-----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, RN8ZC4g8Xgy/Khbr1byTp0Gz4oct9O+XES5R9OU1loiqOeSjxVEc/xGoQTZxZKz2 z+ORqOsgxKjO9cp01LpRow== 0000912057-96-005057.txt : 19960326 0000912057-96-005057.hdr.sgml : 19960326 ACCESSION NUMBER: 0000912057-96-005057 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960325 SROS: NASD 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-06394 FILM NUMBER: 96537925 BUSINESS ADDRESS: STREET 1: 777 106TH AVE NE CITY: BELLEVUE STATE: WA ZIP: 98004 BUSINESS PHONE: 2064557400 MAIL ADDRESS: STREET 1: 777 106TH AVENUE NE CITY: BELLEVUE STATE: WA ZIP: 98004 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC CAR & FOUNDRY CO DATE OF NAME CHANGE: 19720707 10-K405 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 [Fee Required] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 Commission File No. 0-6394 PACCAR INC - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) DELAWARE 91-0351110 - -------------------------------------- -------------------------------------- (State of incorporation) (I.R.S. Employer Identification No.) 777 - 106TH AVE. N.E., BELLEVUE, WASHINGTON 98004 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (206) 455-7400 ------------------ Securities registered pursuant to Section 12(g) of the Act: Common Stock, $12 par value Preferred Stock Purchase Rights - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 1, 1996: COMMON STOCK, $12 PAR VALUE -- $1,636,758,926 The number of shares outstanding of the issuer's classes of common stock, as of March 1, 1996: COMMON STOCK, $12 PAR VALUE -- 38,862,359 SHARES DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 1995 are incorporated by reference into Parts I and II. Portions of the proxy statement for the annual stockholders meeting to be held on April 30, 1996 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 U.S., the Company's manufacturing operations are conducted through unincorporated manufacturing divisions and a wholly owned subsidiary. Each of the divisions and the subsidiary are responsible for at least one of the Company's products. That responsibility includes new product development, applications engineering, manufacturing and marketing. Outside the U.S., the Company manufactures and sells through wholly owned foreign subsidiary companies in Canada, Australia and Mexico, and the United Kingdom through a wholly owned U.S. subsidiary. In August 1995, the Company acquired the remaining 45% ownership of VILPAC, S.A. (VILPAC), its Mexican affiliate. An export sales division generally is responsible for export sales. Product financing and leasing is offered through U.S. and foreign finance subsidiaries. A U.S. subsidiary is responsible for retail automotive parts sales. (b) Financial Information About Industry Segments and Geographic Areas Information about the Company's industry segments and geographic areas in response to Items 101(b), (c)(1)(i), and (d) of Regulation S-K appears on pages 38 and 39 of the Annual Report to Stockholders for the year ended December 31, 1995 and is incorporated herein by reference. (c) Narrative Description of Business The Company has three principal industry segments, (1) manufacture of heavy- duty trucks and distribution of related parts, (2) automotive parts sales and related services, and (3) finance and leasing services provided to customers and dealers. Manufactured products also include industrial winches and oilfield equipment. The Company competes in the truck parts aftermarket primarily through its dealer network. It sells general automotive parts and accessories through retail outlets. The Company's finance and leasing activities are principally related to Company products and associated equipment. TRUCKS The Company designs and manufactures trucks which are marketed under the Peterbilt, Kenworth, and Foden nameplates in the Class 8 diesel category (having a minimum gross vehicle weight of 33,000 pounds). These vehicles, which are built in five plants in the U.S. and one each in Australia, Canada, the United Kingdom and Mexico, are used worldwide for over-the-road and off-highway heavy-duty hauling of freight, petroleum, wood products, construction and other materials. Heavy-duty trucks and related service parts are the largest segment of the Company's business, accounting for 89% of total 1995 revenues. -2- The Company competes in the North American Class 6/7 markets with cab- over-engine and conventional models. These medium-duty trucks are assembled at several PACCAR factories in North America. In the third quarter of 1995, the Company relocated Kenworth North American Class 7 production from Ste. Therese, Canada to VILPAC, its Mexican subsidiary in Mexicali, Mexico. This line of business represents a small percentage of the Company's sales to date. Trucks are sold to independent dealers for resale. The Company's U.S. independent dealer network consists of 292 outlets. Trucks manufactured in the U.S. for export are marketed by PACCAR International, a U.S. division. Those sales are made through a worldwide network of 38 dealers. Trucks manufactured in Canada, Australia, Mexico and the United Kingdom are marketed domestically through independent dealers and factory branches; trucks manufactured in these countries for export are also marketed by PACCAR International. The Company's trucks are essentially custom products and have a reputation for high quality. Major components, such as engines, transmissions and axles, as well as a substantial percentage of other components, are purchased from component manufacturers pursuant to customer specifications. Raw materials and other components used in the manufacture of trucks are purchased from a number of suppliers. The Company is not limited to any single source for any major component. No significant shortages of materials or components were experienced in 1995 and none are expected in 1996. Manufacturing inventory levels are based upon production schedules and orders are placed with suppliers accordingly. Replacement truck parts are sold and delivered to the Company's independent dealers through the PACCAR Parts Division. Parts are both manufactured by PACCAR and purchased from various suppliers. Replacement parts inventory levels are determined largely by anticipated customer demand and the need for timely delivery. There were six principal competitors in the U.S. Class 8 truck market in 1995. PACCAR's share of that market was approximately 21% of registrations in 1995. The market is highly competitive in price, quality and service, and PACCAR is not dependent on any single customer for its sales. There are no significant seasonal variations. The Kenworth, Peterbilt and Foden trademarks and trade names are recognized internationally and play an important role in the marketing of the Company's truck products. The Company engages in a continuous program of trademark and trade name protection in all marketing areas of the world. Although the Company's truck products are subject to environmental noise and emission controls, competing manufacturers are subject to the same controls. The Company believes the cost of complying with noise and emission controls will not be detrimental to its business. -3- The Company's truck sales backlog (subject to cancellation in certain events) at year-end 1995 was approximately $2 billion. This compares with $3.1 billion at year-end 1994. Production of the year-end 1995 backlog is expected to be completed during 1996. The number of persons employed by the Company in its truck business at December 31, 1995 was approximately 10,000. OTHER MANUFACTURED PRODUCTS Other products manufactured by the Company account for 3% of total 1995 revenues. This group includes industrial winches and oilfield extraction pumps and service equipment. Winches are manufactured in two U.S. plants and are marketed under the Braden, Carco, and Gearmatic nameplates. Oilfield extraction pumps and service equipment are marketed under the Trico, Kobe, Unidraulic and Oilmaster nameplates through the Company's wholly owned subsidiary, Trico. In 1995 Trico relocated its headquarters and consolidated its manufacturing to locations in Texas. The markets for all of these products are highly competitive and the Company competes with a number of well established firms. The Braden, Carco, Gearmatic, Trico, Kobe, Unidraulic and Oilmaster trademarks and trade names are recognized internationally and play an important role in the marketing of those products. The Company has an ongoing program of trademark and trade name protection in all relevant marketing areas. AUTOMOTIVE PARTS The Company purchases and sells general automotive parts and accessories, which account for 4% of total 1995 revenues, through 124 retail locations under the names of Grand Auto and Al's Auto Supply. These locations are supplied from the Company's distribution warehouses. FINANCE COMPANIES In North America, Australia and the United Kingdom, the Company provides financing principally for its manufactured trucks through five 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 trucks and other transportation equipment sold by its independent dealers. Customer contracts are secured by the products financed. LEASING COMPANIES PACCAR Leasing Corporation (PLC), a wholly owned subsidiary, franchises selected PACCAR truck dealers to engage in full service truck leasing under the PacLease trade name. PLC also leases equipment to and provides managerial and sales support for its franchisees. A division of PACCAR of Canada Ltd. conducts similar leasing operations in Canada. RAILEASE Inc, a wholly owned subsidiary, leases railcars to a railroad. -4- GENERAL INFORMATION PATENTS The Company owns numerous patents which relate to all product lines. Although these patents are considered important to the overall conduct of the Company's business, no patent or group of patents is considered essential to a material part of the Company's business. RESEARCH AND DEVELOPMENT The Company maintains a technical center where product testing and research and development activities are conducted. Additional product development activities are conducted within each separate manufacturing division. Amounts spent on research and development were approximately $37 million in 1995, $35 million in 1994 and $22 million in 1993. REGULATION As a manufacturer of highway trucks, the Company is subject to the National Traffic and Motor Vehicle Safety Act and Federal Motor Vehicle Safety Standards promulgated by the National Highway Traffic Safety Administration. The Company believes it is in compliance with the Act and applicable safety standards. Information regarding the effects that compliance with federal, state and local provisions regulating the environment have on the Company's capital and operating expenditures and the Company's involvement in environmental cleanup activities is included in Management's Discussion and Analysis of Financial Condition and Results of Operations and the Company's Consolidated Financial Statements incorporated by reference in Items 7 and 8, respectively. EMPLOYEES On December 31, 1995, the Company employed a total of approximately 14,000 persons. ITEM 2. PROPERTIES The Company and its subsidiaries own and operate manufacturing plants in five U.S. states, Canada, Australia, Mexico and the United Kingdom. Several parts distribution centers, sales and service facilities and finance and administrative offices are also operated in owned or leased premises in these five countries. A facility for product testing and research and development is located in Skagit County, Washington. Retail auto parts sales locations are primarily in leased premises in five western states. The Company's corporate headquarters is located in owned premises in Bellevue, Washington. -5- The Company considers substantially all of the properties used by its businesses to be suitable for their intended purposes. Due to improved business conditions in 1995 in the markets served by the Company's business segments, many of the Company's manufacturing facilities operated at or near their productive capacities. Geographical locations of manufacturing plants within indicated industry segments are as follows:
United U.S. Canada Australia Mexico Kingdom Trucks 5 1 1 1 1 Other 4 - - - -
