UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended SeptemberJune 30, 20162017
Commission File No. 001-14817
PACCAR Inc
(Exact name of registrant as specified in its charter)
Delaware | 91-0351110 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
777 - 106th Ave. N.E., Bellevue, WA | 98004 | |
(Address of principal executive offices) | (Zip Code) |
(425) 468-7400
(Registrant’s telephone number, including area code)
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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” inRule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |||||||
Non-accelerated filer | Smaller reporting company | |||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $1 par value – 350,537,271351,376,481 shares as of OctoberJuly 31, 20162017
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PART I. | FINANCIAL INFORMATION: | |||||
ITEM 1. | FINANCIAL STATEMENTS: | |||||
3 | ||||||
Consolidated Balance Sheets – | 4 | |||||
6 | ||||||
7 | ||||||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |||||
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |||||
ITEM 4. | CONTROLS AND PROCEDURES | |||||
PART II. | OTHER INFORMATION: | |||||
ITEM 1. | LEGAL PROCEEDINGS | |||||
ITEM 1A. | RISK FACTORS | |||||
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | |||||
ITEM 6. | EXHIBITS | |||||
SIGNATURE | ||||||
INDEX TO EXHIBITS |
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PACCAR Inc – Form 10-Q
PART I -– FINANCIAL INFORMATION
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Millions Except Per Share Amounts)
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | June 30 | June 30 | |||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
TRUCK, PARTS AND OTHER: | ||||||||||||||||||||||||||||||||
Net sales and revenues | $ | 3,953.2 | $ | 4,546.2 | $ | 12,079.6 | $ | 13,880.3 | $ | 4,397.9 | $ | 4,115.8 | $ | 8,333.6 | $ | 8,126.4 | ||||||||||||||||
Cost of sales and revenues | 3,371.5 | 3,851.3 | 10,274.5 | 11,822.7 | 3,755.2 | 3,489.4 | 7,137.4 | 6,903.0 | ||||||||||||||||||||||||
Research and development | 59.2 | 57.6 | 179.6 | 173.1 | 66.1 | 60.8 | 127.1 | 120.4 | ||||||||||||||||||||||||
Selling, general and administrative | 105.5 | 107.0 | 326.0 | 324.7 | 107.8 | 110.2 | 219.1 | 220.5 | ||||||||||||||||||||||||
European Commission charge | 833.0 | (109.6 | ) | 833.0 | ||||||||||||||||||||||||||||
Interest and other expense, net | 1.6 | 4.9 | 4.2 | 10.7 | ||||||||||||||||||||||||||||
Interest and other expense (income), net | 1.5 | 2.5 | (.1 | ) | 2.6 | |||||||||||||||||||||||||||
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3,537.8 | 4,020.8 | 11,617.3 | 12,331.2 | 3,930.6 | 3,553.3 | 7,483.5 | 8,079.5 | |||||||||||||||||||||||||
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Truck, Parts and Other Income Before | 415.4 | 525.4 | 462.3 | 1,549.1 | 467.3 | 562.5 | 850.1 | 46.9 | ||||||||||||||||||||||||
FINANCIAL SERVICES: | ||||||||||||||||||||||||||||||||
Interest and fees | 105.9 | 110.9 | 320.4 | 332.9 | 104.2 | 107.1 | 206.4 | 214.5 | ||||||||||||||||||||||||
Operating lease, rental and other revenues | 190.3 | 190.1 | 562.6 | 546.6 | 202.1 | 190.3 | 402.1 | 372.3 | ||||||||||||||||||||||||
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Revenues | 296.2 | 301.0 | 883.0 | 879.5 | 306.3 | 297.4 | 608.5 | 586.8 | ||||||||||||||||||||||||
Interest and other borrowing expenses | 32.2 | 29.2 | 95.1 | 87.9 | 37.4 | 32.6 | 71.5 | 62.9 | ||||||||||||||||||||||||
Depreciation and other expenses | 162.6 | 152.5 | 469.9 | 438.8 | 172.8 | 156.4 | 352.5 | 307.3 | ||||||||||||||||||||||||
Selling, general and administrative | 25.3 | 24.0 | 74.9 | 71.4 | 26.3 | 25.1 | 51.5 | 49.6 | ||||||||||||||||||||||||
Provision for losses on receivables | 5.1 | 2.4 | 14.5 | 8.7 | 6.8 | 6.0 | 12.7 | 9.4 | ||||||||||||||||||||||||
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225.2 | 208.1 | 654.4 | 606.8 | 243.3 | 220.1 | 488.2 | 429.2 | |||||||||||||||||||||||||
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Financial Services Income Before | 71.0 | 92.9 | 228.6 | 272.7 | 63.0 | 77.3 | 120.3 | 157.6 | ||||||||||||||||||||||||
Investment income | 8.5 | 6.2 | 20.6 | 16.6 | 8.7 | 6.4 | 16.8 | 12.1 | ||||||||||||||||||||||||
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Total Income Before Income Taxes | 494.9 | 624.5 | 711.5 | 1,838.4 | 539.0 | 646.2 | 987.2 | 216.6 | ||||||||||||||||||||||||
Income taxes | 148.7 | 193.3 | 478.6 | 581.6 | 166.0 | 164.9 | 303.9 | 329.9 | ||||||||||||||||||||||||
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Net Income | $ | 346.2 | $ | 431.2 | $ | 232.9 | $ | 1,256.8 | ||||||||||||||||||||||||
Net Income (Loss) | $ | 373.0 | $ | 481.3 | $ | 683.3 | $ | (113.3 | ) | |||||||||||||||||||||||
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Net Income Per Share | ||||||||||||||||||||||||||||||||
Net Income (Loss) Per Share | ||||||||||||||||||||||||||||||||
Basic | $ | .99 | $ | 1.21 | $ | .66 | $ | 3.54 | $ | 1.06 | $ | 1.37 | $ | 1.94 | $ | (.32 | ) | |||||||||||||||
Diluted | $ | .98 | $ | 1.21 | $ | .66 | $ | 3.53 | $ | 1.06 | $ | 1.37 | $ | 1.94 | $ | (.32 | ) | |||||||||||||||
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Weighted Average Number of Common Shares Outstanding | Weighted Average Number of Common Shares Outstanding |
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Basic | 351.0 | 355.0 | 351.1 | 355.1 | 351.8 | 350.9 | 351.7 | 351.1 | ||||||||||||||||||||||||
Diluted | 351.8 | 355.9 | 351.8 | 356.1 | 352.7 | 351.6 | 352.7 | 351.1 | ||||||||||||||||||||||||
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Dividends declared per share | $ | .24 | $ | .24 | $ | .72 | $ | .68 | $ | .25 | $ | .24 | $ | .49 | $ | .48 | ||||||||||||||||
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Comprehensive Income | $ | 346.6 | $ | 282.6 | $ | 323.2 | $ | 878.4 | ||||||||||||||||||||||||
Comprehensive Income (Loss) | $ | 505.8 | $ | 443.4 | $ | 886.2 | $ | (23.4 | ) | |||||||||||||||||||||||
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See Notes to Consolidated Financial Statements.
- 3 -
PACCAR Inc – Form 10-Q
Consolidated Balance Sheets (Millions)
September 30 2016 | December 31 2015* | June 30 2017 | December 31 2016* | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
TRUCK, PARTS AND OTHER: | ||||||||||||||||
Current Assets | ||||||||||||||||
Cash and cash equivalents | $ | 1,722.3 | $ | 1,929.9 | $ | 1,760.1 | $ | 1,781.7 | ||||||||
Trade and other receivables, net | 1,025.9 | 879.0 | 1,281.0 | 862.2 | ||||||||||||
Marketable debt securities | 1,078.9 | 1,448.1 | 1,244.6 | 1,140.9 | ||||||||||||
Inventories, net | 824.1 | 796.5 | 885.3 | 727.8 | ||||||||||||
Other current assets | 218.3 | 245.7 | 269.9 | 225.6 | ||||||||||||
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Total Truck, Parts and Other Current Assets | 4,869.5 | 5,299.2 | 5,440.9 | 4,738.2 | ||||||||||||
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Equipment on operating leases, net | 1,059.7 | 992.2 | 1,201.6 | 1,013.9 | ||||||||||||
Property, plant and equipment, net | 2,251.3 | 2,176.4 | 2,325.6 | 2,260.0 | ||||||||||||
Other noncurrent assets, net | 414.9 | 387.4 | 397.1 | 432.0 | ||||||||||||
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Total Truck, Parts and Other Assets | 8,595.4 | 8,855.2 | 9,365.2 | 8,444.1 | ||||||||||||
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FINANCIAL SERVICES: | ||||||||||||||||
Cash and cash equivalents | 65.6 | 86.5 | 119.7 | 134.0 | ||||||||||||
Finance and other receivables, net | 9,078.3 | 9,303.6 | 9,228.9 | 8,837.4 | ||||||||||||
Equipment on operating leases, net | 2,608.9 | 2,380.8 | 2,788.4 | 2,623.9 | ||||||||||||
Other assets | 620.7 | 483.7 | 551.1 | 599.5 | ||||||||||||
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Total Financial Services Assets | 12,373.5 | 12,254.6 | 12,688.1 | 12,194.8 | ||||||||||||
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$ | 20,968.9 | $ | 21,109.8 | $ | 22,053.3 | $ | 20,638.9 | |||||||||
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* | The December 31, |
See Notes to Consolidated Financial Statements.
- 4 -
PACCAR Inc – Form 10-Q
Consolidated Balance Sheets (Millions)
September 30 2016 | December 31 2015* | June 30 2017 | December 31 2016* | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
TRUCK, PARTS AND OTHER: | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Accounts payable, accrued expenses and other | $ | 2,295.9 | $ | 2,071.7 | $ | 2,554.9 | $ | 2,034.1 | ||||||||
Dividend payable | 492.6 | 210.4 | ||||||||||||||
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Total Truck, Parts and Other Current Liabilities | 2,295.9 | 2,564.3 | 2,554.9 | 2,244.5 | ||||||||||||
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Residual value guarantees and deferred revenues | 1,120.6 | 1,047.4 | 1,272.5 | 1,072.6 | ||||||||||||
Other liabilities | 737.4 | 720.2 | 770.7 | 739.1 | ||||||||||||
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Total Truck, Parts and Other Liabilities | 4,153.9 | 4,331.9 | 4,598.1 | 4,056.2 | ||||||||||||
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FINANCIAL SERVICES: | ||||||||||||||||
Accounts payable, accrued expenses and other | 374.9 | 356.9 | 461.3 | 395.0 | ||||||||||||
Commercial paper and bank loans | 2,516.0 | 2,796.5 | 2,888.9 | 2,447.5 | ||||||||||||
Term notes | 6,014.3 | 5,795.0 | 5,655.2 | 6,027.7 | ||||||||||||
Deferred taxes and other liabilities | 931.6 | 889.1 | 949.3 | 934.9 | ||||||||||||
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Total Financial Services Liabilities | 9,836.8 | 9,837.5 | 9,954.7 | 9,805.1 | ||||||||||||
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STOCKHOLDERS’ EQUITY: | ||||||||||||||||
Preferred stock, no par value - authorized 1.0 million shares, | ||||||||||||||||
Common stock, $1 par value - authorized 1.2 billion shares, | 351.7 | 351.3 | ||||||||||||||
Common stock, $1 par value - authorized 1.2 billion shares, | 351.3 | 350.7 | ||||||||||||||
Additional paid-in capital | 92.8 | 69.3 | 98.5 | 70.1 | ||||||||||||
Treasury stock, at cost - 1.1 million and nil shares | (56.3 | ) | ||||||||||||||
Retained earnings | 7,516.7 | 7,536.8 | 7,975.9 | 7,484.9 | ||||||||||||
Accumulated other comprehensive loss | (926.7 | ) | (1,017.0 | ) | (925.2 | ) | (1,128.1 | ) | ||||||||
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Total Stockholders’ Equity | 6,978.2 | 6,940.4 | 7,500.5 | 6,777.6 | ||||||||||||
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$ | 20,968.9 | $ | 21,109.8 | $ | 22,053.3 | $ | 20,638.9 | |||||||||
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* | The December 31, |
See Notes to Consolidated Financial Statements.
- 5 -
PACCAR Inc – Form 10-Q
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Millions)
Nine Months Ended September 30 | Six Months Ended June 30 | |||||||||||||||
2016 | 2015 | 2017 | 2016 | |||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 232.9 | $ | 1,256.8 | ||||||||||||
Adjustments to reconcile net income to cash provided by operations: |
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Net income (loss) | $ | 683.3 | $ | (113.3 | ) | |||||||||||
Adjustments to reconcile net income (loss) to cash provided by operations: | Adjustments to reconcile net income (loss) to cash provided by operations: |
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Depreciation and amortization: | ||||||||||||||||
Property, plant and equipment | 230.6 | 221.4 | 151.5 | 155.5 | ||||||||||||
Equipment on operating leases and other | 515.0 | 457.9 | 376.7 | 339.9 | ||||||||||||
Provision for losses on financial services receivables | 14.5 | 8.7 | 12.7 | 9.4 | ||||||||||||
Other, net | 2.2 | (14.8 | ) | (8.8 | ) | (5.9 | ) | |||||||||
Pension contributions | (65.1 | ) | (59.2 | ) | (10.4 | ) | (59.3 | ) | ||||||||
European Commission charge | 833.0 | |||||||||||||||
Change in operating assets and liabilities: | ||||||||||||||||
Trade and other receivables | (195.4 | ) | (140.9 | ) | (425.2 | ) | (215.7 | ) | ||||||||
Wholesale receivables on new trucks | 211.8 | (367.3 | ) | (176.0 | ) | 226.0 | ||||||||||
Sales-type finance leases and dealer direct loans on new trucks | 105.7 | 21.2 | 105.8 | 85.8 | ||||||||||||
Inventories | (7.4 | ) | (25.1 | ) | (126.8 | ) | (12.3 | ) | ||||||||
Accounts payable and accrued expenses | 152.6 | 286.0 | 422.2 | 225.3 | ||||||||||||
Income taxes, warranty and other | 293.1 | 206.5 | 180.2 | 181.0 | ||||||||||||
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Net Cash Provided by Operating Activities | 1,490.5 | 1,851.2 | 1,185.2 | 1,649.4 | ||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Originations of retail loans and direct financing leases | (2,026.4 | ) | (2,242.5 | ) | (1,347.5 | ) | (1,366.6 | ) | ||||||||
Collections on retail loans and direct financing leases | 1,852.8 | 2,013.7 | 1,324.0 | 1,238.8 | ||||||||||||
Net decrease (increase) in wholesale receivables on used equipment | 5.4 | (19.4 | ) | |||||||||||||
Net decrease in wholesale receivables on used equipment | 1.6 | 14.2 | ||||||||||||||
Purchases of marketable debt securities | (796.2 | ) | (995.0 | ) | (435.3 | ) | (543.8 | ) | ||||||||
Proceeds from sales and maturities of marketable debt securities | 1,166.9 | 778.9 | 359.0 | 572.3 | ||||||||||||
Payments for property, plant and equipment | (242.0 | ) | (187.5 | ) | (188.3 | ) | (152.0 | ) | ||||||||
Acquisitions of equipment for operating leases | (1,202.3 | ) | (1,093.2 | ) | (728.0 | ) | (767.2 | ) | ||||||||
Proceeds from asset disposals | 320.9 | 340.1 | 244.2 | 218.2 | ||||||||||||
Other, net | (.5 | ) | 3.2 | |||||||||||||
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Net Cash Used in Investing Activities | (921.4 | ) | (1,401.7 | ) | (770.3 | ) | (786.1 | ) | ||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Payments of cash dividends | (745.2 | ) | (595.7 | ) | (382.5 | ) | (661.0 | ) | ||||||||
Purchases of treasury stock | (56.3 | ) | (70.7 | ) | (56.3 | ) | ||||||||||
Proceeds from stock compensation transactions | 11.3 | 16.2 | 18.8 | 7.4 | ||||||||||||
Net (decrease) increase in commercial paper and short-term bank loans | (283.6 | ) | 7.4 | |||||||||||||
Net increase (decrease) in commercial paper and short-term bank loans | 336.9 | (389.2 | ) | |||||||||||||
Proceeds from term debt | 1,864.4 | 1,936.5 | 959.8 | 1,366.5 | ||||||||||||
Payments on term debt | (1,622.6 | ) | (1,268.8 | ) | (1,440.8 | ) | (1,109.2 | ) | ||||||||
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Net Cash (Used in) Provided by Financing Activities | (832.0 | ) | 24.9 | |||||||||||||
Net Cash Used in Financing Activities | (507.8 | ) | (841.8 | ) | ||||||||||||
Effect of exchange rate changes on cash | 34.4 | (85.9 | ) | 57.0 | 27.0 | |||||||||||
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Net (Decrease) Increase in Cash and Cash Equivalents | (228.5 | ) | 388.5 | (35.9 | ) | 48.5 | ||||||||||
Cash and cash equivalents at beginning of period | 2,016.4 | 1,737.6 | 1,915.7 | 2,016.4 | ||||||||||||
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Cash and cash equivalents at end of period | $ | 1,787.9 | $ | 2,126.1 | $ | 1,879.8 | $ | 2,064.9 | ||||||||
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See Notes to Consolidated Financial Statements.
