleum, wood products, construction and other
materials. Heavy-duty trucks and related service parts are the largest segment
of the Company's business, accounting for 90% of total 1994 revenues.
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The Company competes in the North American Class 6/7 markets with
cab-over-engine and conventional models. These medium-duty trucks are assembled
at several PACCAR factories in North America. This line of business represents
a small percentage of the Company's sales to date.
Trucks are sold to independent dealers for resale. The Company's U.S.
independent dealer network consists of 290 outlets. Trucks manufactured in the
U.S. for export are marketed by PACCAR International, a U.S. division. Those
sales are made through a worldwide network of 36 dealers. Trucks manufactured
in the United Kingdom, Australia, Canada, and Mexico are marketed domestically
through independent dealers and factory branches; trucks manufactured in these
countries for export are also marketed by PACCAR International.
The Company's trucks are essentially custom products and have a
reputation for high quality. Major components, such as engines, transmissions
and axles, as well as a substantial percentage of other components, are
purchased from component manufacturers pursuant to customer specifications.
Raw materials and other components used in the manufacture of trucks
are purchased from a number of suppliers. The Company is not limited to any
single source for any major component. No significant shortages of materials or
components were experienced in 1994 and none are expected in 1995.
Manufacturing inventory levels are based upon production schedules and orders
are placed with suppliers accordingly.
Replacement truck parts are sold and delivered to the Company's
independent dealers through the PACCAR Parts Division. Parts are both
manufactured by PACCAR and purchased from various suppliers. Replacement parts
inventory levels are determined largely by anticipated customer demand and the
need for timely delivery.
There were six principal competitors in the U.S. Class 8 truck market
in 1994. PACCAR's share of that market was approximately 22% of registrations
in 1994. The market is highly competitive in price, quality and service, and
PACCAR is not dependent on any single customer for its sales. There are no
significant seasonal variations.
The Kenworth, Peterbilt and Foden trademarks and trade names are
recognized internationally and play an important role in the marketing of the
Company's truck products. The Company engages in a continuous program of
trademark and trade name protection in all marketing areas of the world.
Although the Company's truck products are subject to environmental
noise and emission controls, competing manufacturers are subject to the same
controls. The Company believes the cost of complying with noise and emission
controls will not be detrimental to its business.
The Company's truck sales backlog (subject to cancellation in certain
events) at year-end 1994 was estimated at $3,146,000,000. This compares with
$1,268,000,000 at year-end 1993. Production of the year-end 1994 backlog is
expected to be completed during 1995.
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The number of persons employed by the Company in its truck business at
December 31, 1994 was approximately 11,000, including employees of its Mexican
affiliate.
OTHER MANUFACTURED PRODUCTS
Other products manufactured by the Company account for 2% of total
1994 revenues. This group includes industrial winches and oilfield extraction
pumps and service equipment. Winches are manufactured in two U.S. plants and
are marketed under the Braden, Carco, and Gearmatic nameplates. Oilfield
extraction pumps and service equipment are manufactured in four U.S. plants and
marketed under the Trico and Kobe nameplates. In 1994, Trico purchased the
hydraulic pump business from National Oil Well. In 1995, Trico will relocate
its headquarters to Texas and consolidate its manufacturing to two locations.
The markets for all of these products are highly competitive and the Company
competes with a number of well established firms.
The Braden, Carco, Gearmatic, Trico, and Kobe trademarks and trade
names are recognized internationally and play an important role in the
marketing of those products. The Company has an ongoing program of trademark
and trade name protection in all relevant marketing areas.
AUTOMOTIVE PARTS
The Company purchases and sells general automotive parts and
accessories, which account for 4% of total 1994 revenues, through 121 retail
locations under the names of Grand Auto and Al's Auto Supply. These locations
are supplied from the Company's distribution warehouses.
FINANCE COMPANIES
In North America, Australia and the United Kingdom, the Company
provides financing principally for its manufactured trucks through four wholly
owned finance companies and through a wholly owned subsidiary of its Mexican
affiliate. These companies provide inventory financing for independent dealers
selling PACCAR products and retail and lease financing for new and used Class
6, 7 and 8 trucks sold by its independent dealers. Customer contracts are
secured by the products financed.
LEASING COMPANIES
PACCAR Leasing Corporation (PLC), a wholly owned subsidiary,
franchises selected PACCAR truck dealers to engage in full service truck
leasing under the PacLease trade name. PLC also leases equipment to and
provides managerial and sales support for its franchisees. A division of PACCAR
of Canada Ltd. conducts similar leasing operations in Canada. RAILEASE Inc, a
wholly owned subsidiary, leases railcars to a railroad.
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GENERAL INFORMATION
PATENTS
The Company owns numerous patents which relate to all product lines.
Although these patents are considered important to the overall conduct of the
Company's business, no patent or group of patents is considered essential to a
material part of the Company's business.
RESEARCH AND DEVELOPMENT
The Company maintains a technical center where product testing and
research and development activities are conducted. Additional product
development activities are conducted within each separate manufacturing
division. Amounts spent on research and development were approximately $35
million in 1994, $22 million in 1993 and $21 million in 1992.
REGULATION
As a manufacturer of highway trucks, the Company is subject to the
National Traffic and Motor Vehicle Safety Act and Federal Motor Vehicle Safety
Standards promulgated by the National Highway Traffic Safety Administration.
The Company believes it is in compliance with the Act and applicable safety
standards.
Information regarding the effects that compliance with federal, state
and local provisions regulating the environment have on the Company's capital
and operating expenditures and the Company's involvement in environmental
cleanup activities is included in Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Company's Consolidated
Financial Statements incorporated by reference in Items 7 and 8, respectively.
EMPLOYEES
On December 31, 1994, the Company employed a total of 14,600 persons,
including employees of its Mexican affiliate.
ITEM 2. PROPERTIES
The Company and its subsidiaries and affiliate own and operate
manufacturing plants in seven U.S. states, Canada, Australia, Mexico and the
United Kingdom including a hydraulic pump manufacturing facility in San Marcos,
Texas which was purchased in 1994. Several parts distribution centers, sales
and service facilities and finance and administrative offices are also operated
in owned or leased premises in these five countries. A facility for product
testing and research and development is located in Skagit County, Washington.
Retail auto parts sales locations are primarily in leased premises in five
western states. The Company's corporate headquarters is located in owned
premises in Bellevue, Washington.
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The Company considers substantially all of the properties used by its
businesses to be suitable for their intended purposes. Due to improved business
conditions in 1994 in the markets served by the Company's business segments,
many of the Company's manufacturing facilities operated at or near their
productive capacities.
Geographical locations of manufacturing plants within indicated
industry segments are as follows:
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United
U.S. Canada Australia Mexico Kingdom
<S> <C> <C> <C> <C> <C>
Trucks 5 1 1 1 1
Other 6 - - - -
</TABLE>
Properties located in Torrance, and Signal Hill, California; and
Seattle, Washington are being held for sale. These properties were originally
obtained principally as a result of business acquisitions in 1987 and 1988.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various lawsuits
incidental to the ordinary course of business. Management believes that the
disposition of such lawsuits will not materially affect the Company's
consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1994.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Common Stock Market Prices and Dividends on page 40 of the Annual
Report to Stockholders for the year ended December 31, 1994 are incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 41 of the Annual Report to
Stockholders for the year ended December 31, 1994 are incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 21 through 24 of the Annual Report to
Stockholders for the year ended December 31, 1994 is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the registrant and
its subsidiaries, included in the Annual Report to Stockholders for the year
ended December 31, 1994 are incorporated herein by reference:
Consolidated Balance Sheets
-- December 31, 1994 and 1993
Consolidated Statements of Income
-- Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Stockholders' Equity
-- Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows
-- Years Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
-- December 31, 1994, 1993 and 1992
Quarterly Results (Unaudited) on page 41 of the Annual Report to Stockholders
for the years ended December 31, 1994 and 1993 are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The registrant has not had any disagreements with its independent
auditors on accounting or financial disclosure matters.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 401(a), (d), (e) and Item 405 of Regulation S-K:
Identification of directors, family relationships, business experience
and compliance with Section 16(a) of the Exchange Act on pages 3 and 4 of the
proxy statement for the annual stockholders meeting of April 25, 1995 is
incorporated herein by reference.
Item 401(b) of Regulation S-K:
Executive Officers of the registrant as of February 1, 1995:
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Present Position and Other Position(s)
Name and Age Held During Last Five Years
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Charles M. Pigott (65) Chairman and Chief Executive Officer.
