10-K405 1 PACCAR, INC. FORM 10-K405 1 ================================================================================ 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 ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 91-0351110 ------------------------------------ --------------------------------------- (State of incorporation) (I.R.S. Employer Identification No.) 777 - 106th Ave. N.E., Bellevue, Washington 98004 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206) 455-7400 -------------- 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 --------------------------------------------- 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 ------------------------------------------------ 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. ================================================================================ 2 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. -2- 3 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. -3- 4 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. -4- 5 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. -5- 6 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:
United U.S. Canada Australia Mexico Kingdom Trucks 5 1 1 1 1 Other 6 - - - -
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. -6- 7 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. -7- 8 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:
Present Position and Other Position(s) Name and Age Held During Last Five Years ------------ --------------------------------------------- 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.
-8- 9
Present Position and Other Position(s) Name and Age Held During Last Five Years ------------ ------------------------------------------- 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.
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. -9- 10 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). -10- 11 (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. -11- 12 (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. -12- 13 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. /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
* Pursuant to power of attorney -13- 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 -14- 15 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. -15- 16 PACCAR INC AND SUBSIDIARIES SCHEDULE II - ALLOWANCES FOR LOSSES (MILLIONS OF DOLLARS)
Additions Balance at Charged to Balance Year Ended Beginning Costs and at End December 31: of Period Expenses Deductions(1) of Period ------------ --------- ---------- ---------- --------- 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
(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. -16- EX-13 2 EXHIBIT 13 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (tables in millions) RESULTS OF OPERATIONS:
1994* 1993 1992 ---------------------------------------------------------------- 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) ---------------------------------------------------------------- Net Income $ 204.5 $142.2 $ 65.2 ================================================================
* 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.
1994 1993 1992 ---------------------------------------------------------------------- Truck revenues $4,029.1 $3,130.9 $2,322.7 ---------------------------------------------------------------------- Pretax Income $ 299.4 $ 194.0 $ 77.9 ======================================================================
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 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.
1994 1993 1992 ------------------------------------------------------------ Auto Parts revenues $172.1 $172.9 $174.4 ------------------------------------------------------------ Pretax Income (Loss) $ 4.2 $ 2.2 $ (4.6) ============================================================
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 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.
1994 1993 1992 -------------------------------------------------------------------- Financial Services revenues $205.0 $162.6 $158.4 -------------------------------------------------------------------- Pretax Income $ 57.5 $ 40.2 $ 26.0 ====================================================================
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:
1994 1993 1992 -------------------------------------------------------------------- Cash and equivalents $311.3 $223.2 $250.4 Marketable securities 241.7 235.7 214.3 -------------------------------------------------------------------- $553.0 $458.9 $464.7 ====================================================================
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 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 5 CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31
1994 1993 1992 ------------------------------------------------------------------------------- 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 ===============================================================================
See notes to consolidated financial statements. PACCAR Inc and Subsidiaries 25 6 CONSOLIDATED BALANCE SHEETS December 31
ASSETS 1994 1993 ------------------------------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------------------------------
PACCAR Inc and Subsidiaries 26 7
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993 ------------------------------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. PACCAR Inc and Subsidiaries 27 8 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY December 31
1994 1993 1992 ------------------------------------------------------------------------------------------------------- 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 =======================================================================================================
* Less than .1 See notes to consolidated financial statements. PACCAR Inc and Subsidiaries 28 9 CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31
1994 1993 1992 -------------------------------------------------------------------------------------------------------- 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 ========================================================================================================
See notes to consolidated financial statements. PACCAR Inc and Subsidiaries 29 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 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:
Amortized Fair Cost Value -------------------------------------------------------- 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 ========================================================
Investments in debt securities are included in cash and equivalents and marketable securities as follows: -------------------------------------------------------- Manufacturing: Cash and equivalents $283.1 Marketable securities 241.7 Financial Services: Cash and equivalents 10.4 -------------------------------------------------------- $535.2 ========================================================
The contractual maturities of debt securities available-for-sale at December 31, 1994, are as follows:
Amortized Fair Cost Value -------------------------------------------------------- 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 ========================================================
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
1994 1993 -------------------------------------------------------- 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 ========================================================
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:
1994 1993 -------------------------------------------------------- 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 ========================================================
PACCAR Inc and Subsidiaries 31 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:
1994 1993 ---------------------------------------------------------- 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 ==========================================================
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:
1994 1993 -------------------------------------------------------- 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 ========================================================
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.