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PACCAR Inc – Form10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
NOTE A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form10-Q and Article 10 of RegulationS-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals)accruals and thenon-recurring European Commission charge) considered necessary for a fair presentation have been included. Operating results for the three and ninesix months ended SeptemberJune 30, 20162017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.2017. For further information, refer to the consolidated financial statements and footnotes included in PACCAR Inc’s (PACCAR or the Company) Annual Report onForm10-K for the year ended December 31, 2015.2016.
Earnings (Loss) per Share: Basic earnings (loss) per common share are computed by dividing earnings (loss) by the weighted average number of common shares outstanding, plus the effect of any participating securities. Diluted earnings (loss) per common share are computed assuming that all potentially dilutive securities are converted into common shares under the treasury stock method. For the six months ended June 30, 2016, potentially dilutive options of 654,200 were excluded from the calculation of diluted loss per share as their inclusion would have been antidilutive due to the net loss in the first half of 2016. The dilutive and antidilutive options are shown separately in the table below.
Three Months Ended September 30 | Nine Months Ended September 30 | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Additional shares | 738,500 | 910,600 | 679,400 | 983,000 | 933,300 | 704,800 | 1,013,700 | |||||||||||||||||||||||||
Antidilutive options | 1,099,600 | 1,139,100 | 1,943,500 | 590,900 | 616,800 | 1,934,300 | 649,300 | 2,597,600 |
New Accounting Pronouncements: In October 2016,March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)2017-07Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendment disaggregates the service cost component fromnon-service cost components of pension expense and prescribes where to present the various components of pension cost on the income statement. This ASU also allows only the service cost component to be eligible for capitalization, when applicable (e.g. as a cost of manufactured inventory or self-constructed assets). The ASU is effective for reporting periods beginning after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. Upon adoption, the income statement presentation of service andnon-service components of pension expense should be applied retrospectively, while the capitalization of service cost is to be applied prospectively. The Company is currently evaluating the impact on its consolidated financial statements.
In October 2016, the FASB issued ASU2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.Inventory. The amendment in this ASU requires recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Currently the recognition of current and deferred income taxes for an intra-entity asset transfer is recognized when the asset has been sold to an outside party. This ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual reporting periods. Earlyperiods, and early adoption is permitted. This amendment should be applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The Company adopted this ASU on January 1, 2017. The effect of the adoption reduced prepaid income taxes and retained earnings by $19.9. Because the corresponding deferred tax asset is currently evaluatingnot realizable, the impact on its consolidated financial statements.Company recorded an offsetting valuation allowance.
In August 2016, the FASB issued ASU2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendment in this ASU addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. TheThis standard should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the standard retrospectively, the standard would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact on its Consolidated Statement of Cash Flows.consolidated financial statements.
- 7 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
In June 2016, the FASB issued ASU2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendment in this ASU requires entities having financial assets measured at amortized cost to estimate credit reserves under an expected credit loss model rather than the current incurred loss model. Under this new model, expected credit losses will be based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability. The ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted, but not earlier than annual and interim periods beginning after December 15, 2018. This amendment should be applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact on its consolidated financial statements.
- 7 -
PACCAR Inc – Form 10-Q
In February 2016, the FASB issued ASU2016-02,Leases (Topic 842)which amends the existing accounting standards for leases. Under the new lease standard, lessees will recognize aright-of-use asset and a lease liability for virtually all leases (other than short-term leases). Lessor accounting is largely unchanged. The ASU is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluatingThis ASU requires leases to be recognized and measured at the impact on its consolidated financial statements.
In January 2016,beginning of the FASB issued ASU 2016-01,Financial Instruments – Overall (Subtopic 825-10):Recognition and Measurement of Financial Assets and Financial Liabilities. The amendment in this ASU addresses the recognition, measurement, presentation and disclosure of financial instruments. The ASU is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods.earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact on its consolidated financial statements.
In May 2014, the FASB issued ASU2014-09,Revenue from Contracts with Customers. This ASU amends the existing accounting standards for revenue recognition. Under the new revenue recognition model, a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The FASB has subsequently issued several related ASUs to clarify the implementation guidance in ASU2014-09. This ASU is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, but no sooner than annual and interim periods beginning after December 15, 2016. The standard may be applied retrospectively to each prior period presented or modified retrospectively with thea cumulative effect recognized as of the date of initial application. The Company expects to adopt this ASU in January 2018 on a modified retrospective basis, with the cumulative effect adjustment recognized into retained earnings as of January 1, 2018.
The Company’s evaluation of the new standard is substantially complete, and the Company does not expect adoption of the new standard to have a material impact on the income statement or retained earnings. The Company currently evaluatingexpects the transition alternativesmost significant effect of the standard relates to trucks sold in Europe that are subject to a residual value guarantee (RVG) and are currently accounted for as an operating lease in the Truck, Parts and Other section of the Company’s Consolidated Balance Sheets (see Note E in the 2016 Form10-K). Under the new standard, based on the Company’s current assessment, revenues would be recognized immediately for certain of these RVG contracts that allow customers the option to return their truck and for which there is no economic incentive to do so. Based on the existing portfolio of RVG contracts, under the new standard, revenues are expected to be recognized immediately for approximately half of the RVG portfolio instead of being deferred and amortized over the life of the RVG contract. The Company will continue to evaluate the new standard, including any new interpretive guidance, and any related impact to its financial statements.
In addition to ASU2016-16 disclosed above, the Company adopted the following standards effective January 1, 2017, none of which had a material impact on the Company’s consolidated financial statements.
STANDARD | DESCRIPTION | |
2017-04* | Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. | |
2016-09** | Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. | |
2015-11** | Inventory (Topic 330): Simplifying the Measurement of Inventory. |
* | The Company early adopted in 2017. |
** | The Company adopted on the effective date of January 1, 2017. |
The FASB also issued the following standards,standard, which areis not expected to have a material impact on the Company’s consolidated financial statements.
January 1, | ||||
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* | The Company expects to adopt on the effective date. |
The Company adopted the following standards effective January 1, 2016, none of which had a material impact on the Company’s consolidated financial statements.
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- 8 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
NOTE B - Investments in Marketable Debt Securities
The Company’s investments in marketable debt securities are classified asavailable-for-sale. These investments are stated at fair value with any unrealized gains or losses, net of tax, included as a component of accumulated other comprehensive income (loss) (AOCI).
The Company utilizes third-party pricing services for all of its marketable debt security valuations. The Company reviews the pricing methodology used by thethird-party pricing services, including the manner employed to collect market information. On a quarterly basis, the Company also performs review and validation procedures on the pricing information received from thethird-party providers. These procedures help ensure that the fair value information used by the Company is determined in accordance with applicable accounting guidance.
The Company evaluates its investment in marketable debt securities at the end of each reporting period to determine if a decline in fair value is other-than-temporary. Realized losses are recognized upon management’s determination that a decline in fair value is other-than-temporary. The determination of other-than-temporary impairment is a subjective process, requiring the use of judgments and assumptions regarding the amount and timing of recovery. The Company reviews and evaluates its investments at least quarterly to identify investments that have indications of other-than-temporary impairments. It is reasonably possible that a change in estimate could occur in the near term relating to other-than-temporary impairment. Accordingly, the Company considers several factors when evaluating debt securities for other-than-temporary impairment, including whether the decline in fair value of the security is due to increased default risk for the specific issuer or market interest-rate risk.
In assessing default risk, the Company considers the collectability of principal and interest payments by monitoring changes to issuers’ credit ratings, specific credit events associated with individual issuers as well as the credit ratings of any financial guarantor, and the extent and duration to which amortized cost exceeds fair value.
In assessing market interest rate risk, including benchmark interest rates and credit spreads, the Company considers its intent for selling the securities and whether it is more likely than not the Company will be able to hold these securities until the recovery of any unrealized losses.
Marketable debt securities at June 30, 2017 and December 31, 2016 consisted of the following:
At June 30, 2017 | AMORTIZED COST | UNREALIZED GAINS | UNREALIZED LOSSES | FAIR VALUE | ||||||||||||
U.S.tax-exempt securities | $ | 563.1 | $ | 1.3 | $ | .4 | $ | 564.0 | ||||||||
U.S. corporate securities | 58.8 | .1 | .1 | 58.8 | ||||||||||||
U.S. government and agency securities | 15.6 | 15.6 | ||||||||||||||
Non-U.S. corporate securities | 377.9 | 1.2 | .6 | 378.5 | ||||||||||||
Non-U.S. government securities | 92.9 | .3 | .1 | 93.1 | ||||||||||||
Other debt securities | 134.6 | .2 | .2 | 134.6 | ||||||||||||
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$ | 1,242.9 | $ | 3.1 | $ | 1.4 | $ | 1,244.6 | |||||||||
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At December 31, 2016 | AMORTIZED COST | UNREALIZED GAINS | UNREALIZED LOSSES | FAIR VALUE | ||||||||||||
U.S.tax-exempt securities | $ | 597.9 | $ | .2 | $ | 3.1 | $ | 595.0 | ||||||||
U.S. corporate securities | 47.6 | .2 | 47.8 | |||||||||||||
U.S. government and agency securities | 16.0 | 16.0 | ||||||||||||||
Non-U.S. corporate securities | 306.9 | 1.5 | .4 | 308.0 | ||||||||||||
Non-U.S. government securities | 97.6 | .6 | 98.2 | |||||||||||||
Other debt securities | 75.9 | .2 | .2 | 75.9 | ||||||||||||
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$ | 1,141.9 | $ | 2.7 | $ | 3.7 | $ | 1,140.9 | |||||||||
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- 9 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Marketable debt securities at September 30, 2016 and December 31, 2015 consisted of the following:
At September 30, 2016 | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
U.S. tax-exempt securities | $ | 499.1 | $ | 1.2 | $ | .4 | $ | 499.9 | ||||||||
U.S. corporate securities | 52.4 | .4 | 52.8 | |||||||||||||
U.S. government and agency securities | 16.1 | .2 | 16.3 | |||||||||||||
Non-U.S. corporate securities | 326.7 | 1.9 | 328.6 | |||||||||||||
Non-U.S. government securities | 98.7 | 1.1 | 99.8 | |||||||||||||
Other debt securities | 81.0 | .5 | 81.5 | |||||||||||||
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$ | 1,074.0 | $ | 5.3 | $ | .4 | $ | 1,078.9 | |||||||||
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At December 31, 2015 | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
U.S. tax-exempt securities | $ | 505.0 | $ | .7 | $ | .3 | $ | 505.4 | ||||||||
U.S. corporate securities | 76.7 | .1 | .1 | 76.7 | ||||||||||||
U.S. government and agency securities | 15.7 | .1 | .1 | 15.7 | ||||||||||||
Non-U.S. corporate securities | 585.6 | 1.8 | .4 | 587.0 | ||||||||||||
Non-U.S. government securities | 192.7 | 1.1 | .1 | 193.7 | ||||||||||||
Other debt securities | 69.6 | .1 | .1 | 69.6 | ||||||||||||
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$ | 1,445.3 | $ | 3.9 | $ | 1.1 | $ | 1,448.1 | |||||||||
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The cost of marketable debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Amortization, accretion, interest and dividend income and realized gains and losses are included in investment income. The cost of securities sold is based on the specific identification method. Gross realized gains were $4.2$.9 and $1.7 for the nine months ended September 30, 2016 and 2015, respectively,$1.3 and gross realized losses were $.3 and $.1 for both the ninesix month periods ended SeptemberJune 30, 2017 and 2016, and 2015.respectively.
Marketable debt securities with continuous unrealized losses and their related fair values were as follows:
September 30, 2016 | December 31, 2015 | June 30, 2017 | December 31, 2016 | |||||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Greater | Less than Twelve Months | Twelve Months or Greater | LESS THAN TWELVE MONTHS | TWELVE MONTHS OR GREATER | LESS THAN TWELVE MONTHS | TWELVE MONTHS OR GREATER | |||||||||||||||||||||
Fair value | $ | 292.5 | $ | 579.0 | $ | 450.3 | $ | 615.5 | ||||||||||||||||||||
Unrealized losses | .4 | 1.1 | 1.4 | 3.7 |
For the investment securities in gross unrealized loss positions identified above, the Company does not intend to sell the investment securities. It is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and the Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized no other-than-temporary impairments during the periods presented.
Contractual maturities on marketable debt securities at June 30, 2017 were as follows:
Maturities: | AMORTIZED COST | FAIR VALUE | ||||||
Within one year | $ | 341.9 | $ | 342.1 | ||||
One to five years | 891.9 | 893.4 | ||||||
More than ten years | 9.1 | 9.1 | ||||||
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$ | 1,242.9 | $ | 1,244.6 | |||||
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NOTE C - Inventories
Inventories are stated at the lower of cost or market. Cost of inventories in the U.S. is determined principally by thelast-in,first-out (LIFO) method. Cost of all other inventories is determined principally by thefirst-in,first-out (FIFO) method.
