-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GDrsVZ6xCMAzWkacHQrQWRmX+Myky3oeCbblHTZZF5jjxwmSwY2qQOlLjDYUFEgu a94Jl09yWa7WPKPN/Oe4ZQ== 0000912057-00-012263.txt : 20000320 0000912057-00-012263.hdr.sgml : 20000320 ACCESSION NUMBER: 0000912057-00-012263 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACCAR INC CENTRAL INDEX KEY: 0000075362 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 910351110 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14817 FILM NUMBER: 573088 BUSINESS ADDRESS: STREET 1: 777 106TH AVE NE STREET 2: PO BOX 1518 CITY: BELLEVUE STATE: WA ZIP: 98004 BUSINESS PHONE: 4254557383 MAIL ADDRESS: STREET 1: 777 106TH AVENUE NE STREET 2: PO BOX 1518 CITY: BELLEVUE STATE: WA ZIP: 98004 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC CAR & FOUNDRY CO DATE OF NAME CHANGE: 19720707 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 [No Fee Required] For the fiscal year ended December 31, 1999 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 (425) 468-7400 ----------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1 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 February 29, 2000: Common Stock, $1 par value -- $2.98 billion ------------------------------------------- The number of shares outstanding of the issuer's classes of common stock, as of February 29, 2000: Common Stock, $1 par value -- 77,600,944 shares ----------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 1999 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, 2000 are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 United States, the Company's manufacturing operations are conducted through unincorporated manufacturing divisions. Each of the divisions 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 the Netherlands, United Kingdom, Australia, Mexico, and Canada. An export sales division generally is responsible for export sales. The Netherlands subsidiary also has a manufacturing plant located in Belgium, and uses foreign sales subsidiaries to handle export sales in the European Community and Eastern Europe. Product financing and leasing is offered through subsidiaries located in North America, Australia, and the United Kingdom. (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 pages 44 and 45 of the Annual Report to Stockholders for the year ended December 31, 1999 and is incorporated herein by reference. (c) Narrative Description of Business The Company has two principal industry segments, (1) manufacture of light-, medium- and heavy-duty trucks and related aftermarket distribution of parts and (2) finance and leasing services provided to customers and dealers. The Company competes in the truck parts aftermarket primarily through its dealer network. The Company's finance and leasing activities are principally related to Company products and associated equipment. Other manufactured products also include industrial winches. TRUCKS The Company and its subsidiaries design and manufacture trucks which are marketed under the Peterbilt, Kenworth, DAF and Foden nameplates in the heavy-duty diesel category. These vehicles, which are built in five plants in the United States, four in Europe and one each in Australia and Mexico, are used worldwide for over-the-road and off-highway hauling of freight, petroleum, wood products, construction and other materials. Commercial trucks and related service parts comprise the largest segment of the Company's business, accounting for 97% of total 1999 net sales. -2- The Company competes in the North American Class 6/7 markets primarily with conventional models. These medium-duty trucks are assembled at the Company's new Ste. Therese, Quebec plant and at the Company's Mexican subsidiary in Mexicali, Mexico. This line of business represents a small, but increasing, percentage of the Company's North American sales. The Company competes in the European medium commercial vehicle market with a cab-over-engine truck manufactured in the Netherlands. Leyland manufactures light commercial vehicles in the United Kingdom for sale throughout Europe under the DAF nameplate. During 1999, DAF continued its long-term design development under an agreement with Renault V.I. for a new light-line product. Trucks and related parts are sold to independent dealers for resale. 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 dealers. Trucks manufactured in Australia, Mexico, the Netherlands and the United Kingdom are marketed in their primary markets through independent dealers and a small number of factory branches. Trucks manufactured in these countries for export beyond their primary market area are marketed by DAF or PACCAR International. The Company's trucks are essentially custom products and have a reputation for high quality. For a majority of the Company's truck operations, major components, such as engines, transmissions and axles, as well as a substantial percentage of other components, are purchased from component manufacturers pursuant to PACCAR and customer specifications. DAF, which is more vertically integrated, manufactures its own engines and axles. 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 significant component. No significant shortages of materials or components were experienced in 1999. 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 Company's parts distribution network. Parts are both manufactured by the Company and purchased from various suppliers. Replacement parts inventory levels are determined largely by anticipated customer demand and the need for timely delivery. There were four other principal competitors in the U.S. Class 8 truck market in 1999. The Company's share of that market was approximately 21% of registrations in 1999. There were seven other principal competitors in the European medium and heavy commercial vehicle market in 1999, including parent companies to three competitors of the Company in the United States. The Company's subsidiary, DAF, had approximately a 10% share of the western Europe heavy-truck market. These markets are 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. -3- The Peterbilt, Kenworth, DAF and Foden nameplates 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 had a total production backlog of over $3 billion at the end of 1999. Within this backlog, orders scheduled for delivery within three months (90 days) are considered to be firm. The 90-day backlog approximated $1.9 billion at December 31, 1999 compared with approximately $1.7 billion at year-end 1998. Production of the year-end 1999 backlog is expected to be completed during 2000. The number of persons employed by the Company in its truck business at December 31, 1999 was approximately 19,500. OTHER BUSINESSES Other businesses of the Company accounted for 3% of total 1999 net sales. This group included industrial winches and PACCAR Automotive Inc., a wholly owned subsidiary. Winches are manufactured in two U.S. plants and are marketed under the Braden, Carco, and Gearmatic nameplates. The markets for all of these products are highly competitive and the Company competes with a number of well established firms. PACCAR Automotive purchased and sold general automotive parts and accessories through retail locations under the names of Grand Auto and Al's Auto Supply. These locations were supplied from the subsidiary's distribution warehouses. The company sold this subsidiary during the fourth quarter of 1999. The Braden, Carco, and Gearmatic 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. FINANCIAL SERVICES In North America, Australia and the United Kingdom, the Company provides financing principally for its manufactured trucks through six wholly owned finance companies. 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 truck and other transportation equipment sold principally by its independent dealers. Customer contracts are secured by the products financed. PACCAR has a 49% equity ownership in DAF Financial Services in Europe. This investment, which is recorded under the equity method, is not material. -4- PACCAR Leasing Corporation (PLC), a wholly owned subsidiary, franchises selected Company truck dealers in North America 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. The subsidiary also operates full service leasing operations primarily in Texas on its own behalf. 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 technical centers dedicated to product testing and research and development activities. Additional product development activities are conducted within each separate manufacturing division. Amounts spent on research and development approximated $125 million in 1999, $119 million in 1998 and $84 million in 1997. 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 international, 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, 1999, the Company employed a total of approximately 21,000 persons. -5- ITEM 2. PROPERTIES The Company and its subsidiaries own and operate manufacturing plants in five U.S. states, four locations in Europe, and one each in Australia, Canada and Mexico. Several parts distribution centers, sales and service offices, and finance and administrative offices are also operated in owned or leased premises in these and other countries. DAF operates sales subsidiaries in owned or leased premises in various countries throughout Europe. Facilities for product testing and research and development are located in Skagit County, Washington and Eindhoven, the Netherlands. The Company's corporate headquarters is located in owned premises in Bellevue, Washington. The Company considers substantially all of the properties used by its businesses to be suitable for their intended purposes. The Company's Canadian plant, which was closed during 1996-1998, has been rebuilt. It reopened and began production in August 1999. Most of the Company's manufacturing facilities operated near their productive capacities for most of 1999. Geographical locations of manufacturing plants within indicated industry segments are as follows:
U.S. Canada Australia Mexico Europe Trucks 5 1 1 1 4 Other 2 - - - -
Properties located in Auburn, Washington, Oakland and Torrance, California and Odessa, Texas 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 1999. -6- PART II ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS Common Stock Market Prices and Dividends on page 47 of the Annual Report to Stockholders for the year ended December 31, 1999 are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data on page 46 of the Annual Report to Stockholders for the year ended December 31, 1999 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 23 through 28 of the Annual Report to Stockholders for the year ended December 31, 1999 is incorporated herein by reference. ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative disclosures about market risk on pages 48 and 49 of the Annual Report to Stockholders for the year ended December 31, 1999 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, 1999 are incorporated herein by reference: Consolidated Balance Sheets -- December 31, 1999 and 1998 Consolidated Statements of Income -- Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity -- Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Comprehensive Income -- Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows -- Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements -- December 31, 1999, 1998 and 1997 Quarterly Results (Unaudited) on page 47 of the Annual Report to Stockholders for the years ended December 31, 1999 and 1998 are incorporated herein by reference. -7- 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. 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, and business experience on pages 4 and 5 of the proxy statement for the annual stockholders meeting of April 25, 2000 is incorporated herein by reference. Item 401(b) of Regulation S-K: Executive Officers of the registrant as of February 25, 2000:
Present Position and Other Position(s) Name and Age Held During Last Five Years - ------------ ----------------------------------------- Mark C. Pigott (46) Chairman and Chief Executive Officer; Vice Chairman from January 1995 to December 1996; previously Executive Vice President. Mr. Pigott is the son of Charles M. Pigott and nephew of James C. Pigott, both directors of the Company. David J. Hovind (59) President since 1992. Michael A. Tembreull (53) Vice Chairman; Executive Vice President from January 1992 to January 1995. Gary S. Moore (56) Senior Vice President, Vice President March 1997 to January 1999, Senior Vice President September 1992 to February 1997. Thomas E. Plimpton (50) Executive Vice President; Senior Vice President from June, 1996 to July, 1998; General Manager, Peterbilt Motors Company from January, 1992 to May, 1996. Patrick F. Flynn (44) Vice President, Chief Information Officer; Chief Information Officer from October 1997 to January 1998; previously Vice President of Systems Development, Fruit of the Loom, Inc. G. Don Hatchel (55) Vice President and Controller since 1991. G. Glen Morie (57) Vice President and General Counsel since 1984.