Mr. Pigott is the father of Mark C. Pigott, a
director of the Company and also an
executive officer, and brother of James C.
Pigott, a director of the Company.
David J. Hovind (54) President; Executive Vice President from
July 1987 to January 1992.
Mark C. Pigott (40) Vice Chairman; Executive Vice President
from December 1993 to January 1995; Senior
Vice President from January 1990 to December
1993; previously Vice President. Mr. Pigott
is the son of Charles M. Pigott, a director
of the Company and also an executive officer,
and nephew of James C. Pigott, a director of
the Company.
Michael A. Tembreull (48) Vice Chairman; Executive Vice President
from January 1992 to January 1995; Senior
Vice President from September 1990
to January 1992; previously General Manager,
Peterbilt Division.
William E. Boisvert (52) Executive Vice President; Senior Vice
President and Chief Financial Officer from
August 1988 to April 1989.
Gary S. Moore (51) Senior Vice President; General Manager,
Kenworth Truck Company from March 1990 to
August 1992; Senior Assistant General
Manager, Kenworth Truck Company from January
1990 to March 1990; previously General
Manager, Wagner Mining Equipment Company.
</TABLE>
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<TABLE>
<CAPTION>
Present Position and Other Position(s)
Name and Age Held During Last Five Years
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<S> <C>
G. Don Hatchel (50) Vice President, Controller; Assistant
Vice President and Controller from June 1990
to January 1991; Operations Controller from
July 1989 to June 1990; previously
Controller, Peterbilt Division.
G. Glen Morie (52) Vice President, General Counsel and Secretary.
</TABLE>
Officers are elected annually but may be appointed or removed on interim dates.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors and Executive Officers and Related Matters
on pages 6 through 12 of the proxy statement for the annual stockholders
meeting of April 25, 1995 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Stock ownership information on pages 1 through 3 of the proxy
statement for the annual stockholders meeting of April 25, 1995 is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on page 5 of the proxy statement for the annual
stockholders meeting of April 25, 1995 is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) - The response to this portion of Item 14 is
submitted as a separate section of this
report.
(3) Listing of Exhibits (in order of assigned index
numbers)
(3) Articles of incorporation and bylaws
(a) PACCAR Inc Certificate of
Incorporation, as amended to April
27, 1990 (incorporated by reference
to the Quarterly Report on Form 10-Q
for the quarter ended March 31,
1990).
(b) PACCAR Inc Bylaws, as amended to
April 26, 1994 (incorporated by
reference to the Quarterly Report on
Form 10-Q for the quarter ended
March 31, 1994).
(4) Instruments defining the rights of security
holders, including indentures
(a) Rights agreement dated as of
December 21, 1989 between PACCAR Inc
and First Chicago Trust Company of
New York setting forth the terms of
the Series A Junior Participating
Preferred Stock, no par value per
share (incorporated by reference to
Exhibit 1 of the Current Report on
Form 8-K of PACCAR Inc dated
December 27, 1989).
(b) Indenture for Senior Debt Securities
dated as of December 1, 1983 between
PACCAR Financial Corp. and Citibank,
N.A., Trustee (incorporated by
reference to Exhibit 4.1 of the
Annual Report on Form 10-K of PACCAR
Financial Corp. for the year ended
December 31, 1983).
(c) First Supplemental Indenture dated
as of June 19, 1989 between PACCAR
Financial Corp. and Citibank, N.A.,
Trustee (incorporated by reference
to Exhibit 4.2 to PACCAR Financial
Corp.'s registration statement on
Form S-3, Registration No.
33-29434).
(d) Forms of Medium-Term Note, Series E
(incorporated by reference to
Exhibits 4.3A, 4.3B and 4.3C to
PACCAR Financial Corp.'s
Registration Statement on Form S-3
dated June 23, 1989, Registration
Number 33-29434, and Forms of
Medium-Term Note, Series E,
incorporated by reference to Exhibit
4.3B.1 to PACCAR Financial Corp.'s
Current Report on Form 8-K, dated
December 19, 1991, under Commission
File Number 0-12553).
Letter of Representation among PACCAR
Financial Corp., Citibank, N.A. and
the Depository Trust Company, Series
E, dated July 6, 1989 (incorporated
by reference to Exhibit 4.3 of
PACCAR Financial Corp.'s Annual
Report on Form 10-K, dated March 29,
1990. File Number 0-12553).
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(e) Forms of Medium-Term Note, Series F
(incorporated by reference to
Exhibits 4.3A, 4.3B and 4.3C to
PACCAR Financial Corp.'s
Registration Statement on Form S-3
dated May 26, 1992, Registration
Number 33-48118).
Form of Letter of Representation
among PACCAR Financial Corp.,
Citibank, N.A. and the Depository
Trust Company, Series F
(incorporated by reference to
Exhibit 4.4 to PACCAR
Financial Corp.'s Registration
Statement on Form S-3 dated May 26,
1992, Registration Number 33-48118).
(f) Forms of Medium-Term Note, Series G
(incorporated by reference to
Exhibits 4.3A and 4.3B to PACCAR
Financial Corp.'s Registration
Statement on Form S-3 dated December
8, 1993, Registration Number 33-
51335).
Form of Letter of Representation
among PACCAR Financial Corp.,
Citibank, N.A. and the Depository
Trust Company, Series G
(incorporated by reference to
Exhibit 4.4 to PACCAR
Financial Corp.'s Registration
Statement on Form S-3 dated December
8, 1993, Registration Number
33-51335).
(10) Material contracts
(a) PACCAR Inc Incentive Compensation
Plan (incorporated by reference to
Exhibit (10)(a) of the Annual Report
on Form 10-K for the year ended
December 31, 1980).
(b) PACCAR Inc Deferred Compensation
Plan for Directors (incorporated by
reference to Exhibit (10)(b) of the
Annual Report on Form 10-K for the
year ended December 31, 1980).
(c) Supplemental Retirement Plan
(incorporated by reference to
Exhibit (10)(c) of the Annual Report
on Form 10-K for the year ended
December 31, 1980).
(d) 1981 Long Term Incentive Plan
(incorporated by reference to
Exhibit A of the 1982 Proxy
Statement, dated March 25, 1982).
(e) Amendment to 1981 Long Term
Incentive Plan (incorporated by
reference to Exhibit (10)(a) of the
Quarterly Report on Form 10-Q for
the quarter ended March 31, 1991).
(f) PACCAR Inc 1991 Long-Term Incentive
Plan (incorporated by reference to
Exhibit (10)(h) of the Quarterly
Report on Form 10-Q for the quarter
ended June 30, 1992).
(g) Amended and Restated Deferred
Incentive Compensation Plan
(incorporated by reference to
Exhibit (10)(g) of the Annual Report
on Form 10-K for the year ended
December 31, 1993).
(13) Annual report to security holders
Portions of the 1994 Annual Report to
Shareholders have been incorporated by
reference and are filed herewith.
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(21) Subsidiaries of the registrant
(23) Consent of independent auditors
(24) Power of attorney
Powers of attorney of certain directors
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed for the three months ended December
31, 1994.