Inventories include the following:
June 30 2017 | December 31 2016 | |||||||
Finished products | $ | 518.0 | $ | 452.3 | ||||
Work in process and raw materials | 539.3 | 444.7 | ||||||
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1,057.3 | 897.0 | |||||||
Less LIFO reserve | (172.0 | ) | (169.2 | ) | ||||
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$ | 885.3 | $ | 727.8 | |||||
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Under the LIFO method of accounting (used for approximately 46% of June 30, 2017 inventories), an actual valuation can be made only at the end of each year based onyear-end inventory levels and costs. Accordingly, interim valuations are based on management’s estimates of thoseyear-end amounts.
- 10 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Contractual maturities on marketable debt securities at September 30, 2016 were as follows:
Maturities: | Amortized Cost | Fair Value | ||||||
Within one year | $ | 284.7 | $ | 284.9 | ||||
One to five years | 777.3 | 782.0 | ||||||
Six to ten years | 2.0 | 2.0 | ||||||
More than ten years | 10.0 | 10.0 | ||||||
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$ | 1,074.0 | $ | 1,078.9 | |||||
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NOTE C - Inventories
Inventories are stated at the lower of cost or market. Cost of inventories in the U.S. is determined principally by thelast-in, first-out (LIFO) method. Cost of all other inventories is determined principally by the first-in, first-out (FIFO) method.
Inventories include the following:
September 30 2016 | December 31 2015 | |||||||
Finished products | $ | 488.5 | $ | 443.6 | ||||
Work in process and raw materials | 508.6 | 528.9 | ||||||
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997.1 | 972.5 | |||||||
Less LIFO reserve | (173.0 | ) | (176.0 | ) | ||||
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$ | 824.1 | $ | 796.5 | |||||
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Under the LIFO method of accounting (used for approximately 46% of September 30, 2016 inventories), an actual valuation can be made only at the end of each year based on year-end inventory levels and costs. Accordingly, interim valuations are based on management’s estimates of those year-end amounts.
NOTE D - Finance and Other Receivables
Finance and other receivables include the following:
September 30 2016 | December 31 2015 | |||||||
Loans | $ | 3,980.2 | $ | 4,011.7 | ||||
Direct financing leases | 2,759.4 | 2,719.5 | ||||||
Sales-type finance leases | 875.9 | 969.8 | ||||||
Dealer wholesale financing | 1,764.0 | 1,950.1 | ||||||
Operating lease receivables and other | 150.3 | 131.9 | ||||||
Unearned interest: Finance leases | (337.1 | ) | (364.6 | ) | ||||
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$ | 9,192.7 | $ | 9,418.4 | |||||
Less allowance for losses: | ||||||||
Loans and leases | (99.5 | ) | (99.2 | ) | ||||
Dealer wholesale financing | (6.5 | ) | (7.3 | ) | ||||
Operating lease receivables and other | (8.4 | ) | (8.3 | ) | ||||
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$ | 9,078.3 | $ | 9,303.6 | |||||
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- 11 -
PACCAR Inc – Form 10-Q
June 30 2017 | December 31 2016 | |||||||
Loans | $ | 3,923.3 | $ | 3,948.6 | ||||
Direct financing leases | 3,065.0 | 2,798.0 | ||||||
Sales-type finance leases | 768.8 | 867.3 | ||||||
Dealer wholesale financing | 1,764.0 | 1,528.5 | ||||||
Operating lease receivables and other | 187.2 | 150.9 | ||||||
Unearned interest: Finance leases | (360.4 | ) | (344.7 | ) | ||||
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$ | 9,347.9 | $ | 8,948.6 | |||||
Less allowance for losses: | ||||||||
Loans and leases | (103.9 | ) | (97.1 | ) | ||||
Dealer wholesale financing | (5.9 | ) | (5.5 | ) | ||||
Operating lease receivables and other | (9.2 | ) | (8.6 | ) | ||||
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$ | 9,228.9 | $ | 8,837.4 | |||||
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Recognition of interest income and rental revenue is suspended (put onnon-accrual status) when the receivable becomes more than 90 days past the contractual due date or earlier if some other event causes the Company to determine that collection is not probable. Accordingly, no finance receivables more than 90 days past due were accruing interest at SeptemberJune 30, 20162017 or December 31, 2015.2016. Recognition is resumed if the receivable becomes current by the payment of all amounts due under the terms of the existing contract and collection of remaining amounts is considered probable (if not contractually modified) or if the customer makes scheduled payments for three months and collection of remaining amounts is considered probable (if contractually modified). Payments received while the finance receivable is onnon-accrual status are applied to interest and principal in accordance with the contractual terms.
Allowance for Credit Losses
The Company continuously monitors the payment performance of its finance receivables. For large retail finance customers and dealers with wholesale financing, the Company regularly reviews their financial statements and makes site visits and phone contact as appropriate. If the Company becomes aware of circumstances that could cause those customers or dealers to face financial difficulty, whether or not they are past due, the customers are placed on a watch list.
The Company modifies loans and finance leases in the normal course of its Financial Services operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress, but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company’s modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification.
When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts that the Company considers likely to perform under the modified terms. When the Company modifies loans and finance leases for credit reasons and grants a concession, the modifications are classified as troubled debt restructurings (TDR). The Company does not typically grant credit modifications for customers that do not meet minimum underwriting standards since the Company normally repossesses the financed equipment in these circumstances. When such modifications do occur, they are considered TDRs.
On average, modifications extended contractual terms by approximately threefour months in 20162017 and seven months in 20152016 and did not have a significant effect on the weighted average term or interest rate of the total portfolio at SeptemberJune 30, 20162017 and December 31, 2015.2016.
- 11 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
The Company has developed a systematic methodology for determining the allowance for credit losses for its two portfolio segments, retail and wholesale. The retail segment consists of retail loans and direct and sales-type finance leases, net of unearned interest. The wholesale segment consists of truck inventory financing loans to dealers that are collateralized by trucks and other collateral. The wholesale segment generally has less risk than the retail segment. Wholesale receivables generally are shorter in duration than retail receivables, and the Company requires periodic reporting of the wholesale dealer’s financial condition, conducts periodic audits of the trucks being financed and in many cases, obtains guarantees or other security such as dealership assets. In determining the allowance for credit losses, retail loans and finance leases are evaluated together since they relate to a similar customer base, their contractual terms require regular payment of principal and interest, generally over 36 to 60 months, and they are secured by the same type of collateral. The allowance for credit losses consists of both specific and general reserves.
The Company individually evaluates certain finance receivables for impairment. Finance receivables that are evaluated individually for impairment consist of all wholesale accounts and certain large retail accounts with past due balances or otherwise determined to be at a higher risk of loss. A finance receivable is impaired if it is considered probable the Company will be unable to collect all contractual interest and principal payments as scheduled. In addition, all retail loans and leases which have been classified as TDRs and all customer accounts over 90 days past due are considered impaired. Generally, impaired accounts are onnon-accrual status. Impaired accounts classified as TDRs which have been performing for 90 consecutive days are placed on accrual status if it is deemed probable that the Company will collect all principal and interest payments.
- 12 -
PACCAR Inc – Form 10-Q
Impaired receivables are generally considered collateral dependent. Large balance retail and all wholesale impaired receivables are individually evaluated to determine the appropriate reserve for losses. The determination of reserves for large balance impaired receivables considers the fair value of the associated collateral. When the underlying collateral fair value exceeds the Company’s recorded investment, no reserve is recorded. Small balance impaired receivables with similar risk characteristics are evaluated as a separate pool to determine the appropriate reserve for losses using the historical loss information discussed below.
The Company evaluates finance receivables that are not individually impaired on a collective basis and determines the general allowance for credit losses for both retail and wholesale receivables based on historical loss information, using past due account data and current market conditions. Information used includes assumptions regarding the likelihood of collecting current and past due accounts, repossession rates, the recovery rate on the underlying collateral based on used truck values and other pledged collateral or recourse. The Company has developed a range of loss estimates for each of its country portfolios based on historical experience, taking into account loss frequency and severity in both strong and weak truck market conditions. A projection is made of the range of estimated credit losses inherent in the portfolio from which an amount is determined as probable based on current market conditions and other factors impacting the creditworthiness of the Company’s borrowers and their ability to repay. After determining the appropriate level of the allowance for credit losses, a provision for losses on finance receivables is charged to income as necessary to reflect management’s estimate of incurred credit losses, net of recoveries, inherent in the portfolio.
In determining the fair value of the collateral, the Company uses a pricing matrix and categorizes the fair value as Level 2 in the hierarchy of fair value measurement. The pricing matrix is reviewed quarterly and updated as appropriate. The pricing matrix considers the make, model and year of the equipment as well as recent sales prices of comparable equipment sold individually, which is the lowest unit of account, through wholesale channels to the Company’s dealers (principal market). The fair value of the collateral also considers the overall condition of the equipment.
Accounts arecharged-off against the allowance for credit losses when, in the judgment of management, they are considered uncollectible, which generally occurs upon repossession of the collateral. Typically the timing between the repossession andcharge-off is not significant. In cases where repossession is delayed (e.g., for legal proceedings), the Company records a partialcharge-off. Thecharge-off is determined by comparing the fair value of the collateral, less cost to sell, to the recorded investment.
For the following credit quality disclosures, finance receivables are classified into two portfolio segments, wholesale and retail. The retail portfolio is further segmented into dealer retail and customer retail. The dealer wholesale segment consists of truck inventory financing to PACCAR dealers. The dealer retail segment consists of loans and leases to participating dealers and franchises that use the proceeds to fund customers’ acquisition of commercial vehicles and related equipment. The customer retail segment consists of loans and leases directly to customers for the acquisition of commercial vehicles and related equipment. Customer retail receivables are further segregated between fleet and owner/operator classes. The fleet class consists of customer retail accounts operating more than five trucks. All other customer retail accounts are considered owner/operator. These two classes have similar measurement attributes, risk characteristics and common methods to monitor and assess credit risk.
- 12 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
The allowance for credit losses is summarized as follows:
2016 | 2017 | |||||||||||||||||||||||||||||||||||||||
Dealer | Customer | DEALER | CUSTOMER | |||||||||||||||||||||||||||||||||||||
Wholesale | Retail | Retail | Other* | Total | WHOLESALE | RETAIL | RETAIL | OTHER* | TOTAL | |||||||||||||||||||||||||||||||
Balance at January 1 | $ | 7.3 | $ | 10.3 | $ | 88.9 | $ | 8.3 | $ | 114.8 | $ | 5.5 | $ | 9.6 | $ | 87.5 | $ | 8.6 | $ | 111.2 | ||||||||||||||||||||
Provision for losses | (1.0 | ) | (.7 | ) | 14.5 | 1.7 | 14.5 | (.7 | ) | 12.8 | .6 | 12.7 | ||||||||||||||||||||||||||||
Charge-offs | (17.0 | ) | (1.9 | ) | (18.9 | ) | (11.5 | ) | (.5 | ) | (12.0 | ) | ||||||||||||||||||||||||||||
Recoveries | 4.0 | .1 | 4.1 | 2.2 | .1 | 2.3 | ||||||||||||||||||||||||||||||||||
Currency translation and other | .2 | .1 | (.6 | ) | .2 | (.1 | ) | .4 | .2 | 3.8 | .4 | 4.8 | ||||||||||||||||||||||||||||
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Balance at September 30 | $ | 6.5 | $ | 9.7 | $ | 89.8 | $ | 8.4 | $ | 114.4 | ||||||||||||||||||||||||||||||
Balance at June 30 | $ | 5.9 | $ | 9.1 | $ | 94.8 | $ | 9.2 | $ | 119.0 | ||||||||||||||||||||||||||||||
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DEALER | CUSTOMER | |||||||||||||||||||||||||||||||||||||||
WHOLESALE | RETAIL | RETAIL | OTHER* | TOTAL | ||||||||||||||||||||||||||||||||||||
Balance at January 1 | $ | 7.3 | $ | 10.3 | $ | 88.9 | $ | 8.3 | $ | 114.8 | ||||||||||||||||||||||||||||||
Provision for losses | (1.1 | ) | (.5 | ) | 9.6 | 1.4 | 9.4 | |||||||||||||||||||||||||||||||||
Charge-offs | (9.7 | ) | (1.6 | ) | (11.3 | ) | ||||||||||||||||||||||||||||||||||
Recoveries | 1.3 | .1 | 1.4 | |||||||||||||||||||||||||||||||||||||
Currency translation and other | .1 | .1 | (.4 | ) | .3 | .1 | ||||||||||||||||||||||||||||||||||
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Balance at June 30 | $ | 6.3 | $ | 9.9 | $ | 89.7 | $ | 8.5 | $ | 114.4 | ||||||||||||||||||||||||||||||
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* Operating leases and other trade receivables. | ||||||||||||||||||||||||||||||||||||||||
Information regarding finance receivables evaluated and determined individually and collectively is as follows: |
Information regarding finance receivables evaluated and determined individually and collectively is as follows: |
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DEALER | CUSTOMER | |||||||||||||||||||||||||||||||||||||||
At June 30, 2017 | WHOLESALE | RETAIL | RETAIL | TOTAL | ||||||||||||||||||||||||||||||||||||
Recorded investment for impaired finance receivables evaluated individually | $ | .1 | $ | 4.0 | $ | 55.6 | $ | 59.7 | ||||||||||||||||||||||||||||||||
Allowance for impaired finance receivables determined individually | .1 | 8.1 | 8.2 | |||||||||||||||||||||||||||||||||||||
Recorded investment for finance receivables evaluated collectively | 1,763.9 | 1,282.0 | 6,055.1 | 9,101.0 | ||||||||||||||||||||||||||||||||||||
Allowance for finance receivables determined collectively | 5.8 | 9.1 | 86.7 | 101.6 | ||||||||||||||||||||||||||||||||||||
DEALER | CUSTOMER | |||||||||||||||||||||||||||||||||||||||
At December 31, 2016 | WHOLESALE | RETAIL | RETAIL | TOTAL | ||||||||||||||||||||||||||||||||||||
Recorded investment for impaired finance receivables evaluated individually | $ | .1 | $ | 57.3 | $ | 57.4 | ||||||||||||||||||||||||||||||||||
Allowance for impaired finance receivables determined individually | .1 | 4.9 | 5.0 | |||||||||||||||||||||||||||||||||||||
Recorded investment for finance receivables evaluated collectively | 1,528.4 | $ | 1,406.0 | 5,805.9 | 8,740.3 | |||||||||||||||||||||||||||||||||||
Allowance for finance receivables determined collectively | 5.4 | 9.6 | 82.6 | 97.6 |
- 13 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
2015 | ||||||||||||||||||||
Dealer | Customer | |||||||||||||||||||
Wholesale | Retail | Retail | Other* | Total | ||||||||||||||||
Balance at January 1 | $ | 9.0 | $ | 11.9 | $ | 93.6 | $ | 7.5 | $ | 122.0 | ||||||||||
Provision for losses | .1 | (.8 | ) | 7.3 | 2.1 | 8.7 | ||||||||||||||
Charge-offs | (.2 | ) | (8.7 | ) | (1.2 | ) | (10.1 | ) | ||||||||||||
Recoveries | 2.6 | .3 | 2.9 | |||||||||||||||||
Currency translation and other | (.5 | ) | (.2 | ) | (5.6 | ) | .8 | (5.5 | ) | |||||||||||
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Balance at September 30 | $ | 8.4 | $ | 10.9 | $ | 89.2 | $ | 9.5 | $ | 118.0 | ||||||||||
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* Operating leases and other trade receivables. | ||||||||||||||||||||
Information regarding finance receivables evaluated and determined individually and collectively is as follows: |
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Dealer | Customer | |||||||||||||||||||
At September 30, 2016 | Wholesale | Retail | Retail | Total | ||||||||||||||||
Recorded investment for impaired finance | $ | 1.5 | $ | 55.4 | $ | 56.9 | ||||||||||||||
Allowance for impaired finance receivables | .1 | 5.3 | 5.4 | |||||||||||||||||
Recorded investment for finance receivables | 1,762.5 | $ | 1,421.7 | 5,801.3 | 8,985.5 | |||||||||||||||
Allowance for finance receivables determined | 6.4 | 9.7 | 84.5 | 100.6 | ||||||||||||||||
Dealer | Customer | |||||||||||||||||||
At December 31, 2015 | Wholesale | Retail | Retail | Total | ||||||||||||||||
Recorded investment for impaired finance | $ | 5.0 | $ | 64.0 | $ | 69.0 | ||||||||||||||
Allowance for impaired finance receivables | .3 | 6.5 | 6.8 | |||||||||||||||||
Recorded investment for finance receivables | 1,945.1 | $ | 1,561.3 | 5,711.1 | 9,217.5 | |||||||||||||||
Allowance for finance receivables determined | 7.0 | 10.3 | 82.4 | 99.7 |
The recorded investment for finance receivables that are onnon-accrual status is as follows:
September 30 2016 | December 31 2015 | June 30 2017 | December 31 2016 | |||||||||||||
Dealer: | ||||||||||||||||
Wholesale | $ | 1.5 | $ | 5.0 | $ | .1 | $ | .1 | ||||||||
Customer retail: | ||||||||||||||||
Fleet | 44.0 | 50.7 | 47.3 | 49.5 | ||||||||||||
Owner/operator | 8.6 | 10.0 | 6.5 | 6.9 | ||||||||||||
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$ | 54.1 | $ | 65.7 | $ | 53.9 | $ | 56.5 | |||||||||
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Impaired Loans
Impaired loans are summarized below. The impaired loans with specific reserve represent the unpaid principal balance. The recorded investment of impaired loans as of June 30, 2017 and December 31, 2016 was not significantly different than the unpaid principal balance.