Officers are elected annually but may be appointed or removed on interim dates. -8- ITEM 11. EXECUTIVE COMPENSATION Compensation of Directors and Executive Officers and Related Matters on pages 6 through 11 of the proxy statement for the annual stockholders meeting of April 25, 2000 is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Stock ownership information on pages 3 through 4 of the proxy statement for the annual stockholders meeting of April 25, 2000 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No transactions with management and others as defined by Item 404 of Regulation S-K occurred in 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Listing of financial statements The following consolidated financial statements of PACCAR Inc and subsidiaries, included in the Annual Report to Stockholders for the year ended December 31, 1999 are incorporated by reference in Item 8: Consolidated Balance Sheets -- December 31, 1999 and 1998 Consolidated Statements of Income -- Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity -- Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Comprehensive Income -- Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows -- Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements -- December 31, 1999, 1998 and 1997 (2) Listing of financial statement schedules All schedules for which provision has been made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or have been otherwise disclosed and, therefore, have been omitted. -9- (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 29, 1997 (incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1997). (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 10, 1998 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 4.1 of the Current Report on Form 8-K of PACCAR Inc dated December 21, 1998). (b) Indenture for Senior Debt Securities dated as of December 1, 1983, and first Supplemental Indenture dated as of June 19, 1989, 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. dated March 26, 1984, File Number 0-12553 and Exhibit 4.2 to PACCAR Financial Corp.'s registration statement on Form S-3 dated June 23, 1989, Registration No. 33-29434). (c) 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). (d) Forms of Medium-Term Note, Series H (incorporated by reference to Exhibits 4.3A and 4.3B to PACCAR Financial Corp.'s Registration Statement on Form S-3, dated March 11, 1996, Registration Number 333-01623). Form of Letter of Representation among PACCAR Financial Corp., Citibank, N.A. and the Depository Trust Company, Series H (incorporated by reference to Exhibit 4.4 to PACCAR Financial Corp.'s Registration Statement on Form S-3 dated March 11, 1996, Registration Number 333-01623). -10- (e) Forms of Medium-Term Note, Series I (incorporated by reference to Exhibits 4.3A and 4.3B to PACCAR Financial Corp.'s Registration Statement on Form S-3 dated September 10, 1998, Registration Number 333-63153). Form of Letter of Representation among PACCAR Financial Corp., Citibank, N.A. and the Depository Trust Company, Series I (incorporated by reference to Exhibit 4.5 to PACCAR Financial Corp.'s Registration Statement on Form S-3 dated September 10, 1998, Registration Number 333-63153). (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 C of the 1997 Proxy Statement, dated March 20, 1997). (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). (h) PACCAR Inc Senior Executive Incentive Plan (incorporated by reference to Exhibit D of the 1997 Proxy Statement, dated March 20, 1997). (13) Annual report to security holders Portions of the 1999 Annual Report to Shareholders have been incorporated by reference and are filed herewith. (21) Subsidiaries of the registrant (23) Consent of independent auditors (24) Power of attorney Powers of attorney of certain directors -11- (27) Financial Data Schedule (a) For the 12 months ended December 31, 1999 (b) No reports on Form 8-K were filed for the three months ended December 31, 1999. (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules All schedules are omitted because the required matter or conditions are not present or because the information required by the schedules is submitted as part of the consolidated financial statements and notes thereto. -12- 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 Date: March 17, 2000 /s/ M. C. Pigott --------------------------------- ------------------------------------- M. C. 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 indicated. Signature Title - --------- ----- /s/ M. A. TEMBREULL Director and Vice Chairman - ------------------------------ M. A. Tembreull (Principal Financial Officer) /s/ G. D. Hatchel Vice President and Controller - ------------------------------ G. D. Hatchel (Principal Accounting Officer) */s/ C. M. Pigott Director and Chairman Emeritus - ------------------------------ C. M. Pigott */s/ D. J. Hovind Director and President - ------------------------------ D. J. Hovind */s/ H. A. Wagner Director and Audit Committee Member - ------------------------------ H. A. Wagner */s/ J. C. Pigott Director and Chairman of Audit - ------------------------------ J. C. Pigott Committee */s/ J. M. Fluke, Jr. Director and Audit Committee Member - ------------------------------ J. M. Fluke, Jr. */s/ D. K. Newbigging Director - ------------------------------ D. K. Newbigging */s/ G. Grinstein Director - ------------------------------ G. Grinstein */s/ W. G. Reed, Jr. Director and Audit Committee Member - ------------------------------ W. G. Reed, Jr. *By /s/ M. C. Pigott -------------------------- M. C. Pigott Attorney-in-Fact -13- ANNUAL REPORT ON FORM 10-K ITEM 14(c) CERTAIN EXHIBITS YEAR ENDED DECEMBER 31, 1999 PACCAR INC AND SUBSIDIARIES BELLEVUE, WASHINGTON EX-13 2 EX-13 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - -------------------------------------------------------------------------------- (tables in millions, except per share data) RESULTS OF OPERATIONS:
1999 1998 1997 - ----------------------------------------------------------------- Truck and Other Net sales $ 8,648.2 $ 7,577.7 $ 6,479.4 Financial Services Revenues $ 372.8 $ 317.1 $ 284.3 ================================================================= Income before taxes: Truck and Other $ 774.2 $ 557.6 $ 383.0 Financial Services 77.8 62.2 71.3 Gain on sale of subsidiary 33.2 55.7 Investment income 38.0 33.3 24.7 Income taxes (339.6) (236.3) (190.1) - ----------------------------------------------------------------- Net income $ 583.6 $ 416.8 $ 344.6 Diluted earnings per share $ 7.41 $ 5.30 $ 4.41 =================================================================
OVERVIEW: PACCAR is a multinational company whose principal businesses include the design, manufacture and distribution of high-quality light-, medium- and heavy-duty commercial trucks and related aftermarket parts. A significant portion of the Company's income is derived from the financing and leasing of its trucks and related equipment. The Company also manufactures industrial winches. PACCAR achieved record sales and income in 1999. Net income was $583.6 million, or $7.41 per share diluted, on sales of over $8.6 billion for the year. This compares to 1998 net income of $416.8 million, or $5.30 per share diluted, on sales of $7.6 billion. The primary reason for the increase in sales and net income for 1999 was a 15% increase in the number of trucks sold worldwide to a record 108,000. Net income in 1999 also benefited from improved gross margins, operating efficiencies and cost reduction efforts. Truck and other gross margins (net sales less cost of sales) improved to 15.8% in 1999 from 15.1% in 1998. Selling, general and administrative expenses (SG&A) were comparable to 1998 in spite of the higher sales levels. As a percent of sales, SG&A was 6.7% in 1999 versus 7.7% in 1998. Financial services also experienced a significant increase in new business volume due primarily to the Company's record heavy-duty truck sales. Net income for 1999 included a $33.2 million ($17.5 million after-tax) gain on the sale of the Company's retail automotive parts business, PACCAR Automotive, Inc. Net income in 1997 included a $55.7 million ($35 million after-tax) gain on the sale of its oilfield equipment business, Trico Industries. These divestitures have enabled the Company to focus on its core truck and related financial service businesses. TRUCK The primary segment for PACCAR continues to be the manufacture of trucks, accounting for 97% of net sales in 1999, 96% in 1998 and 95% in 1997. The Truck segment includes all of the Company's domestic and international truck manufacturing and related aftermarket parts distribution operations. In North America, trucks are sold under the Kenworth and Peterbilt nameplates and, in Europe, under the DAF and Foden nameplates.
1999 1998 1997 - ----------------------------------------------------------------- Truck net sales $8,402.3 $7,270.4 $6,157.8 - ----------------------------------------------------------------- Truck income before taxes $ 758.7 $ 535.8 $ 357.7 =================================================================
23 PACCAR INC AND SUBSIDIARIES 1999 COMPARED TO 1998: PACCAR's worldwide truck sales increased 16% to $8.4 billion in 1999 on record sales volume of 108,000 trucks, solidifying PACCAR's position as one of the largest producers of medium- and heavy-duty trucks in the world. Truck income before taxes was a record $758.7 million, a 42% increase over the $535.8 million earned in 1998. Truck gross margins improved in 1999 from 1998 as a result of stronger market conditions, efficiencies of operating at higher production levels, cost reductions from global purchasing synergies and business process improvements resulting from the Company's Six Sigma program. In the United States, registrations of new heavy-duty trucks were at record levels in 1999. Of the 250,000 trucks registered, PACCAR achieved a 21% share, which was comparable to 1998. The European heavy-duty truck market increased 15% in 1999 to 245,000 units. DAF, with a strong product line-up led by the 95XF, achieved a 10% share of the European heavy-duty market in 1999. Sales in Europe represented approximately 25% of PACCAR's total truck sales revenue in 1999 as compared to 30% in 1998. The change in the relative percentage was due to the substantial growth in the U.S. market. PACCAR also has a significant market presence in Canada, Mexico and Australia. The combined sales from these three countries were slightly higher in 1999 versus 1998, and combined profits were comparable. None of these markets represented more than 6% of truck sales and profits in 1999. Lower commodity prices worldwide and an economic slowdown in Latin American and Asian markets negatively impacted truck export sales in 1999 and 1998. Sales and profits from this business were a minor portion of PACCAR's overall results. The Company's worldwide after-market parts distribution activities continued to grow in 1999. Operations in the United States and Europe benefited from the strong heavy-duty truck market, growth in the population of trucks in service, and marketing programs to promote parts sales. In 1999, significant spending was devoted to product development, business process improvements and systems enhancements. Research and development expense in 1999 amounted to $125 million, a 5% increase over 1998. 1998 COMPARED TO 1997: PACCAR's truck revenues increased 18% to $7.3 billion in 1998 on sales volume in excess of 93,800 trucks. Income before taxes from truck operations was $535.8 million, a 50% increase over the $357.7 million earned in 1997. The increase in sales and profit was primarily due to the increased levels of new heavy-duty truck registrations in both the United States and Europe. The percentage of consolidated truck revenues from PACCAR operations in Europe was approximately 30% in both 1998 and 1997. Sales and profits outside the United States and Europe increased, largely due to stronger overall markets in Mexico and Australia. In Canada, sales and profits were comparable in 1998 and 1997. The Company's truck after-market parts distribution operations improved in 1998 over 1997 due to the rising number of heavy-duty trucks in service, and growth in the truck parts distribution network. 24 TRUCK OUTLOOK As the Company enters 2000, orders and backlogs have strengthened in Europe, and plans are in place to increase build rates. Orders and backlog for PACCAR operations in the United States and Canada have declined in recent months as a result of lower used truck prices, higher fuel prices and higher interest rates. Production rates for trucks in those markets may need to be reduced, reflecting this lower demand. With the reopening of PACCAR's plant in Quebec, Canada, the Company plans to further increase its share of the North American medium-duty truck market. The state-of-the-art facility has the capacity to produce up to 20,000 medium-duty trucks annually. FINANCIAL SERVICES The Financial Services segment, which includes wholly owned subsidiaries in the United States, Canada, Mexico, Australia and the United Kingdom, derives its earnings primarily from financing or leasing PACCAR products. PACCAR has a 49% equity ownership in DAF Financial Services in Europe. This investment, which is recorded under the equity method, is not material.