Properties located in Torrance, and Huntington Park, California; Bradford, Pennsylvania; and Seattle, Washington are being held for sale. These properties were originally obtained principally as a result of business acquisitions in 1987 and 1988. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are parties to various lawsuits incidental to the ordinary course of business. Management believes that the disposition of such lawsuits will not materially affect the Company's consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1995. -6- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Common Stock Market Prices and Dividends on page 40 of the Annual Report to Stockholders for the year ended December 31, 1995 are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data on page 41 of the Annual Report to Stockholders for the year ended December 31, 1995 are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 21 through 24 of the Annual Report to Stockholders for the year ended December 31, 1995 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, 1995 are incorporated herein by reference: Consolidated Balance Sheets -- December 31, 1995 and 1994 Consolidated Statements of Income -- Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity -- Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows -- Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements -- December 31, 1995, 1994 and 1993 Quarterly Results (Unaudited) on page 41 of the Annual Report to Stockholders for the years ended December 31, 1995 and 1994 are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The registrant has not had any disagreements with its independent auditors on accounting or financial disclosure matters. -7- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Item 401(a), (d), (e) and Item 405 of Regulation S-K: Identification of directors, family relationships, business experience and compliance with Section 16(a) of the Exchange Act on pages 3 and 4 of the proxy statement for the annual stockholders meeting of April 30, 1996 is incorporated herein by reference. Item 401(b) of Regulation S-K: Executive Officers of the registrant as of February 1, 1996: Present Position and Other Position(s) Name and Age Held During Last Five Years - ------------ ----------------------------------------------------- Charles M. Pigott (66) Chairman and Chief Executive Officer. Mr. Pigott is the father of Mark C. Pigott, a director of the Company and also an executive officer, and brother of James C. Pigott, a director of the Company. David J. Hovind (55) President; Executive Vice President from July 1987 to January 1992. Mark C. Pigott (41) Vice Chairman; Executive Vice President from December 1993 to January 1995; previously Senior Vice President. Mr. Pigott is the son of Charles M. Pigott, a director of the Company and also an executive officer, and nephew of James C. Pigott, a director of the Company. Michael A. Tembreull (49) Vice Chairman; Executive Vice President from January 1992 to January 1995; previously Senior Vice President. Gary S. Moore (52) Senior Vice President; General Manager, Kenworth Truck Company from March 1990 to August 1992. T. Ron Morton (49) Senior Vice President; President, PACCAR Financial Corp. since August, 1988. G. Don Hatchel (51) Vice President, Controller; Assistant Vice President and Controller from June 1990 to January 1991. G. Glen Morie (53) Vice President and General Counsel. 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 12 of the proxy statement for the annual stockholders meeting of April 30, 1996 is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Stock ownership information on pages 1 through 3 of the proxy statement for the annual stockholders meeting of April 30, 1996 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information on page 5 of the proxy statement for the annual stockholders meeting of April 30, 1996 is incorporated herein by reference. -9- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) and (2) - The response to this portion of Item 14 is submitted as a separate section of this report. (3) Listing of Exhibits (in order of assigned index numbers) (3) Articles of incorporation and bylaws (a) PACCAR Inc Certificate of Incorporation, as amended to April 27, 1990 (incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1990). (b) PACCAR Inc Bylaws, as amended to April 26, 1994 (incorpo- rated by reference to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1994). (4) Instruments defining the rights of security holders, including indentures (a) Rights agreement dated as of December 21, 1989 between PACCAR Inc and First Chicago Trust Company of New York setting forth the terms of the Series A Junior Participating Preferred Stock, no par value per share (incorporated by reference to Exhibit 1 of the Current Report on Form 8-K of PACCAR Inc dated December 27, 1989). (b) Indenture for Senior Debt Securities dated as of December 1, 1983 between PACCAR Financial Corp. and Citibank, N.A., Trustee (incorporated by reference to Exhibit 4.1 of the Annual Report on Form 10-K of PACCAR Financial Corp. for the year ended December 31, 1983). (c) First Supplemental Indenture dated as of June 19, 1989 between PACCAR Financial Corp. and Citibank, N.A., Trustee (incorporated by reference to Exhibit 4.2 to PACCAR Financial Corp.'s registration statement on Form S-3, Registration No. 33-29434). (d) Forms of Medium-Term Note, Series E (incorporated by reference to Exhibits 4.3A, 4.3B and 4.3C to PACCAR Finan- cial Corp.'s Registration Statement on Form S-3 dated June 23, 1989, Registration Number 33-29434, and Forms of Medium-Term Note, Series E, incorporated by reference to Exhibit 4.3B.1 to PACCAR Financial Corp.'s Current Report on Form 8-K, dated December 19, 1991, under Commission File Number 0-12553). Letter of Representation among PACCAR Financial Corp., Citibank, N.A. and the Depository Trust Company, Series E, dated July 6, 1989 (incorporated by reference to Exhibit 4.3 of PACCAR Financial Corp.'s Annual Report on Form 10-K, dated March 29, 1990. File Number 0-12553). -10- (e) Forms of Medium-Term Note, Series F (incorporated by reference to Exhibits 4.3A, 4.3B and 4.3C to PACCAR Financial Corp.'s Registration Statement on Form S-3 dated May 26, 1992, Registration Number 33-48118). Form of Letter of Representation among PACCAR Financial Corp., Citibank, N.A. and the Depository Trust Company, Series F (incorporated by reference to Exhibit 4.4 to PACCAR Financial Corp.'s Registration Statement on Form S-3 dated May 26, 1992, Registration Number 33-48118). (f) Forms of Medium-Term Note, Series G (incorporated by reference to Exhibits 4.3A and 4.3B to PACCAR Financial Corp.'s Registration Statement on Form S-3 dated December 8, 1993, Registration Number 33-51335). Form of Letter of Representation among PACCAR Financial Corp., Citibank, N.A. and the Depository Trust Company, Series G (incorporated by reference to Exhibit 4.4 to PACCAR Financial Corp.'s Registration Statement on Form S-3 dated December 8, 1993, Registration Number 33-51335). (g) 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) 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). -11- (e) Amendment to 1981 Long Term Incentive Plan (incorporated by reference to Exhibit (10)(a) of the Quarterly Report on Form 10-Q for the quarter ended March 31, 1991). (f) PACCAR Inc 1991 Long-Term Incentive Plan (incorporated by reference to Exhibit (10)(h) of the Quarterly Report on Form 10-Q for the quarter ended June 30, 1992). (g) Amended and Restated Deferred Incentive Compensation Plan (incorporated by reference to Exhibit (10)(g) of the Annual Report on Form 10-K for the year ended December 31, 1993). (13) Annual report to security holders Portions of the 1995 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 (27) Financial Data Schedule (b) No reports on Form 8-K were filed for the three months ended December 31, 1995. (c) Exhibits (d) Financial Statement Schedules -- The response to this portion of Item 14 is submitted as a separate section of this report. -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 /s/ C. M. Pigott ------------------------------------- C. M. Pigott, Director, Chairman and Chief Executive Officer Date: MARCH 25, 1996 -------------- 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 - -------------------------------------- (Principal Financial Officer) M. A. Tembreull /s/ G. D. Hatchel Vice President and Controller - -------------------------------------- (Principal Accounting Officer) G. D. Hatchel */s/ M. C. Pigott Director and Vice Chairman - -------------------------------------- M. C. Pigott */s/ D. J. Hovind Director and President - -------------------------------------- D. J. Hovind */s/ J. W. Pitts Director and Chairman of - -------------------------------------- Audit Committee J. W. Pitts */s/ J. C. Pigott Director and Audit Committee Member - -------------------------------------- J. C. Pigott */s/ J. M. Fluke, Jr. Director and Audit Committee Member - -------------------------------------- J. M. Fluke, Jr. */s/ H. J. Haynes Director - -------------------------------------- H. J. Haynes */s/ J. H. Wiborg Director - -------------------------------------- J. H. Wiborg */s/ R. P. Cooley Director - -------------------------------------- R. P. Cooley */s/ C. H. Hahn Director - -------------------------------------- C. H. Hahn *By /s/ C. M. Pigott - -------------------------------------- C. M. Pigott Attorney-in-Fact -13- ANNUAL REPORT ON FORM 10-K ITEM 14(a)(1) AND (2), (c) AND (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1995 PACCAR INC AND SUBSIDIARIES BELLEVUE, WASHINGTON -14- FORM 10-K -- ITEM 14(a)(1) AND (2) PACCAR INC AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of PACCAR Inc and subsidiaries, included in the Annual Report to Stockholders for the year ended December 31, 1995 are incorporated by reference in Item 8: Consolidated Balance Sheets -- December 31, 1995 and 1994 Consolidated Statements of Income -- Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity -- Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows -- Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements -- December 31, 1995, 1994 and 1993 The following consolidated financial statement schedule of PACCAR Inc and consolidated subsidiaries is included in Item 14(d): Schedule II -- Allowances for Losses All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. -15- PACCAR INC AND SUBSIDIARIES SCHEDULE II - ALLOWANCES FOR LOSSES (MILLIONS OF DOLLARS)
Additions Balance at Charged to Balance Year Ended Beginning Costs and at End December 31: of Period Expenses Deductions(1) of Period - ------------ ---------- ---------- ---------- --------- 1995 (A)Manufacturing $ 4.3 $ .1 $(1.4) $ 5.8 (B)Financial Services 41.1 14.3 (1.4) 56.8 ----- ----- ----- ----- $45.4 $14.4 $(2.8) $62.6 1994 (A)Manufacturing $ 2.2 $ 1.3 $ (.8) $ 4.3 (B)Financial Services 32.9 4.0 (4.2) 41.1 ----- ----- ----- ----- $35.1 $ 5.3 $(5.0) $45.4 1993 (A)Manufacturing $ 3.0 $ $ .8 $ 2.2 (B)Financial Services 30.9 9.2 7.2 32.9 ----- ----- ----- ----- $33.9 $ 9.2 $ 8.0 $35.1
(A) Allowance for losses deducted from trade receivables. (B) Allowance for losses deducted from notes, contracts, and other receivables. (1) Uncollectible trade receivables, notes, contracts and other receivables written off, net of recoveries. -16- EX-13 2 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (TABLES IN MILLIONS) RESULTS OF OPERATIONS:
1995 1994 1993 - --------------------------------------------------- Income Before Taxes:* Manufacturing $303.4 $255.1 $160.6 Financial Services 53.3 57.5 40.2 Investment income 27.7 24.1 17.9 Minority interest and other 15.2 (16.6) 1.1 Income taxes (146.8) (115.6) (77.6) - ---------------------------------------------------- Net Income $252.8 $204.5 $142.2 - ---------------------------------------------------- - ----------------------------------------------------
* VILPAC, S.A. IS REPORTED ON A CONSOLIDATED BASIS BEGINNING IN 1994. OVERVIEW: Net income in 1995 increased to $252.8 million, or $6.50 per share, compared to $204.5 million, or $5.26 per share, in 1994. Strong demand for Class 8 trucks, particularly in the United States and Canada, helped drive sales, net income and truck unit production to record levels. PACCAR set these records despite the ongoing difficulties in the Mexican economy. Manufacturing income before taxes rose to $303.4 million in 1995, compared to $255.1 million in 1994. The improvement resulted from increased margins and lower net selling, general and administrative (SG&A) expense. In 1995, SG&A expense decreased due to lower spending by VILPAC, S.A., the Company's Mexican subsidiary, partially offset by higher product development costs incurred by the Truck segment. Results in 1994 also were impacted by costs to consolidate the Company's oilfield equipment manufacturing operations to locations in Texas. Financial Services pretax income decreased to $53.3 million in 1995 from $57.5 million in 1994. While nearly all locations reported improved profitability, the Mexican operation's loan loss provisions more than offset the gains. Minority interest and other in 1995 includes a gain from the favorable resolution of litigation involving environmental cost reimbursements and the minority interest share of losses from VILPAC. The 1994 amount represents primarily the minority interest share of VILPAC earnings before taxes. After acquiring controlling interest of VILPAC in 1994, PACCAR purchased the remaining interest in 1995. Accordingly, beginning in 1994, the operations and financial position of VILPAC have been included in the Company's consolidated financial statements. PACCAR's consolidated results are most heavily influenced by the Truck segment. New orders for Class 8 trucks began to slow in 1995 across the entire industry. The lower order rate, which has continued into 1996, suggests the market has returned to more moderate demand levels. TRUCKS The Truck segment includes all of the Company's domestic and international truck manufacturing and related aftermarket parts distribution operations.