DEALER | CUSTOMER RETAIL | |||||||||||||||||||
At June 30, 2017 | WHOLESALE | RETAIL | FLEET | OWNER/ OPERATOR | TOTAL | |||||||||||||||
Impaired loans with a specific reserve | $ | .1 | $ | 22.4 | $ | 1.7 | $ | 24.2 | ||||||||||||
Associated allowance | (.1 | ) | (4.1 | ) | (.4 | ) | (4.6 | ) | ||||||||||||
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$ | 18.3 | $ | 1.3 | $ | 19.6 | |||||||||||||||
Impaired loans with no specific reserve | $ | 3.9 | 10.8 | .2 | 14.9 | |||||||||||||||
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Net carrying amount of impaired loans | $ | 3.9 | $ | 29.1 | $ | 1.5 | $ | 34.5 | ||||||||||||
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Average recorded investment* | $ | .9 | $ | 3.8 | $ | 30.7 | $ | 2.2 | $ | 37.6 | ||||||||||
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* Represents the average during the 12 months ended June 30, 2017. | ||||||||||||||||||||
DEALER | CUSTOMER RETAIL | |||||||||||||||||||
At December 31, 2016 | WHOLESALE | RETAIL | FLEET | OWNER/ OPERATOR | TOTAL | |||||||||||||||
Impaired loans with a specific reserve | $ | .1 | $ | 18.9 | $ | 1.8 | $ | 20.8 | ||||||||||||
Associated allowance | (.1 | ) | (2.8 | ) | (.3 | ) | (3.2 | ) | ||||||||||||
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$ | 16.1 | $ | 1.5 | $ | 17.6 | |||||||||||||||
Impaired loans with no specific reserve | 10.8 | .2 | 11.0 | |||||||||||||||||
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Net carrying amount of impaired loans | $ | 26.9 | $ | 1.7 | $ | 28.6 | ||||||||||||||
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Average recorded investment* | $ | 4.2 | $ | 28.1 | $ | 2.4 | $ | 34.7 | ||||||||||||
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* Represents the average during the 12 months ended June 30, 2016. |
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During the period the loans above were considered impaired, interest income recognized on a cash basis was as follows:
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Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Interest income recognized: | ||||||||||||||||||||
Customer retail - fleet | $ | .3 | $ | .3 | $ | .6 | $ | .6 | ||||||||||||
Customer retail - owner/operator | .1 | .2 | ||||||||||||||||||
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$ | .3 | $ | .4 | $ | .6 | $ | .8 | |||||||||||||
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- 14 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Impaired Loans
Impaired loans are summarized below. The impaired loans with a specific reserve represent the unpaid principal balance. The recorded investment of impaired loans as of September 30, 2016 and December 31, 2015 was not significantly different than the unpaid principal balance.
Dealer | Customer Retail | |||||||||||||||||||
At September 30, 2016 | Wholesale | Retail | Fleet | Owner/ Operator | Total | |||||||||||||||
Impaired loans with a specific reserve | $ | 1.5 | $ | 14.6 | $ | 2.1 | $ | 18.2 | ||||||||||||
Associated allowance | (.1 | ) | (2.5 | ) | (.5 | ) | (3.1 | ) | ||||||||||||
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$ | 1.4 | $ | 12.1 | $ | 1.6 | $ | 15.1 | |||||||||||||
Impaired loans with no specific reserve | 10.7 | .1 | 10.8 | |||||||||||||||||
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Net carrying amount of impaired loans | $ | 1.4 | $ | 22.8 | $ | 1.7 | $ | 25.9 | ||||||||||||
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Average recorded investment* | $ | 3.7 | $ | 27.8 | $ | 2.4 | $ | 33.9 | ||||||||||||
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* Represents the average during the 12 months ended September 30, 2016. | ||||||||||||||||||||
Dealer | Customer Retail | |||||||||||||||||||
At December 31, 2015 | Wholesale | Retail | Fleet | Owner/ Operator | Total | |||||||||||||||
Impaired loans with a specific reserve | $ | 5.0 | $ | 21.7 | $ | 2.4 | $ | 29.1 | ||||||||||||
Associated allowance | (.3 | ) | (3.5 | ) | (.5 | ) | (4.3 | ) | ||||||||||||
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$ | 4.7 | $ | 18.2 | $ | 1.9 | $ | 24.8 | |||||||||||||
Impaired loans with no specific reserve | 6.5 | .3 | 6.8 | |||||||||||||||||
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Net carrying amount of impaired loans | $ | 4.7 | $ | 24.7 | $ | 2.2 | $ | 31.6 | ||||||||||||
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Average recorded investment* | $ | 6.6 | $ | 26.8 | $ | 2.3 | $ | 35.7 | ||||||||||||
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* Represents the average during the 12 months ended September 30, 2015. |
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During the period the loans above were considered impaired, interest income recognized on a cash basis was as follows: | ||||||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Interest income recognized: | ||||||||||||||||||||
Dealer wholesale | ||||||||||||||||||||
Customer retail - fleet | $ | .2 | $ | .4 | $ | .8 | $ | 1.0 | ||||||||||||
Customer retail - owner/operator | .1 | .1 | .3 | .3 | ||||||||||||||||
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$ | .3 | $ | .5 | $ | 1.1 | $ | 1.3 | |||||||||||||
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Credit Quality
The Company’s customers are principally concentrated in the transportation industry in North America, Europe and Australia. The Company’s portfolio assets are diversified over a large number of customers and dealers with no single customer or dealer balances representing over 5% of the total portfolio assets. The Company retains as collateral a security interest in the related equipment.
- 15 -
PACCAR Inc – Form 10-Q
At the inception of each contract, the Company considers the credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit-rating agency ratings,loan-to-value ratios and other internal metrics. On an ongoing basis, the Company monitors credit quality based on past due status and collection experience as there is a meaningful correlation between the past due status of customers and the risk of loss.
The Company has three credit quality indicators: performing, watch andat-risk. Performing accounts pay in accordance with the contractual terms and are not considered high-risk. Watch accounts include accounts 31 to 90 days past due and large accounts that are performing but are considered to behigh-risk. Watch accounts are not impaired.At-risk accounts are accounts that are impaired, including TDRs, accounts over 90 days past due and other accounts onnon-accrual status. The tables below summarize the Company’s finance receivables by credit quality indicator and portfolio class.
Dealer | Customer Retail | DEALER | CUSTOMER RETAIL | |||||||||||||||||||||||||||||||||||||
At September 30, 2016 | Wholesale | Retail | Fleet | Owner/ Operator | Total | |||||||||||||||||||||||||||||||||||
At June 30, 2017 | WHOLESALE | RETAIL | FLEET | OWNER/ OPERATOR | TOTAL | |||||||||||||||||||||||||||||||||||
Performing | $ | 1,750.4 | $ | 1,421.7 | $ | 4,832.6 | $ | 939.7 | $ | 8,944.4 | $ | 1,757.9 | $ | 1,282.1 | $ | 5,019.1 | $ | 956.5 | $ | 9,015.6 | ||||||||||||||||||||
Watch | 12.1 | 21.1 | 7.9 | 41.1 | 6.0 | 71.4 | 8.0 | 85.4 | ||||||||||||||||||||||||||||||||
At-risk | 1.5 | 46.8 | 8.6 | 56.9 | .1 | 3.9 | 48.9 | 6.8 | 59.7 | |||||||||||||||||||||||||||||||
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$ | 1,764.0 | $ | 1,421.7 | $ | 4,900.5 | $ | 956.2 | $ | 9,042.4 | $ | 1,764.0 | $ | 1,286.0 | $ | 5,139.4 | $ | 971.3 | $ | 9,160.7 | |||||||||||||||||||||
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Dealer | Customer Retail | DEALER | CUSTOMER RETAIL | |||||||||||||||||||||||||||||||||||||
At December 31, 2015 | Wholesale | Retail | Fleet | Owner/ Operator | Total | |||||||||||||||||||||||||||||||||||
At December 31, 2016 | WHOLESALE | RETAIL | FLEET | OWNER/ OPERATOR | TOTAL | |||||||||||||||||||||||||||||||||||
Performing | $ | 1,922.4 | $ | 1,561.3 | $ | 4,680.6 | $ | 996.6 | $ | 9,160.9 | $ | 1,519.3 | $ | 1,406.0 | $ | 4,863.4 | $ | 922.1 | $ | 8,710.8 | ||||||||||||||||||||
Watch | 22.7 | 27.0 | 6.9 | 56.6 | 9.1 | 14.9 | 5.5 | 29.5 | ||||||||||||||||||||||||||||||||
At-risk | 5.0 | 53.8 | 10.2 | 69.0 | .1 | 50.4 | 6.9 | 57.4 | ||||||||||||||||||||||||||||||||
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$ | 1,950.1 | $ | 1,561.3 | $ | 4,761.4 | $ | 1,013.7 | $ | 9,286.5 | $ | 1,528.5 | $ | 1,406.0 | $ | 4,928.7 | $ | 934.5 | $ | 8,797.7 | |||||||||||||||||||||
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The tables below summarize the Company’s finance receivables by aging category. In determining past due status, the Company considers the entire contractual account balance past due when any installment is over 30 days past due. Substantially all customer accounts that were greater than 30 days past due prior to credit modification became current upon modification for aging purposes.
|
The tables below summarize the Company’s finance receivables by aging category. In determining past due status, the Company considers the entire contractual account balance past due when any installment is over 30 days past due. Substantially all customer accounts that were greater than 30 days past due prior to credit modification became current upon modification for aging purposes.
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The tables below summarize the Company’s finance receivables by aging category. In determining past due status, the Company considers the entire contractual account balance past due when any installment is over 30 days past due. Substantially all customer accounts that were greater than 30 days past due prior to credit modification became current upon modification for aging purposes.
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Dealer | Customer Retail | DEALER | CUSTOMER RETAIL | |||||||||||||||||||||||||||||||||||||
At September 30, 2016 | Wholesale | Retail | Fleet | Owner/ Operator | Total | |||||||||||||||||||||||||||||||||||
At June 30, 2017 | WHOLESALE | RETAIL | FLEET | OWNER/ OPERATOR | TOTAL | |||||||||||||||||||||||||||||||||||
Current and up to 30 days past due | $ | 1,763.2 | $ | 1,421.7 | $ | 4,870.7 | $ | 945.0 | $ | 9,000.6 | $ | 1,763.1 | $ | 1,286.0 | $ | 5,103.4 | $ | 959.8 | $ | 9,112.3 | ||||||||||||||||||||
31 – 60 days past due | .6 | 15.9 | 5.9 | 22.4 | .8 | 20.5 | 5.5 | 26.8 | ||||||||||||||||||||||||||||||||
Greater than 60 days past due | .2 | 13.9 | 5.3 | 19.4 | .1 | 15.5 | 6.0 | 21.6 | ||||||||||||||||||||||||||||||||
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$ | 1,764.0 | $ | 1,421.7 | $ | 4,900.5 | $ | 956.2 | $ | 9,042.4 | $ | 1,764.0 | $ | 1,286.0 | $ | 5,139.4 | $ | 971.3 | $ | 9,160.7 | |||||||||||||||||||||
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Dealer | Customer Retail | DEALER | CUSTOMER RETAIL | |||||||||||||||||||||||||||||||||||||
At December 31, 2015 | Wholesale | Retail | Fleet | Owner/ Operator | Total | |||||||||||||||||||||||||||||||||||
At December 31, 2016 | WHOLESALE | RETAIL | FLEET | OWNER/ OPERATOR | TOTAL | |||||||||||||||||||||||||||||||||||
Current and up to 30 days past due | $ | 1,949.8 | $ | 1,561.3 | $ | 4,733.6 | $ | 1,002.7 | $ | 9,247.4 | $ | 1,528.4 | $ | 1,406.0 | $ | 4,898.4 | $ | 926.4 | $ | 8,759.2 | ||||||||||||||||||||
31 – 60 days past due | 8.3 | 5.4 | 13.7 | 12.6 | 3.9 | 16.5 | ||||||||||||||||||||||||||||||||||
Greater than 60 days past due | .3 | 19.5 | 5.6 | 25.4 | .1 | 17.7 | 4.2 | 22.0 | ||||||||||||||||||||||||||||||||
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$ | 1,950.1 | $ | 1,561.3 | $ | 4,761.4 | $ | 1,013.7 | $ | 9,286.5 | $ | 1,528.5 | $ | 1,406.0 | $ | 4,928.7 | $ | 934.5 | $ | 8,797.7 | |||||||||||||||||||||
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- 1615 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Troubled Debt Restructurings
The balance of TDRs was $45.7$43.5 and $52.3$43.1 at SeptemberJune 30, 20162017 and December 31, 2015,2016, respectively. At modification date, thepre-modification and post-modification recorded investment balances for finance receivables modified during the period by portfolio class are as follows:
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | |||||||||||||||||||||||||||||
Recorded Investment | Recorded Investment | RECORDED INVESTMENT | RECORDED INVESTMENT | |||||||||||||||||||||||||||||
Pre-Modification | Post-Modification | Pre-Modification | Post-Modification | PRE-MODIFICATION | POST-MODIFICATION | PRE-MODIFICATION | POST-MODIFICATION | |||||||||||||||||||||||||
Fleet | $ | 9.1 | $ | 9.1 | $ | 23.1 | $ | 23.0 | $ | 7.8 | $ | 7.8 | $ | 16.6 | $ | 16.6 | ||||||||||||||||
Owner/operator | .4 | .4 | 3.7 | 3.7 | .2 | .3 | .4 | .4 | ||||||||||||||||||||||||
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$ | 8.0 | $ | 8.1 | $ | 17.0 | $ | 17.0 | |||||||||||||||||||||||||
$ | 9.5 | $ | 9.5 | $ | 26.8 | $ | 26.7 |
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Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | |||||||||||||||||||||||||||||||
Three Months Ended September 30, 2015 | Nine Months Ended September 30, 2015 | RECORDED INVESTMENT | RECORDED INVESTMENT | |||||||||||||||||||||||||||||
Recorded Investment | Recorded Investment | PRE-MODIFICATION | POST-MODIFICATION | PRE-MODIFICATION | POST-MODIFICATION | |||||||||||||||||||||||||||
Pre-Modification | Post-Modification | Pre-Modification | Post-Modification | |||||||||||||||||||||||||||||
Fleet | $ | 3.5 | $ | 3.5 | $ | 9.8 | $ | 9.7 | $ | 6.4 | $ | 6.4 | $ | 14.0 | $ | 13.9 | ||||||||||||||||
Owner/operator | 1.3 | 1.3 | 3.7 | 3.7 | 1.4 | 1.4 | 3.3 | 3.3 | ||||||||||||||||||||||||
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$ | 7.8 | $ | 7.8 | $ | 17.3 | $ | 17.2 | |||||||||||||||||||||||||
$ | 4.8 | $ | 4.8 | $ | 13.5 | $ | 13.4 |
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The effect on the allowance for credit losses from such modifications was not significant at September 30, 2016 and 2015.