1999 1998 1997 - ----------------------------------------------------------------- Financial Services: Average earning assets $3,999.7 $3,210.3 $2,818.9 Revenues $ 372.8 $ 317.1 $ 284.3 Income before taxes $ 77.8 $ 62.2 $ 71.3 =================================================================
1999 COMPARED TO 1998: Financial Services income before taxes increased 25% to $77.8 in 1999 from $62.2 million in 1998. Increased revenues from asset portfolio growth in both foreign and domestic finance operations and lower SG&A expenses were partially offset by a higher provision for loan losses. The loss provision increase is consistent with the rapid growth in finance and lease portfolio assets. SG&A expenses in 1998 included a $7.5 million one-time write-off of capitalized costs for a discontinued information system development project. 1998 COMPARED TO 1997: Financial Services operations earned $62.2 million before taxes in 1998 compared to $71.3 million in 1997. Increased revenues from asset portfolio growth in both foreign and domestic finance operations were more than offset by higher SG&A expenses, including a $7.5 million systems write-off, and a higher provision for loan losses. FINANCIAL SERVICES OUTLOOK In late 1999, the U.S. finance company experienced increased credit losses due in part to higher fuel prices that have reduced operating margins for many truck operators. Management expects this recent trend to continue in the near term until fuel prices decline or the higher costs are passed on to the truck operators' customers. Despite recent trends, the overall portfolio quality remains good. OTHER BUSINESSES The Company also has a winch manufacturing business and, prior to its sale in October 1999, a retail auto parts operation. Sales of these other businesses together represent less than 5% of net sales for 1999, 1998 and 1997. 25 PACCAR INC AND SUBSIDIARIES 1999 COMPARED TO 1998: PACCAR's winch business reported a moderate decline in sales and operating profit compared to 1998 results. The decline is due primarily to a weakening of both domestic and international markets for winches and related products. Sales and profit for the Company's retail automotive parts operations declined from 1998, and the business was sold in the fourth quarter of 1999. 1998 COMPARED TO 1997: PACCAR's winch business reported an excellent year in 1998. Sales and operating profits increased over 1997. The business benefited from strong demand for its products in the U.S. market, and improved margins due to favorable product mix. Revenues from the Company's retail automotive parts business grew from the addition of new stores and modest gains in same store sales. Pretax income also increased for the sixth year in a row. LIQUIDITY AND CAPITAL RESOURCES:
1999 1998 1997 - ------------------------------------------------ Cash and cash equivalents $ 528.4 $ 432.4 $ 337.9 Marketable securities 530.7 404.8 357.0 - ------------------------------------------------ $1,059.1 $ 837.2 $ 694.9 ================================================
The Company's cash and marketable securities totaled $1,059.1 million at December 31, 1999, $221.9 million more than 1998. The growth can be attributed to record earnings in 1999, which increased cash from operations by $173.4 million to $840.2 million, and to the proceeds from the sale of the Company's retail auto parts business. This increase was partially offset by additional capital expenditures, higher dividends paid and cash utilized for the Financial Services operations. The Company's Board of Directors has authorized the repurchase of two million shares of PACCAR stock under a stock repurchase program. Management believes the Company will complete the buyback during 2000. The Company's strong liquidity position continues to provide financial stability and strength. TRUCK AND OTHER Cash for working capital, capital expenditures, e-commerce initiatives and research and development has been provided primarily by operations. Management expects this method of funding to continue in the future. At the end of 1999, PACCAR's Canadian operations had new long-term debt totaling $62 million, including $47.5 million of commercial paper borrowings, that funded the construction and start-up of the new truck plant in Quebec. The variable interest rate exposure on these commercial paper borrowings was converted to a fixed rate through the use of interest-rate contracts. The Company has the ability to maintain these borrowings on a long-term basis. Substantially all of the remaining fixed and floating rate debt represents guilder-denominated borrowings resulting from the 1996 DAF acquisition. The remaining balance of this debt was $156 million at December 31, 1999. The guilder has weakened versus the U.S. dollar by approximately 25% from the date of the original borrowing. This has reduced the U.S. dollar requirement for payment of interest and principal related to this debt. 26 Expenditures for property, plant and equipment in 1999 totaled $253 million, including a $76 million investment in the Company's truck plant in Quebec. PACCAR also made significant investments in state-of-the-art computer systems to improve product design capabilities and efficiencies of its business processes, as well as in new product tooling to meet the demands of an aggressive product development plan. Over the last five years, the Company's worldwide capital spending, excluding the Financial Services segment, totaled over $735 million. Spending for ongoing capital investments is expected to decrease in 2000. Plant capacity expansions and enhancements in recent years have enabled the facilities to meet near-term market demand. However, the Company does expect to continue making significant investments in new product tooling, along with investments in new technology and systems to support business process improvements. 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. An additional source of funds includes capital contributions and intercompany loans from PACCAR. Growth in net finance and leasing assets continues to be funded primarily with external borrowings by the finance and leasing companies. In 1998, PACCAR Financial Corp. (PFC) filed a shelf registration under which $1 billion of medium-term notes could be issued as needed. At the end of 1999, $195 million of this registration was still available for issuance. PFC is preparing to file a new shelf registration under which an additional $2.5 billion of medium-term notes could be issued. This registration is expected to be completed by the end of first quarter 2000. To reduce exposure to fluctuations in interest rates, the Financial Services companies pursue a policy of obtaining funds with interest rate characteristics similar to those of the assets being funded. As part of this policy, the companies use interest-rate contracts. The permitted type of interest-rate contracts and transaction limits have been established by the Company's senior management, who receive periodic reports on the amount of contracts outstanding. 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. EURO CONVERSION: PACCAR's subsidiary, DAF Trucks N.V., located in the Netherlands, converted to the euro effective January 1, 1999. The cost of converting to the euro was not significant to PACCAR, and no incremental costs were passed on to customers. The increased price transparency, as a result of the euro, did not have a significant impact on overall margins in 1999, as DAF is a custom truck manufacturer and each truck is built to customer specification. While the long-term impact on PACCAR's financial condition and results of operations is expected to be minimal, the ultimate impact is dependent on future events, including market conditions. 27 PACCAR INC AND SUBSIDIARIES IMPACT OF ENVIRONMENTAL MATTERS: The Company, its competitors and industry in general are subject to various federal, state and local requirements relating to the environment. The Company believes its policies, practices and procedures are designed to prevent unreasonable risk of environmental damage and that its handling, use and disposal of hazardous or toxic substances have been in accordance with environmental laws and regulations enacted at the time such use and disposal occurred. Expenditures were approximately $3 million in 1999, $3 million in 1998 and $6 million in 1997 for costs related to environmental activities. The Company does not anticipate that the effects on future operations or cash flows will be materially greater than recent experience. The Company is involved in various stages of investigations and cleanup actions related to environmental matters. In certain of these matters, the Company has been designated as a "potentially responsible party" by the U.S. Environmental Protection Agency (EPA) or by a state-level environmental agency. At certain of these sites, the Company, together with other parties, is participating with the EPA and other state-level agencies both in cleanup studies and the determination of remedial action, as well as actual remediation procedures. 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 $27 million and $56 million. The Company has established a reserve to provide for estimated future environmental cleanup costs. In prior years, the Company was successful in recovering a portion of its environmental remediation costs from insurers, but does not believe future recoveries from insurance carriers will 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 cash flow, liquidity or financial condition. YEAR 2000 STATUS: The Company successfully completed all Year 2000 project work prior to December 31, 1999, and encountered no significant systems problems transitioning to the Year 2000. Mainframe computer systems, PC and LAN systems, embedded systems (including both the Company's internal machinery and equipment and the Company's products) and significant third party systems were reviewed and evaluated for non-compliance and, where necessary, modified or upgraded prior to year end to bring the systems into compliance. No issues were encountered with major vendors, the Company's independent dealers, banks or financial institutions or any other companies with which the Company has a relationship that had a significant adverse impact on the Company's business. The total cost to complete the Year 2000 projects was $26 million. Project costs were expensed as incurred and were funded from operations. The Company is not aware of any significant Year 2000 issues that remain which would materially impact the Company's results of operations, liquidity or capital resources in future periods. 28 CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1999 1998 1997 - ---------------------------------------------------------------------------------------- (millions except per share data) TRUCK AND OTHER: Net sales $ 8,648.2 $ 7,577.7 $ 6,479.4 COSTS AND EXPENSES Cost of sales 7,282.4 6,431.0 5,549.3 Selling, general and administrative 582.5 580.3 535.5 Interest and other, net 9.1 8.8 11.6 - ---------------------------------------------------------------------------------------- 7,874.0 7,020.1 6,096.4 - ---------------------------------------------------------------------------------------- TRUCK AND OTHER INCOME BEFORE INCOME TAXES 774.2 557.6 383.0 FINANCIAL SERVICES: REVENUES 372.8 317.1 284.3 COSTS AND EXPENSES Interest and other 214.1 173.8 151.5 Selling, general and administrative 60.2 67.1 53.6 Provision for losses on receivables 20.7 14.0 7.9 - ---------------------------------------------------------------------------------------- 295.0 254.9 213.0 - ---------------------------------------------------------------------------------------- FINANCIAL SERVICES INCOME BEFORE INCOME TAXES 77.8 62.2 71.3 Gain on sale of subsidiary 33.2 55.7 Investment income 38.0 33.3 24.7 - ---------------------------------------------------------------------------------------- TOTAL INCOME BEFORE INCOME TAXES 923.2 653.1 534.7 Income taxes 339.6 236.3 190.1 - ---------------------------------------------------------------------------------------- NET INCOME $ 583.6 $ 416.8 $ 344.6 ======================================================================================== NET INCOME PER SHARE Basic $ 7.46 $ 5.34 $ 4.43 ======================================================================================== Diluted $ 7.41 $ 5.30 $ 4.41 ======================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 78.2 78.1 77.8 ========================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 29 PACCAR INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
ASSETS DECEMBER 31 1999 1998 - ----------------------------------------------------------------------------------- (MILLIONS OF DOLLARS) TRUCK AND OTHER: CURRENT ASSETS Cash and cash equivalents $ 511.5 $ 410.3 Trade and other receivables, net of allowance for losses (1999 - $35.7 and 1998 - $24.2) 570.2 606.0 Marketable securities 530.7 404.8 Inventories 384.5 511.1 Deferred taxes and other current assets 122.1 98.2 - ----------------------------------------------------------------------------------- TOTAL TRUCK AND OTHER CURRENT ASSETS 2,119.0 2,030.4 Equipment on lease, goodwill and other 356.2 301.5 Property, plant and equipment, net 875.3 827.7 - ----------------------------------------------------------------------------------- TOTAL TRUCK AND OTHER ASSETS 3,350.5 3,159.6 - ----------------------------------------------------------------------------------- FINANCIAL SERVICES: Cash and cash equivalents 16.9 22.1 Finance and other receivables, net of allowance for losses (1999 - $81.3 and 1998 - $67.1) 4,766.5 3,790.4 Less unearned interest (326.3) (267.4) - ----------------------------------------------------------------------------------- 4,440.2 3,523.0 Equipment on operating leases, net 91.2 65.3 Other assets 34.2 24.8 - ----------------------------------------------------------------------------------- TOTAL FINANCIAL SERVICES ASSETS 4,582.5 3,635.2 - ----------------------------------------------------------------------------------- $7,933.0 $6,794.8 ===================================================================================