1995 1994 1993 - ------------------------------------------------------------ Truck revenues $4,291.6 $4,029.1 $3,130.9 - ------------------------------------------------------------ Pretax Income $321.1 $299.4 $194.0 - ------------------------------------------------------------
1995 COMPARED TO 1994: PACCAR's worldwide truck revenues increased 6.5% over 1994 levels to $4.3 billion and income before taxes from truck operations improved 7.2% to $321 million. PACCAR sold more than 54,000 trucks worldwide in 1995, breaking the previous sales record. Truck segment revenues accounted for approximately 89% of consolidated totals in both 1995 and 1994. Higher sales volumes provided most of the $21.7 million improvement in segment pretax income despite the severe sales decline in Mexico. Class 8 truck registrations in the United States increased 9% in 1995 to 207,000 units. In spite of capacity constraints at PACCAR's factories in the United States, the Company attained a market share of 21%, a slight decline from the 22% market share achieved in 1994. Revenues and profits from export sales in 1995 through PACCAR International Division were substantially improved over 1994. The Company continued to seek ways to expand its geographic coverage of the world truck markets and to increase market share in markets where its presence is already established. PACCAR INC AND SUBSIDIARIES 21 In August 1995, employees at the Company's plant in Canada went on strike. Since the commencement of the strike, PACCAR has met demand for Class 8 trucks in Canada with output from its factories in the United States, and expects to be able to continue this arrangement for as long as required. The Company reduced the plant work force and believes a protracted labor dispute will not have a materially adverse impact on future consolidated results. The percentage of 1995 consolidated revenues from PACCAR operations outside the United States and Canada declined to 7.5% from 14% in 1994. Mexican operations accounted for the majority of the decrease. Continuing economic difficulties in Mexico indicate recovery may occur slowly in that market. Combined sales and earnings of the Company's truck operations in Australia and the United Kingdom decreased slightly from 1994. PACCAR's Truck Parts Division also benefited from the strong overall truck market in the United States and Canada, experiencing higher sales and profits in 1995. The division added 25 dealer locations in 1995. In addition, the division increased market coverage by expanding its selection of maintenance and replacement products common to all makes of medium and heavy duty trucks. Sales of truck parts provide a solid base of profitability for the truck segment. In response to the industry-wide slowing in new truck orders, PACCAR announced build rate and work force reductions at its plants in the Pacific Northwest and Chillicothe, Ohio. Additional build rate reductions may be required as demand for new Class 8 trucks in the United States and Canada returns to more moderate levels from record levels reached in 1995. 1994 COMPARED TO 1993: Income before taxes and minority interest from PACCAR's worldwide truck operations was $299.4 million in 1994 on sales of $4.0 billion. In 1993, truck operations earned $194.0 million on sales of $3.1 billion. The consolidation of VILPAC in 1994 accounted for approximately 30% of the increase in sales. PACCAR sold nearly 53,000 trucks worldwide in 1994, compared to 44,000 in 1993. The Truck segment provided 89% of PACCAR's consolidated revenues in 1994, compared to 88% in 1993. In the United States, a larger overall market and similar market share established the basis for improved results. Reduction in unit costs from higher plant capacity utilization combined with modest price increases resulted in improved gross profit margins. In Canada, a stronger truck market led to higher unit sales and increased revenues, which were somewhat offset by lower margins due to the decline in the Canadian dollar. PACCAR's truck operations outside the United States and Canada provided 14% of total truck revenues in 1994 compared to 12% in 1993. International truck operations achieved improved results primarily due to increased market demand for trucks and related parts in Australia, Mexico and the United Kingdom. While each of the foreign truck operations was profitable in 1994, the largest share was in Mexico. Revenues and profits from export sales through PACCAR International Division were lower in 1994 than in 1993 due to reduced demand for vehicles in certain foreign markets. PACCAR's truck parts revenues and profits increased in 1994, primarily because of a better overall truck market and expanded market coverage. AUTO PARTS The Auto Parts segment consists of the Company's retail auto parts operations, located on the West Coast.
1995 1994 1993 - ------------------------------------------------------------ Auto Parts revenues $175.3 $172.1 $172.9 - ------------------------------------------------------------ Pretax Income $5.5 $4.2 $2.2 - ------------------------------------------------------------ - ------------------------------------------------------------
Auto Parts segment revenues grew modestly in 1995, after remaining flat in 1994. In both years, the segment experienced improvements from the addition of new stores and modest gains in same store sales. In 1994 however, closure of unprofitable stores offset the increases. The steady growth in profitability has come from better customer service and expense controls. 22 OTHER PRODUCTS PACCAR's other product lines include winches and oilfield equipment. Combined revenues increased 33% in 1995 and 7% in 1994 primarily due to strong demand in the winch sector and Trico's addition of a product line purchased from National- Oilwell in the fourth quarter of 1994. Combined profits from operations increased in both 1995 and 1994. However, segment pretax income for 1994 declined compared to 1993 due to the accrual for expenses to consolidate Trico's operations to locations in Texas. FINANCIAL SERVICES The Financial Services segment, including PACCAR Financial Corp., PACCAR Leasing and the Company's finance subsidiaries in Australia, Canada, Mexico and the United Kingdom, derives earnings primarily from financing the sale of PACCAR products.