1994 1993 ------------------------------------------------------- Trucks and other $ 72.5 $ 65.4 Less allowance for depreciation (18.7) (17.5) ------------------------------------------------------- $ 53.8 $ 47.9 =======================================================
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:
1994 1993 ------------------------------------------------------- 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 =======================================================
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 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%.
1994 1993 1992 ------------------------------------------------------------------------- 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) =========================================================================
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.
1994 1993 1992 ------------------------------------------------------------------------- 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 =========================================================================
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 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
1994 1993 1992 ------------------------------------------------------------------------------ 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 ==============================================================================
At December 31: 1994 1993 ------------------------------------------------------------------------------ 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) ==============================================================================
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 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:
1994 1993 1992 ----------------------------------------------------- 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 =====================================================
L. LONG-TERM DEBT
Manufacturing: 1994 1993 -------------------------------------------------- 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 ==================================================
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.
Financial Services: 1994 1993 ----------------------------------------------------- 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 =====================================================
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 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 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:
Carrying Fair 1994 Amount Value ---------------------------------------------------------- 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
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.
Carrying Fair 1994 Amount Value ---------------------------------------------------------- Manufacturing: Cash and equivalents $ 206.2 $ 206.2 Marketable securities 235.7 238.5 Short-term debt 1.7 1.7 Long-term debt 9.0 9.0 Financial Services: Cash and equivalents 17.0 17.0 Net receivables 1,321.8 1,332.6 Commercial paper and bank loans 696.0 696.0 Long-term debt 709.1 713.7
The Company's off-balance-sheet financial instruments, consisting 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 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 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.
Geographic Area Data 1994 1993 1992 -------------------------------------------------------------------------- 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 ==========================================================================
Industry Segment Data 1994 1993 1992 -------------------------------------------------------------------------- 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 ==========================================================================
PACCAR Inc and Subsidiaries 39 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.
1994 CASH DIVIDENDS STOCK PRICE 1993 Cash Dividends Stock Price QUARTER DECLARED HIGH LOW Quarter Declared High Low ------------------------------------------------------------------------------------------------------------------ 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 ------------------------------------------------------------------------------------------------------------------
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 21 QUARTERLY RESULTS (UNAUDITED)
Quarter First Second Third Fourth ------------------------------------------------------------------------------------------------------- 1994 (millions except per share data) 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 -------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------------------------------- (millions except per share data) 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 -------------------------------------------------------------------------------------------------------
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 EX-21 3 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES AND AFFILIATE OF THE REGISTRANT
State or Country of Names Under Which Name* Incorporation Subsidiaries Do Business ---- ------------- ------------------------ 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
* The names of some subsidiaries have been omitted. Considered in the aggregate, omitted subsidiaries would not constitute a significant subsidiary. EX-23 4 EXHIBIT 23 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 EX-24 5 EXHIBIT 24 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. /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
EX-27 6 EXHIBIT 27
5 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. 1,000 U.S. DOLLARS YEAR DEC-31-1994 DEC-31-1994 1 311,300 241,700 2,507,800 45,400 274,500 0 369,900 346,800 3,928,200 0 1,011,000 466,300 0 0 708,200 3,928,200 4,285,100 4,499,200 3,699,800 3,801,100 0 5,300 2,600 320,100 115,600 204,500 0 0 0 204,500 5.26 5.26