30
LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 31 1999 1998 - ------------------------------------------------------------------------------------------------- (MILLIONS OF DOLLARS) TRUCK AND OTHER: CURRENT LIABILITIES Accounts payable and accrued expenses $1,259.5 $1,293.9 Current portion of long-term debt and commercial paper 70.1 43.8 Dividend payable 125.3 125.0 Income taxes 78.9 56.4 - ------------------------------------------------------------------------------------------------- TOTAL TRUCK AND OTHER CURRENT LIABILITIES 1,533.8 1,519.1 Long-term debt 182.2 204.3 Other, including deferred taxes 395.7 336.4 - ------------------------------------------------------------------------------------------------- TOTAL TRUCK AND OTHER LIABILITIES 2,111.7 2,059.8 - ------------------------------------------------------------------------------------------------- FINANCIAL SERVICES: Accounts payable, accrued expenses and other 114.9 83.6 Commercial paper and bank loans 2,113.4 1,617.8 Long-term debt 1,292.3 1,106.9 Deferred income taxes and other 190.1 162.5 - ------------------------------------------------------------------------------------------------- TOTAL FINANCIAL SERVICES LIABILITIES 3,710.7 2,970.8 - ------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock, no par value - authorized 1.0 million shares, none issued Common stock, $1 par value - authorized 200.0 million shares, 78.3 million shares issued and outstanding 78.3 78.1 Additional paid-in capital 626.9 620.2 Retained earnings 1,580.9 1,185.7 Accumulated other comprehensive income (loss) (175.5) (119.8) - ------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 2,110.6 1,764.2 - ------------------------------------------------------------------------------------------------- $7,933.0 $6,794.8 =================================================================================================
See notes to consolidated financial statements. 31 PACCAR INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
DECEMBER 31 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- (MILLIONS OF DOLLARS EXCEPT PER SHARE DATA) COMMON STOCK, $1 PAR VALUE: Balance at beginning of year $ 78.1 $ 77.8 $ 466.4 Reduction in par value from $12 per share to $1 per share (427.8) Stock split 38.9 Stock options exercised .2 .3 .3 - --------------------------------------------------------------------------------------------------------- Balance at end of year $ 78.3 $ 78.1 $ 77.8 - --------------------------------------------------------------------------------------------------------- ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year $ 620.2 $ 609.9 $ 219.0 Reduction in par value from $12 per share to $1 per share 427.8 Stock split (38.9) Other, including options exercised and tax benefit 6.7 10.3 2.0 - --------------------------------------------------------------------------------------------------------- Balance at end of year $ 626.9 $ 620.2 $ 609.9 - --------------------------------------------------------------------------------------------------------- RETAINED EARNINGS: Balance at beginning of year $1,185.7 $ 940.8 $ 757.7 Net income 583.6 416.8 344.6 Cash dividends declared on common stock, per share: 1999-$2.40; 1998-$2.20; 1997-$2.075 (188.4) (171.9) (161.5) - --------------------------------------------------------------------------------------------------------- Balance at end of year $1,580.9 $1,185.7 $ 940.8 - --------------------------------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME: NET UNREALIZED INVESTMENT GAINS (LOSSES): Balance at beginning of year $ 2.0 $ .9 $ .6 Net unrealized gains (losses) (8.4) 1.1 .3 - --------------------------------------------------------------------------------------------------------- Balance at end of year $ (6.4) $ 2.0 $ .9 - --------------------------------------------------------------------------------------------------------- CURRENCY TRANSLATION ADJUSTMENTS: Balance at beginning of year $ (121.8) $ (131.6) $ (85.7) Translation gains (losses) (47.3) 9.8 (45.9) - --------------------------------------------------------------------------------------------------------- Balance at end of year $ (169.1) $ (121.8) $ (131.6) - --------------------------------------------------------------------------------------------------------- Total accumulated other comprehensive income (loss) $ (175.5) $ (119.8) $ (130.7) - --------------------------------------------------------------------------------------------------------- Total Stockholders' Equity $2,110.6 $1,764.2 $1,497.8 =========================================================================================================
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - --------------------------------------------------------------------------------
DECEMBER 31 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- (MILLIONS OF DOLLARS) Net income $583.6 $416.8 $344.6 Other comprehensive income, net of tax: Currency translation adjustments (47.3) 9.8 (45.9) Net unrealized investment gains (losses) (8.4) 1.1 .3 - --------------------------------------------------------------------------------------------------------- Net other comprehensive income (loss) (55.7) 10.9 (45.6) - --------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME $527.9 $427.7 $299.0 =========================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 32
CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 1999 1998 1997 - --------------------------------------------------------------------------------------------------- (MILLIONS OF DOLLARS) OPERATING ACTIVITIES: NET INCOME $ 583.6 $ 416.8 $ 344.6 ITEMS INCLUDED IN NET INCOME NOT AFFECTING CASH: Depreciation and amortization 146.9 123.9 112.0 Provision for losses on financial services receivables 20.7 14.0 7.9 Gain on sale of subsidiary (33.2) (55.7) (Gain) Loss on sale of property, plant and equipment .1 4.7 (4.4) Other 4.1 53.0 8.5 CHANGE IN OPERATING ASSETS AND LIABILITIES: (Increase) Decrease in assets other than cash and equivalents: Receivables (19.1) (26.0) (81.9) Inventories 7.5 (88.0) (44.9) Other (6.9) (2.0) (15.7) Increase (Decrease) in liabilities: Accounts payable and accrued expenses 83.4 175.0 179.6 Other 53.1 (4.6) 15.0 - --------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 840.2 666.8 465.0 INVESTING ACTIVITIES: Finance receivables originated (2,390.9) (1,973.6) (1,509.9) Collections on finance receivables 1,720.6 1,332.9 1,248.6 Net decrease (increase) in wholesale receivables (259.4) (50.6) 37.8 Marketable securities purchased (907.4) (1,286.3) (2,307.9) Marketable securities sales and maturities 773.3 1,265.3 2,256.5 Proceeds from sale of subsidiary 143.2 105.0 Acquisition of business (75.2) Acquisition of property, plant and equipment (256.0) (192.9) (107.0) Acquisition of equipment for operating leases (50.4) (29.9) (26.0) Proceeds from asset disposals 25.6 44.3 41.7 Other (31.4) (7.0) (24.7) - --------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (1,232.8) (973.0) (285.9) FINANCING ACTIVITIES: Cash dividends paid (188.1) (163.6) (103.1) Stock option transactions 4.7 6.6 2.3 Net decrease in notes payable (347.4) Net increase in commercial paper and bank loans 512.0 539.4 133.8 Proceeds from long-term debt 679.1 612.1 801.7 Payments on long-term debt (481.2) (582.0) (582.8) - --------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 526.5 412.5 (95.5) Effect of exchange rate changes on cash (37.9) (11.8) 31.4 - --------------------------------------------------------------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 96.0 94.5 115.0 Cash and cash equivalents at beginning of year 432.4 337.9 222.9 - --------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 528.4 $ 432.4 $ 337.9 ===================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 33 PACCAR INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS) A. SUMMARY OF ACCOUNTING POLICIES ORGANIZATION: PACCAR Inc (the Company or PACCAR) is a multinational company with its largest operations in the United States and Europe. The Company's Truck and Financial Services segments also have operations in Canada, Australia and Mexico. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its wholly owned domestic and foreign subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. The equity method of accounting is used for investments in companies where PACCAR has a 20% to 50% ownership interest. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES: Cash equivalents consist of short-term liquid investments with a maturity at date of purchase of three months or less. Cash equivalents were $517.0 and $410.3 at December 31, 1999 and 1998, respectively. The Company's investments in cash equivalents and marketable securities are classified as debt securities 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 cost of debt securities available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Amortization of premiums, accretion of discounts, interest and dividend income are included as a component of investment income. The cost of securities sold is based on the specific identification method. INVENTORIES: Inventories are stated at the lower of cost or market. Cost of inventories in the United States is determined principally by the last-in, first-out (LIFO) method. Cost of all other inventories is determined principally by the first-in, first-out (FIFO) method. GOODWILL: Goodwill is amortized on a straight-line basis for periods ranging from 15 to 25 years. At December 31, 1999 and 1998, goodwill amounted to $76.4 and $106.4, net of accumulated amortization of $13.2 and $16.9, respectively. The decrease in net goodwill in 1999 is primarily due to the sale of a subsidiary. Amortization of goodwill totaled $4.2 in 1999, $4.7 in 1998 and $5.1 in 1997. Annual amortization expense is impacted by the effect of movements in the exchange rate used to translate amounts from the Company's foreign subsidiaries. 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. REVENUE RECOGNITION: Substantially all sales of trucks and related aftermarket parts are recorded by the Company when products are shipped to dealers or customers except as described below. Generally, interest income from finance receivables is recognized using the interest method. Certain sales of trucks through dealers in Europe include a guarantee of resale value to the customer. Revenues related to these sales are recognized over the guarantee period. The liability associated with the resale value guarantees is included in "Other, including deferred taxes", and amounted to $186 and $93, including deferred revenue of $71 and $33, at December 31, 1999 and 1998, respectively. The carrying value of the related trucks was $139.2 and $59.8, net of accumulated depreciation, at December 31, 1999, and 1998 respectively, and is included in "Equipment on lease, goodwill and other." ESTIMATED CREDIT LOSSES: The provision for losses on net 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 estimated credit losses. Receivables are charged to this allowance when, in the judgment of management, they are deemed uncollectible (usually upon repossession of the collateral). 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS) DERIVATIVE FINANCIAL INSTRUMENTS: The Company does not engage in derivatives trading, market-making or other speculative activities. The Company enters into agreements to manage certain exposures to fluctuations in interest rates and foreign currency. It uses interest-rate contracts to match the interest-rate characteristics of the Company's finance receivables with the borrowings used to fund those receivables. Interest-rate contracts generally involve the exchange of fixed and floating rate interest payments without the exchange of the underlying principal. Net amounts paid or received are reflected as adjustments to interest expense. To mitigate the effect of changes in currency exchange rates, PACCAR regularly enters into currency exchange contracts to hedge its net foreign currency exposure. Gains and losses on these contracts are deferred and included in the measurement of the related foreign currency transaction when completed. PACCAR has currency exchange exposure for the value of the U.S. dollar compared to the Canadian dollar. With respect to Europe, PACCAR has currency exposure for the value of the euro compared to the British pound. When the U.S. dollar or the euro strengthens relative to the Canadian dollar or the British pound, the translated value of sales in the other currencies decreases. When the U.S. dollar or the euro weakens, the translated value of sales in the other currencies increases. Overall, PACCAR is a net receiver of Canadian dollars and British pounds and benefits from a weaker U.S. dollar or euro. RESEARCH AND DEVELOPMENT: Research and development costs are expensed as incurred. Amounts charged against income were $125 in 1999, $119 in 1998 and $84 in 1997. NEW ACCOUNTING STANDARDS: In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 137, ACCOUNTING FOR DERIVATIVE AND HEDGING ACTIVITIES-DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133. PACCAR will adopt SFAS 133 in the first quarter of 2001. The impact of adoption is not expected to be material to PACCAR's consolidated financial position or results of operations. RECLASSIFICATIONS: Certain prior-year amounts have been reclassified to conform to the 1999 presentation. B. INVESTMENTS IN MARKETABLE SECURITIES All investments in securities were classified as available-for-sale at December 31, 1999 and 1998. Marketable debt securities at December 31, 1999, were as follows:
AMORTIZED FAIR COST VALUE - --------------------------------------------------- U.S. government securities $ 55.1 $ 54.4 Tax-exempt securities 481.3 477.2 Other debt securities 514.6 516.1 - --------------------------------------------------- $1,051.0 $1,047.7 ===================================================
Marketable debt securities at December 31, 1998, were as follows:
AMORTIZED FAIR COST VALUE - --------------------------------------------------- U.S. government securities $ 65.9 $ 66.3 Tax-exempt securities 325.1 327.3 Other debt securities 421.0 421.5 - --------------------------------------------------- $ 812.0 $ 815.1 ===================================================
Fair value of investments in marketable debt securities was as follows:
1999 1998 - ------------------------------------------- TRUCK AND OTHER: Cash and equivalents $ 511.5 $ 404.9 Marketable securities 530.7 404.8 Financial Services: Cash and equivalents 5.5 5.4 - ------------------------------------------- $1,047.7 $ 815.1 ===========================================
The contractual maturities of debt securities at December 31, 1999, were as follows:
AMORTIZED FAIR MATURITIES: COST VALUE - --------------------------------------------------- One year or less $ 536.4 $ 535.6 After one to five years 480.1 477.0 After five years and beyond 34.5 35.1 - --------------------------------------------------- $1,051.0 $1,047.7 ===================================================
The Company also has investments in marketable equity securities which are included in "Equipment on lease, goodwill and other" in 1999. The amortized cost and fair value of these investments were $25.7 and $19.3, respectively, at December 31, 1999. In 1999, the difference between amortized cost and fair value represented gross unrealized holding losses. In 1998, gross unrealized holding gains and losses were not significant. Gross realized gains and losses were not significant for the three years ended December 31, 1999. 35 PACCAR INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS) C. INVENTORIES
1999 1998 - -------------------------------------------- Inventories at cost: Finished products $203.4 $328.2 Work in process and raw materials 305.8 308.2 - -------------------------------------------- 509.2 636.4 Less LIFO reserve (124.7) (125.3) - -------------------------------------------- $384.5 $511.1 ============================================
Inventories valued using the LIFO method comprised 51% and 55% of consolidated inventories before deducting the LIFO reserve at December 31, 1999 and 1998, respectively. The decrease in inventory in 1999 is primarily due to the sale of the retail auto parts subsidiary. D. FINANCE AND OTHER RECEIVABLES 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. The Company's finance and other receivables are as follows:
1999 1998 - ---------------------------------------------------------- Retail notes and contracts $3,182.2 $2,667.9 Wholesale financing 447.3 187.2 Direct financing leases 1,189.4 980.9 Interest and other receivables 28.9 21.5 - ---------------------------------------------------------- 4,847.8 3,857.5 Less allowance for losses (81.3) (67.1) - ---------------------------------------------------------- 4,766.5 3,790.4 Unearned interest: Retail notes and contracts (161.5) (135.3) Direct financing leases (164.8) (132.1) - ---------------------------------------------------------- (326.3) (267.4) - ---------------------------------------------------------- $4,440.2 $3,523.0 ==========================================================
Annual payments due on retail notes and contracts for the five years beginning January 1, 2000, are $1,205.9, $840.6, $628.2, $344.8, $130.6 and $32.1 thereafter. Estimated residual values included with direct financing leases amounted to $65.4 in 1999 and $52.3 in 1998. Annual minimum lease payments due on direct financing leases for the five years beginning January 1, 2000, are $314.3, $278.3, $236.2, $166.2, $88.8 and $40.2 thereafter. E. ALLOWANCE FOR LOSSES The allowance for losses on Truck and Other and Financial Services receivables is summarized as follows:
TRUCK FINANCIAL AND OTHER SERVICES - --------------------------------------------------------- Balance, January 1, 1997 $18.2 $54.0 Provision for losses 3.2 7.9 Net losses, including translation (2.6) (4.4) - --------------------------------------------------------- Balance, December 31, 1997 18.8 57.5 Additions: Provision for losses 5.5 14.0 Resulting from acquisitions .2 Net losses, including translation (.3) (4.4) - --------------------------------------------------------- Balance, December 31, 1998 24.2 67.1 Provision for losses 17.1 20.7 Net losses, including translation (5.6) (6.5) - --------------------------------------------------------- Balance, December 31, 1999 $35.7 $81.3 =========================================================
The Company's customers are principally concentrated in the transportation industry. There are no significant concentrations of credit risk in terms of a single customer or geographic region. Generally, financial services receivables are collateralized by financed equipment. In 1999, the provision for Truck and Other was primarily for estimated losses related to a customer in Europe. F. EQUIPMENT ON OPERATING LEASES Equipment leased to customers under 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.
1999 1998 - --------------------------------------------------------- Transportation equipment $111.2 $82.1 Less allowance for depreciation (20.0) (16.8) - --------------------------------------------------------- $ 91.2 $65.3 =========================================================
Original terms of operating leases generally range up to 84 months. Annual minimum lease payments due on operating leases for the five years beginning January 1, 2000, are $19.4, $16.4, $13.2, $8.1 and $4.5. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS) G. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment include the following:
1999 1998 - ---------------------------------------------- Land $ 65.0 $ 63.4 Buildings 488.5 486.7 Machinery and equipment 987.1 951.1 - ---------------------------------------------- 1,540.6 1,501.2 Less allowance for depreciation (665.3) (673.5) - ---------------------------------------------- $ 875.3 $ 827.7 ==============================================
H. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses include the following:
1999 1998 - ------------------------------------------------- TRUCK AND OTHER: Accounts payable $ 619.8 $ 671.6 Salaries and wages 134.1 130.0 Warranty and self-insurance reserves 230.9 218.0 Other 274.7 274.3 - ------------------------------------------------- $1,259.5 $1,293.9 ================================================= FINANCIAL SERVICES: Accounts payable $30.2 $22.1 Payable to dealers 68.0 41.5 Other 16.7 20.0 - ------------------------------------------------- $114.9 $83.6 =================================================
I. BORROWINGS AND CREDIT ARRANGEMENTS
INTEREST RATE 1999 1998 - ----------------------------------------------------- TRUCK AND OTHER: Current portion of long-term debt $ 43.0 $ 43.8 Commercial paper 5.0% 27.1 - ----------------------------------------------------- $ 70.1 $ 43.8 ===================================================== Long-term debt: Fixed rate debt 5.1% $103.6 $168.9 Floating rate debt 3.2% 59.9 79.2 Commercial paper 5.8% 47.5 Noninterest bearing notes 14.2 - ----------------------------------------------------- 225.2 248.1 Less current portion (43.0) (43.8) - ----------------------------------------------------- $182.2 $204.3 =====================================================
Interest expense on external borrowings amounted to $14.4, $13.0 and $15.0 for 1999, 1998 and 1997, respectively. The interest rate on the floating rate debt is based on the Amsterdam Interbank Offered Rate. The interest rate on commercial paper included in long-term debt is an effective rate and includes the effect of interest-rate agreements. Commercial paper classified as long-term debt is based on management's ability and intent to maintain these borrowings on a long-term basis. Annual maturities for long-term debt for the five years beginning January 1, 2000, are $43.0, $40.3, $99.6, $7.8 and $6.8, respectively.
EFFECTIVE RATE 1999 1998 - -------------------------------------------------------- Financial Services: Commercial paper 5.7% $1,830.3 $1,511.5 Bank loans 6.3% 283.1 106.3 - -------------------------------------------------------- $2,113.4 $1,617.8 ======================================================== Long-term debt: Fixed rate 6.1% $1,151.3 $ 963.9 Floating rate 5.4% 141.0 143.0 - -------------------------------------------------------- 1,292.3 1,106.9 - -------------------------------------------------------- $3,405.7 $2,724.7 ========================================================
The effective rate is the weighted average rate as of December 31, 1999, and includes the effects of interest-rate agreements. Annual maturities of long-term debt for the five years beginning January 1, 2000, are $569.2, $425.5, $209.7, $82.5 and $5.4, respectively. CONSOLIDATED: Interest paid on consolidated borrowings was $191.6 in 1999, $188.0 in 1998 and $143.6 in 1997. The weighted average interest rate on consolidated commercial paper and bank loans was 5.99%, 5.34% and 5.78% at December 31, 1999, 1998 and 1997, respectively. The Company has line of credit arrangements of $1,446.9, most of which are reviewed annually for renewal. The unused portion of these credit lines was $1,072.4 at December 31, 1999, 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. In addition, at December 31, 1999, there was $195 of medium-term debt available for issuance under an outstanding shelf registration. 37 PACCAR INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS) J. LEASES The Company leases computer equipment and office space under operating leases. Leases expire at various dates through the year 2009. Annual minimum rental payments due under operating leases for the five years beginning January 1, 2000, are $15.9, $12.1, $7.2, $4.7, $4.1 and $4.8 thereafter. Total rental expenses under all leases for the three years ended December 31, 1999, were $34.6, $27.5 and $19.1, respectively. K. SALES AND ACQUISITION OF BUSINESSES In October 1999, PACCAR sold its retail automotive parts and accessories business to CSK Auto, Inc., an automotive aftermarket specialty retailer based in Phoenix, Arizona, for $143.2 in cash, resulting in a $33.2 pretax gain. On June 2, 1998, PACCAR acquired Leyland Trucks Ltd., a manufacturer of light- and medium-duty trucks in the United Kingdom. PACCAR used the purchase method of accounting for the acquisition. The consolidated financial statements include Leyland operations subsequent to the acquisition date. Due to the supplier-customer relationship of Leyland to DAF, a substantial portion of Leyland's sales eliminate in consolidation. In December 1997, PACCAR sold Trico Industries, its oilfield equipment business, to an oil services company based in Houston, Texas, for $105 in cash, resulting in a $55.7 pretax gain. L. RETIREMENT PLANS PACCAR has several defined benefit pension plans which cover a majority of its employees. The following data relate to all pension plans of the Company except for certain union-negotiated, multi-employer and foreign insured plans.
1999 1998 1997 - ---------------------------------------------------------------------------------- WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31: Discount rate 7.0% 7.0% 7.5% Rate of increase in future compensation levels 4.8% 4.8% 4.8% Assumed long-term rate of return on plan assets 8.0% 8.0% 8.0% - ----------------------------------------------------------------------------------
1999 1998 - ---------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at January 1 $ 447.7 $ 365.4 Service cost 24.2 18.0 Interest cost 31.3 26.7 Actuarial loss 20.6 27.9 Plan amendments 11.7 Acquisition of Leyland Trucks Ltd. 21.5 Benefits paid (16.5) (11.8) - ---------------------------------------------------------------------------------- Benefit obligation at December 31 $ 519.0 $ 447.7 ================================================================================== CHANGE IN PLAN ASSETS: Fair value of plan assets at January 1 $ 479.5 $ 402.2 Actual return on plan assets 58.4 57.1 Employer contributions 13.0 7.4 Acquisition of Leyland Trucks Ltd. 24.6 Benefits paid (16.5) (11.8) - ---------------------------------------------------------------------------------- Fair value of plan assets at December 31 $ 534.4 $ 479.5 ================================================================================== FUNDED STATUS AT DECEMBER 31: Funded status $ 15.4 $ 31.8 Unrecognized actuarial gain (73.9) (59.2) Unrecognized prior service cost 20.8 10.6 Unrecognized net initial (asset) obligation (2.2) (2.4) - ---------------------------------------------------------------------------------- Net liability $ (39.9) $ (19.2) ================================================================================== DETAILS OF NET ASSET (LIABILITY) RECORDED: Prepaid benefit costs $ 6.6 $ 13.3 Accrued benefit liability (50.9) (35.2) Intangible asset 4.4 2.7 - ---------------------------------------------------------------------------------- Net liability $ (39.9) $ (19.2) ==================================================================================
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS)
1999 1998 1997 - --------------------------------------------------------------- COMPONENTS OF PENSION EXPENSE: Service cost $24.2 $18.0 $15.0 Interest on projected benefit obligation 31.3 26.7 24.4 Expected return on assets (33.6) (29.1) (26.8) Amortization of prior service costs 3.0 2.0 2.0 Recognized actuarial gain (.3) (.4) (2.2) - --------------------------------------------------------------- Net pension expense $24.6 $17.2 $12.4 ===============================================================
Pension expense for union-negotiated, multi-employer and foreign insured plans was $15.0 in 1999, $16.7 in 1998 and $14.3 in 1997. Pension expense in 1999, 1998 and 1997 included $10.3, $12.3 and $10.8, respectively, for a foreign insured plan related to DAF Trucks. The Company has unfunded postretirement medical and life insurance plans covering approximately one-half of all U.S. employees that reimburse retirees for approximately 50% of their medical costs from retirement to age 65 and provide a nominal death benefit. The following data relate to unfunded post-retirement medical and life insurance plans.