1995 1994 1993 - ------------------------------------------------------------ Financial Services revenues $257.5 $210.9 $166.6 - ------------------------------------------------------------ Pretax Income $53.3 $57.5 $40.2 - ------------------------------------------------------------ - ------------------------------------------------------------
1995 COMPARED TO 1994: The Company's Financial Services operations earned $53.3 million before tax in 1995, down $4.2 million or 7% compared to 1994. Although consolidated loan and lease portfolios experienced growth in 1995, pretax income declined, primarily due to higher loan loss provisions in the Mexican finance company. In 1995, nearly all of PACCAR's finance and leasing operations experienced record new business volume concurrent with PACCAR's strong heavy duty truck sales. The overall credit quality of the loan and lease receivable portfolio continued to be strong in 1995 due to favorable economic conditions and a continued focus on credit controls. Finance margin rates were lower in 1995 in response to competitive pressures. The reserve for losses increased in 1995, reflecting growth in the portfolio and adverse economic conditions in Mexico. 1994 COMPARED TO 1993: The Company's Financial Services segment earned $57.5 million before taxes in 1994, up 43% from 1993 results. The increase in pretax earnings reflected portfolio growth and lower provisions for loan losses. INVESTMENTS Investment income increased in 1995 due primarily to higher invested balances and slightly higher interest rates. The increase in 1994 over 1993 was primarily a result of consolidating VILPAC operations. LIQUIDITY AND CAPITAL RESOURCES:
1995 1994 1993 - ------------------------------------------------------------ Cash and equivalents $184.0 $311.3 $223.2 Marketable securities 437.3 241.7 235.7 - ------------------------------------------------------------ $621.3 $553.0 $458.9 - ------------------------------------------------------------ - ------------------------------------------------------------
The Company's total cash and marketable securities amounted to $621 million at December 31, 1995, up $68 million from December 31, 1994. In 1995, the Company generated cash from operations of $298 million, down $51 million from 1994 due to reduced operations at the Mexican and Canadian truck plants and a reduction in consolidated payables. The Company's liquidity and earnings from investment of excess cash continue to provide financial stability and strength. TRUCKS, AUTO PARTS AND OTHER Cash for working capital, capital expenditures and research and development has been provided by operations. Management expects this to continue. Capital expenditures for 1995 totaled $82 million. PACCAR's truck operations made significant investments in the expansion and modernization of its facilities, state-of-the-art hardware and software to continually improve the design and quality of its products and tooling to meet the demands of an aggressive product development plan. Over the last five years (1991 through 1995), the Company's worldwide capital spending, excluding the Financial Services segment, totaled over $335 million. During the next several years, average spending for capital projects at PACCAR is expected to be at similar levels. PACCAR INC AND SUBSIDIARIES 23 Cash generated in foreign operations is generally reinvested in those operations. During the last two years, some excess cash has been withdrawn in the form of dividends from the Company's operations in Mexico, Canada and Australia. FINANCIAL SERVICES The Financial Services companies rely heavily on funds borrowed in capital markets as well as funds generated from collections on loans and leases. Transactions with PACCAR, such as capital contributions and intercompany loans, are an additional source of funds. In 1993, PACCAR Financial Corp. (PFC) filed a shelf registration under which up to $1 billion of medium-term notes could be issued as needed. At the end of 1995, $55 million of this registration was still available for issuance. PFC plans to file another shelf registration during 1996. To reduce exposure to fluctuations in interest rates, the Financial Services companies pursue a policy of obtaining funds with interest rate characteristics similar to the corresponding assets. As a part of this policy, the companies use over-the- counter interest-rate contracts. The permitted type of interest-rate contracts and transaction limits have been established by the Company's senior management, 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. 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 $7 million in 1995, $8 million in 1994 and $9 million in 1993 for costs related to environmental activities. The Company does not anticipate that the effects on future operations or cash flows would be materially greater than recent experience. The Company is involved in various stages of investigations and cleanup actions related to environmental matters. In certain of these matters, the Company has been designated as a Potentially Responsible Party by the U.S. Environmental Protection Agency (EPA) or by a state-level environmental agency. At certain of these sites, the Company, together with other parties, is participating with the EPA 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 $28 million and $45 million. At December 31, 1995, the reserve established to provide for estimated future environmental cleanup costs was $42 million. The Company has been 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 financial position. 24 CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31
1995 1994 1993 - -------------------------------------------------------------------------------- MANUFACTURING: (millions except per share data) REVENUES Net sales $4,572.5 $4,285.1 $3,378.9 Other 18.2 9.1 11.6 - -------------------------------------------------------------------------------- 4,590.7 4,294.2 3,390.5 COSTS AND EXPENSES Cost of sales 3,950.7 3,693.0 2,942.3 Selling, general and administrative 334.6 343.5 285.7 Interest 2.0 2.6 1.9 - -------------------------------------------------------------------------------- 4,287.3 4,039.1 3,229.9 - -------------------------------------------------------------------------------- MANUFACTURING INCOME BEFORE INCOME TAXES 303.4 255.1 160.6 FINANCIAL SERVICES: REVENUES 257.5 210.9 166.6 COSTS AND EXPENSES Interest and other 143.5 106.8 81.3 Selling, general and administrative 46.4 42.6 35.9 Provision for losses on receivables 14.3 4.0 9.2 - -------------------------------------------------------------------------------- 204.2 153.4 126.4 - -------------------------------------------------------------------------------- FINANCIAL SERVICES INCOME BEFORE INCOME TAXES 53.3 57.5 40.2 OTHER: Investment income 27.7 24.1 17.9 Minority interest and other 15.2 (16.6) 1.1 - -------------------------------------------------------------------------------- TOTAL INCOME BEFORE INCOME TAXES 399.6 320.1 219.8 Income taxes 146.8 115.6 77.6 - -------------------------------------------------------------------------------- NET INCOME $252.8 $204.5 $142.2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Net income per average common share outstanding $6.50 $5.26 $3.66 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Weighted average number of common shares outstanding 38.9 38.9 38.9 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. PACCAR INC AND SUBSIDIARIES 25 CONSOLIDATED BALANCE SHEETS DECEMBER 31
ASSETS 1995 1994 - ------------------------------------------------------------------------------- MANUFACTURING: (millions of dollars) CURRENT ASSETS Cash and equivalents $172.0 $289.9 Trade receivables, net of allowance for losses (1995 - $5.8 and 1994 - $4.3) 227.7 232.9 Marketable securities 437.3 241.7 Inventories 239.5 274.5 Deferred taxes and other current assets 60.1 65.1 - ------------------------------------------------------------------------------- TOTAL MANUFACTURING CURRENT ASSETS 1,136.6 1,104.1 Deferred taxes, goodwill and other 87.3 88.7 Property, plant and equipment, net 422.3 369.9 - ------------------------------------------------------------------------------- TOTAL MANUFACTURING ASSETS 1,646.2 1,562.7 - ------------------------------------------------------------------------------- FINANCIAL SERVICES: Cash and equivalents 12.0 21.4 Finance and other receivables, net of allowance for losses (1995 - $56.8 and 1994 - $41.1) 2,887.7 2,469.6 Less unearned interest (224.4) (194.7) - ------------------------------------------------------------------------------- 2,663.3 2,274.9 Equipment on operating leases, net 49.8 53.8 Other assets 19.2 15.4 - ------------------------------------------------------------------------------- TOTAL FINANCIAL SERVICES ASSETS 2,744.3 2,365.5 - ------------------------------------------------------------------------------- $4,390.5 $3,928.2 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
26
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 - ------------------------------------------------------------------------------- MANUFACTURING: (MILLIONS OF DOLLARS) CURRENT LIABILITIES Accounts payable and accrued expenses $559.1 $609.4 Income taxes 11.6 22.5 Dividend payable 116.6 77.7 Other .5 1.8 - ------------------------------------------------------------------------------- TOTAL MANUFACTURING CURRENT LIABILITIES 687.8 711.4 Long-term debt 10.7 11.1 Other 118.1 96.6 - ------------------------------------------------------------------------------- TOTAL MANUFACTURING LIABILITIES 816.6 819.1 - ------------------------------------------------------------------------------- FINANCIAL SERVICES: Accounts payable and accrued expenses 70.1 70.6 Commercial paper and bank loans 952.4 687.7 Long-term debt 1,149.6 999.9 Deferred income taxes and other 150.6 143.5 - ------------------------------------------------------------------------------- TOTAL FINANCIAL SERVICES LIABILITIES 2,322.7 1,901.7 - ------------------------------------------------------------------------------- MINORITY INTEREST 32.9 STOCKHOLDERS' EQUITY Preferred stock, no par value - authorized 1.0 million shares, none issued Common stock, $12 par value - authorized 100.0 million shares, issued 38.9 million shares 466.3 466.3 Additional paid-in capital 218.7 218.2 Retained earnings 653.8 556.5 Currency translation and net unrealized investment adjustments (87.6) (66.5) - ------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 1,251.2 1,174.5 - ------------------------------------------------------------------------------- $4,390.5 $3,928.2 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. PACCAR INC AND SUBSIDIARIES 27 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY DECEMBER 31
1995 1994 1993 - ------------------------------------------------------------------------------- COMMON STOCK, $12 PAR VALUE: (MILLIONS EXCEPT SHARE DATA) Balance at beginning of year $466.3 $466.3 $446.2 Stock options exercised * * Retirement of treasury stock (40.7) Stock dividend declared 60.8 - ------------------------------------------------------------------------------- Balance at end of year $466.3 $466.3 $466.3 - ------------------------------------------------------------------------------- ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year $218.2 $217.9 $2.5 Other, including options exercised and tax benefit .5 .3 Retirement of treasury stock (2.5) Stock dividend declared 217.9 - ------------------------------------------------------------------------------- Balance at end of year $218.7 $218.2 $217.9 - ------------------------------------------------------------------------------- RETAINED EARNINGS: Balance at beginning of year $556.5 $468.6 $741.2 Net income 252.8 204.5 142.2 Cash dividends declared (155.5) (116.6) (67.7) Retirement of treasury stock (68.4) Stock dividend declared (278.7) - ------------------------------------------------------------------------------- Balance at end of year $653.8 $556.5 $468.6 - ------------------------------------------------------------------------------- NET UNREALIZED INVESTMENT ADJUSTMENTS: Balance at beginning of year $(1.5) Adjustments 3.7 (1.5) - ------------------------------------------------------------------------------- Balance at end of year $2.2 $(1.5) - ------------------------------------------------------------------------------- CURRENCY TRANSLATION ADJUSTMENTS: Balance at beginning of year $(65.0) $(45.3) $(41.1) Adjustments (24.8) (19.7) (4.2) - ------------------------------------------------------------------------------- Balance at end of year $(89.8) $(65.0) $(45.3) - ------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY $1,251.2 $1,174.5 $1,107.5 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SHARES OF CAPITAL STOCK COMMON STOCK ISSUED, $12 PAR VALUE: Balance at beginning of year 38,859,281 38,856,574 37,180,386 Stock options exercised 3,078 2,707 Retirement of treasury stock (3,391,084) Stock dividend declared 5,067,272 - -------------------------------------------------------------------------------- Balance at end of year 38,862,359 38,859,281 38,856,574 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
* LESS THAN .1 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 28 CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31