(c) Exhibits
(d) Financial Statement Schedules -- The response to this portion of Item
14 is submitted as a separate section of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PACCAR Inc
--------------------------------------
Registrant
/s/ C. M. Pigott 3-24-95
--------------------------------------
C. M. Pigott, Director, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
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<S> <C>
/s/ W. E. Boisvert 3-24-95 /s/ G. D. Hatchel 3-24-95
-------------------------------------- -------------------------------------
W. E. Boisvert G. D. Hatchel
Executive Vice President Vice President
(Principal Financial Officer) (Principal Accounting Officer)
*/s/ M. C. Pigott 3-24-95 */s/ M. A. Tembreull 3-24-95
-------------------------------------- -------------------------------------
M. C. Pigott M. A. Tembreull
Director and Vice Chairman Director and Vice Chairman
*/s/ D. J. Hovind 3-24-95 */s/ J. C. Pigott 3-24-95
-------------------------------------- -------------------------------------
D. J. Hovind J. C. Pigott
Director and President Director and Audit Committee Member
*/s/ J. M. Fluke, Jr. 3-24-95 */s/ J. W. Pitts 3-24-95
-------------------------------------- -------------------------------------
J. M. Fluke, Jr. J. W. Pitts
Director and Audit Committee Member Director and Chairman of
Audit Committee
*/s/ H. J. Haynes 3-24-95 */s/ J. H. Wiborg 3-24-95
-------------------------------------- -------------------------------------
H. J. Haynes J. H. Wiborg
Director Director
*/s/ R. P. Cooley 3-24-95 */s/ C. H. Hahn 3-24-95
-------------------------------------- -------------------------------------
R. P. Cooley C. H. Hahn
Director Director
</TABLE>
* Pursuant to power of attorney
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<PAGE> 14
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2), (c) AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
PACCAR INC AND SUBSIDIARIES
BELLEVUE, WASHINGTON
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FORM 10-K -- ITEM 14(A)(1) AND (2)
PACCAR INC AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of PACCAR Inc and subsidiaries,
included in the Annual Report to Stockholders for the year ended December 31,
1994 are incorporated by reference in Item 8:
Consolidated Balance Sheets
-- December 31, 1994 and 1993
Consolidated Statements of Income
-- Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Stockholders' Equity
-- Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows
-- Years Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
-- December 31, 1994, 1993 and 1992
The following consolidated financial statement schedule of PACCAR Inc and
consolidated subsidiaries is included in Item 14(d):
Schedule II -- Allowances for Losses
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
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PACCAR INC AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES FOR LOSSES
(MILLIONS OF DOLLARS)
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<CAPTION>
Additions
Balance at Charged to Balance
Year Ended Beginning Costs and at End
December 31: of Period Expenses Deductions(1) of Period
------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1994
(A) Manufacturing $ 2.2 $ 1.3 $ (.8) $ 4.3
(B) Financial Services 32.9 4.0 (4.2) 41.1
----- ----- ----- -----
$35.1 $ 5.3 $(5.0) $45.4
1993
(A) Manufacturing $ 3.0 $ $ .8 $ 2.2
(B) Financial Services 30.9 9.2 7.2 32.9
----- ----- ------ -----
$33.9 $ 9.2 $ 8.0 $35.1
1992
(A) Manufacturing $ 3.0 $ .2 $ .2 $ 3.0
(B) Financial Services 31.4 13.8 14.3 30.9
----- ----- ----- -----
$34.4 $14.0 $14.5 $33.9
</TABLE>
(A) Allowance for losses deducted from trade receivables.
(B) Allowance for losses deducted from notes, contracts, and other
receivables.
(1) Uncollectible trade receivables, notes, contracts and other
receivables written off, net of recoveries.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(tables in millions)
RESULTS OF OPERATIONS:
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<CAPTION>
1994* 1993 1992
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<S> <C> <C> <C>
Income before taxes:
Manufacturing $ 307.9 $205.3 $ 81.3
Corporate expense (52.8) (44.7) (35.0)
Financial Services 57.5 40.2 26.0
Investment income 24.1 17.9 18.0
Minority interest &
other (16.6) 1.1 1.3
Income taxes (115.6) (77.6) (26.4)
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Net Income $ 204.5 $142.2 $ 65.2
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</TABLE>
* VILPAC, S.A. is reported on a consolidated basis in 1994.
OVERVIEW:
Worldwide net income in 1994 increased to $204.5 million, or $5.26 per share,
compared to $142.2 million, or $3.66 per share, in 1993. Strong demand for
Class 8 trucks in PACCAR's major markets provided the catalyst for record
earnings for both the Truck and Financial Services segments.
Manufacturing income before taxes rose to $307.9 in 1994, compared to
$205.3 million in 1993. Financial Services pretax income grew to $57.5 million,
compared to $40.2 million in 1993.
In January 1994, PACCAR acquired additional shares of its Mexican
affiliate, VILPAC, S.A., bringing its ownership interest from 49% to 55%. As a
result, beginning in 1994, the Company accounted for VILPAC on the consolidated
basis.
PACCAR's commitment to customer satisfaction, product development,
financial strength and cost reduction continues to improve its competitive
position and provide 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.
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------
<S> <C> <C> <C>
Truck revenues $4,029.1 $3,130.9 $2,322.7
----------------------------------------------------------------------
Pretax Income $ 299.4 $ 194.0 $ 77.9
======================================================================
</TABLE>
1994 COMPARED TO 1993:
Income before taxes and minority interest from PACCAR's worldwide truck
operations was $299.4 million in 1994 on sales of $4.0 billion. In 1993, truck
operations earned $194.0 million on sales of $3.1 billion. The consolidation
of VILPAC accounted for approximately 30% of the increase in sales. PACCAR sold
nearly 53,000 trucks worldwide in 1994, compared to 44,000 in 1993. The Truck
segment provided 90% of PACCAR's consolidated revenues in 1994, compared to
88% in 1993.
In the United States, greater unit production, reflecting strong industry
sales, contributed to PACCAR's accomplishments in 1994. Full year United States
Class 8 truck registrations increased from approximately 155,000 units in 1993
to 190,000 in 1994. PACCAR maintained its share of the United States market for
Class 8 trucks at approximately 22% in 1994.
Gross profit margins for the Truck segment improved in 1994 due to reduced
unit costs arising from nearly full utilization of production capacity, coupled
with modest increases in sales prices. Additionally, 1994 marked a year of
continued innovation and strong customer demand for PACCAR products. Peterbilt
and Kenworth both produced their first Class 7 conventional trucks, introduced
new product enhancements and expanded their dealer networks.
PACCAR Inc and Subsidiaries
21
<PAGE> 2
In Canada, a stronger truck market led to higher unit sales and increased
revenues, which were somewhat offset by lower margins due to the decline in the
Canadian dollar.
PACCAR's truck operations outside the United States and Canada provided
14% of total truck revenues in 1994, compared to 12% in 1993. International
truck operations achieved improved results primarily due to increased market
demand for trucks and related parts in Australia, Mexico and the United
Kingdom. Results in the United Kingdom also benefited from the first year of a
four-year military contract with the British Army. While each of the foreign
truck operations was profitable in 1994, the largest share was in Mexico.
The December 1994 devaluation of the peso and resulting disruption in the
Mexican economy did not significantly impact consolidated results in 1994.
However, production has since been reduced to correspond to present economic
conditions in Mexico.
Revenues and profits from United States export sales through PACCAR
International Division were lower in 1994 than in 1993 due to reduced demand
for vehicles in certain foreign markets.
PACCAR's truck parts revenues and profits increased again in 1994,
primarily because of a better overall truck market and expanded market
coverage. Sales of truck parts remain a solid base of profitability for the
truck segment.
Customer demand for Kenworth and Peterbilt trucks remains strong in most
markets, and the Company begins 1995 with backlogs well above prior-year
levels.
1993 COMPARED TO 1992:
In 1993, PACCAR's worldwide truck operations earned $194.0 million before tax
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. In 1993, PACCAR
sold over 44,000 trucks worldwide, compared to 34,000 in 1992.
In the United States, a larger overall market, combined with an increase
in market share, was the primary reason for PACCAR's improved performance in
1993. Class 8 truck industry volumes in the United States grew by about 30,000
units, or 24%, and PACCAR's share approximated 22% of registrations in 1993,
compared to 21% in 1992.
Outside the United States, PACCAR's truck operations increased revenues
and profits compared to 1992. Results from operations improved significantly in
Canada, Australia and the United Kingdom. Partially offsetting these advances
were reduced equity earnings in VILPAC. The Mexican Class 8 truck market
declined in 1993 as a result of a slower economy.
AUTO PARTS
The Auto Parts segment consists of the Company's retail auto parts operations,
located on the West Coast.
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------
<S> <C> <C> <C>
Auto Parts revenues $172.1 $172.9 $174.4
------------------------------------------------------------
Pretax Income (Loss) $ 4.2 $ 2.2 $ (4.6)
============================================================
</TABLE>
1994 COMPARED TO 1993:
Auto Parts segment sales totaled $172.1 million in 1994, essentially matching
last year's total of $172.9 million. Sales declines resulting from the closure
of unprofitable stores were offset by modest increases in same store sales and
new store openings.
Pretax income increased to $4.2 million in 1994, compared to $2.2 million
in 1993. The continued improvement in profitability resulted from expanded
product offerings, better customer service and expense controls.
PACCAR Inc and Subsidiaries
22
<PAGE> 3
1993 COMPARED TO 1992:
1993 sales were lower than 1992 levels as a result of the closure of
unprofitable stores. The segment attained profitability in 1993 primarily as a
result of cost-reduction efforts, combined with merchandising actions and
systems enhancements.