1999 1998 - --------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at January 1 $ 29.1 $ 30.5 Service cost 2.1 1.6 Interest cost 2.0 1.6 Amendments 2.7 Actuarial gain (6.8) Benefits paid (.5) (.5) - --------------------------------------------------------------- Benefit obligation at December 31 $ 32.7 $ 29.1 =============================================================== UNFUNDED STATUS AT DECEMBER 31: Unfunded status $(32.7) $(29.1) Unrecognized actuarial (gain) loss (1.9) (1.9) Unrecognized prior service cost 2.9 3.1 Unrecognized net initial obligation 5.6 6.1 - --------------------------------------------------------------- Accrued postretirement benefits $(26.1) $(21.8) ===============================================================
1999 1998 1997 - ------------------------------------------------------------ COMPONENTS OF RETIREE EXPENSE: Service cost $2.1 $1.6 $1.8 Interest cost 2.0 1.6 2.2 Recognized actuarial (gain) loss .2 (.1) .2 Recognized net initial obligation .5 .5 .5 - ------------------------------------------------------------ Net retiree expense $4.8 $3.6 $4.7 ============================================================
The discount rate and long-term medical inflation rate used for calculating the accumulated plan benefits were 7.0% and 7.0%, respectively, for 1999 and 7.0% and 7.0%, respectively, for 1998. Assumed health care cost trends have a significant effect on the amounts reported for the postretirement health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1% 1% INCREASE DECREASE - -------------------------------------------------------- Effect on total of service and interest cost components $ .5 $(.4) Effect on accumulated postretirement benefit obligation $3.5 $(3.1)
The Company has certain defined contribution benefit plans whereby it generally matches employee contributions of 2% to 5% of base wages. The majority of participants in these plans are non-union employees located in the United States. Expenses for these plans were $13.3, $12.6 and $11.8 in 1999, 1998 and 1997, respectively. 39 PACCAR INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS) M. INCOME TAXES
1999 1998 1997 - ----------------------------------------------------------- INCOME BEFORE INCOME TAXES: Domestic $690.3 $385.3 $342.2 Foreign 232.9 267.8 192.5 - ----------------------------------------------------------- $923.2 $653.1 $534.7 =========================================================== PROVISION FOR INCOME TAXES: Current provision: Federal $229.3 $130.1 $123.5 Foreign 87.6 92.3 55.0 State 28.9 17.4 12.6 - ----------------------------------------------------------- 345.8 239.8 191.1 Deferred provision (benefit): Federal and state 3.9 (2.1) (8.0) Foreign (10.1) (1.4) 7.0 - ----------------------------------------------------------- (6.2) (3.5) (1.0) - ----------------------------------------------------------- $339.6 $236.3 $190.1 =========================================================== RECONCILIATION OF STATUTORY U.S. TAX TO ACTUAL PROVISION: Statutory rate 35% 35% 35% Statutory tax $323.1 $228.6 $187.2 Effect of: State income taxes 19.6 11.6 10.3 Other (3.1) (3.9) (7.4) - ----------------------------------------------------------- $339.6 $236.3 $190.1 ==========================================================
AT DECEMBER 31: 1999 1998 - ---------------------------------------------------------- COMPONENTS OF DEFERRED TAX ASSETS (LIABILITIES): ASSETS: Provisions for accrued expenses $133.9 $ 121.8 Allowance for losses on receivables 36.3 31.1 Net operating loss carryforwards 105.2 120.0 Other 46.9 35.8 - ---------------------------------------------------------- 322.3 308.7 Valuation reserve (102.5) (120.0) - ---------------------------------------------------------- 219.8 188.7 LIABILITIES: Asset capitalization and depreciation (49.6) (46.0) Financing and leasing activities (169.0) (146.8) Other (53.5) (60.1) - ---------------------------------------------------------- (272.1) (252.9) - ---------------------------------------------------------- Net deferred tax liability $ (52.3) $ (64.2) ==========================================================
AT DECEMBER 31: 1999 1998 - ---------------------------------------------------------- CLASSIFICATION OF DEFERRED TAX ASSETS (LIABILITIES): TRUCK AND OTHER: Deferred taxes and other current assets $118.0 $ 75.3 Equipment on lease, goodwill and other 10.0 17.4 Other, including deferred taxes (33.4) (30.0) FINANCIAL SERVICES: Deferred income taxes and other (146.9) (126.9) - ---------------------------------------------------------- Net deferred tax liability $(52.3) $ (64.2) ==========================================================
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 $533.0 at December 31, 1999. Leyland Trucks Ltd. unutilized net operating loss carryforwards and valuation reserves (tax effected) were $105.2 and $102.5 at December 31, 1999, and $120.0 and $120.0 at December 31, 1998, respectively. These net operating losses carry forward indefinitely, subject to certain limitations under United Kingdom law. Cash paid for income taxes was $317.3 in 1999, $228.3 in 1998 and $163.6 in 1997. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS) N. 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 is stated at 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 and wholesale financings, fair values are based on carrying values. For fixed-rate loans, fair values are estimated using discounted cash flow analysis 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 have been excluded from the accompanying table. 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 analysis, 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 that 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. The fair value of foreign exchange contracts is the amount the Company would receive or pay to terminate the contracts. This amount is calculated using quoted market rates. TRADE RECEIVABLES AND PAYABLES: Carrying amounts approximate 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 1999 AMOUNT VALUE - ---------------------------------------------------- TRUCK AND OTHER: Cash and equivalents $ 511.5 $ 511.5 Marketable securities 530.7 530.7 Long-term debt 225.2 218.9 FINANCIAL SERVICES: Cash and equivalents 16.9 16.9 Net receivables 3,442.5 3,391.3 Commercial paper and bank loans 2,113.4 2,113.4 Long-term debt 1,292.3 1,279.5
The Company's off-balance-sheet financial instruments consisted of interest-rate agreements and foreign currency exchange contracts. The interest-rate agreements represented an additional asset of $17.2, and the foreign currency exchange contracts represented an additional liability of $2.0 if recorded at fair value at December 31, 1999.
CARRYING FAIR 1998 AMOUNT VALUE - ---------------------------------------------------- TRUCK AND OTHER: Cash and equivalents $ 410.3 $ 410.3 Marketable securities 404.8 404.8 Long-term debt 248.1 252.5 FINANCIAL SERVICES: Cash and equivalents 22.1 22.1 Net receivables 2,694.5 2,697.4 Commercial paper and bank loans 1,617.8 1,617.8 Long-term debt 1,106.9 1,120.8
The Company's off-balance-sheet financial instruments consisted of interest-rate agreements and foreign currency exchange contracts. The fair value of the interest-rate agreements represented an additional liability of $7.4 if recorded at December 31, 1998. The fair value of foreign currency exchange contracts was immaterial. 41 PACCAR INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS EXCEPT PER SHARE AMOUNTS) O. DERIVATIVE FINANCIAL INSTRUMENTS INTEREST-RATE CONTRACTS: The Company enters into various interest-rate contracts, including interest-rate and currency swap, cap and forward-rate agreements. These contracts are used to manage exposures to fluctuations in interest rates. At December 31, 1999, the Company had 157 interest-rate contracts outstanding with other financial institutions. The notional amount of these contracts totaled $1,554, 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 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. Floating to fixed rate swaps effectively convert an equivalent amount of commercial paper and other variable rate debt to fixed rates. Notional maturities for the five years beginning January 1, 2000, are $661.2, $430.2, $274.2, $132.9, $37.4 and $18.5 thereafter. The weighted average pay rate of 5.8% approximates the Company's net cost of funds. The weighted average receive rate of 6.0% offsets rates on associated debt obligations. FOREIGN CURRENCY EXCHANGE CONTRACTS: PACCAR enters into foreign currency exchange contracts to hedge certain firm commitments denominated in foreign currencies. As a matter of policy, the Company does not engage in currency speculation. Foreign exchange contracts generally mature within six months. At December 31, 1999 and 1998, PACCAR had net foreign exchange purchase contracts outstanding amounting to $210 and $188 U.S. dollars, respectively. Approximately 80% of the 1999 amount and 90% of the 1998 amount represented contracts related to the U.S. and Canadian dollars. P. COMMITMENTS AND CONTINGENCIES The Company is involved in various stages of investigations and cleanup actions in different countries 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. While neither the timing nor the amount of the ultimate costs associated with future environmental cleanup can be determined, management does not expect that those matters will have a material adverse effect on the Company's consolidated financial position. PACCAR is a defendant in various legal proceedings and, in addition, there are various other contingent liabilities arising in the normal course of business. After consultation with legal counsel, management does not anticipate that disposition of these proceedings and contingent liabilities will have a material effect on the consolidated financial statements. At December 31, 1999, PACCAR had standby letters of credit outstanding totaling $25, which guarantee various insurance and financing activities. Q. STOCK COMPENSATION PLANS PACCAR uses the intrinsic value based method to account for stock options granted to employees. Since the Company awards stock options to its employees at an exercise price equal to the market price on the date of grant, no compensation expense is recognized. The effect on net income and net income per share of accounting for stock compensation expense through application of the Black-Scholes option pricing model would have been as follows:
1999 1998 1997 - ----------------------------------------------------------- PRO FORMA: Net income $580.0 $414.3 $342.5 Basic EPS 7.41 5.31 4.41 Diluted EPS 7.36 5.27 4.38 ===========================================================
The following assumptions were used for grants in 1999, 1998 and 1997: expected volatility of 44%, 38% and 31%; risk-free interest rate of 5.57%, 6.01% and 6.94%, and expected lives of 5 years. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS) Options granted over the three-year period ended December 31, 1999, totaled approximately 503,800, 306,600 and 409,000 for 1999, 1998 and 1997 with per share exercise prices of $53.78, $53.50 and $36.63, respectively. The fair value per share of options granted during this period amounted to $19.21, $17.17 and $9.44 for 1999, 1998 and 1997, respectively. Options vest at the beginning of the third year after the grant date. At December 31, 1999, options representing 1.8 million shares were outstanding with a weighted average exercise price of $39.04, of which 675,800 shares were exercisable. On January 1, 2000, approximately 348,000 additional shares became exercisable at a price of $36.63. All share amounts have been adjusted for the effects of the stock split declared in 1997. DILUTED EARNINGS PER SHARE: The following table shows the additional shares added to weighted average basic shares outstanding to calculate diluted earnings per share. These amounts primarily represent the dilutive effect of stock options. Options outstanding at each year-end with exercise prices in excess of the respective year's average common stock market price have been excluded from the amounts shown in the table.