1995 1994 1993 - ---------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: (MILLIONS OF DOLLARS) NET INCOME $252.8 $204.5 $142.2 ITEMS INCLUDED IN NET INCOME NOT AFFECTING CASH: Depreciation and amortization 72.4 63.2 56.7 Provision for losses on financial services receivables 14.3 4.0 9.2 Minority interest (1.8) 13.0 Equity in net income of unconsolidated companies (8.1) Deferred income tax benefit (4.6) (16.7) (9.4) Other 5.9 17.1 9.4 CHANGE IN OPERATING ASSETS AND LIABILITIES: (Increase) decrease in assets other than cash and equivalents: Receivables .5 (50.9) (21.4) Inventories 26.0 (68.2) (44.7) Deferred taxes and other (6.0) (7.6) (4.6) Increase (decrease) in liabilities: Accounts payable and accrued expenses (48.3) 190.1 52.7 Income taxes (12.9) 1.2 19.9 - ---------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 298.3 349.7 201.9 INVESTING ACTIVITIES: Finance receivables originated (1,319.8) (1,271.1) (1,059.0) Collections on finance receivables 1,001.6 851.9 701.7 Net (increase) decrease in wholesale receivables (108.1) 21.7 (54.5) Marketable securities purchased (2,357.1) (1,533.2) (197.2) Marketable securities sales and maturities 2,167.0 1,523.7 175.8 Acquisition of controlling interest in affiliate, net of cash consolidated in 1994 (45.0) 44.3 Acquisition of property, plant and equipment (81.5) (55.0) (82.4) Acquisition of equipment for operating leases (12.2) (25.6) (26.9) Proceeds from asset disposals 36.4 27.9 31.5 Other (1.4) (16.1) (15.5) - ---------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (720.1) (431.5) (526.5) FINANCING ACTIVITIES: Cash dividends (116.6) (74.5) (44.0) Net (decrease) increase in commercial paper and bank loans 269.8 (20.2) 118.2 Proceeds of long-term debt 535.2 543.8 390.7 Payments of long-term debt (383.5) (260.0) (167.6) Purchase of treasury shares (1.2) - ---------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 304.9 189.1 296.1 Effect of exchange rate changes on cash (10.4) (19.2) 1.3 - ---------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (127.3) 88.1 (27.2) Cash and equivalents at beginning of year 311.3 223.2 250.4 - ---------------------------------------------------------------------------------------------------- Cash and equivalents at end of year $184.0 $311.3 $223.2 - ----------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. PACCAR INC AND SUBSIDIARIES 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (MILLIONS OF DOLLARS) A. SUMMARY OF ACCOUNTING POLICIES ORGANIZATION: PACCAR Inc is a multinational company with primary operations throughout the United States and Canada. The Company's Truck and Financial Services segments also have operations in Australia, Mexico and the United Kingdom. The Auto Parts segment operates through retail sites located in the western United States. The Truck segment represents a substantial portion of consolidated revenues. Significant portions of Company assets are employed in financial services activities. 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. 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 EQUIVALENTS: Cash equivalents consist of all short-term liquid investments with a maturity at date of purchase of three months or less. MARKETABLE SECURITIES: The Company's investments in cash equivalents and marketable securities consist of debt securities categorized as available-for- sale. These investments are stated at fair value with any unrealized holding gains or losses, net of tax, included as a component of stockholders' equity until realized. The amortized cost of debt securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, accretion and realized gains and losses are included as a component of other manufacturing revenues in the accompanying consolidated income statements. Interest and dividend income are included as a component of investment income. The cost of securities sold is based on the specific identification method. INVENTORIES: Inventories are stated at the lower of cost or market. Cost of all inventories in the United Kingdom and the United States is determined principally by the last-in, first-out (LIFO) method. Cost of all other inventories is determined by the first-in, first-out (FIFO) method. GOODWILL: Goodwill is amortized on a straight-line basis for periods ranging from 25 to 27 years. At December 31, 1995 and 1994, goodwill amounted to $24.4 and $25.8, net of accumulated amortization of $10.7 and $9.3, respectively. Amortization of goodwill totaled $1.4 in 1995 and $1.3 each in 1994 and 1993. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Depreciation of plant and equipment is computed principally by the straight-line method based upon the estimated useful lives of the various classes of assets, which range as follows: Machinery and equipment 5 - 12 years Buildings 30 - 40 years ENVIRONMENTAL: Expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and which do not contribute to current or future revenue generation are expensed. Liabilities are recorded when it is probable the Company will be obligated to pay amounts for environmental site evaluation, remediation or related costs, and such amounts can be reasonably estimated. INTEREST INCOME AND EXPENSE: Generally, interest income from finance receivables is recognized using the interest (actuarial) method. CREDIT LOSSES: The provision for losses on 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 losses. Receivables are charged to this allowance when, in the judgment of management, they are deemed uncollectible (usually upon repossession of the collateral). INTEREST-RATE CONTRACTS: As part of its interest-rate risk management activities, PACCAR enters into interest-rate contracts which generally involve the exchange of fixed- and floating-rate interest payment obligations without the exchange of the underlying principal amounts. These contracts are used to reduce the effect of interest-rate fluctuations and to effectively change the interest rate characteristics of debt to better match the Company's receivables. It is the Company's intent to hold the contracts to maturity. Net amounts paid or received are reflected as adjustments to interest expense. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (MILLIONS OF DOLLARS) FOREIGN CURRENCY EXCHANGE CONTRACTS: PACCAR enters into foreign currency exchange contracts to hedge certain U.S. dollar-denominated firm commitments on a continuing basis for periods consistent with its committed exposures. Gains and losses on the contracts are deferred and included in measurement of the related foreign currency transaction when it is completed. As a matter of policy, the Company does not engage in currency speculation. At December 31, 1995 and 1994, PACCAR had contracts outstanding to purchase $80.7 and $92.0 U.S. dollars, respectively. Substantially all of these contracts related to Canadian dollars. RESEARCH AND DEVELOPMENT: Research and development costs are expensed as incurred. Amounts charged against income were $37 in 1995, $35 in 1994 and $22 in 1993. NEW ACCOUNTING STANDARD: In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. PACCAR will adopt SFAS 121 in the first quarter of 1996. Management believes the effect of adoption will not materially impact the Company's near-term financial position or results of operations. RECLASSIFICATIONS: Certain prior-year amounts have been reclassified to conform to the 1995 presentation. B. INVESTMENTS IN DEBT SECURITIES Investments in debt securities at December 31, 1995, include the following:
Amortized Fair Cost Value - --------------------------------------------------------- U.S. government securities $174.6 $176.0 Tax-exempt securities 298.7 301.0 Other debt securities 129.0 129.0 - --------------------------------------------------------- $602.3 $606.0 - --------------------------------------------------------- - ---------------------------------------------------------
Investments in debt securities at December 31, 1994, include the following:
Amortized Fair Cost Value - --------------------------------------------------------- U.S. government securities $ 14.4 $ 14.2 Tax-exempt securities 367.3 364.9 Other debt securities 156.1 156.1 - --------------------------------------------------------- $537.8 $535.2 - --------------------------------------------------------- - ---------------------------------------------------------
Investments in debt securities are included in cash and equivalents and marketable securities as follows:
- --------------------------------------------------------- 1995 1994 MANUFACTURING: Cash and equivalents $163.2 $283.1 Marketable securities 437.3 241.7 FINANCIAL SERVICES: Cash and equivalents 5.5 10.4 - --------------------------------------------------------- $606.0 $535.2 - --------------------------------------------------------- - ---------------------------------------------------------
The contractual maturities of debt securities available-for-sale at December 31, 1995, are as follows:
Amortized Fair Cost Value - --------------------------------------------------------- Due in one year or less $200.6 $200.8 Due after one year through two years 115.1 115.9 Due two years through four years 286.6 289.3 - --------------------------------------------------------- $602.3 $606.0 - --------------------------------------------------------- - ---------------------------------------------------------
Gross unrealized holding gains (losses) at December 31, 1995 and 1994, were $3.7 and $(2.6), respectively. Gross realized gains and losses from the sale of investments in debt securities for the years ended December 31, 1995 and 1994, were $.8 and $(.1) in 1995, and $.3 and $(.5), in 1994. C. Inventories
1995 1994 - --------------------------------------------------------- Inventories at FIFO cost: Finished products $ 201.6 $ 188.6 Work in process and raw materials 170.5 210.2 - --------------------------------------------------------- 372.1 398.8 Less excess of FIFO cost over LIFO (132.6) (124.3) - --------------------------------------------------------- $239.5 $274.5 - --------------------------------------------------------- - ---------------------------------------------------------
Inventories valued using the LIFO method comprised 83% and 82% of consolidated inventories at FIFO cost at December 31, 1995 and 1994, respectively. PACCAR INC AND SUBSIDIARIES 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (MILLIONS OF DOLLARS) D. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment include the following:
1995 1994 - --------------------------------------------------------- Land $ 33.6 $ 24.8 Buildings 323.0 303.3 Machinery and equipment 435.7 388.6 - --------------------------------------------------------- 792.3 716.7 Less allowance for depreciation (370.0) (346.8) - --------------------------------------------------------- $ 422.3 $ 369.9 - --------------------------------------------------------- - ---------------------------------------------------------
E. FINANCE AND OTHER RECEIVABLES The Company's finance and other receivables are as follows:
1995 1994 - --------------------------------------------------------- Retail notes and contracts $1,912.2 $1,644.8 Wholesale financing 240.3 125.9 Direct financing leases 774.2 720.6 Interest and other receivables 17.8 19.4 - --------------------------------------------------------- 2,944.5 2,510.7 Less allowance for losses (56.8) (41.1) - --------------------------------------------------------- 2,887.7 2,469.6 Unearned interest: Retail notes and contracts (121.1) (103.0) Direct financing leases (103.3) (91.7) - --------------------------------------------------------- (224.4) (194.7) - --------------------------------------------------------- $2,663.3 $2,274.9 - --------------------------------------------------------- - ---------------------------------------------------------
Terms for substantially all finance and other receivables range up to 60 months. Repayment experience indicates some receivables will be paid prior to contracted maturity, while others will be extended or renewed. Annual payments due on retail notes and contracts for the five years beginning January 1, 1996, are $774.4, $543.0, $367.9, $176.0 and $50.9. Estimated residual values included with direct financing leases amounted to $52.3 in 1995 and $59.8 in 1994. Annual minimum lease payments due on direct financing leases for the five years beginning January 1, 1996, are $217.3, $185.1, $149.8, $102.1 and $47.8 and $19.8 thereafter. The allowance for losses on finance and other receivables is summarized as follows:
1995 1994 1993 - ------------------------------------------------------------------------- Balance at beginning of year $41.1 $32.9 $30.9 Provision for losses 14.3 4.0 9.2 Net (losses) recoveries 1.4 4.2 (7.2) - ------------------------------------------------------------------------- Balance at end of year $56.8 $41.1 $32.9 - ------------------------------------------------------------------------- - -------------------------------------------------------------------------
At December 31, 1995, $31.8 of finance and other receivables were considered impaired. Included in the allowance for losses is a specific reserve of $11.3 for estimated losses on these impaired loans. For the year ended December 31, 1995, the average recorded balance of impaired loans was $19.5. The Company recognized interest income on those loans of $1.1, all of which was recognized using the cash basis method of income recognition. The Company's customers are principally concentrated in the transportation industry. Generally, financial services receivables are collateralized by financed equipment. F. EQUIPMENT ON OPERATING LEASES Equipment on operating leases is recorded at cost and is depreciated on the straight-line basis to its estimated residual value. Estimated useful lives are five years.