OTHER PRODUCTS
PACCAR's other product lines include winches and oilfield equipment. Revenue
from these products increased 7% in 1994 due to stronger demand in the winch
sector. In 1993, revenues had declined compared to 1992. Combined profits from
operations increased again in 1994. However, total pretax income declined for
this segment in 1994 due to the accrual of the estimated expenses associated
with the relocation of Trico's headquarters to San Marcos, Texas, in 1995.
INVESTMENTS
The increase in investment income in 1994 is due to the consolidation of
VILPAC. PACCAR's investment income remained relatively stable between 1992 and
1993.
FINANCIAL SERVICES
The Financial Services segment, including PACCAR Financial Corp., PACCAR
Leasing Corporation and the Company's finance subsidiaries in Australia,
Canada, Mexico and the United Kingdom, derives earnings primarily from
financing the sale of PACCAR products.
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
Financial Services
revenues $205.0 $162.6 $158.4
--------------------------------------------------------------------
Pretax Income $ 57.5 $ 40.2 $ 26.0
====================================================================
</TABLE>
1994 COMPARED TO 1993:
The Company's Financial Services operations earned a record $57.5 million
before tax in 1994, up $17.3 million, or 43%, compared to 1993. Earnings
improved primarily as a result of continued growth in the portfolio and lower
provisions for loan losses.
In 1994, the Financial Services segment experienced a record level of new
business volume, influenced by PACCAR's strong heavy-duty truck sales. The
credit quality of the loan and lease receivable portfolio continued to improve
due to stronger economic conditions and continued focus on credit controls,
which led to very low levels of credit losses and past-due accounts. The
reserve for losses increased in 1994, reflecting the growth in the portfolio.
1993 COMPARED TO 1992:
The Company's Financial Services segment earned $40.2 million before tax in
1993, up 55% from 1992 results. The increase in pretax earnings reflected
growth in the portfolio, a higher interest margin and lower provisions for loan
losses.
LIQUIDITY AND CAPITAL RESOURCES:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
Cash and equivalents $311.3 $223.2 $250.4
Marketable securities 241.7 235.7 214.3
--------------------------------------------------------------------
$553.0 $458.9 $464.7
====================================================================
</TABLE>
During 1994, the Company generated cash from operations of $335 million, an
increase of nearly $150 million from a year ago. The Company's total cash and
marketable securities amounted to $553 million at December 31, 1994, up $94
million from December 31, 1993. Approximately $44 million of the increase was
attributable to the acquisition of controlling interests in VILPAC. 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.
PACCAR Inc and Subsidiaries
23
<PAGE> 4
Capital expenditures for 1994 totaled $55 million, which included the
acquisition of the hydraulic pumping systems product line and a manufacturing
facility of National-Oilwell. Over the last five years (1990 through 1994), the
Company's worldwide capital spending, excluding the Financial Services segment,
totaled over $310 million. During the next several years, the pace of spending
for capital projects at PACCAR is expected to continue at similar levels.
Cash generated in foreign operations is generally reinvested in those
operations. During the last three years, some excess cash has been withdrawn in
the form of dividends from the Company's operations in Mexico, Canada and
Australia.
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. filed a new shelf registration under which
up to $1 billion of medium-term notes could be issued as needed. At the end of
1994, $513 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 obtaining funds with interest rate characteristics
similar to the corresponding assets. As a part of this policy, the companies
use over-the-counter interest-rate contracts. The permitted type of
interest-rate contracts and transaction limits have been established by the
Company's senior management. The amount of contracts outstanding is regularly
reported to the Company's senior management.
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 ENVIRONMENTAL MATTERS:
The Company, its competitors and industry in general are subject to various
federal, state and local environmental requirements. 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 $8 million in 1994, $9 million in 1993
and $10 million in 1992 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 environmental investigations
and cleanup actions. 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's estimated range of reasonably possible costs to complete
cleanup actions, where it is probable that the Company will incur such costs
and such amounts can be reasonably estimated, is between $25 million and $45
million. At December 31, 1994, the reserve established to provide for estimated
future environmental cleanup costs was $41 million.
The Company has been successful in recovering a portion of its
environmental remediation costs from insurers. The Company believes future
recoveries from insurance carriers could be significant.
While the timing and amount of the ultimate 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.
PACCAR Inc and Subsidiaries
24
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING: (millions except per share data)
Revenues
Net sales $4,285.1 $3,378.9 $2,576.8
Other 9.1 11.6 20.8
-------------------------------------------------------------------------------
4,294.2 3,390.5 2,597.6
Costs and Expenses
Cost of sales 3,699.8 2,941.5 2,262.2
Selling, general and administrative 336.7 286.5 286.5
Interest 2.6 1.9 2.6
-------------------------------------------------------------------------------
4,039.1 3,229.9 2,551.3
-------------------------------------------------------------------------------
Manufacturing Income Before
Income Taxes 255.1 160.6 46.3
FINANCIAL SERVICES:
Revenues 205.0 162.6 158.4
Costs and Expenses
Interest and other 101.3 77.7 84.0
Selling, general and administrative 42.2 35.5 34.6
Provision for losses on receivables 4.0 9.2 13.8
-------------------------------------------------------------------------------
147.5 122.4 132.4
-------------------------------------------------------------------------------
Financial Services Income Before
Income Taxes 57.5 40.2 26.0
OTHER:
Investment income 24.1 17.9 18.0
Minority interest and other (16.6) 1.1 1.3
-------------------------------------------------------------------------------
Total Income Before Income Taxes 320.1 219.8 91.6
Income taxes 115.6 77.6 26.4
-------------------------------------------------------------------------------
Net Income $ 204.5 $ 142.2 $ 65.2
===============================================================================
Net income per average common share
outstanding $ 5.26 $ 3.66 $ 1.68
===============================================================================
Weighted average number of common
shares outstanding 38.9 38.9 38.9
===============================================================================
</TABLE>
See notes to consolidated financial statements.
PACCAR Inc and Subsidiaries
25
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
December 31
<TABLE>
<CAPTION>
ASSETS 1994 1993
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING: (millions of dollars)
Current Assets
Cash and equivalents $ 289.9 $ 206.2
Trade receivables, net of allowance for losses
(1994 - $4.3 and 1993 - $2.2) 232.9 182.8
Marketable securities 241.7 235.7
Inventories 274.5 193.7
Deferred taxes and other current assets 65.1 57.0
-------------------------------------------------------------------------------------------------------
Total Manufacturing Current Assets 1,104.1 875.4
Investments and other 88.7 124.1
Property, plant and equipment, net 369.9 344.4
-------------------------------------------------------------------------------------------------------
Total Manufacturing Assets 1,562.7 1,343.9
-------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES:
Cash and equivalents 21.4 17.0
Finance and other receivables,
net of allowance for losses (1994 - $41.1 and 1993 - $32.9) 2,469.6 2,024.6
Less unearned interest (194.7) (155.9)
-------------------------------------------------------------------------------------------------------
2,274.9 1,868.7
Equipment on operating leases, net 53.8 47.9
Other assets 15.4 13.7
-------------------------------------------------------------------------------------------------------
Total Financial Services Assets 2,365.5 1,947.3
-------------------------------------------------------------------------------------------------------
$3,928.2 $3,291.2
-------------------------------------------------------------------------------------------------------
</TABLE>
PACCAR Inc and Subsidiaries
26
<PAGE> 7
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING: (millions of dollars)
Current Liabilities
Accounts payable and accrued expenses $ 620.3 $ 458.5
Income taxes 22.5 21.3
Dividend payable 77.7 33.8
Other 1.8 2.0
-------------------------------------------------------------------------------------------------------
Total Manufacturing Current Liabilities 722.3 515.6
Long-term debt 11.1 11.7
Other 85.7 72.1
-------------------------------------------------------------------------------------------------------
Total Manufacturing Liabilities 819.1 599.4
-------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES:
Accounts payable and accrued expenses 70.6 41.6
Commercial paper and bank loans 687.7 696.0
Long-term debt 999.9 709.1
Deferred income taxes and other 143.5 137.6
-------------------------------------------------------------------------------------------------------
Total Financial Services Liabilities 1,901.7 1,584.3
-------------------------------------------------------------------------------------------------------
MINORITY INTEREST 32.9
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 38,859,281 shares 466.3 466.3
Additional paid-in capital 218.2 217.9
Retained earnings 556.5 468.6
Currency translation and net unrealized investment losses (66.5) (45.3)
-------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,174.5 1,107.5
-------------------------------------------------------------------------------------------------------