1999 1998 1997 - ---------------------------------------------------- Additional shares 529,727 607,259 397,308 ====================================================
R. STOCKHOLDERS' EQUITY OTHER COMPREHENSIVE INCOME: Changes in unrealized investment holding losses were $8.4, net of related tax effects of $5.1, for the year ended December 31, 1999. Reclassification adjustments were not material. Changes in unrealized investment holding gains or losses, reclassification adjustments and related tax effects were immaterial for the years ended December 31, 1998 and 1997. REDUCTION IN PAR VALUE AND INCREASE IN NUMBER OF AUTHORIZED SHARES: At the Annual Meeting held on April 29, 1997, the stockholders approved an amendment to the Certificate of Incorporation reducing the par value of the common stock from $12 to $1 per share, and increasing the number of authorized shares of common stock from 100 million to 200 million. As a result of the reduction in par value, the common stock account was reduced by $427.8 and the additional paid-in capital account was increased by the same amount. STOCK SPLIT: On April 29, 1997, the Board of Directors declared a two-for-one stock split which was distributed on May 21, 1997, to stockholders of record at the close of business on May 9, 1997. All per share figures presented have been adjusted for the effects of the stock split. STOCKHOLDER RIGHTS PLAN: The plan provides one right for each share of PACCAR common stock outstanding. Rights become exercisable if a person publicly announces the intention to acquire 15% 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 two hundred dollars a fractional share of Series A Junior Participating Preferred Stock. Each 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 2009, 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. 43 PACCAR INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS) S. FOREIGN OPERATIONS AND CURRENCY TRANSLATION For most of PACCAR's foreign subsidiaries, the local currency is the functional currency and all assets and liabilities are translated at year-end exchange rates and all income statement amounts are translated at an average of the month-end rates. Adjustments resulting from this translation are recorded in a separate component of stockholders' equity. Also included are the effects of foreign denominated borrowings designated as hedges of certain net foreign investments. PACCAR uses the U.S. dollar as the functional currency for its Mexican subsidiaries. In addition, the Company's Netherlands subsidiary uses the euro as the functional currency for its subsidiary in the U.K. Accordingly, for these subsidiaries, inventories, cost of sales, property, plant and equipment, and depreciation were translated at historical rates. Resulting gains and losses are included in net income. Net foreign currency translations and transactions decreased net income by $5.9 in 1999, and $.2 in 1997, and increased net income by $3.1 in 1998. T. SEGMENT AND RELATED INFORMATION PACCAR operates in two principal industries, Trucks and Financial Services. The Truck segment is composed of the manufacture of trucks and the distribution of related parts which are sold through a network of company-appointed dealers. This segment derives a large proportion of its revenues and operating profits from operations in the United States and Europe. The Financial Services segment is composed of finance and leasing services provided to truck customers and dealers. Revenues and income before taxes are primarily generated from operations in the United States. Included in All Other is PACCAR's industrial winch manufacturing business and the retail auto parts business, which was sold in October 1999. Also included here are other sales, income and expense not attributable to a reportable segment, including a portion of corporate expense. In 1997, All Other included the Company's oilfield equipment business, which was sold in December 1997. Sales between reportable segments were insignificant. Intercompany interest income on cash advances to the financial services companies is included in All Other and was $11.9, $5.0 and $1.7 for 1999, 1998 and 1997, respectively. Geographic revenues from external customers are presented based on the country of the customer. PACCAR evaluates the performance of its Truck segment based on operating profits, which excludes investment income, other income and expense and income taxes. In prior years, the Truck segment also excluded goodwill amortization and included state income taxes. Prior years amounts have been reclassified to conform to the 1999 presentation. The Financial Services segment's performance is evaluated based on income before income taxes. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 1999, 1998 AND 1997 (CURRENCIES IN MILLIONS)
BUSINESS SEGMENT DATA 1999 1998 1997 - --------------------------------------------------------------------- Revenues: Net sales Truck $8,402.3 $7,270.4 $6,157.8 All other 245.9 307.3 321.6 - --------------------------------------------------------------------- 8,648.2 7,577.7 6,479.4 Financial Services revenues 372.8 317.1 284.3 - --------------------------------------------------------------------- $9,021.0 $7,894.8 $6,763.7 ===================================================================== Income before taxes: Truck $ 758.7 $ 535.8 $ 357.7 All other 15.5 21.8 25.3 - --------------------------------------------------------------------- 774.2 557.6 383.0 Financial Services 77.8 62.2 71.3 Gain on sale of subsidiary 33.2 55.7 Investment income 38.0 33.3 24.7 - --------------------------------------------------------------------- $ 923.2 $ 653.1 $ 534.7 ===================================================================== Depreciation and amortization: Truck $ 107.2 $ 91.7 $ 74.3 Financial Services 19.2 13.3 16.4 Other 20.5 18.9 21.3 - --------------------------------------------------------------------- $ 146.9 $ 123.9 $ 112.0 ===================================================================== Expenditures for long-lived assets: Truck $ 226.0 $ 142.9 $ 86.2 Financial Services 53.1 35.9 30.0 Other 27.3 44.0 16.8 - --------------------------------------------------------------------- $ 306.4 $ 222.8 $ 133.0 ===================================================================== Segment assets: Truck $2,158.3 $2,104.1 $1,752.0 Other 150.0 240.4 177.9 Cash and marketable securities 1,042.2 815.1 675.6 - --------------------------------------------------------------------- 3,350.5 3,159.6 2,605.5 Financial Services 4,582.5 3,635.2 2,993.9 - --------------------------------------------------------------------- $7,933.0 $6,794.8 $5,599.4 =====================================================================
GEOGRAPHIC AREA DATA 1999 1998 1997 - ---------------------------------------------------------------------------- Revenues: United States $5,720.2 $4,466.6 $3,835.6 Other 3,300.8 3,428.2 2,928.1 - ---------------------------------------------------------------------------- $9,021.0 $7,894.8 $6,763.7 ============================================================================ Long-lived assets: Property, plant and equipment, net United States $ 397.9 $ 420.4 $ 361.3 The Netherlands 163.6 187.3 168.7 Canada 94.8 19.3 11.6 Other 219.0 200.7 124.3 - ---------------------------------------------------------------------------- $ 875.3 $ 827.7 $ 665.9 ============================================================================ Goodwill and other, net The Netherlands $ 95.2 $ 114.8 $ 110.3 United States 11.3 12.1 Other 1.2 3.5 - ---------------------------------------------------------------------------- $ 96.4 $ 129.6 $ 122.4 ============================================================================ Equipment on lease, net United Kingdom $ 53.6 $ 7.4 $ 4.2 United States 42.1 43.5 46.0 France 36.4 20.8 Mexico 29.4 13.2 5.6 Other 68.9 40.2 - ---------------------------------------------------------------------------- $ 230.4 $ 125.1 $ 55.8 ============================================================================
45 PACCAR INC AND SUBSIDIARIES 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, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Seattle, Washington February 18, 2000 SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------- (millions except per share data) NET SALES $ 8,648.2 $ 7,577.7 $ 6,479.4 $ 4,334.4 $ 4,592.9 FINANCIAL SERVICES REVENUE 372.8 317.1 284.3 267.9 257.5 NET INCOME 583.6 416.8 344.6 201.0 252.8 NET INCOME PER SHARE: Basic 7.46 5.34 4.43 2.59 3.25 Diluted 7.41 5.30 4.41 2.59 3.25 Cash Dividends Declared 2.40 2.20 2.075 1.25 2.00 TOTAL ASSETS: Truck and Other 3,350.5 3,159.6 2,605.5 2,477.1 1,646.2 Financial Services 4,582.5 3,635.2 2,993.9 2,821.7 2,744.3 LONG-TERM DEBT: Truck and Other 182.2 204.3 236.6 32.9 10.7 Financial Services 1,292.3 1,106.9 1,097.7 1,112.0 1,149.6 STOCKHOLDERS' EQUITY $ 2,110.6 $ 1,764.2 $ 1,497.8 $ 1,358.0 $ 1,251.2 - -------------------------------------------------------------------------------------------------
All per share amounts have been restated to give effect to a two-for-one stock split declared in 1997. In 1999 and 1997, net income included $17.5 and $35, respectively, for after-tax gains on sale of subsidiaries. 46 QUARTERLY RESULTS (UNAUDITED) - --------------------------------------------------------------------------------
QUARTER FIRST SECOND THIRD FOURTH - ------------------------------------------------------------------------------------------------------------------- 1999 (MILLIONS EXCEPT PER SHARE DATA) Net Sales $2,068.6 $2,181.2 $ 2,174.8 $2,223.6 Truck and Other Gross Profit (Before SG&A and Interest) 312.8 338.6 351.1 363.3 Financial Services Gross Profit (Before SG&A) 37.0 37.7 40.2 43.8 Net Income 119.5 139.5 144.7 179.9 Net Income Per Share: Basic $ 1.53 $ 1.78 $ 1.85 $ 2.30 Diluted (1) 1.52 1.77 1.83 2.28 - ------------------------------------------------------------------------------------------------------------------- 1998 Net Sales $ 1,752.3 $ 1,849.4 $1,857.3 $ 2,118.7 Truck and Other Gross Profit (Before SG&A and Interest) 263.9 281.1 275.0 326.7 Financial Services Gross Profit (Before SG&A) 30.8 31.9 32.7 33.9 Net Income 100.4 104.9 96.6 114.9 Net Income Per Share: Basic $ 1.29 $ 1.34 $ 1.24 $ 1.47 Diluted 1.28 1.33 1.23 1.46 - -------------------------------------------------------------------------------------------------------------------
Fourth quarter 1999 net income includes a $17.5 after-tax gain on sale of subsidiary. (1) The sum of quarterly per share amounts may not equal per share amounts reported for year-to-date periods. This is due to changes in the number of weighted shares outstanding and the effects of rounding for each period. 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. There were 2,770 record holders of the common stock at December 31, 1999.