TDRs modified during the previous twelve months that subsequently defaulted (i.e., became more than 30 days past due) during the period by portfolio class are as follows:
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Nine Months Ended September 30, | 2016 | 2015 | ||||||||||||||||||||||||||||||
Fleet | $ | .1 | $ | 5.0 | ||||||||||||||||||||||||||||
Owner/operator | .4 | .3 | ||||||||||||||||||||||||||||||
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$ | .5 | $ | 5.3 | |||||||||||||||||||||||||||||
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DuringThe effect on the nineallowance for credit losses from such modifications was not significant at June 30, 2017 and 2016.
TDRs modified during the previous twelve months ended Septemberthat subsequently defaulted (i.e., became more than 30 2016 and 2015, there were no significantdays past due) during the period by portfolio class are as follows:
Six Months Ended June 30, | 2017 | 2016 | ||||||||||
Fleet | $ | 1.0 | $ | 6.7 | ||||||||
Owner/operator | .1 | .1 | ||||||||||
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$ | 1.1 | $ | 6.8 | |||||||||
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The TDRs that subsequently defaulted did not significantly impact the Company’s allowance for credit losses at June 30, 2017 and were charged-off.2016.
Repossessions
When the Company determines a customer is not likely to meet its contractual commitments, the Company repossesses the vehicles which serve as collateral for the loans, finance leases and equipment under operating leases. The Company records the vehicles as used truck inventory included in Financial Services other assets on the Consolidated Balance Sheets. The balance of repossessed inventory at SeptemberJune 30, 20162017 and December 31, 20152016 was $33.1$26.6 and $14.6,$25.4, respectively. Proceeds from the sales of repossessed assets were $34.2$29.2 and $38.1$21.7 for the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, respectively. These amounts are included in proceeds from asset disposals in the Condensed Consolidated Statements of Cash Flows. Write-downs of repossessed equipment on operating leases are recorded as impairments and included in Financial Services depreciation and other expenses on the Consolidated Statements of Comprehensive Income.Income (Loss).
- 1716 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
NOTE E - Product Support Liabilities
Product support liabilities areinclude estimated future payments related to product warranties and deferred revenues on optional extended warranties and repair and maintenance (R&M) contracts. The Company generally offers one year warranties covering most of its vehicles and related aftermarket parts. For vehicles equipped with engines manufactured by PACCAR, the Company generally offers two year warranties on the engine. Specific terms and conditions vary depending on the product and the country of sale. Optional extended warranty and R&M contracts can be purchased for periods which generally range up to five years. Warranty expenses and reserves are estimated and recorded at the time products or contracts are sold based on historical data regarding the source, frequency and cost of claims, net of any recoveries. The Company periodically assesses the adequacy of its recorded liabilities and adjusts them as appropriate to reflect actual experience. Revenue from extended warranty and R&M contracts is deferred and recognized to income generally on a straight-line basis over the contract period. Warranty and R&M costs on these contracts are recognized as incurred.
Changes in product support liabilities are summarized as follows:
Warranty Reserves | 2016 | 2015 | ||||||
Balance at January 1 | $ | 346.2 | $ | 310.8 | ||||
Cost accruals | 159.7 | 210.7 | ||||||
Payments | (194.9 | ) | (170.9 | ) | ||||
Change in estimates for pre-existing warranties | (2.5 | ) | (9.4 | ) | ||||
Currency translation | (6.7 | ) | (6.1 | ) | ||||
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Balance at September 30 | $ | 301.8 | $ | 335.1 | ||||
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Deferred Revenues on Extended Warranties and R&M Contracts | 2016 | 2015 | ||||||
Balance at January 1 | $ | 524.8 | $ | 462.0 | ||||
Deferred revenues | 276.5 | 252.2 | ||||||
Revenues recognized | (205.6 | ) | (182.3 | ) | ||||
Currency translation | (7.2 | ) | (14.8 | ) | ||||
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Balance at September 30 | $ | 588.5 | $ | 517.1 | ||||
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- 18 -
PACCAR Inc – Form 10-Q
WARRANTY RESERVES | 2017 | 2016 | ||||||
Balance at January 1 | $ | 282.1 | $ | 346.2 | ||||
Cost accruals | 102.7 | 109.3 | ||||||
Payments | (121.6 | ) | (128.8 | ) | ||||
Change in estimates forpre-existing warranties | 2.6 | (2.8 | ) | |||||
Currency translation | 8.6 | (4.0 | ) | |||||
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Balance at June 30 | $ | 274.4 | $ | 319.9 | ||||
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DEFERRED REVENUES ON EXTENDED WARRANTIES AND R&M CONTRACTS | 2017 | 2016 | ||||||
Balance at January 1 | $ | 573.5 | $ | 524.8 | ||||
Deferred revenues | 176.7 | 192.0 | ||||||
Revenues recognized | (152.9 | ) | (135.9 | ) | ||||
Currency translation | 22.8 | (7.0 | ) | |||||
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Balance at June 30 | $ | 620.1 | $ | 573.9 | ||||
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NOTE F - Stockholders’ Equity
Comprehensive Income (Loss)
The components of comprehensive income (loss) are as follows:
Three Months Ended September 30 | Nine Months Ended September 30 | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Net income | $ | 346.2 | $ | 431.2 | $ | 232.9 | $ | 1,256.8 | ||||||||||||||||||||||||
Net income (loss) | $ | 373.0 | $ | 481.3 | $ | 683.3 | $ | (113.3 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) (OCI): | ||||||||||||||||||||||||||||||||
Unrealized gains on derivative contracts | 5.1 | 3.7 | 8.0 | 6.7 | ||||||||||||||||||||||||||||
Unrealized gains (losses) on derivative contracts | 11.6 | 9.5 | (2.0 | ) | 2.9 | |||||||||||||||||||||||||||
Tax effect | (2.2 | ) | (.9 | ) | (2.7 | ) | (1.5 | ) | (3.1 | ) | (2.6 | ) | .9 | (.5 | ) | |||||||||||||||||
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2.9 | 2.8 | 5.3 | 5.2 |
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| 8.5 | 6.9 | (1.1 | ) | 2.4 | ||||||||||||||||||||||||
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Unrealized (losses) gains on marketable debt | (3.7 | ) | 2.1 | (2.5 | ) | (.5 | ) | 2.6 | 2.9 | 5.8 | ||||||||||||||||||||||
Tax effect | 1.2 | (.6 | ) | .7 | .1 | (.8 | ) | (1.2 | ) | (1.8 | ) | |||||||||||||||||||||
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(.4 | ) | 1.8 | 1.7 | 4.0 | ||||||||||||||||||||||||||||
(2.5 | ) | 1.5 | (1.8 | ) |
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Pension plans | 10.3 | 17.8 | 32.7 | 41.5 | (1.4 | ) | 15.4 | 2.5 | 22.4 | |||||||||||||||||||||||
Tax effect | (3.4 | ) | (5.8 | ) | (10.6 | ) | (13.9 | ) | (4.8 | ) | (1.3 | ) | (7.2 | ) | ||||||||||||||||||
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(1.4 | ) | 10.6 | 1.2 | 15.2 | ||||||||||||||||||||||||||||
6.9 | 12.0 | 22.1 | 27.6 |
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Foreign currency translation (losses) gains | (6.9 | ) | (163.4 | ) | 61.4 | (409.4 | ) | |||||||||||||||||||||||||
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Foreign currency translation gains (losses) | 126.1 | (57.2 | ) | 201.1 | 68.3 | |||||||||||||||||||||||||||
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Net other comprehensive income (loss) | .4 | (148.6 | ) | 90.3 | (378.4 | ) | 132.8 | (37.9 | ) | 202.9 | 89.9 | |||||||||||||||||||||
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Comprehensive income (loss) | $ | 505.8 | $ | 443.4 | $ | 886.2 | $ | (23.4 | ) | |||||||||||||||||||||||
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Comprehensive income | $ | 346.6 | $ | 282.6 | $ | 323.2 | $ | 878.4 | ||||||||||||||||||||||||
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- 1917 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Accumulated Other Comprehensive Income (Loss)
The components of AOCI and the changes in AOCI, net of tax, included in the Consolidated Balance Sheets consisted of the following:
Three Months Ended September 30, 2016 | Derivative Contracts | Marketable Debt Securities | Pension Plans | Foreign Currency Translation | Total | |||||||||||||||
Balance at July 1, 2016 | $ | (4.0 | ) | $ | 6.1 | $ | (375.2 | ) | $ | (554.0 | ) | $ | (927.1 | ) | ||||||
Recorded into AOCI | (7.9 | ) | (.7 | ) | 2.1 | (6.9 | ) | (13.4 | ) | |||||||||||
Reclassified out of AOCI | 10.8 | (1.8 | ) | 4.8 | 13.8 | |||||||||||||||
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Net other comprehensive | 2.9 | (2.5 | ) | 6.9 | (6.9 | ) | .4 | |||||||||||||
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Balance at September 30, 2016 | $ | (1.1 | ) | $ | 3.6 | $ | (368.3 | ) | $ | (560.9 | ) | $ | (926.7 | ) | ||||||
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Three Months Ended September 30, 2015 | Derivative Contracts | Marketable Debt Securities | Pension Plans | Foreign Currency Translation | Total | |||||||||||||||
Balance at July 1, 2015 | $ | (11.1 | ) | $ | 3.5 | $ | (417.5 | ) | $ | (384.5 | ) | $ | (809.6 | ) | ||||||
Recorded into AOCI | 26.3 | .2 | 5.1 | (163.4 | ) | (131.8 | ) | |||||||||||||
Reclassified out of AOCI | (23.5 | ) | (.2 | ) | 6.9 | (16.8 | ) | |||||||||||||
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Net other comprehensive | 2.8 | 12.0 | (163.4 | ) | (148.6 | ) | ||||||||||||||
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Balance at September 30, 2015 | $ | (8.3 | ) | $ | 3.5 | $ | (405.5 | ) | $ | (547.9 | ) | $ | (958.2 | ) | ||||||
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Nine Months Ended September 30, 2016 | Derivative Contracts | Marketable Debt Securities | Pension Plans | Foreign Currency Translation | Total | |||||||||||||||
Balance at January 1, 2016 | $ | (6.4 | ) | $ | 2.1 | $ | (390.4 | ) | $ | (622.3 | ) | $ | (1,017.0 | ) | ||||||
Recorded into AOCI | (33.9 | ) | 4.1 | 7.8 | 61.4 | 39.4 | ||||||||||||||
Reclassified out of AOCI | 39.2 | (2.6 | ) | 14.3 | 50.9 | |||||||||||||||
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Net other comprehensive | 5.3 | 1.5 | 22.1 | 61.4 | 90.3 | |||||||||||||||
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Balance at September 30, 2016 | $ | (1.1 | ) | $ | 3.6 | $ | (368.3 | ) | $ | (560.9 | ) | $ | (926.7 | ) | ||||||
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Nine Months Ended September 30, 2015 | Derivative Contracts | Marketable Debt Securities | Pension Plans | Foreign Currency Translation | Total | |||||||||||||||
Balance at January 1, 2015 | $ | (13.5 | ) | $ | 5.3 | $ | (433.1 | ) | $ | (138.5 | ) | $ | (579.8 | ) | ||||||
Recorded into AOCI | 31.2 | (.8 | ) | 6.9 | (409.4 | ) | (372.1 | ) | ||||||||||||
Reclassified out of AOCI | (26.0 | ) | (1.0 | ) | 20.7 | (6.3 | ) | |||||||||||||
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Net other comprehensive | 5.2 | (1.8 | ) | 27.6 | (409.4 | ) | (378.4 | ) | ||||||||||||
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Balance at September 30, 2015 | $ | (8.3 | ) | $ | 3.5 | $ | (405.5 | ) | $ | (547.9 | ) | $ | (958.2 | ) | ||||||
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Three Months Ended June 30, 2017 | DERIVATIVE CONTRACTS | MARKETABLE DEBT SECURITIES | PENSION PLANS | FOREIGN CURRENCY TRANSLATION | TOTAL | |||||||||||||||
Balance at April 1, 2017 | $ | (13.9 | ) | $ | 1.8 | $ | (411.5 | ) | $ | (634.4 | ) | $ | (1,058.0 | ) | ||||||
Recorded into AOCI | (28.2 | ) | (.3 | ) | (5.7 | ) | 126.1 | 91.9 | ||||||||||||
Reclassified out of AOCI | 36.7 | (.1 | ) | 4.3 | 40.9 | |||||||||||||||
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Net other comprehensive income (loss) | 8.5 | (.4 | ) | (1.4 | ) | 126.1 | 132.8 | |||||||||||||
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Balance at June 30, 2017 | $ | (5.4 | ) | $ | 1.4 | $ | (412.9 | ) | $ | (508.3 | ) | $ | (925.2 | ) | ||||||
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Three Months Ended June 30, 2016 | DERIVATIVE CONTRACTS | MARKETABLE DEBT SECURITIES | PENSION PLANS | FOREIGN CURRENCY TRANSLATION | TOTAL | |||||||||||||||
Balance at April 1, 2016 | $ | (10.9 | ) | $ | 4.3 | $ | (385.8 | ) | $ | (496.8 | ) | $ | (889.2 | ) | ||||||
Recorded into AOCI | 15.7 | 2.1 | 5.6 | (57.2 | ) | (33.8 | ) | |||||||||||||
Reclassified out of AOCI | (8.8 | ) | (.3 | ) | 5.0 | (4.1 | ) | |||||||||||||
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Net other comprehensive income (loss) | 6.9 | 1.8 | 10.6 | (57.2 | ) | (37.9 | ) | |||||||||||||
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Balance at June 30, 2016 | $ | (4.0 | ) | $ | 6.1 | $ | (375.2 | ) | $ | (554.0 | ) | $ | (927.1 | ) | ||||||
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Six Months Ended June 30, 2017 | DERIVATIVE CONTRACTS | MARKETABLE DEBT SECURITIES | PENSION PLANS | FOREIGN CURRENCY TRANSLATION | TOTAL | |||||||||||||||