$3,928.2 $3,291.2
-------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
PACCAR Inc and Subsidiaries
27
<PAGE> 8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
December 31
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK, $12 PAR VALUE: (millions except share data)
Balance at beginning of year $ 466.3 $ 446.2 $ 446.2
Stock options exercised *
Retirement of treasury stock (40.7)
Stock dividend declared 60.8
-------------------------------------------------------------------------------------------------------
Balance at end of year $ 466.3 $ 466.3 $ 446.2
-------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year $ 217.9 $ 2.5 $ 2.5
Other, including options exercised and tax benefit .3
Retirement of treasury stock (2.5)
Stock dividend declared 217.9
-------------------------------------------------------------------------------------------------------
Balance at end of year $ 218.2 $ 217.9 $ 2.5
-------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year $ 468.6 $ 741.2 $ 720.0
Net income 204.5 142.2 65.2
Cash dividends declared (116.6) (67.7) (44.0)
Retirement of treasury stock (68.4)
Stock dividend declared (278.7)
-------------------------------------------------------------------------------------------------------
Balance at end of year $ 556.5 $ 468.6 $ 741.2
-------------------------------------------------------------------------------------------------------
TREASURY STOCK - AT COST:
Balance at beginning of year $ (110.4) $ (110.4)
Purchase of treasury stock (1.2)
Retirement of treasury stock 111.6
-------------------------------------------------------------------------------------------------------
Balance at end of year $ -- $ (110.4)
-------------------------------------------------------------------------------------------------------
CURRENCY TRANSLATION AND NET
UNREALIZED INVESTMENT LOSSES:
Balance at beginning of year $ (45.3) $ (41.1) $ (26.0)
Foreign currency translation adjustment (19.7) (4.2) (15.1)
Net unrealized investment loss (1.5)
-------------------------------------------------------------------------------------------------------
Balance at end of year $ (66.5) $ (45.3) $ (41.1)
-------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $ 1,174.5 $1,107.5 $ 1,038.4
=======================================================================================================
SHARES OF CAPITAL STOCK
COMMON STOCK ISSUED, $12 PAR VALUE:
Balance at beginning of year 38,856,574 37,180,386 37,180,386
Stock options exercised 2,707
Retirement of treasury stock (3,391,084)
Stock dividend declared 5,067,272
-------------------------------------------------------------------------------------------------------
Balance at end of year 38,859,281 38,856,574 37,180,386
-------------------------------------------------------------------------------------------------------
TREASURY STOCK - AT COST:
Balance at beginning of year 3,358,065 3,358,065
Purchase of treasury stock 33,019
Retirement of treasury stock (3,391,084)
-------------------------------------------------------------------------------------------------------
Balance at end of year -- 3,358,065
-------------------------------------------------------------------------------------------------------
Common Stock Outstanding 38,859,281 38,856,574 33,822,321
=======================================================================================================
</TABLE>
* Less than .1
See notes to consolidated financial statements.
PACCAR Inc and Subsidiaries
28
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES: (millions of dollars)
Net income $ 204.5 $ 142.2 $ 65.2
Items included in net income not affecting cash:
Depreciation and amortization 63.2 56.7 52.3
Provision for losses on financial services receivables 4.0 9.2 13.8
Minority interest 13.0
Marketable securities earnings reinvested (15.2) (15.4) (12.1)
Equity in net income of unconsolidated companies (8.1) (12.6)
Deferred income tax benefit (16.7) (9.4) (8.4)
Other 17.1 9.4 .7
Change in operating assets and liabilities:
(Increase) decrease in assets other than cash and equivalents:
Receivables (50.9) (21.4) (27.9)
Inventories (68.2) (44.7) (5.2)
Deferred taxes and other (7.6) (4.6) 4.4
Increase in liabilities:
Accounts payable and accrued expenses 190.1 52.7 60.5
Income taxes 1.2 19.9 2.0
--------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 334.5 186.5 132.7
INVESTING ACTIVITIES:
Finance receivables originated (1,271.1) (1,059.0) (734.0)
Collections on finance receivables 851.9 701.7 614.4
Net (increase) decrease in wholesale receivables 21.7 (54.5) 23.3
Marketable securities purchased (1,518.0) (181.8) (985.6)
Marketable securities sales and maturities 1,523.7 175.8 984.8
Acquisition of controlling interest in affiliate,
net of cash consolidated 44.3
Acquisition of property, plant and equipment (55.0) (82.4) (81.5)
Acquisition of equipment for operating leases (25.6) (26.9) (18.7)
Proceeds from asset disposals 27.9 31.5 35.1
Other (16.1) (15.5) (.3)
--------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (416.3) (511.1) (162.5)
FINANCING ACTIVITIES:
Purchase of treasury shares (1.2)
Cash dividends (74.5) (44.0) (37.2)
Net (decrease) increase in commercial paper and bank loans (20.2) 118.2 23.0
Proceeds of long-term debt 543.8 390.7 295.7
Payments of long-term debt (260.0) (167.6) (295.3)
--------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 189.1 296.1 (13.8)
Effect of exchange rate changes on cash (19.2) 1.3 (.9)
--------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Equivalents 88.1 (27.2) (44.5)
Cash and equivalents at beginning of year 223.2 250.4 294.9
--------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 311.3 $ 223.2 $ 250.4
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
PACCAR Inc and Subsidiaries
29
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992 (millions of dollars)
A. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company, its wholly owned domestic and foreign subsidiaries,
and its 55% owned Mexican affiliate. All significant intercompany accounts and
transactions are eliminated in consolidation.
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: The Company adopted Financial Accounting Standard
(FAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," effective January 1, 1994.
The Company's investments in cash equivalents and marketable securities
consist of debt securities categorized as available-for-sale. These
investments are stated at fair value with any unrealized holding gains or
losses, net of tax, included as a component of stockholders' equity until
realized.
The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and realized gains and losses are included as a component of
other manufacturing revenues in the accompanying consolidated income
statements. Interest and dividend income are included as a component of
investment income. The cost of securities sold is based on the specific
identification method. The net effect of implementing FAS No. 115 resulted in a
reduction of $1.5 of stockholders' equity at December 31, 1994.
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, 1994 and 1993, goodwill amounted
to $25.8 and $25.1, net of accumulated amortization of $9.3 and $8.0,
respectively. Amortization of goodwill totaled $1.3 in each of the years 1994
through 1992.
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
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 or related costs, and such amounts can be reasonably
estimated.
Interest Income and Expense: Generally, interest income from finance
receivables is recognized using the interest (actuarial) method.
Credit Losses: The provision for losses on finance 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. Receivables
are charged to the allowance when, in the judgment of management, they are
deemed uncollectible.
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
interest rate characteristics of debt to better match the Company's
receivables. Net amounts paid or received are reflected as adjustments to
interest expense.
PACCAR Inc and Subsidiaries
30
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992 (millions of dollars)
Foreign Currency Exchange Contracts: PACCAR enters into foreign currency
exchange contracts to hedge certain U.S. dollar-denominated firm
commitments on a continuing basis for periods consistent with its committed
exposures. Gains and losses on the contracts are deferred and included in
measurement of the related foreign currency transaction when it is completed.
As a matter of policy, the Company does not engage in currency speculation. At
December 31, 1994 and 1993, PACCAR had contracts outstanding to purchase $92.0
and $50.0 U.S. dollars, respectively. Substantially all of these contracts
converted Canadian dollars.
Reclassifications: Certain prior-year amounts have been reclassified to
conform to the 1994 presentation.
B. INVESTMENTS IN DEBT SECURITIES
Investments in debt securities at December 31, 1994, include the following:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------------------------------------------------------
<S> <C> <C>
U.S. government securities $ 14.4 $ 14.2
Tax-exempt securities 367.3 364.9
Other debt securities 156.1 156.1
--------------------------------------------------------
$537.8 $535.2
========================================================
</TABLE>
Investments in debt securities are included in cash and equivalents and
marketable securities as follows:
<TABLE>
--------------------------------------------------------
<S> <C>
Manufacturing:
Cash and equivalents $283.1
Marketable securities 241.7
Financial Services:
Cash and equivalents 10.4
--------------------------------------------------------
$535.2
========================================================
</TABLE>
The contractual maturities of debt securities available-for-sale at
December 31, 1994, are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------------------------------------------------------
<S> <C> <C>
Due in one year or less $433.5 $432.8
Due after one year
through two years 66.5 65.2
Due two years through
four years 37.8 37.2
--------------------------------------------------------
$537.8 $535.2
========================================================
</TABLE>
Gross unrealized holding losses at December 31, 1994, were $(2.6). Gross
realized gains and losses from the sale of investments in debt securities for
the year ended December 31, 1994, were $.3 and $(.5), respectively.