CASH CASH 1999 DIVIDENDS STOCK PRICE 1998 DIVIDENDS STOCK PRICE QUARTER DECLARED HIGH LOW QUARTER DECLARED HIGH LOW - -------------------------------------------------------------------------------- FIRST $ .20 $47 1/8 $39 1/2 First $ .15 $66 3/4 $47 1/2 SECOND .20 63 40 Second .15 63 50 5/8 THIRD .20 60 1/4 47 Third .15 53 40 FOURTH .20 51 7/16 39 13/16 Fourth .15 50 1/2 37 YEAR-END EXTRA 1.60 Year-End Extra 1.60 - --------------------------------------------------------------------------------
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. 47 PACCAR INC AND SUBSIDIARIES MARKET RISKS AND DERIVATIVE INSTRUMENTS - -------------------------------------------------------------------------------- (CURRENCIES IN MILLIONS) In the normal course of business, PACCAR holds or issues various financial instruments which expose the Company to market risk associated with market currency exchange rates and interest rates. Policies and procedures have been established by the Company to manage these market risks through the use of various derivative financial instruments. The Company does not engage in derivatives trading, market-making or other speculative activities. CURRENCY RISKS SEE NOTE A FOR A DESCRIPTION OF THE COMPANY'S EXPOSURE TO CURRENCY RISKS. To mitigate the short-term impact of changes in currency exchange rates, PACCAR regularly enters into currency exchange agreements to hedge a portion of its U.S. dollar denominated exposure in Canada over a period of up to to eight months. At December 31, 1999, the Company had U.S. dollar obligations of $120.1 related to firmly committed sales orders denominated in Canadian dollars. All transactions are expected to occur in 2000. The Company has related forward contracts to sell Canadian dollars for U.S. dollars in the notional amount of $107.0 to occur in 2000. Also, the Company had contracts to sell British pounds for euros in a notional amount equivalent to $40.5 to occur in 2000. INTEREST RATE RISKS SEE NOTE O FOR A DESCRIPTION OF THE COMPANY'S EXPOSURE TO INTEREST-RATE RISKS. The following table presents instruments which are subject to market risk exposure and, where applicable, the derivatives which are used to manage that risk.
EXPECTED MATURITY DATE ------------------------------------------------------------------------- FAIR 1999 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE - ---------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED: ASSETS CASH EQUIVALENTS AND MARKETABLE SECURITIES: CURRENT YEAR Fixed rate $ 412.8 $ 229.7 $ 163.6 $ 73.3 $ 10.4 $ 4.2 $ 894.0 $ 894.0 Average interest rate 4.1% 4.5% 5.3% 5.3% 5.8% 3.6% 4.5% Variable rate $ 122.8 $ 30.9 $ 153.7 $ 153.7 Average interest rate 5.8% 4.8% 5.6% PRIOR YEAR Fixed rate $ 444.7 $ 133.2 $ 221.2 $ 4.3 $ .4 $ 1.0 $ 804.8 $ 804.8 Average interest rate 4.4% 4.2% 4.0% 4.3% 4.3% 7.6% 4.3% Variable rate $ .3 $ 10.0 $ 10.3 $ 10.3 Average interest rate 5.1% 5.0% 5.0% TRUCK AND OTHER: LIABILITIES CURRENT YEAR Commercial paper $ 27.1 $ 27.1 $ 27.1 Average interest rate 5.0% 5.0% Long-term Debt: Commercial paper $ 6.8 $ 6.8 $ 6.8 $ 6.8 $ 6.8 $ 13.5 $ 47.5 $ 47.5 Average interest rate 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% Fixed rate $ 36.2 $ 33.5 $ 32.9 $ 1.0 $ 103.6 $ 104.7 Average interest rate 5.4% 5.0% 4.9% 9.4% 5.1% Variable rate long-term debt $ 59.9 $ 59.9 $ 59.9 Average interest rate 3.2% 3.2% Noninterest bearing notes $ 14.2 $ 14.2 $ 6.8 PRIOR YEAR Fixed rate long-term debt $ 43.4 $ 42.2 $ 39.1 $ 38.2 $ 6.0 $ 168.9 $ 173.3 Average interest rate 5.0% 5.0% 4.8% 4.8% 6.6% 4.9% Variable rate long-term debt $ 79.2 $ 79.2 $ 79.2 Average interest rate 3.5% 3.5% INTEREST RATE SWAPS RELATED TO COMMERCIAL PAPER CLASSIFIED AS LONG-TERM DEBT: CURRENT YEAR Pay fixed - receive variable $ 6.8 $ 6.8 $ 6.8 $ 6.8 $ 6.8 $ 13.5 $ 47.5 $ .8 Average pay rate 5.71% 5.71% 5.71% 5.71% 5.71% 5.71% 5.71% Average receive rate 4.95% 4.95% 4.95% 4.95% 4.95% 4.95% 4.95%
MARKET RISKS AND DERIVATIVE INSTRUMENTS - --------------------------------------------------------------------------------
EXPECTED MATURITY DATE --------------------------------------------------------------------------------- FAIR 1999 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE ---- ---- ---- ---- ---- ---- ---------- ----- ----- FINANCIAL SERVICES: ASSETS RETAIL NOTES, CONTRACTS AND WHOLESALE FINANCING, NET OF UNEARNED INTEREST, LESS ALLOWANCE FOR LOSSES: CURRENT YEAR Fixed rate $ 854.6 $ 717.6 $ 550.9 $ 306.6 $ 114.6 $ 24.2 $2,568.5 $ 2,516.6 Average interest rate 8.7% 8.5% 8.4% 8.2% 8.1% 7.9% 8.5% Variable rate $ 701.6 $ 64.4 $ 41.2 $ 20.8 $ 10.1 $ 6.9 $ 845.0 $ 845.0 Average interest rate 8.2% 9.5% 9.2% 8.5% 7.1% 7.0% 8.3% PRIOR YEAR Fixed rate $ 760.5 $ 641.7 $ 465.3 $ 268.1 $ 90.9 $ 6.0 $2,232.5 $2,236.0 Average interest rate 8.6% 8.4% 8.3% 8.0% 8.0% 7.5% 8.4% Variable rate $ 303.4 $ 57.7 $ 46.0 $ 24.8 $ 6.8 $ .9 $ 439.6 $ 439.6 Average interest rate 6.6% 6.4% 6.4% 6.5% 5.9% 6.8% 6.5% LIABILITIES CURRENT YEAR Commercial paper and bank loans $2,113.4 $2,113.4 $2,113.4 Average interest rate 6.0% 6.0% PRIOR YEAR Commercial paper and bank loans $ 1,617.8 $1,617.8 $1,617.8 Average interest rate 5.3% 5.3% Long-term Debt: CURRENT YEAR Fixed rate $ 459.2 $ 395.0 $ 209.2 $ 82.5 $ 5.4 $1,151.3 $1,138.5 Average interest rate 6.0% 6.2% 6.3% 6.2% 5.9% 6.1% Variable rate $ 110.0 $ 30.5 $ .5 $ 141.0 $ 141.0 Average interest rate 5.9% 6.5% 20.6% 6.1% PRIOR YEAR Fixed rate $ 292.1 $ 297.3 $ 255.1 $ 111.7 $ 7.4 $ .3 $ 963.9 $ 977.8 Average interest rate 6.2% 6.1% 6.1% 5.9% 6.3% 7.2% 6.1% Variable rate $ 140.0 $ 2.2 $ .7 $ .1 $ 143.0 $ 143.0 Average interest rate 6.3% 6.9% INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS RELATED TO DEBT: INTEREST RATE SWAPS: CURRENT YEAR Pay fixed - receive variable $ 654.4 $ 423.4 $ 267.3 $ 126.1 $ 30.6 $ 5.0 $ 1,506.8 $ 16.4 Average pay rate 5.68% 5.67% 5.84% 6.14% 6.27% 6.24% 5.76% Average receive rate 6.13% 6.00% 5.94% 5.93% 6.21% 6.46% 6.05% PRIOR YEAR PAY FIXED - RECEIVE variable $ 604.0 $ 408.8 $ 151.5 $ 64.3 $ 12.9 $ 4.0 $1,245.5 $ (7.4) Average pay rate 5.84% 5.66% 5.30% 5.54% 5.83% 5.37% 5.70% Average receive rate 5.45% 5.36% 5.21% 5.23% 5.28% 5.00% 5.38%
EX-21 3 EX-21 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT
State or Country of Names Under Which Company Name(a) Incorporation or 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 DAF Trucks PACCAR Financial Pty. Ltd. Australia PACCAR Financial Pty. Ltd. PACCAR U.K. Ltd. Delaware PACCAR U.K. Ltd. Foden Trucks PACCAR Mexico, S.A. de C.V. Mexico PACCAR Mexico, S.A. de C.V. KENFABRICA, S.A. de C.V. KENCOM, S.A. de C.V. Kenworth Mexicana S.A. de C.V. PACCAR Parts Mexico S.A. de C.V. PACCAR Capital Mexico S.A. de C.V. Paclease Mexicana 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 PACCAR Sales North America, Inc. Delaware PACCAR Sales North America PACCAR Holding B.V.(b) Netherlands PACCAR Holding B.V. DAF Trucks, N.V.(c) Netherlands DAF Trucks, N.V. Leyland DAF DAF Trucks Vlaanderen N.V.(d) Belgium DAF Trucks Vlaanderen N.V. Leyland DAF Trucks Ltd.(d) United Kingdom Leyland DAF Trucks Ltd. Leyland Trucks Limited(e) England Leyland Trucks Limited and Wales
(a) The names of some subsidiaries have been omitted. Considered in the aggregate, omitted subsidiaries would not constitute a significant subsidiary. (b) A wholly owned subsidiary of PACCAR Sales North America, Inc. (c) A wholly owned subsidiary of PACCAR Holding B.V. (d) A wholly owned subsidiary of DAF Trucks, N.V. (e) A subsidiary of Kepacourt Limited, an England and Wales corporation which is a subsidiary of PACCAR Trucks U.K. Ltd., an England and Wales corporation which is a subsidiary of PACCAR Holding B.V. EX-23 4 EX-23 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 18, 2000, included in the 1999 Annual Report to Shareholders of PACCAR Inc. 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 18, 2000, with respect to the consolidated financial statements of PACCAR Inc incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1999. /s/ Ernst & Young LLP ERNST & YOUNG LLP Seattle, Washington March 17, 2000 EX-24 5 EX-24 Exhibit 24 POWER OF ATTORNEY We, the undersigned directors of PACCAR Inc, a Delaware corporation, hereby severally constitute and appoint M. C. 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, 1999, 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 9th day of December 1999. /s/J. M. Fluke, Jr. /s/J. C. Pigott - ---------------------------------- ----------------------------- J. M. Fluke, Jr. J. C. Pigott Director, PACCAR Inc Director, PACCAR Inc /s/G. GRINSTEIN /s/H. A. WAGNER - ---------------------------------- ----------------------------- G. Grinstein H. A. Wagner Director, PACCAR Inc Director, PACCAR Inc /s/D. K. NEWBIGGING /s/W. G. REED, JR. - ---------------------------------- ----------------------------- D. K. Newbigging W. G. Reed, Jr. Director, PACCAR Inc Director, PACCAR Inc /s/D. J. HOVIND /s/M. A. TEMBREULL - ---------------------------------- ----------------------------- D. J. Hovind M. A. Tembreull Director, PACCAR Inc Director, PACCAR Inc /s/C. M. PIGOTT - ---------------------------------- C. M. Pigott Director, PACCAR Inc EX-27 6 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999, 1998, AND 1997, AND FROM THE CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1999 AND 1998 OF PACCAR INC AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 DEC-31-1999 528,400 530,700 5,127,400 117,000 384,500 0 1,651,800 685,300 7,933,000 0 1,474,500 0 0 78,300 2,032,300 7,933,000 8,648,200 9,021,000 7,282,400 7,496,500 0 37,800 14,400 923,200 339,600 583,600 0 0 0 583,600 7.46 7.41
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