Balance at January 1, 2017 | $ | (4.3 | ) | $ | (.3 | ) | $ | (414.1 | ) | $ | (709.4 | ) | $ | (1,128.1 | ) | |||||
Recorded into AOCI | (74.1 | ) | 2.0 | (7.8 | ) | 201.1 | 121.2 | |||||||||||||
Reclassified out of AOCI | 73.0 | (.3 | ) | 9.0 | 81.7 | |||||||||||||||
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Net other comprehensive (loss) income | (1.1 | ) | 1.7 | 1.2 | 201.1 | 202.9 | ||||||||||||||
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Balance at June 30, 2017 | $ | (5.4 | ) | $ | 1.4 | $ | (412.9 | ) | $ | (508.3 | ) | $ | (925.2 | ) | ||||||
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Six Months Ended June 30, 2016 | DERIVATIVE CONTRACTS | MARKETABLE DEBT SECURITIES | PENSION PLANS | FOREIGN CURRENCY TRANSLATION | TOTAL | |||||||||||||||
Balance at January 1, 2016 | $ | (6.4 | ) | $ | 2.1 | $ | (390.4 | ) | $ | (622.3 | ) | $ | (1,017.0 | ) | ||||||
Recorded into AOCI | (26.0 | ) | 4.8 | 5.7 | 68.3 | 52.8 | ||||||||||||||
Reclassified out of AOCI | 28.4 | (.8 | ) | 9.5 | 37.1 | |||||||||||||||
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Net other comprehensive income | 2.4 | 4.0 | 15.2 | 68.3 | 89.9 | |||||||||||||||
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Balance at June 30, 2016 | $ | (4.0 | ) | $ | 6.1 | $ | (375.2 | ) | $ | (554.0 | ) | $ | (927.1 | ) | ||||||
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- 2018 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Reclassifications out of AOCI during the three months ended SeptemberJune 30, 20162017 and 20152016 are as follows:
AOCI Components | Line Item in the Consolidated Statements of Comprehensive Income | Three Months Ended September 30 | ||||||||||||||||||
2016 | 2015 | |||||||||||||||||||
Unrealized (gains) and losses on derivative contracts: | ||||||||||||||||||||
AOCI COMPONENTS | LINE ITEM IN THE CONSOLIDATED STATEMENTS OF | Three Months Ended June 30 | ||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
Unrealized losses (gains) on derivative contracts: | Unrealized losses (gains) on derivative contracts: | |||||||||||||||||||
Truck, Parts and Other | ||||||||||||||||||||
Foreign-exchange contracts | Net sales and revenues | $ | (11.1 | ) | $ | (.3 | ) | Net sales and revenues | $ | 12.1 | $ | (1.7 | ) | |||||||
Cost of sales and revenues | (.6 | ) | Cost of sales and revenues | (1.3 | ) | .6 | ||||||||||||||
Interest and other expense, net | (.3 | ) | (1.5 | ) | Interest and other expense (income), net | .6 | .2 | |||||||||||||
Financial Services | ||||||||||||||||||||
Interest-rate contracts | Interest and other borrowing expenses | 28.2 | (29.3 | ) | Interest and other borrowing expenses | 40.0 | (7.6 | ) | ||||||||||||
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Pre-tax expense increase (reduction) | 16.8 | (31.7 | ) | Pre-tax expense increase (reduction) | 51.4 | (8.5 | ) | |||||||||||||
Tax (benefit) expense | (6.0 | ) | 8.2 | Tax benefit | (14.7 | ) | (.3 | ) | ||||||||||||
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After-tax expense increase (reduction) | 10.8 | (23.5 | ) | After-tax expense increase (reduction) | 36.7 | (8.8 | ) | |||||||||||||
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Unrealized (gains) and losses on marketable debt securities: | ||||||||||||||||||||
Unrealized gains on marketable debt securities: | Unrealized gains on marketable debt securities: | |||||||||||||||||||
Marketable debt securities | Investment income | (2.4 | ) | (.3 | ) | Investment income | (.1 | ) | (.4 | ) | ||||||||||
Tax expense | .6 | .1 | Tax expense | .1 | ||||||||||||||||
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After-tax income increase | (1.8 | ) | (.2 | ) | After-tax income increase | (.1 | ) | (.3 | ) | |||||||||||
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Pension plans: | ||||||||||||||||||||
Truck, Parts and Other | ||||||||||||||||||||
Actuarial loss | Cost of sales and revenues | 3.4 | 5.6 | Cost of sales and revenues | 2.7 | 3.5 | ||||||||||||||
Selling, general and administrative | 3.2 | 4.3 | Selling, general and administrative | 3.0 | 3.6 | |||||||||||||||
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6.6 | 9.9 | 5.7 | 7.1 | |||||||||||||||||
Prior service costs | Cost of sales and revenues | .2 | .2 | Cost of sales and revenues | .3 | .3 | ||||||||||||||
Selling, general and administrative | .1 | .1 | ||||||||||||||||||
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.3 | .3 | |||||||||||||||||||
Financial Services | ||||||||||||||||||||
Actuarial loss | Selling, general and administrative | .3 | .4 | Selling, general and administrative | .2 | .3 | ||||||||||||||
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Pre-tax expense increase | 7.2 | 10.6 | Pre-tax expense increase | 6.2 | 7.7 | |||||||||||||||
Tax benefit | (2.4 | ) | (3.7 | ) | Tax benefit | (1.9 | ) | (2.7 | ) | |||||||||||
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After-tax expense increase | 4.8 | 6.9 | After-tax expense increase | 4.3 | 5.0 | |||||||||||||||
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Total reclassifications out of AOCI | $ | 13.8 | $ | (16.8 | ) | $ | 40.9 | $ | (4.1 | ) | ||||||||||
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- 2119 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Reclassifications out of AOCI during the ninesix months ended SeptemberJune 30, 20162017 and 20152016 are as follows:
AOCI Components | Line Item in the Consolidated Statements of Comprehensive Income | Nine Months Ended September 30 | ||||||||||||||||||
2016 | 2015 | |||||||||||||||||||
Unrealized (gains) and losses on derivative contracts: | ||||||||||||||||||||
AOCI COMPONENTS | LINE ITEM IN THE CONSOLIDATED STATEMENTS OF | Six Months Ended June 30 | ||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
Unrealized losses (gains) on derivative contracts: | Unrealized losses (gains) on derivative contracts: | |||||||||||||||||||
Truck, Parts and Other | ||||||||||||||||||||
Foreign-exchange contracts | Net sales and revenues | $ | (17.6 | ) | Net sales and revenues | $ | 16.3 | $ | (6.5 | ) | ||||||||||
Cost of sales and revenues | .6 | $ | 2.8 | Cost of sales and revenues | (1.2 | ) | .6 | |||||||||||||
Interest and other expense, net | 1.6 | (3.2 | ) | Interest and other expense (income), net | .6 | 1.9 | ||||||||||||||
Financial Services | ||||||||||||||||||||
Interest-rate contracts | Interest and other borrowing expenses | 78.5 | (37.1 | ) | Interest and other borrowing expenses | 85.8 | 50.3 | |||||||||||||
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Pre-tax expense increase (reduction) | 63.1 | (37.5 | ) | Pre-tax expense increase | 101.5 | 46.3 | ||||||||||||||
Tax (benefit) expense | (23.9 | ) | 11.5 | Tax benefit | (28.5 | ) | (17.9 | ) | ||||||||||||
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After-tax expense increase (reduction) | 39.2 | (26.0 | ) | After-tax expense increase | 73.0 | 28.4 | ||||||||||||||
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Unrealized (gains) and losses on marketable debt securities: | ||||||||||||||||||||
Unrealized gains on marketable debt securities: | Unrealized gains on marketable debt securities: | |||||||||||||||||||
Marketable debt securities | Investment income | (3.5 | ) | (1.4 | ) | Investment income | (.4 | ) | (1.1 | ) | ||||||||||
Tax expense | .9 | .4 | Tax expense | .1 | .3 | |||||||||||||||
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After-tax income increase | (2.6 | ) | (1.0 | ) | After-tax income increase | (.3 | ) | (.8 | ) | |||||||||||
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Pension plans: | ||||||||||||||||||||
Truck, Parts and Other | ||||||||||||||||||||
Actuarial loss | Cost of sales and revenues | 10.3 | 16.8 | Cost of sales and revenues | 6.1 | 6.9 | ||||||||||||||
Selling, general and administrative | 9.7 | 12.8 | Selling, general and administrative | 6.1 | 6.5 | |||||||||||||||
|
|
|
| |||||||||||||||||
20.0 | 29.6 | 12.2 | 13.4 | |||||||||||||||||
Prior service costs | Cost of sales and revenues | .7 | .7 | Cost of sales and revenues | .5 | .5 | ||||||||||||||
Selling, general and administrative | .2 | .2 | Selling, general and administrative | .1 | .1 | |||||||||||||||
|
|
|
| |||||||||||||||||
.6 | .6 | |||||||||||||||||||
.9 | .9 | |||||||||||||||||||
Financial Services | ||||||||||||||||||||
Actuarial loss | Selling, general and administrative | .8 | 1.3 | Selling, general and administrative | .4 | .5 | ||||||||||||||
|
|
|
| |||||||||||||||||
Pre-tax expense increase | 21.7 | 31.8 | Pre-tax expense increase | 13.2 | 14.5 | |||||||||||||||
Tax benefit | (7.4 | ) | (11.1 | ) | Tax benefit | (4.2 | ) | (5.0 | ) | |||||||||||
|
|
|
| |||||||||||||||||
After-tax expense increase | 14.3 | 20.7 | After-tax expense increase | 9.0 | 9.5 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total reclassifications out of AOCI | $ | 50.9 | $ | (6.3) | $ | 81.7 | $ | 37.1 | ||||||||||||
|
|
|
|
Stock Compensation Plans
Stock-based compensation expense was $2.0$1.9 and $11.1$9.0 for the three months and ninesix months ended SeptemberJune 30, 2016,2017, respectively, and $2.2$1.9 and $12.3$9.1 for the three and ninesix months ended SeptemberJune 30, 2015,2016, respectively. Realized tax benefits related to the excess of deductible amounts over expense recognized amounted to $.1 and $.3was nil for the three and ninesix months ended SeptemberJune 30, 2016, respectively,2017 and $.5$.1 and $2.7$.2 for the three and ninesix months ended SeptemberJune 30, 2015, respectively, have been classified as a financing cash flow.2016, respectively.
During the first nine monthshalf of 2016,2017, the Company issued 413,806558,148 common shares under deferred and stock compensation arrangements.
- 2220 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Other Capital Stock Changes
The Company purchased nil and 1.1 million of treasury shares during the three and nine months ended September 30, 2016, respectively.
NOTE G - Income Taxes
ForThe effective tax rate for the thirdsecond quarter of 2017 was 30.8% compared to 25.5% for the second quarter of 2016, and the effective tax rate declined to 30.0% in 2016 from 31.0% in 2015, primarily due tofor the mixfirst half of income generated in jurisdictions with lower tax rates in 2016 as2017 was 30.8% compared to 2015, partially offset by lower research tax credits152.3% in 2016. For the first nine months, the effective tax rate was 67.3% in 2016 compared to 31.6% in 2015.same period of 2016. Substantially all of the difference in tax rates for both periods was due to thenon-taxable favorable $109.6 adjustment to the European Commission (EC) charge in the second quarter of 2016 and thenon-deductible expense of $833.0 for the EC settlementcharge in the first half of 2016.
NOTE H - Segment Information
PACCAR operates in three principal segments: Truck, Parts and Financial Services. The Company evaluates the performance of its Truck and Parts segments based on operating profits, which excludes investment income, other income and expense, the EC charge and income taxes. The Financial Services segment’s performance is evaluated based on income before income taxes. The accounting policies of the reportable segments are the same as those applied in the consolidated financial statements as described in Note A of the Company’s Annual Report on Form10-K for the year ended December 31, 2015.2016.
Truck and Parts
The Truck segment includes the design and manufacture of high-quality, light-, medium- and heavy-duty commercial trucks and the Parts segment includes the distribution of aftermarket parts for trucks and related commercial vehicles, both of which are sold through the same network of independent dealers. These segments derive a large proportion of their revenues and operating profits from operations in North America and Europe. The Truck segment incurs substantial costs to design, manufacture and sell trucks to its customers. The sale of new trucks provides the Parts segment with the basis for parts sales that may continue over the life of the truck, but are generally concentrated in the first five years after truck delivery. To reflect the benefit the Parts segment receives from costs incurred by the Truck segment, certain expenses are allocated from the Truck segment to the Parts segment. The expenses allocated are based on a percentage of the average annual expenses for factory overhead, engineering, research and development and selling, general and administrative (SG&A) expenses for the preceding five years. The allocation is based on the ratio of the average parts direct margin dollars (net sales less material and labor costs) to the total truck and parts direct margin dollars for the previous five years. The Company believes such expenses have been allocated on a reasonable basis. Truck segment assets related to the indirect expense allocation are not allocated to the Parts segment.
Financial Services
The Financial Services segment derives its earnings primarily from financing or leasing of PACCAR products and services provided to truck customers and dealers. Revenues are primarily generated from operations in North America and Europe.