C. INVENTORIES
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------
<S> <C> <C>
Inventories at FIFO cost:
Finished products $ 188.6 $ 166.7
Work in process and raw
materials 210.2 147.8
--------------------------------------------------------
398.8 314.5
Less excess of FIFO cost
over LIFO (124.3) (120.8)
--------------------------------------------------------
$ 274.5 $ 193.7
========================================================
</TABLE>
Inventories valued using the LIFO method comprised 82% and 85% of consolidated
inventories at FIFO cost at December 31, 1994 and 1993, respectively.
D. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment include the following:
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------
<S> <C> <C>
Land $ 24.8 $ 22.7
Buildings 303.3 293.6
Machinery and equipment 388.6 352.8
--------------------------------------------------------
716.7 669.1
Less allowance for
depreciation (346.8) (324.7)
--------------------------------------------------------
$ 369.9 $ 344.4
========================================================
</TABLE>
PACCAR Inc and Subsidiaries
31
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992 (millions of dollars)
E. FINANCE AND OTHER RECEIVABLES
The Company's finance and other receivables are
as follows:
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------
<S> <C> <C>
Retail notes and contracts $1,644.8 $1,222.0
Wholesale financing 125.9 150.0
Direct financing leases 720.6 669.5
Interest and other
receivables 19.4 16.0
----------------------------------------------------------
2,510.7 2,057.5
Less allowance for losses (41.1) (32.9)
----------------------------------------------------------
2,469.6 2,024.6
Unearned interest:
Retail notes and contracts (103.0) (76.7)
Direct financing leases (91.7) (79.2)
----------------------------------------------------------
(194.7) (155.9)
----------------------------------------------------------
$2,274.9 $1,868.7
==========================================================
</TABLE>
Terms for substantially all finance and other receivables range up to 60
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, 1995, are $591.5, $490.7, $349.1, $173.1, $39.5 and $.9
thereafter.
The Company's net investments in direct financing leases of transportation
equipment are as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------
<S> <C> <C>
Minimum lease payments
receivable $660.8 $618.1
Estimated residual value of
leased equipment 59.8 51.4
--------------------------------------------------------
720.6 669.5
Less unearned interest (91.7) (79.2)
--------------------------------------------------------
Net investment in direct
financing leases $628.9 $590.3
========================================================
</TABLE>
Annual minimum lease payments due on direct financing leases for the five
years beginning January 1, 1995, are $206.7, $171.6, $132.1, $93.9, $39.4 and
$17.1 thereafter.
The Company's customers are principally concentrated in the transportation
industry. Generally, financial services receivables are collateralized by
financed equipment.
F. 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
five years.
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------
<S> <C> <C>
Trucks and other $ 72.5 $ 65.4
Less allowance for
depreciation (18.7) (17.5)
-------------------------------------------------------
$ 53.8 $ 47.9
=======================================================
</TABLE>
Original terms of operating leases generally range up to 48 months. Annual
minimum lease payments due on operating leases for each year beginning January
1, 1995, are $12.6, $9.7, $5.1 and $1.1 thereafter.
G. ACCOUNTS PAYABLE AND
ACCRUED EXPENSES
Accounts payable and accrued expenses include
the following:
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------
<S> <C> <C>
Manufacturing:
Accounts payable $358.3 $281.2
Salaries and wages 78.0 57.5
Warranty and self-insurance
reserves 84.8 69.3
Other 99.2 50.5
-------------------------------------------------------
$620.3 $458.5
=======================================================
Financial Services:
Accounts payable $ 53.3 $ 29.0
Salaries and wages .5 .4
Other 16.8 12.2
-------------------------------------------------------
$ 70.6 $ 41.6
=======================================================
</TABLE>
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.
PACCAR Inc and Subsidiaries
32
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992 (millions of dollars)
Pension expense for all plans was $14.9 in 1994, $10.0 in 1993 and $8.0 in
1992.
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%.
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Components of
pension expense:
Interest cost $ 18.2 $ 15.4 $ 13.6
Service cost 11.6 9.6 8.1
Return on assets (2.6) (28.1) (12.8)
Net amortization and deferrals (17.7) 8.4 (4.7)
-------------------------------------------------------------------------
Net pension expense $ 9.5 $ 5.3 $ 4.2
=========================================================================
Funded status at December 31:
Vested benefit obligation $195.2 $165.1 $150.3
Accumulated benefit obligation 197.4 167.0 153.6
=========================================================================
Plan assets at fair value $246.5 $248.2 $216.0
Projected benefit obligation 240.0 208.5 183.5
-------------------------------------------------------------------------
Excess of plan assets 6.5 39.7 32.5
Unrecognized net asset (11.7) (15.2) (20.7)
Unrecognized net
experience gain (9.1) (30.5) (23.2)
Unrecognized prior
service cost 14.2 8.3 9.8
-------------------------------------------------------------------------
Pension (liability)/
prepaid expense $ (.1) $ 2.3 $ (1.6)
=========================================================================
</TABLE>
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 $1.6 in 1994, $1.2 in 1993 and $1.1 in 1992. At
December 31, 1994, the projected benefit obligation for these plans was $10.1.
A corresponding accumulated benefit obligation of $8.5 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.
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Components of retiree
expense:
Interest cost $ 1.6 $ 1.2 $ 1.1
Service cost .9 .8 .7
Amortization of
transition obligation .6 .5 .5
-------------------------------------------------------------------------
Net retiree expense $ 3.1 $ 2.5 $ 2.3
=========================================================================
Unfunded Status at
December 31:
Accumulated benefits:
Actives not eligible
to retire $ 13.3 $ 10.5 $ 8.9
Actives eligible
to retire 4.0 2.8 2.6
Retirees 4.1 3.9 4.5
-------------------------------------------------------------------------
21.4 17.2 16.0
Unrecognized
net loss (3.5) (1.1) (1.1)
Unrecognized
transition obligation (7.9) (8.4) (8.9)
-------------------------------------------------------------------------
Accrued postretirement
benefits $ 10.0 $ 7.7 $ 6.0
=========================================================================
</TABLE>
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, 1994, by approximately
$2.6 and the 1994 expense provision by approximately $.3.
PACCAR Inc and Subsidiaries
33
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992 (millions of dollars)
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 $21.2 in 1994, $17.7 in 1993 and $15.3 in 1992.
J. INCOME TAXES
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes:
Domestic $250.3 $178.9 $73.2
Foreign 69.8 40.9 18.4
------------------------------------------------------------------------------
$320.1 $219.8 $91.6
==============================================================================
Provision for income taxes:
Current provision:
Federal $ 92.6 $ 66.5 $26.9
Foreign 30.1 12.7 4.4
State 9.6 7.8 3.5
------------------------------------------------------------------------------
132.3 87.0 34.8
Deferred provision
(benefit):
Federal and state (13.6) (9.2) (6.9)
Foreign (3.1) (.2) (1.5)
------------------------------------------------------------------------------
(16.7) (9.4) (8.4)
------------------------------------------------------------------------------
$115.6 $77.6 $26.4
==============================================================================
Reconciliation of
statutory U.S. tax to
actual provision:
Statutory rate 35% 35% 34%
Statutory tax $112.0 $76.9 $31.1
Effect of:
Rate increase on
deferred taxes 2.2
State income taxes 10.8 8.1 3.1
Equity method
earnings (2.9) (4.2)
Foreign tax rates (1.9) (1.6) .9
FSC benefit (1.3) (1.6) (1.5)
Tax-exempt income (4.9) (4.2) (4.2)
Other .9 .7 1.2
------------------------------------------------------------------------------
$115.6 $77.6 $26.4
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
At December 31: 1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Components of deferred tax assets (liabilities):
Assets:
Provisions for accrued
expenses $ 81.0 $ 66.2
Allowance for losses on
receivables 16.2 11.7
Other 9.8 12.9
------------------------------------------------------------------------------
107.0 90.8
Liabilities:
Asset capitalization and
depreciation (26.4) (23.6)
Financing and leasing
activities (124.2) (121.5)
Other (9.2) (15.7)
------------------------------------------------------------------------------
(159.8) (160.8)
------------------------------------------------------------------------------
Net deferred tax liability $ (52.8) $ (70.0)
==============================================================================
Classification of deferred tax assets and liabilities:
Manufacturing:
Deferred taxes and other
current assets $ 59.2 $ 39.5
Investments and other .4 4.4
Financial Services:
Deferred income taxes
and other (112.4) (113.9)
------------------------------------------------------------------------------
Net deferred tax liability $ (52.8) $ (70.0)
==============================================================================
</TABLE>
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 $136.9 at December 31, 1994. 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 $130.1 in 1994, $70.7 in 1993 and $30.9 in
1992.