1995 1994 - --------------------------------------------------------- Trucks and other $ 74.5 $ 72.5 Less allowance for depreciation (24.7) (18.7) - --------------------------------------------------------- $ 49.8 $ 53.8 - --------------------------------------------------------- - ---------------------------------------------------------
Original terms of operating leases generally range up to 45 months. Annual minimum lease payments due on operating leases for each year beginning January 1, 1996, are $12.1, $7.3, $3.0 and $.6. G. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses include the following:
1995 1994 - --------------------------------------------------------- MANUFACTURING: Accounts payable $293.3 $358.3 Salaries and wages 82.3 78.0 Warranty and self-insurance reserves 100.5 84.8 Other 83.0 88.3 - --------------------------------------------------------- $559.1 $609.4 - --------------------------------------------------------- - --------------------------------------------------------- FINANCIAL SERVICES: Accounts payable $47.0 $53.3 Other 23.1 17.3 - --------------------------------------------------------- $70.1 $70.6 - --------------------------------------------------------- - ---------------------------------------------------------
32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (MILLIONS OF DOLLARS) H. BORROWINGS
Effective FINANCIAL SERVICES: Rate(s) 1995 1994 - ------------------------------------------------------------------------- Commercial paper 6.1% $847.6 $622.7 Other short-term borrowings 7.0% 104.8 65.0 Medium-term debt: - Fixed rate 6.8% 1,026.7 771.2 - Floating rate 5.8% 122.9 228.7 - ------------------------------------------------------------------------- $2,102.0 $1,687.6 - ------------------------------------------------------------------------- - -------------------------------------------------------------------------
The effective rate is the weighted average rate as of December 31, 1995 and includes the effects of interest-rate agreements. Annual maturities of medium-term debt for the five years beginning January 1, 1996, are $464.1, $323.0, $252.3, $103.0 and $7.2, respectively. At December 31, 1995, there were no restrictions on distributions of unremitted earnings by the financial services companies to the parent under terms of the most restrictive loan-agreement provisions. Interest paid on borrowings was $116.0 in 1995, $76.9 in 1994 and $63.9 in 1993. The Company has line of credit arrangements of $592.7 which are reviewed annually for renewal. The unused portion of these credit lines was $525.0 at December 31, 1995, of which the majority is maintained to support commercial paper and other short-term borrowings of the financial services companies. Compensating balances are not required on the lines, and service fees are immaterial. The weighted average interest rate on short-term borrowings was 6.07%, 6.28% and 3.71% at December 31, 1995, 1994 and 1993, respectively. The Company enters into various interest-rate contracts, including interest-rate swap, cap and forward-rate agreements. At December 31, 1995, the Company had 103 interest-rate contracts outstanding with other financial institutions. The notional amount of these contracts totaled $868.6, 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. For interest rate swaps only, the following table presents the notional amounts, weighted average interest rates, and contractual maturities by type of interest rate swap at December 31, 1995.
Floating to Floating to Fixed to Year Fixed Floating Floating Total - ----------------------------------------------------------------------------- 1996 $359.2 $120.0 $96.0 $575.2 1997 163.7 .9 164.6 1998 37.4 .9 38.3 1999 14.6 14.6 2000 1.1 1.1 - ----------------------------------------------------------------------------- $576.0 $120.0 $97.8 $793.8 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Weighted average pay rate: 6.2% 5.8% 5.8% - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Weighted average receive rate: 5.9% 4.6% 6.6% - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
The weighted average pay rate substantially represents the Company's net cost of funds rate after the effect of interest rate swaps, as the weighted average receive rate offsets pay rates on associated debt obligations. Floating to fixed rate swaps effectively convert an equivalent amount of commercial paper and other variable rate debt to fixed rates. Floating to floating rate swaps effectively convert the floating rate medium-term debt to a commercial paper index. The low receive rate offsets a low pay rate on associated variable rate medium-term debt. Fixed to floating rate swaps effectively convert fixed rate debt to a money market index. PACCAR Inc and Subsidiaries 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (MILLIONS OF DOLLARS) I. RETIREMENT PLANS The Company has several defined benefit pension plans, including union- negotiated and multi-employer plans, which cover a majority of its employees. Benefits under the plans are generally based on an employee's highest compensation levels and total years of service. The Company's policy is to fund its plans based on legal requirements, tax considerations, local practices and investment opportunities. Pension expense for all plans was $16.8 in 1995, $14.9 in 1994 and $10.0 in 1993. The following data relates to all plans of the Company except for certain multi-employer union-negotiated and supplemental retirement plans. WEIGHTED AVERAGE ASSUMPTIONS USED IN DETERMINING ACTUARIAL PRESENT VALUE OF PLAN BENEFIT OBLIGATIONS:
1995 1994 1993 - ---------------------------------------------------------------- Discount rate 7.50% 8.00% 8.00% Rate of increase in future compensation levels 4.75% 5.75% 5.75% Assumed long-term rate of return on plan assets 8.00% 8.00% 8.00% - ---------------------------------------------------------------- - ----------------------------------------------------------------
COMPONENTS OF PENSION EXPENSE:
1995 1994 1993 - ---------------------------------------------------------------- Interest cost $19.7 $18.2 $15.4 Service cost 12.4 11.6 9.6 Return on assets (48.9) (2.6) (28.1) Net amortization and deferrals 27.2 (17.7) 8.4 - ---------------------------------------------------------------- Net pension expense $10.4 $9.5 $5.3 - ---------------------------------------------------------------- - ----------------------------------------------------------------
FUNDED STATUS AT DECEMBER 31: 1995 1994 - ---------------------------------------------------------------- Vested benefit obligation $225.6 $195.2 Accumulated benefit obligation 228.1 197.4 - ---------------------------------------------------------------- - ---------------------------------------------------------------- Plan assets at fair value $304.1 $246.5 Projected benefit obligation 275.2 240.0 - ---------------------------------------------------------------- Excess of plan assets 28.9 6.5 Unrecognized net asset (6.5) (11.7) Unrecognized net experience gain (29.3) (9.1) Unrecognized prior service cost 12.6 14.2 - ---------------------------------------------------------------- Prepaid (accrued) pension cost $5.7 $(.1) - ---------------------------------------------------------------- - ----------------------------------------------------------------
The Company has unfunded supplemental retirement plans for employees whose benefits under qualified salaried retirement plans are reduced because of compensation deferral elections or limitations under federal tax laws. Pension expense for these plans was $1.8 in 1995, $1.6 in 1994 and $1.2 in 1993. At December 31, 1995, the projected benefit obligation for these plans was $12.5. The accumulated benefit obligation of $10.7 has been recognized as a liability in the balance sheet and is equal to the amount of vested benefits. The Company has unfunded postretirement medical and life insurance plans covering approximately one-half of all U.S. employees which reimburse retirees for approximately 50% of their medical costs from retirement to age 65 and provide a nominal death benefit. The net unrecorded accumulated postretirement benefit obligation (APBO) at adoption was $10.1, which is being recognized over 20 years. The following data relates to unfunded postretirement medical and life insurance plans. COMPONENTS OF RETIREE EXPENSE:
1995 1994 1993 - ---------------------------------------------------------------- Interest cost $1.7 $1.6 $1.2 Service cost 1.0 .9 .8 Amortization of transition obligation .6 .6 .5 - ---------------------------------------------------------------- Net retiree expense $3.3 $3.1 $2.5 - ---------------------------------------------------------------- - ----------------------------------------------------------------
UNFUNDED STATUS AT DECEMBER 31:
1995 1994 - ---------------------------------------------------------------- Accumulated benefits: Actives not eligible to retire $16.4 $13.3 Actives eligible to retire 4.6 4.0 Retirees 4.1 4.1 - ---------------------------------------------------------------- 25.1 21.4 Unrecognized net loss (5.0) (3.5) Unrecognized transition obligation (7.5) (7.9) - ---------------------------------------------------------------- Accrued postretirement benefits $12.6 $10.0 - ---------------------------------------------------------------- - ----------------------------------------------------------------
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (MILLIONS OF DOLLARS) Discount rates of 7.5% in 1995 and 8% in 1994 and a long-term medical inflation rate of 7% in all years were used in calculating the APBO. A 1% increase in the medical inflation-rate assumption would increase the APBO as of December 31, 1995, by approximately $3.0 and the 1995 expense provision by approximately $.4. The Company has certain defined contribution benefit plans whereby it generally matches employee contributions of 2% to 5% of base wages. Provisions for these plans were $11.5 in 1995, $10.9 in 1994, and $9.6 in 1993. J. LEASES The Company leases most store locations for its automotive parts sales operations and various other office space under operating leases. Leases expire at various dates through the year 2018. Annual minimum rental payments due under operating leases for the five years beginning January 1, 1996, are $10.1, $8.3, $6.9, $5.6 and $3.8 and $9.6 thereafter. Minimum payments on leases have not been reduced by aggregate minimum sublease rentals of $8.9 receivable under noncancelable subleases. The Company has operating leases which, in addition to aggregate minimum annual rentals, provide for additional rental payments based on sales and certain expenses. Total rental expenses under all leases for the three years ended December 31, 1995 were $15.1, $13.5 and $13.1, net of sublease rentals of $1.7, $1.5 and $1.1, respectively. K. COMMITMENTS AND CONTINGENCIES The Company is involved in various stages of investigations and cleanup actions related to environmental matters. In certain of these matters, the Company has been designated as a Potentially Responsible Party by the U.S. Environmental Protection Agency or by a state-level environmental agency. The Company has provided for the estimated costs to investigate and complete cleanup actions where it is probable that the Company will incur such costs in the future. At December 31, 1995, the reserve established to provide for estimated future environmental cleanup costs was $42. While neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined, management does not expect that those matters will have a material adverse effect on the Company's consolidated financial position. 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, 1995, PACCAR had standby letters of credit outstanding totaling $29.8, which guarantee various insurance and financing activities. PACCAR Inc and Subsidiaries 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (MILLIONS OF DOLLARS) L. INCOME TAXES