- 21 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Other
Included in Other is the Company’s industrial winch manufacturing business. Also within this category are other sales, income and expense not attributable to a reportable segment, including the EC charge and a portion of corporate expenses.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales and revenues: | ||||||||||||||||
Truck | $ | 3,768.9 | $ | 3,598.0 | $ | 7,066.2 | $ | 7,070.4 | ||||||||
Less intersegment | (215.3 | ) | (256.8 | ) | (382.5 | ) | (458.7 | ) | ||||||||
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|
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| |||||||||
External customers | 3,553.6 | 3,341.2 | 6,683.7 | 6,611.7 | ||||||||||||
Parts | 835.2 | 769.5 | 1,634.3 | 1,498.8 | ||||||||||||
Less intersegment | (12.1 | ) | (13.1 | ) | (24.5 | ) | (22.9 | ) | ||||||||
|
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| |||||||||
External customers | 823.1 | 756.4 | 1,609.8 | 1,475.9 | ||||||||||||
Other | 21.2 | 18.2 | 40.1 | 38.8 | ||||||||||||
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| |||||||||
4,397.9 | 4,115.8 | 8,333.6 | 8,126.4 | |||||||||||||
Financial Services | 306.3 | 297.4 | 608.5 | 586.8 | ||||||||||||
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| |||||||||
$ | 4,704.2 | $ | 4,413.2 | $ | 8,942.1 | $ | 8,713.2 | |||||||||
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| |||||||||
Income (loss) before income taxes: | ||||||||||||||||
Truck | $ | 323.7 | $ | 329.4 | $ | 565.4 | $ | 633.5 | ||||||||
Parts | 152.4 | 133.4 | 304.1 | 268.0 | ||||||||||||
Other* | (8.8 | ) | 99.7 | (19.4 | ) | (854.6 | ) | |||||||||
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| |||||||||
467.3 | 562.5 | 850.1 | 46.9 | |||||||||||||
Financial Services | 63.0 | 77.3 | 120.3 | 157.6 | ||||||||||||
Investment income | 8.7 | 6.4 | 16.8 | 12.1 | ||||||||||||
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| |||||||||
$ | 539.0 | $ | 646.2 | $ | 987.2 | $ | 216.6 | |||||||||
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| |||||||||
Depreciation and amortization: | ||||||||||||||||
Truck | $ | 111.0 | $ | 112.3 | $ | 218.1 | $ | 221.9 | ||||||||
Parts | 2.0 | 1.9 | 3.9 | 3.5 | ||||||||||||
Other | 4.2 | 3.9 | 8.0 | 7.8 | ||||||||||||
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|
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| |||||||||
117.2 | 118.1 | 230.0 | 233.2 | |||||||||||||
Financial Services | 151.8 | 134.8 | 298.2 | 262.2 | ||||||||||||
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| |||||||||
$ | 269.0 | $ | 252.9 | $ | 528.2 | $ | 495.4 | |||||||||
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* | Other includes a favorable adjustment to the European Commission charge of $109.6 in the second quarter of 2016 and an expense of $833.0 for the first half of 2016. |
- 2322 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Net sales and revenues: | ||||||||||||||||
Truck | $ | 3,429.0 | $ | 3,969.1 | $ | 10,499.4 | $ | 12,178.3 | ||||||||
Less intersegment | (258.3 | ) | (224.4 | ) | (717.0 | ) | (681.1 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
External customers | 3,170.7 | 3,744.7 | 9,782.4 | 11,497.2 | ||||||||||||
Parts | 777.2 | 789.1 | 2,276.0 | 2,341.9 | ||||||||||||
Less intersegment | (12.4 | ) | (11.1 | ) | (35.3 | ) | (34.7 | ) | ||||||||
|
|
|
|
|
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| |||||||||
External customers | 764.8 | 778.0 | 2,240.7 | 2,307.2 | ||||||||||||
Other | 17.7 | 23.5 | 56.5 | 75.9 | ||||||||||||
|
|
|
|
|
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| |||||||||
3,953.2 | 4,546.2 | 12,079.6 | 13,880.3 | |||||||||||||
Financial Services | 296.2 | 301.0 | 883.0 | 879.5 | ||||||||||||
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| |||||||||
$ | 4,249.4 | $ | 4,847.2 | $ | 12,962.6 | $ | 14,759.8 | |||||||||
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| |||||||||
Income (loss) before income taxes: | ||||||||||||||||
Truck | $ | 284.9 | $ | 388.3 | $ | 918.4 | $ | 1,147.5 | ||||||||
Parts | 138.3 | 145.4 | 406.3 | 430.0 | ||||||||||||
Other* | (7.8 | ) | (8.3 | ) | (862.4 | ) | (28.4 | ) | ||||||||
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| |||||||||
415.4 | 525.4 | 462.3 | 1,549.1 | |||||||||||||
Financial Services | 71.0 | 92.9 | 228.6 | 272.7 | ||||||||||||
Investment income | 8.5 | 6.2 | 20.6 | 16.6 | ||||||||||||
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$ | 494.9 | $ | 624.5 | $ | 711.5 | $ | 1,838.4 | |||||||||
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Depreciation and amortization: | ||||||||||||||||
Truck | $ | 107.6 | $ | 101.9 | $ | 329.5 | $ | 300.8 | ||||||||
Parts | 1.9 | 1.5 | 5.4 | 4.6 | ||||||||||||
Other | 3.9 | 3.8 | 11.7 | 10.9 | ||||||||||||
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113.4 | 107.2 | 346.6 | 316.3 | |||||||||||||
Financial Services | 136.8 | 123.7 | 399.0 | 363.0 | ||||||||||||
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$ | 250.2 | $ | 230.9 | $ | 745.6 | $ | 679.3 | |||||||||
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NOTE I - Derivative Financial Instruments
As part of its risk management strategy, the Company enters into derivative contracts to hedge against interest rates and foreign currency risk. Certain derivative instruments designated as either cash flow hedges or fair value hedges are subject to hedge accounting. Derivative instruments that are not subject to hedge accounting are held as economic hedges. The Company’s policies prohibit the use of derivatives for speculation or trading. At the inception of each hedge relationship, the Company documents its risk management objectives, procedures and accounting treatment. All of the Company’s interest-rate and certain foreign-exchange contracts are transacted under International Swaps and Derivatives Association (ISDA) master agreements. Each agreement permits the net settlement of amounts owed in the event of default and certain other termination events. For derivative financial instruments, the Company has elected not to offset derivative positions in the balance sheet with the same counterparty under the same agreements and is not required to post or receive collateral.
- 24 -
PACCAR Inc – Form 10-Q
Exposure limits and minimum credit ratings are used to minimize the risks of counterparty default. The Company’s maximum exposure to potential default of its swap counterparties is limited to the asset position of its swap portfolio. The asset position of the Company’s swap portfolio is $82.7$55.6 at SeptemberJune 30, 2016.2017.
The Company uses regression analysis to assess effectiveness of interest-rate contracts on a quarterly basis. For foreign-exchange contracts, the Company performs quarterly assessments to ensure that critical terms continue to match. All components of the derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. Gains or losses on the ineffective portion of cash flow hedges are recognized currently in earnings. Hedge accounting is discontinued prospectively when the Company determines that a derivative financial instrument has ceased to be a highly effective hedge.
Interest-Rate Contracts:The Company enters into various interest-rate contracts, including interest-rate swaps and cross currency interest-rate swaps. Interest-rate swaps involve the exchange of fixed for floating rate or floating for fixed rate interest payments based on the contractual notional amounts in a single currency. Cross currency interest-rate swaps involve the exchange of notional amounts and interest payments in different currencies. The Company is exposed to interest-rate and exchange-rate risk caused by market volatility as a result of its borrowing activities. The objective of these contracts is to mitigate the fluctuations on earnings, cash flows and fair value of borrowings. Net amounts paid or received are reflected as adjustments to interest expense.
At SeptemberJune 30, 2016,2017, the notional amount of the Company’s interest-rate contracts was $3,394.9.$2,688.5. Notional maturities for all interest-rate contracts are $296.8$283.3 for the remainder of 2016, $740.2 for 2017, $1,057.4$972.1 for 2018, $962.3$854.1 for 2019, $139.0$375.6 for 2020, $203.4 for 2021 and $199.2nil thereafter.
Foreign-Exchange Contracts:The Company enters into foreign-exchange contracts to hedge certain anticipated transactions and assets and liabilities denominated in foreign currencies, particularly the Canadian dollar, the euro, the British pound, the Australian dollar, the Brazilian real and the Mexican peso. The objective is to reduce fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates. At SeptemberJune 30, 2016,2017, the notional amount of the outstanding foreign-exchange contracts was $593.5.$487.5. Foreign-exchange contracts mature within one year.
- 2523 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
The following table presents the balance sheet classification, fair value, gross and pro forma net amounts of derivative financial instruments:
June 30, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||
September 30, 2016 | December 31, 2015 | ASSETS | LIABILITIES | ASSETS | LIABILITIES | |||||||||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||||||||||||
Derivatives designated under hedge accounting: | ||||||||||||||||||||||||||||||||
Interest-rate contracts: | ||||||||||||||||||||||||||||||||
Financial Services: | ||||||||||||||||||||||||||||||||
Other assets | $ | 82.7 | $ | 132.2 | $ | 55.6 | $ | 109.7 | ||||||||||||||||||||||||
Deferred taxes and other liabilities | $ | 64.2 | $ | 46.7 | $ | 72.7 | $ | 46.3 | ||||||||||||||||||||||||
Foreign-exchange contracts: | ||||||||||||||||||||||||||||||||
Truck, Parts and Other: | ||||||||||||||||||||||||||||||||
Other current assets | 10.0 | 3.9 | 2.3 | 3.9 | ||||||||||||||||||||||||||||
Accounts payable, accrued expenses | .3 | .2 | 6.0 | 1.9 | ||||||||||||||||||||||||||||
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Total | $ | 92.7 | $ | 64.5 | $ | 136.1 | $ | 46.9 | ||||||||||||||||||||||||
$ | 57.9 | $ | 78.7 | $ | 113.6 | $ | 48.2 | |||||||||||||||||||||||||
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Economic hedges: | ||||||||||||||||||||||||||||||||
Interest-rate contracts: | ||||||||||||||||||||||||||||||||
Financial Services: | ||||||||||||||||||||||||||||||||
Deferred taxes and other liabilities | $ | .1 | $ | .1 | ||||||||||||||||||||||||||||
Foreign-exchange contracts: | ||||||||||||||||||||||||||||||||
Truck, Parts and Other: | ||||||||||||||||||||||||||||||||
Other current assets | $ | .2 | $ | .9 | $ | 1.1 | $ | .8 | ||||||||||||||||||||||||
Accounts payable, accrued expenses | .4 | $ | .3 | $ | .7 | .3 | ||||||||||||||||||||||||||
Financial Services: | ||||||||||||||||||||||||||||||||
Other assets | 4.8 | .3 | .6 | 4.0 | ||||||||||||||||||||||||||||
Deferred taxes and other liabilities | .7 | 1.0 | 3.5 | .7 | ||||||||||||||||||||||||||||
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Total | $ | 5.0 | $ | 1.2 | $ | 1.2 | $ | 1.3 | ||||||||||||||||||||||||
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| $ | 1.7 | $ | 4.2 | $ | 4.8 | $ | 1.1 | |||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Gross amounts recognized in Balance Sheets | $ | 97.7 | $ | 65.7 | $ | 137.3 | $ | 48.2 | ||||||||||||||||||||||||
Gross amounts recognized in Balance Sheet | $ | 59.6 | $ | 82.9 | $ | 118.4 | $ | 49.3 | ||||||||||||||||||||||||
Less amounts not offset in financial instruments: | ||||||||||||||||||||||||||||||||
Truck, Parts and Other: | ||||||||||||||||||||||||||||||||
Foreign-exchange contracts | (.5 | ) | (.5 | ) | (.4 | ) | (.4 | ) | (.2 | ) | (.2 | ) | (1.0 | ) | (1.0 | ) | ||||||||||||||||
Financial Services: | ||||||||||||||||||||||||||||||||
Interest-rate contracts | (7.8 | ) | (7.8 | ) | (3.3 | ) | (3.3 | ) | (7.8 | ) | (7.8 | ) | (15.4 | ) | (15.4 | ) | ||||||||||||||||
Foreign-exchange contracts | (.2 | ) | (.2 | ) | (.8 | ) | (.8 | ) | (.1 | ) | (.1 | ) | ||||||||||||||||||||
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Pro forma net amount | $ | 89.4 | $ | 57.4 | $ | 133.4 | $ | 44.3 | $ | 50.8 | $ | 74.1 | $ | 101.9 | $ | 32.8 | ||||||||||||||||
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- 2624 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Fair Value Hedges
Changes in the fair value of derivatives designated as fair value hedges are recorded in earnings together with the changes in fair value of the hedged item attributable to the risk being hedged. The (income) or expense recognized in earnings related to fair value hedges was included in interest and other borrowing expenses in the Financial Services segment of the Consolidated Statements of Comprehensive Income (Loss) as follows:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30 | September 30 | June 30 | June 30 | |||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Interest-rate swaps | $ | 3.7 | $ | (4.2 | ) | $ | (1.3 | ) | $ | (5.3 | ) | $ | (.7 | ) | $ | (3.0 | ) | $ | .6 | $ | (5.0 | ) | ||||||||||
Term notes | (3.8 | ) | 4.0 | .6 | 4.6 | .9 | 2.8 | (.4 | ) | 4.4 |
Cash Flow Hedges
Substantially all of the Company’s interest-rate contracts and some foreign-exchange contracts have been designated as cash flow hedges. Changes in the fair value of derivatives designated as cash flow hedges are recorded in AOCI to the extent such hedges are considered effective. Amounts in AOCI are reclassified into net income in the same period in which the hedged transaction affects earnings. The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows is 4.94.1 years. TheFor the three and six month periods ended June 30, 2017 and 2016, the Company recognized no gains and losses or losses on the ineffective portions for the three and nine month periods ended September 30, 2016 and 2015.portion.