PACCAR Inc and Subsidiaries
34
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992 (millions of dollars)
K. 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, 1995, are $9.4, $8.3, $6.3, $5.1, $4.0 and $8.3 thereafter.
Minimum payments on leases have not been reduced by aggregate minimum
sublease rentals of $12.0 receivable under noncancelable subleases.
The Company has operating leases which, in addition to aggregate minimum
annual rentals, provide for additional rental payments based on sales and
certain expenses.
Total rental expenses under all leases were:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $14.5 $13.6 $14.6
Percentage rentals .5 .6 .8
Sublease rentals (1.5) (1.1) (.9)
-----------------------------------------------------
Total rental expenses $13.5 $13.1 $14.5
=====================================================
</TABLE>
L. LONG-TERM DEBT
<TABLE>
<CAPTION>
Manufacturing: 1994 1993
--------------------------------------------------
<S> <C> <C>
Industrial Revenue Bonds
- Floating rate $ 8.9 $ 9.0
Capital lease obligations 2.7 3.3
Less current installments (.5) (.6)
--------------------------------------------------
$11.1 $11.7
==================================================
</TABLE>
The interest rate on the industrial revenue bonds is floating and was 3.1% at
December 31, 1994.
Annual maturities including capital leases for the five years beginning
January 1, 1995, are $.5, $.5, $.4, $.4 and $.3, respectively.
<TABLE>
<CAPTION>
Financial Services: 1994 1993
-----------------------------------------------------
<S> <C> <C>
Medium-Term Notes
- 4.2% to 8.8% fixed $645.3 $364.1
- Floating rate 225.0 260.0
Notes payable to banks
- 4.8% to 14.8% 126.8 80.3
Notes payable to insurance
companies 1.0
Equipment trust
certificates - 14.5% 2.8 3.7
-----------------------------------------------------
$999.9 $709.1
=====================================================
</TABLE>
Interest rates on the floating-rate medium-term notes are based on various
indices 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, 1995, are
$380.5, $256.5, $250.9, $105.4 and $6.6, respectively.
At December 31, 1994, 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 $76.9 in 1994, $63.9 in 1993 and
$74.7 in 1992.
The Company enters into various interest-rate contracts, including
interest-rate swap, cap and forward-rate agreements. At December 31, 1994, the
Company had 99 interest-rate contracts outstanding with other financial
institutions. The notional amount of these contracts totaled $1,151.9, 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.
PACCAR Inc and Subsidiaries
35
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992 (millions of dollars)
M. CREDIT ARRANGEMENTS
The Company has line of credit arrangements of $568.4 which are reviewed
annually for renewal. The unused portion of these credit lines was $526.9 at
December 31, 1994, 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. The weighted average interest rate on short-term borrowings was
6.28%, 3.71% and 4.38% at December 31, 1994, 1993 and 1992, respectively.
N. 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, 1994, the reserve established to provide for estimated
future environmental cleanup costs was $41. While neither the timing nor the
amount of the ultimate costs associated with environmental matters can be
determined, management does not expect that those matters will have a material
adverse effect on the Company's consolidated financial position.
At December 31, 1994, PACCAR had standby letters of credit outstanding
totaling $31.2, which guarantee various insurance and financing activities.
O. 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 floating-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 costs which would be incurred to terminate existing
agreements and enter into new agreements with similar notional amounts,
maturity dates and counterparties' credit standing at current market interest
rates. Foreign exchange contracts require the Company to exchange foreign
currency for U.S. dollars and generally mature within six months. The fair
value of these foreign exchange contracts is the amount the Company would
receive or pay to terminate the contracts. This amount is calculated using
quoted market rates.
PACCAR Inc and Subsidiaries
36
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992 (millions of dollars)
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:
<TABLE>
<CAPTION>
Carrying Fair
1994 Amount Value
----------------------------------------------------------
<S> <C> <C>
Manufacturing:
Cash and equivalents $ 289.9 $ 289.9
Marketable securities 241.7 241.7
Short-term debt .7 .7
Long-term debt 8.9 8.9
Financial Services:
Cash and equivalents 21.4 21.4
Net receivables 1,692.2 1,659.8
Commercial paper and
bank loans 687.7 687.7
Long-term debt 999.9 972.4
</TABLE>
The Company's off-balance-sheet financial instruments, consisting of
interest-rate agreements and foreign exchange contracts, represented additional
assets of $9.0 and $2.0 if recorded at fair value at December 31, 1994.
<TABLE>
<CAPTION>
Carrying Fair
1994 Amount Value
----------------------------------------------------------
<S> <C> <C>
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
</TABLE>
The Company's off-balance-sheet financial instruments, consisting of
interest-rate agreements and foreign exchange contracts, represented additional
liabilities of $3.7 and $.3 if recorded at fair value at December 31, 1993.
P. FOREIGN OPERATIONS AND
CURRENCY TRANSLATION
The Company conducts its foreign operations primarily through wholly owned
subsidiaries in Canada, Australia and the United Kingdom, and through a 55%
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.
On December 20, 1994, the Mexican government devalued the peso. The effect
of the devaluation on U.S. dollar-denominated accounts maintained by the
Mexican affiliate resulted in a net exchange gain. PACCAR's after-tax share of
aggregate net exchange gains increased income for 1994 by $3.7. Substantially
all of this amount resulted from the impact of the year-end exchange rate
change on translating the balance sheet of the Mexican affiliate. Exchange
gains and losses were immaterial in both 1993 and 1992.
PACCAR Inc and Subsidiaries
37
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992 (millions of dollars)
Q. 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 and 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
years prior to 1994, share data has been restated for the effect of the 15%
dividend.
PACCAR Inc and Subsidiaries
38
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992 (millions of dollars)
R. 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.
<TABLE>
<CAPTION>
Geographic Area Data 1994 1993 1992
--------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
United States $3,543.4 $2,999.3 $2,337.4
Canada 364.4 340.1 236.5
Other 591.4 213.7 182.1
--------------------------------------------------------------------------
$4,499.2 $3,553.1 $2,756.0
==========================================================================
Income before taxes:
United States $ 276.8 $ 199.8 $ 80.9
Canada 21.7 21.7 5.7
Other 66.9 24.0 20.7
Corporate expenses (52.8) (44.7) (35.0)
Investment income 24.1 17.9 18.0
Minority interest
and other (16.6) 1.1 1.3
--------------------------------------------------------------------------
$ 320.1 $ 219.8 $ 91.6
==========================================================================
Identifiable assets:
United States $2,722.1 $2,341.2 $1,900.7
Canada 214.0 197.0 181.3
Other 367.6 229.6 182.8
Cash and
Marketable
Securities 531.6 441.9 450.1
Corporate 92.9 81.5 77.2
--------------------------------------------------------------------------
$3,928.2 $3,291.2 $2,792.1
==========================================================================
Export revenues of
U.S. companies $ 117.8 $ 145.1 $ 148.9
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
Industry Segment Data 1994 1993 1992
--------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Truck $4,029.1 $3,130.9 $2,322.7
Auto Parts 172.1 172.9 174.4
Financial Services 205.0 162.6 158.4
Other 93.0 86.7 100.5
--------------------------------------------------------------------------
$4,499.2 $3,553.1 $2,756.0
==========================================================================
Income before taxes:
Truck $ 299.4 $ 194.0 $ 77.9
Auto Parts 4.2 2.2 (4.6)
Financial Services 57.5 40.2 26.0
Other 4.3 9.1 8.0
Corporate expenses (52.8) (44.7) (35.0)
Investment income 24.1 17.9 18.0
Minority interest
and other (16.6) 1.1 1.3
--------------------------------------------------------------------------
$ 320.1 $ 219.8 $ 91.6
==========================================================================
Depreciation and amortization:
Truck $ 34.5 $ 27.7 $ 24.1
Auto Parts 6.6 5.4 4.8
Financial Services 15.2 13.8 13.4
Other 4.1 3.7 4.4
Corporate 2.8 6.1 5.6
--------------------------------------------------------------------------
$ 63.2 $ 56.7 $ 52.3
==========================================================================
Capital expenditures:
Truck $ 39.3 $ 72.8 $ 60.7
Auto Parts 2.4 1.2 7.1
Financial Services 25.7 27.0 19.8
Other 11.2 2.7 3.0
Corporate 2.0 5.6 9.6
--------------------------------------------------------------------------
$ 80.6 $ 109.3 $ 100.2
==========================================================================
Identifiable assets:
Truck $ 748.9 $ 647.8 $ 531.3
Auto Parts 94.5 98.8 105.3
Financial Services 2,365.5 1,947.3 1,556.4
Other 94.8 73.9 71.8
Cash and
Marketable
Securities 531.6 441.9 450.1
Corporate 92.9 81.5 77.2
--------------------------------------------------------------------------
$3,928.2 $3,291.2 $2,792.1
==========================================================================
</TABLE>
PACCAR Inc and Subsidiaries
39
<PAGE> 20
REPORT OF ERNST & YOUNG LLP, 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, 1994 and 1993, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. 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, 1994 and 1993, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Seattle, Washington
February 3, 1995
COMMON STOCK MARKET PRICES AND DIVIDENDS
Common stock of the Company is traded on the Nasdaq National Market under the
symbol PCAR. The table below reflects the range of trading prices as reported
by Nasdaq and cash dividends declared. Cash dividends declared and stock prices
for 1993 have been restated to give effect to the 15% stock dividend declared
December 14, 1993. There were 3,377 record holders of the common stock at
December 31, 1994.