1995 1994 1993 - ---------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES: Domestic $364.6 $250.3 $178.9 Foreign 35.0 69.8 40.9 - ----------------------------------------------------------------------------- $399.6 $320.1 $219.8 - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
PROVISION FOR INCOME TAXES: Current provision: Federal $121.5 $92.6 $66.5 Foreign 11.9 26.3 12.7 State 18.0 13.4 7.8 - ---------------------------------------------------------------- 151.4 132.3 87.0 Deferred provision (benefit): Federal and state (6.4) (13.6) (9.2) Foreign 1.8 (3.1) (.2) - ---------------------------------------------------------------- (4.6) (16.7) (9.4) - ---------------------------------------------------------------- $146.8 $115.6 $77.6 - ---------------------------------------------------------------- - ----------------------------------------------------------------
RECONCILIATION OF STATUTORY U.S. TAX TO ACTUAL PROVISION: Statutory rate 35% 35% 35% Statutory tax $139.8 $112.0 $76.9 Effect of: State income taxes 12.8 10.8 8.1 Foreign tax rates .3 (1.9) (1.6) FSC benefit (2.0) (1.3) (1.6) Tax-exempt income (6.3) (4.9) (4.2) Other 2.2 .9 - ---------------------------------------------------------------- $146.8 $115.6 $77.6 - ---------------------------------------------------------------- - ----------------------------------------------------------------
COMPONENTS OF DEFERRED TAX ASSETS (LIABILITIES): At December 31: 1995 1994 - ---------------------------------------------------------------- ASSETS: Provisions for accrued expenses $100.1 $81.0 Allowance for losses on receivables 20.1 16.2 Other 15.2 9.8 - ---------------------------------------------------------------- 135.4 107.0 LIABILITIES: Asset capitalization and depreciation (29.7) (26.4) Financing and leasing activities (129.8) (124.2) Other (27.6) (9.2) - ---------------------------------------------------------------- (187.1) (159.8) - ---------------------------------------------------------------- Net deferred tax liability $(51.7) $(52.8) - ---------------------------------------------------------------- - ---------------------------------------------------------------- CLASSIFICATION OF DEFERRED TAX ASSETS AND LIABILITIES: MANUFACTURING: Deferred taxes and other current assets $52.3 $59.2 Investments and other 9.7 .4 FINANCIAL SERVICES: Deferred income taxes and other (113.7) (112.4) - ---------------------------------------------------------------- Net deferred tax liability $(51.7) $(52.8) - ---------------------------------------------------------------- - ----------------------------------------------------------------
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 $186.2 at December 31, 1995. While the amount of any federal income taxes on these reinvested earnings, if distributed in the future, is not presently determinable, it is anticipated that the available foreign tax credits would substantially offset any potential federal tax liability. Cash paid for income taxes was $149.1 in 1995, $130.1 in 1994 and $70.7 in 1993. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (MILLIONS OF DOLLARS) M. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in determining its fair value disclosures for financial instruments: CASH AND EQUIVALENTS: The carrying amount reported in the balance sheet approximates fair value. MARKETABLE SECURITIES: Marketable securities consist of debt securities. Fair values are based on quoted market prices. FINANCIAL SERVICES NET RECEIVABLES: For floating-rate loans, including wholesale financings that reprice frequently with no significant change in credit risk, fair values are based on carrying values. For fixed-rate loans, fair values are estimated using discounted cash flow analyses based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest and other receivables approximates its fair value. Direct financing lease receivables and the related loss provisions are not included in net receivables. SHORT- AND LONG-TERM DEBT: The carrying amount of the Company's commercial paper and short-term bank borrowings and floating-rate long-term debt approximates its fair value. The fair value of the Company's fixed-rate long- term debt is estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's interest-rate contracts are based on costs which would be incurred to terminate existing agreements and enter into new agreements with similar notional amounts, maturity dates and counterparties' credit standing at current market interest rates. Foreign exchange contracts require the Company to exchange foreign currency for U.S. dollars and generally mature within six months. The fair value of these foreign exchange contracts is the amount the Company would receive or pay to terminate the contracts. This amount is calculated using quoted market rates. The carrying amounts of trade payables and receivables approximate their fair value and have been excluded from the accompanying table. The carrying amounts and fair values of the Company's financial instruments are as follows:
Carrying Fair 1995 Amount Value - ---------------------------------------------------------------- MANUFACTURING: Cash and equivalents $172.0 $172.0 Marketable securities 437.3 437.3 Short-term debt .2 .2 Long-term debt 8.9 8.9 FINANCIAL SERVICES: Cash and equivalents 12.0 12.0 Net receivables 2,006.0 2,019.3 Commercial paper and bank loans 952.4 952.4 Long-term debt 1,149.6 1,162.1
The Company's off-balance-sheet financial instruments, consisting of interest-rate agreements, represented an additional liability of $3.6, if recorded at fair value at December 31, 1995.
Carrying Fair 1994 Amount Value - ---------------------------------------------------------------- MANUFACTURING: Cash and equivalents $289.9 $289.9 Marketable securities 241.7 241.7 Short-term debt .7 .7 Long-term debt 9.0 9.0 FINANCIAL SERVICES: Cash and equivalents 21.4 21.4 Net receivables 1,692.2 1,659.8 Commercial paper and bank loans 687.7 687.7 Long-term debt 999.9 972.4
The Company's off-balance-sheet financial instruments, consisting of interest-rate agreements and foreign exchange contracts, represented additional assets of $9.0 and $2.0, respectively, if recorded at fair value at December 31, 1994. PACCAR Inc and Subsidiaries 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (MILLIONS OF DOLLARS) N. FOREIGN OPERATIONS AND CURRENCY TRANSLATION All foreign assets and liabilities are translated into U.S. dollars at current exchange rates and all income statement amounts are translated at an average of the month-end rates. Resulting gains and losses are deferred and classified as a separate component of stockholders' equity. In August 1995, PACCAR purchased the remaining 45% interest in VILPAC, S.A. (VILPAC) for a total cost of $45.0 in cash. The Company used the purchase method of accounting for the acquisition. Had the transaction occurred January 1, 1995, the impact on PACCAR's consolidated net income would have been immaterial. In both 1995 and 1994, the Mexican peso experienced significant devaluation compared to the U.S. dollar. The effect of the devaluation on U.S. dollar- denominated accounts maintained by PACCAR's Mexican subsidiary resulted in net exchange gains. The Company's after-tax share of aggregate net exchange gains increased net income by $4.8 in 1995 and $3.7 in 1994. Substantially all of these amounts resulted from the impact of translating the balance sheet of the Mexican subsidiary. Exchange gains and losses were immaterial in 1993. Continuing economic difficulties in Mexico indicate recovery may occur slowly in that market. In August 1995, employees at the Company's plant in Canada went on strike. Since the commencement of the strike, PACCAR has met demand for Class 8 trucks in Canada with output from its factories in the United States, and expects to be able to continue this arrangement for as long as required. The Company has reduced the plant work force and expects a protracted labor dispute will not have a materially adverse impact on future consolidated results. O. STOCKHOLDERS' EQUITY STOCKHOLDER RIGHTS PLAN: The plan provides one right for each share of PACCAR common stock outstanding. Rights generally become exercisable if a person publicly announces the intention to acquire 10% or more of PACCAR's common stock or if a person (Acquiror) acquires such amount of common stock. In all cases, rights held by the Acquiror are not exercisable. When exercisable, each right entitles the holder to purchase for one hundred and fifty dollars from PACCAR a fractional share of newly designated Series A Junior Participating Preferred Stock. Each such fractional preferred share has dividend, liquidation and voting rights which are no less than those for a share of common stock. Under certain circumstances, the rights may become exercisable for shares of PACCAR common stock or common stock of the Acquiror having a market value equal to twice the exercise price of the right. Also under certain circumstances, the Board of Directors may exchange exercisable rights, in whole or in part, for one share of PACCAR common stock per right. The rights, which expire in the year 2000, may be redeemed at one cent per right, subject to certain conditions. For this plan, 50,000 preferred shares are reserved for issuance. No shares have been issued. P. GEOGRAPHIC AREA AND INDUSTRY SEGMENT DATA PACCAR operates in three principal industries: Trucks, Auto Parts and Financial Services. The Truck segment is composed of the manufacture of trucks and distribution of related parts which are sold through a network of company-appointed dealers. The Truck and Financial Services segments derive a large proportion of their revenues and income before taxes from operations in the United States and Canada. New orders for heavy duty trucks industry-wide began to slow in 1995. Recent industry estimates suggest 1996 Class 8 truck registrations in the United States should be in the range of 150,000 to 160,000 units compared to the record 207,000 units registered in 1995. Auto Parts is composed of automotive parts sales and related services sold through company-operated retail stores. The Financial Services segment is composed of finance and leasing services provided to truck customers and dealers. Sales among the industry segments and among geographic areas were insignificant. Minority interest and other in 1995 includes a pretax gain of $12.1 from resolution of litigation involving environmental cost reimbursements. The minority interest share of VILPAC losses in 1995 and profits in 1994 are also included. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (MILLIONS OF DOLLARS)