<TABLE>
<CAPTION>
1994 CASH DIVIDENDS STOCK PRICE 1993 Cash Dividends Stock Price
QUARTER DECLARED HIGH LOW Quarter Declared High Low
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST $ .25 $61 3/4 $50 First $.22 $56 3/4 $49 1/8
SECOND .25 54 3/4 43 3/4 Second .22 57 7/8 46 1/2
THIRD .25 52 1/4 45 1/4 Third .22 56 3/4 51 1/8
FOURTH .25 46 40 Fourth .22 61 1/8 52 7/8
YEAR-END EXTRA 2.00 Year-End Extra .86
------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company expects to continue paying regular cash dividends, although there
is no assurance as to future dividends because they are dependent upon future
earnings, capital requirements and financial conditions.
PACCAR Inc and Subsidiaries
40
<PAGE> 21
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth
-------------------------------------------------------------------------------------------------------
1994 (millions except per share data)
<S> <C> <C> <C> <C>
Net Sales $986.3 $1,070.8 $1,114.5 $1,113.5
Gross Profit 130.3 146.4 153.3 155.3
Financial Services Income Before Income Taxes 12.4 14.3 16.0 14.8
Net Income 43.6 50.6 53.2 57.1
Weighted Average Number of Common
Shares Outstanding 38.9 38.9 38.9 38.9
Net Income Per Share $ 1.12 $ 1.30 $ 1.37 $ 1.47
-------------------------------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------------------
(millions except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales $4,285.1 $3,378.9 $ 2,576.8 $ 2,159.6 $2,587.4
Financial Services Revenue 205.0 162.6 158.4 179.2 205.6
Net Income 204.5 142.2 65.2 55.2 63.7
Total Assets:
Manufacturing 1,562.7 1,343.9 1,235.7 1,214.6 1,234.5
Financial Services 2,365.5 1,947.3 1,556.4 1,523.0 1,671.7
Long-Term Debt:
Manufacturing 11.1 11.7 12.5 25.2 30.2
Financial Services 999.9 709.1 494.4 483.7 632.3
Stockholders' Equity 1,174.5 1,107.5 1,038.4 1,032.3 1,019.2
Per Common Share:
Net Income $ 5.26 $ 3.66 $ 1.68 $ 1.42 $ 1.59
Cash Dividends Declared 3.00 1.74 1.13 .96 .87
-------------------------------------------------------------------------------------------------------
</TABLE>
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).
PACCAR Inc and Subsidiaries
41
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES AND AFFILIATE OF THE REGISTRANT
<TABLE>
<CAPTION>
State or
Country of Names Under Which
Name* Incorporation Subsidiaries Do Business
---- ------------- ------------------------
<S> <C> <C>
PACCAR of Canada Ltd. Canada PACCAR of Canada Ltd.
Canadian Kenworth Co.
Peterbilt of Canada
PACCAR Parts of Canada
PACCAR Australia Pty. Ltd. Australia PACCAR Australia Pty. Ltd.
Kenworth Trucks
PACCAR U.K. Ltd. Delaware PACCAR U.K. Ltd.
Foden Trucks
VILPAC S.A. (Affiliate) Mexico VILPAC S.A.
Kenworth Mexicana S.A. de C.V.
KENPAR S.A. de C.V.
KENFABRICA, S.A. de C.V.
KENCOM, S.A. de C.V.
PACCAR Financial Corp. Washington PACCAR Financial Corp.
PACCAR Financial Services Ltd. Canada PACCAR Financial Services Ltd.
PACCAR Leasing Corporation Delaware PACCAR Leasing Corporation
PacLease
RAILEASE Inc. Washington RAILEASE Inc
Trico Industries, Inc. California Trico Industries, Inc.
PACCAR Sales North America, Inc. Delaware PACCAR Sales North America
PACCAR Automotive, Inc. Washington Grand Auto
Al's Auto Supply
</TABLE>
* The names of some subsidiaries have been omitted. Considered in the
aggregate, omitted subsidiaries would not constitute a significant
subsidiary.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of PACCAR Inc of our report dated February 3, 1995, included in the 1994 Annual
Report to Shareholders of PACCAR Inc.
Our audits also included the consolidated financial statement schedule of
PACCAR Inc listed in item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-83673) pertaining to the 1981 Long-Term Incentive Plan and in
the Registration Statement (Form S-8 No. 33-47763) pertaining to the 1991
Long-Term Incentive Plan of PACCAR Inc of our report dated February 3, 1995,
with respect to the consolidated financial statements and schedule of PACCAR
Inc incorporated by reference in the Annual Report (Form 10-K) for the year
ended December 31, 1994.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Seattle, Washington
March 23, 1995
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned directors of PACCAR Inc, a Delaware corporation, hereby
severally constitute and appoint C. M. Pigott, our true and lawful
attorney-in-fact, with full power to sign for us, and in our names in our
capacity as director, a Form 10-K on behalf of the Company for the year ending
December 31, 1994, to be filed with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, each of the undersigned has executed this power of attorney
as of this 13th day of December 1994.
<TABLE>
<S> <C>
/s/ R. P. Cooley /s/ James C. Pigott
----------------------------- -----------------------------
R. P. Cooley J. C. Pigott
Director, PACCAR Inc Director, PACCAR Inc
/s/ John M. Fluke, Jr. /s/ Mark Pigott
----------------------------- -----------------------------
J. M. Fluke, Jr. M. C. Pigott
Director, PACCAR Inc Director, PACCAR Inc
/s/ Carl H. Hahn /s/ John W. Pitts
----------------------------- -----------------------------
C. H. Hahn J. W. Pitts
Director, PACCAR Inc Director, PACCAR Inc
/s/ H. J. Haynes /s/ M. A. Tembreull
----------------------------- -----------------------------
H. J. Haynes M. A. Tembreull
Director, PACCAR Inc Director, PACCAR Inc
/s/ D. J. Hovind /s/ James H. Wiborg
----------------------------- -----------------------------
D. J. Hovind J. H. Wiborg
Director, PACCAR Inc Director, PACCAR Inc
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994,
1993, AND 1992, AND FROM THE CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1994
AND 1993 OF PACCAR INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 311,300
<SECURITIES> 241,700
<RECEIVABLES> 2,507,800
<ALLOWANCES> 45,400
<INVENTORY> 274,500
<CURRENT-ASSETS> 0
<PP&E> 369,900
<DEPRECIATION> 346,800
<TOTAL-ASSETS> 3,928,200
<CURRENT-LIABILITIES> 0
<BONDS> 1,011,000
<COMMON> 466,300
0
0
<OTHER-SE> 708,200
<TOTAL-LIABILITY-AND-EQUITY> 3,928,200
<SALES> 4,285,100
<TOTAL-REVENUES> 4,499,200
<CGS> 3,699,800
<TOTAL-COSTS> 3,801,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,300
<INTEREST-EXPENSE> 2,600
<INCOME-PRETAX> 320,100
<INCOME-TAX> 115,600
<INCOME-CONTINUING> 204,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204,500
<EPS-PRIMARY> 5.26
<EPS-DILUTED> 5.26
</TABLE>