INDUSTRY SEGMENT DATA 1995 1994 1993 - ------------------------------------------------------------------------------- REVENUES: Trucks $4,291.6 $4,029.1 $3,130.9 Auto Parts 175.3 172.1 172.9 Financial Services 257.5 210.9 166.6 Other 123.8 93.0 86.7 - ------------------------------------------------------------------------------- $4,848.2 $4,505.1 $3,557.1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- INCOME BEFORE TAXES: Trucks $321.1 $ 299.4 $ 194.0 Auto Parts 5.5 4.2 2.2 Financial Services 53.3 57.5 40.2 Other 13.1 4.3 9.1 Corporate expenses, net of other revenues (36.3) (52.8) (44.7) Investment income 27.7 24.1 17.9 Minority interest and other 15.2 (16.6) 1.1 - ------------------------------------------------------------------------------- $399.6 $ 320.1 $ 219.8 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION: Trucks $40.9 $ 34.5 $ 27.7 Auto Parts 5.2 5.1 5.4 Financial Services 16.6 15.2 13.8 Other 5.2 4.1 3.7 Corporate 4.5 4.3 6.1 - ------------------------------------------------------------------------------- $72.4 $ 63.2 $ 56.7 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CAPITAL EXPENDITURES: Trucks $67.3 $ 39.3 $ 72.8 Auto Parts 3.4 2.4 1.2 Financial Services 13.0 25.7 27.0 Other 5.1 11.2 2.7 Corporate 5.0 2.0 5.6 - ------------------------------------------------------------------------------- $93.8 $ 80.6 $ 109.3 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- IDENTIFIABLE ASSETS: Trucks $753.5 $ 748.9 $ 647.8 Auto Parts 94.4 94.5 98.8 Financial Services 2,744.3 2,365.5 1,947.3 Other 95.1 94.8 73.9 Manufacturing Cash and Marketable Securities 609.3 531.6 441.9 Corporate 93.9 92.9 81.5 - ------------------------------------------------------------------------------- $4,390.5 $3,928.2 $3,291.2 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
GEOGRAPHIC AREA DATA 1995 1994 1993 - ------------------------------------------------------------------------------- REVENUES: United States $4,108.8 $3,548.9 $3,003.3 Canada 397.3 364.5 340.2 Other 342.1 591.7 213.6 - ------------------------------------------------------------------------------- $4,848.2 $4,505.1 $3,557.1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- INCOME BEFORE TAXES: United States $ 352.5 $276.8 $199.8 Canada 22.8 21.7 21.7 Other 17.7 66.9 24.0 Corporate expenses, net of other revenues (36.3) (52.8) (44.7) Investment income 27.7 24.1 17.9 Minority interest and other 15.2 (16.6) 1.1 - ------------------------------------------------------------------------------- $ 399.6 $320.1 $219.8 - ------------------------------------------------------------------------------- IDENTIFIABLE ASSETS: United States $3,069.7 $2,722.1 $2,341.2 Canada 254.2 214.0 197.0 Other 363.4 367.6 229.6 Manufacturing Cash and Marketable Securities 609.3 531.6 441.9 Corporate 93.9 92.9 81.5 - ------------------------------------------------------------------------------- $4,390.5 $3,928.2 $3,291.2 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Export revenues of U.S. companies $ 263.0 $117.8 $145.1 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PACCAR Inc and Subsidiaries 39 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, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of PACCAR Inc and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Seattle, Washington February 9, 1996 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 3,284 record holders of the common stock at December 31, 1995.
1995 Cash Dividends Stock Price 1994 Cash Dividends Stock Price Quarter Declared High Low Quarter Declared High Low - ------------------------------------------------------------------------------------------------ First $.25 $ 48 $40 3/4 First $.25 $61 3/4 $50 Second .25 51 1/2 41 3/4 Second .25 54 3/4 43 3/4 Third .25 54 5/8 46 1/4 Third .25 52 1/4 45 1/4 Fourth .25 51 3/4 39 1/4 Fourth .25 46 40 Year-End Extra 3.00 Year-End Extra 2.00 - ------------------------------------------------------------------------------------------------
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. 40 QUARTERLY RESULTS (UNAUDITED)
Quarter First Second Third Fourth - ------------------------------------------------------------------------------------------------------------------- 1995 (millions except per share data) Net Sales $1,123.7 $1,205.3 $1,147.0 $1,096.5 Gross Profit 145.0 165.0 154.7 157.1 Financial Services Income Before Income Taxes 10.6 14.4 14.6 13.7 Net Income 54.3 65.1 68.3 65.1 Weighted Average Number of Common Shares Outstanding 38.9 38.9 38.9 38.9 Net Income Per Share $1.40 $1.67 $1.76 $1.67 - ------------------------------------------------------------------------------------------------------------------- 1994 Net Sales $ 986.3 $1,070.8 $1,114.5 $1,113.5 Gross Profit 131.3 148.3 154.2 158.3 Financial Services Income Before Income Taxes 12.4 14.3 16.0 14.8 Net Income 43.6 50.6 53.2 57.1 Weighted Average Number of Common Shares Outstanding 38.9 38.9 38.9 38.9 Net Income Per Share $ 1.12 $ 1.30 $ 1.37 $ 1.47 - -------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------- (millions except per share data) Net Sales $ 4,572.5 $ 4,285.1 $ 3,378.9 $ 2,576.8 $2,159.6 Financial Services Revenue 257.5 210.9 166.6 161.1 180.2 Net Income 252.8 204.5 142.2 65.2 55.2 Total Assets: Manufacturing 1,646.2 1,562.7 1,343.9 1,235.7 1,214.6 Financial Services 2,744.3 2,365.5 1,947.3 1,556.4 1,523.0 Long-Term Debt: Manufacturing 10.7 11.1 11.7 12.5 25.2 Financial Services 1,149.6 999.9 709.1 494.4 483.7 Stockholders' Equity 1,251.2 1,174.5 1,107.5 1,038.4 1,032.3 Per Common Share: Net Income $ 6.50 $ 5.26 $ 3.66 $ 1.68 $ 1.42 Cash Dividends Declared 4.00 3.00 1.74 1.13 .96 - -------------------------------------------------------------------------------------------------------------------
Net income for 1991 includes a cumulative effect adjustment for a change in the method of accounting for income taxes of $15.4 million after-tax ($.40 per share). PACCAR Inc and Subsidiaries 41 EX-21 3 EXHIBIT 21 Exhibit 21 SUBSIDIARIES AND AFFILIATE OF THE REGISTRANT
State or Country of Names Under Which Name* Incorporation Subsidiaries Do Business - -------------------------- ------------- ------------------------- PACCAR of Canada Ltd. Canada PACCAR of Canada Ltd. Canadian Kenworth Co. Peterbilt of Canada PACCAR Parts of Canada PACCAR Australia Pty. Ltd. Australia PACCAR Australia Pty. Ltd. Kenworth Trucks PACCAR U.K. Ltd. Delaware PACCAR U.K. Ltd. Foden Trucks VILPAC S.A. Mexico VILPAC S.A. Kenworth Mexicana S.A. de C.V. KENPAR S.A. de C.V. KENFABRICA, S.A. de C.V. KENCOM, S.A. de C.V. PACCAR Financial Corp. Washington PACCAR Financial Corp. PACCAR Financial Services Ltd. Canada PACCAR Financial Services Ltd. PACCAR Leasing Corporation Delaware PACCAR Leasing Corporation PacLease RAILEASE Inc Washington RAILEASE Inc Trico Industries, Inc. California Trico Industries, Inc. PACCAR Sales North America, Inc. Delaware PACCAR Sales North America PACCAR Automotive, Inc. Washington Grand Auto Al's Auto Supply
* The names of some subsidiaries have been omitted. Considered in the aggregate, omitted subsidiaries would not constitute a significant subsidiary. EX-23 4 EXHIBIT 23 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 9, 1996, included in the 1995 Annual Report to Shareholders of PACCAR Inc. Our audits also included the consolidated financial statement schedule of PACCAR Inc listed in item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 2-83673) pertaining to the 1981 Long-Term Incentive Plan and in the Registration Statement (Form S-8 No. 33-47763) pertaining to the 1991 Long- Term Incentive Plan of PACCAR Inc of our report dated February 9, 1996, with respect to the consolidated financial statements and schedule of PACCAR Inc incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1995. /s/ Ernst & Young LLP ERNST & YOUNG LLP Seattle, Washington March 25, 1996 EX-24 5 EXHIBIT 24 Exhibit 24 POWER OF ATTORNEY We, the undersigned directors of PACCAR Inc, a Delaware corporation, hereby severally constitute and appoint C. M. Pigott, our true and lawful attorney-in- fact, with full power to sign for us, and in our names in our capacity as director, a Form 10-K on behalf of the company for the year ending December 31, 1995, 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 11th day of December 1995. */s/ R. P. Cooley */s/ James C. Pigott - ------------------------------- ------------------------------- R. P. Cooley J. C. Pigott Director, PACCAR Inc Director, PACCAR Inc */s/ John M. Fluke, Jr. */s/ Mark Pigott - ------------------------------- ------------------------------- J. M. Fluke, Jr. M. C. Pigott Director, PACCAR Inc Director, PACCAR Inc */s/ C. H. Hahn */s/ John W. Pitts - ------------------------------- ------------------------------- C. H. Hahn J. W. Pitts Director, PACCAR Inc Director, PACCAR Inc */s/ H. J. Haynes */s/ M. A. Tembreull - ------------------------------- ------------------------------- H. J. Haynes M. A. Tembreull Director, PACCAR Inc Director, PACCAR Inc */s/ D. J. Hovind */s/ James H. Wiborg - ------------------------------- ------------------------------- D. J. Hovind J. H. Wiborg Director, PACCAR Inc Director, PACCAR Inc EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995, 1994, AND 1993, AND FROM THE CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1995 AND 1994 OF PACCAR INC AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 DEC-31-1995 184,000 437,300 3,178,000 62,600 239,500 0 866,800 394,700 4,390,500 0 1,160,300 0 0 466,300 784,900 4,390,500 4,572,500 4,848,200 3,950,700 4,094,200 0 14,400 2,000 399,600 146,800 252,800 0 0 0 252,800 6.50 6.50
-----END PRIVACY-ENHANCED MESSAGE-----