The following table presents thepre-tax effects of derivative instruments recognized in other comprehensive income (loss) (OCI):
Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | |||||||||||||||||||||||||||||||
INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | |||||||||||||||||||||||||||||
Loss recognized in OCI: | ||||||||||||||||||||||||||||||||
Truck, Parts and Other | $ | (1.7 | ) | $ | (20.4 | ) | ||||||||||||||||||||||||||
Financial Services | $ | (38.1 | ) | $ | (83.1 | ) | ||||||||||||||||||||||||||
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Three Months Ended | Nine Months Ended | $ | (38.1 | ) | $ | (1.7 | ) | $ | (83.1 | ) | $ | (20.4 | ) | |||||||||||||||||||
September 30 2016 | September 30 2016 |
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Interest- | Foreign- | Interest- | Foreign- | |||||||||||||||||||||||||||||
Rate | Exchange | Rate | Exchange | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | |||||||||||||||||||||||||||
Contracts | Contracts | Contracts | Contracts | INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | |||||||||||||||||||||||||
Gain (loss) recognized in OCI: | ||||||||||||||||||||||||||||||||
Truck, Parts and Other | $ | 13.9 | $ | 23.8 | $ | 9.6 | $ | 9.9 | ||||||||||||||||||||||||
Financial Services | $ | (25.6 | ) | $ | (78.9 | ) | $ | 8.4 | $ | (53.3 | ) | |||||||||||||||||||||
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$ | 8.4 | $ | 9.6 | $ | (53.3 | ) | $ | 9.9 | ||||||||||||||||||||||||
Total | $ | (25.6 | ) | $ | 13.9 | $ | (78.9 | ) | $ | 23.8 | ||||||||||||||||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30 2015 | September 30 2015 | |||||||||||||||||||||||||||||||
Interest- | Foreign- | Interest- | Foreign- | |||||||||||||||||||||||||||||
Rate | Exchange | Rate | Exchange | |||||||||||||||||||||||||||||
Contracts | Contracts | Contracts | Contracts | |||||||||||||||||||||||||||||
Gain recognized in OCI: | ||||||||||||||||||||||||||||||||
Truck, Parts and Other | $ | 8.5 | $ | 5.5 | ||||||||||||||||||||||||||||
Financial Services | $ | 26.9 | $ | 38.7 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Total | $ | 26.9 | $ | 8.5 | $ | 38.7 | $ | 5.5 | ||||||||||||||||||||||||
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|
- 2725 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Expense (income) reclassified out of AOCI into income was as follows:
Three Months Ended | Nine Months Ended | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | |||||||||||||||||||||||||||||
INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | |||||||||||||||||||||||||||||
Truck, Parts and Other: | ||||||||||||||||||||||||||||||||
Net sales and revenues | $ | 12.1 | $ | 16.3 | ||||||||||||||||||||||||||||
Cost of sales and revenues | (1.3 | ) | (1.2 | ) | ||||||||||||||||||||||||||||
Interest and other expense (income), net | .6 | .6 | ||||||||||||||||||||||||||||||
Financial Services: | ||||||||||||||||||||||||||||||||
Interest and other borrowing expenses | $ | 40.0 | $ | 85.8 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Total | $ | 40.0 | $ | 11.4 | $ | 85.8 | $ | 15.7 | ||||||||||||||||||||||||
September 30 2016 | September 30 2016 |
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| |||||||||||||||||||||||||||
Interest- | Foreign- | Interest- | Foreign- | |||||||||||||||||||||||||||||
Rate | Exchange | Rate | Exchange | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | |||||||||||||||||||||||||||
Contracts | Contracts | Contracts | Contracts | INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | |||||||||||||||||||||||||
Truck, Parts and Other: | ||||||||||||||||||||||||||||||||
Net sales and revenues | $ | (11.1 | ) | $ | (17.6 | ) | $ | (1.7 | ) | $ | (6.5 | ) | ||||||||||||||||||||
Cost of sales and revenues | .6 | .6 | .6 | |||||||||||||||||||||||||||||
Interest and other expense, net | (.3 | ) | 1.6 | |||||||||||||||||||||||||||||
Interest and other expense (income), net | .2 | 1.9 | ||||||||||||||||||||||||||||||
Financial Services: | ||||||||||||||||||||||||||||||||
Interest and other borrowing expenses | $ | 28.2 | $ | 78.5 | $ | (7.6 | ) | $ | 50.3 | |||||||||||||||||||||||
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Total | $ | 28.2 | $ | (11.4 | ) | $ | 78.5 | $ | (15.4 | ) | $ | (7.6 | ) | $ | (.9 | ) | $ | 50.3 | $ | (4.0 | ) | |||||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30 2015 | September 30 2015 | |||||||||||||||||||||||||||||||
Interest- | Foreign- | Interest- | Foreign- | |||||||||||||||||||||||||||||
Rate | Exchange | Rate | Exchange | |||||||||||||||||||||||||||||
Contracts | Contracts | Contracts | Contracts | |||||||||||||||||||||||||||||
Truck, Parts and Other: | ||||||||||||||||||||||||||||||||
Net sales and revenues | $ | (.3 | ) | |||||||||||||||||||||||||||||
Cost of sales and revenues | (.6 | ) | $ | 2.8 | ||||||||||||||||||||||||||||
Interest and other expense, net | (1.5 | ) | (3.2 | ) | ||||||||||||||||||||||||||||
Financial Services: | ||||||||||||||||||||||||||||||||
Interest and other borrowing expenses | $ | (29.3 | ) | $ | (37.1 | ) | ||||||||||||||||||||||||||
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Total | $ | (29.3 | ) | $ | (2.4 | ) | $ | (37.1 | ) | $ | (.4 | ) | ||||||||||||||||||||
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The amount of gainloss recorded in AOCI at SeptemberJune 30, 20162017 that is estimated to be reclassified into earnings in the following 12 months if interest rates and exchange rates remain unchanged is approximately $6.2,$2.7, net of taxes. The fixed interest earned on finance receivables will offset the amount recognized in interest expense, resulting in a stable interest margin consistent with the Company’s risk management strategy.
The amount of lossesgains (losses) reclassified out of AOCI into net income based on the probability that the original forecasted transactions would not occur was nil and $.3 for the three and ninesix months ended SeptemberJune 30, 2016, respectively,2017, and nil$.3 and ($.3) for the three and ninesix month periods ended SeptemberJune 30, 2015.2016.
- 2826 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Economic Hedges
For other risk management purposes, the Company enters into derivative instruments that do not qualify for hedge accounting. These derivative instruments are used to mitigate the risk of market volatility arising from borrowings and foreign currency denominated transactions. Changes in the fair value of economic hedges are recorded in earnings in the period in which the change occurs.
The expense (income) recognized in earnings related to economic hedges was as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, 2016 | September 30, 2016 | |||||||||||||||||||||||||||||||
Interest- | Foreign- | Interest- | Foreign- | |||||||||||||||||||||||||||||
Rate | Exchange | Rate | Exchange | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | |||||||||||||||||||||||||||
Contracts | Contracts | Contracts | Contracts | INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | |||||||||||||||||||||||||
Truck, Parts and Other: | ||||||||||||||||||||||||||||||||
Net sales and revenues | $ | (.4 | ) | $ | (.4 | ) | ||||||||||||||||||||||||||
Cost of sales and revenues | .3 | 1.4 | $ | .1 | $ | .7 | ||||||||||||||||||||||||||
Interest and other expense, net | (1.3 | ) | (.5 | ) | ||||||||||||||||||||||||||||
Interest and other expense (income), net | .7 | 4.2 | ||||||||||||||||||||||||||||||
Financial Services: | ||||||||||||||||||||||||||||||||
Interest and other borrowing expenses | $ | .1 | (3.1 | ) | $ | .1 | (11.3 | ) | $ | (.1 | ) | 11.4 | $ | (.1 | ) | 44.6 | ||||||||||||||||
Selling, general and administrative | (.9 | ) | (2.5 | ) | (2.3 | ) | (13.1 | ) | ||||||||||||||||||||||||
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Total | $ | .1 | $ | (5.4 | ) | $ | .1 | $ | (13.3 | ) | $ | (.1 | ) | $ | 9.9 | $ | (.1 | ) | $ | 36.4 | ||||||||||||
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Three Months Ended | Nine Months Ended | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | |||||||||||||||||||||||||||||
September 30, 2015 | September 30, 2015 | INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | INTEREST- RATE CONTRACTS | FOREIGN- EXCHANGE CONTRACTS | |||||||||||||||||||||||||||
Interest- | Foreign- | Interest- | Foreign- | |||||||||||||||||||||||||||||
Rate | Exchange | Rate | Exchange | |||||||||||||||||||||||||||||
Contracts | Contracts | Contracts | Contracts | |||||||||||||||||||||||||||||
Truck, Parts and Other: | ||||||||||||||||||||||||||||||||
Cost of sales and revenues | $ | (.8 | ) | $ | .6 | $ | .1 | $ | 1.1 | |||||||||||||||||||||||
Interest and other expense, net | (4.9 | ) | (4.1 | ) | ||||||||||||||||||||||||||||
Interest and other expense (income), net | .9 | .8 | ||||||||||||||||||||||||||||||
Financial Services: | ||||||||||||||||||||||||||||||||
Interest and other borrowing expenses | (.3 | ) | (7.8 | ) | (10.6 | ) | (8.2 | ) | ||||||||||||||||||||||||
Selling, general and administrative | (.7 | ) | (1.4 | ) | .5 | (1.6 | ) | |||||||||||||||||||||||||
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Total | $ | (6.7 | ) | $ | (12.7 | ) | $ | (9.1 | ) | $ | (7.9 | ) | ||||||||||||||||||||
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- 27 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
NOTE J - Fair Value Measurements
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurementthemeasurement date. Inputs to valuation techniques used to measure fair value are either observable or unobservable. These inputs have been categorized into the fair value hierarchy described below.
Level 1 – Valuations are based on quoted prices that the Company has the ability to obtain in actively traded markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market or exchange traded market, valuation of these instruments does not require a significant degree of judgment.
- 29 -
PACCAR Inc – Form 10-Q
Level 1 – Valuations are based on quoted prices that the Company has the ability to obtain in actively traded markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market or exchange traded market, valuation of these instruments does not require a significant degree of judgment. | ||
Level 3 – Valuations are based on model-based techniques for which some or all of the assumptions are obtained from indirect market information that is significant to |
Level 2 – Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 – Valuations are based on model-based techniques for which some or all of the assumptions are obtained from indirect market information that is significant to the overall fair value measurement and which require a significant degree of management judgment.
There were no transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy during the ninesix months ended SeptemberJune 30, 2016.2017. The Company’s policy is to recognize transfers between levels at the end of the reporting period.
The Company uses the following methods and assumptions to measure fair value for assets and liabilities subject to recurring fair value measurements.
Marketable Securities: The Company’s marketable debt securities consist of municipal bonds, government obligations, investment-grade corporate obligations, commercial paper, asset-backed securities and term deposits. The fair value of U.S. government obligations is determined using the market approach and is based on quoted prices in active markets and are categorized as Level 1.
The fair value of U.S. government agency obligations,non-U.S. government bonds, municipal bonds, corporate bonds, asset-backed securities, commercial paper and term deposits is determined using the market approach and is primarily based on matrix pricing as a practical expedient which does not rely exclusively on quoted prices for a specific security. Significant inputs used to determine fair value include interest rates, yield curves, credit rating of the security and other observable market information and are categorized as Level 2.
Derivative Financial Instruments: The Company’s derivative contracts consist of interest-rate swaps, cross currency swaps and foreign currency exchange contracts. These derivative contracts are traded over the counter, and their fair value is determined using industry standard valuation models, which are based on the income approach (i.e., discounted cash flows). The significant observable inputs into the valuation models include interest rates, yield curves, currency exchange rates, credit default swap spreads and forward rates and are categorized as Level 2.
- 3028 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Assets and Liabilities Subject to Recurring Fair Value Measurement
The Company’s assets and liabilities subject to recurring fair value measurements are either Level 1 or Level 2 as follows:
At September 30, 2016 | Level 1 | Level 2 | Total | |||||||||||||||||||||
At June 30, 2017 | LEVEL 1 | LEVEL 2 | TOTAL | |||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Marketable debt securities | ||||||||||||||||||||||||
U.S. tax-exempt securities | $ | 499.9 | $ | 499.9 | $ | 564.0 | $ | 564.0 | ||||||||||||||||
U.S. corporate securities | 52.8 | 52.8 | 58.8 | 58.8 | ||||||||||||||||||||
U.S. government and agency securities | $ | 15.4 | .9 | 16.3 | $ | 15.1 | .5 | 15.6 | ||||||||||||||||
Non-U.S. corporate securities | 328.6 | 328.6 | 378.5 | 378.5 | ||||||||||||||||||||
Non-U.S. government securities | 99.8 | 99.8 | 93.1 | 93.1 | ||||||||||||||||||||
Other debt securities | 81.5 | 81.5 | 134.6 | 134.6 | ||||||||||||||||||||
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| |||||||||||||||||||
Total marketable debt securities | $ | 15.4 | $ | 1,063.5 | $ | 1,078.9 | $ | 15.1 | $ | 1,229.5 | $ | 1,244.6 | ||||||||||||
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Derivatives | ||||||||||||||||||||||||
Cross currency swaps | $ | 77.6 | $ | 77.6 | $ | 50.7 | $ | 50.7 | ||||||||||||||||
Interest-rate swaps | 5.1 | 5.1 | 4.9 | 4.9 | ||||||||||||||||||||
Foreign-exchange contracts | 15.0 | 15.0 | 4.0 | 4.0 | ||||||||||||||||||||
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Total derivative assets | $ | 97.7 | $ | 97.7 | $ | 59.6 | $ | 59.6 | ||||||||||||||||
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Liabilities: | ||||||||||||||||||||||||
Derivatives | ||||||||||||||||||||||||
Cross currency swaps | $ | 51.6 | $ | 51.6 | $ | 65.4 | $ | 65.4 | ||||||||||||||||
Interest-rate swaps | 12.7 | 12.7 | 7.3 | 7.3 | ||||||||||||||||||||
Foreign-exchange contracts | 1.4 | 1.4 | 10.2 | 10.2 | ||||||||||||||||||||
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Total derivative liabilities | $ | 65.7 | $ | 65.7 | $ | 82.9 | $ | 82.9 | ||||||||||||||||
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At December 31, 2016 | LEVEL 1 | LEVEL 2 | TOTAL | |||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Marketable debt securities | ||||||||||||||||||||||||
U.S.tax-exempt securities | $ | 595.0 | $ | 595.0 | ||||||||||||||||||||
U.S. corporate securities | 47.8 | 47.8 | ||||||||||||||||||||||
U.S. government and agency securities | $ | 15.4 | .6 | 16.0 | ||||||||||||||||||||
Non-U.S. corporate securities | 308.0 | 308.0 | ||||||||||||||||||||||
Non-U.S. government securities | 98.2 | 98.2 | ||||||||||||||||||||||
Other debt securities | 75.9 | 75.9 | ||||||||||||||||||||||
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Total marketable debt securities | $ | 15.4 | $ | 1,125.5 | $ | 1,140.9 | ||||||||||||||||||
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Derivatives | ||||||||||||||||||||||||
Cross currency swaps | $ | 102.7 | $ | 102.7 | ||||||||||||||||||||
Interest-rate swaps | 7.0 | 7.0 | ||||||||||||||||||||||
Foreign-exchange contracts | 8.7 | 8.7 | ||||||||||||||||||||||
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Total derivative assets | $ | 118.4 | $ | 118.4 | ||||||||||||||||||||
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Liabilities: | ||||||||||||||||||||||||
Derivatives | ||||||||||||||||||||||||
Cross currency swaps | $ | 37.1 | $ | 37.1 | ||||||||||||||||||||
Interest-rate swaps | 9.3 | 9.3 | ||||||||||||||||||||||
Foreign-exchange contracts | 2.9 | 2.9 | ||||||||||||||||||||||
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Total derivative liabilities | $ | 49.3 | $ | 49.3 | ||||||||||||||||||||
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- 3129 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
At December 31, 2015 | Level 1 | Level 2 | Total | |||||||||
Assets: | ||||||||||||
Marketable debt securities | ||||||||||||
U.S. tax-exempt securities | $ | 505.4 | $ | 505.4 | ||||||||
U.S. corporate securities | 76.7 | 76.7 | ||||||||||
U.S. government and agency securities | $ | 15.1 | .6 | 15.7 | ||||||||
Non-U.S. corporate securities | 587.0 | 587.0 | ||||||||||
Non-U.S. government securities | 193.7 | 193.7 | ||||||||||
Other debt securities | 69.6 | 69.6 | ||||||||||
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Total marketable debt securities | $ | 15.1 | $ | 1,433.0 | $ | 1,448.1 | ||||||
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Derivatives | ||||||||||||
Cross currency swaps | $ | 130.5 | $ | 130.5 | ||||||||
Interest-rate swaps | 1.7 | 1.7 | ||||||||||
Foreign-exchange contracts | 5.1 | 5.1 | ||||||||||
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Total derivative assets | $ | 137.3 | $ | 137.3 | ||||||||
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Liabilities: | ||||||||||||
Derivatives | ||||||||||||
Cross currency swaps | $ | 37.2 | $ | 37.2 | ||||||||
Interest-rate swaps | 9.5 | 9.5 | ||||||||||
Foreign-exchange contracts | 1.5 | 1.5 | ||||||||||
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Total derivative liabilities | $ | 48.2 | $ | 48.2 | ||||||||
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Fair Value Disclosure of Other Financial Instruments
For financial instruments that are not recognized at fair value, the Company uses the following methods and assumptions to determine the fair value. These instruments are categorized as Level 2, except cash which is categorized as Level 1 and fixed rate loans which are categorized as Level 3.
Cash and Cash Equivalents:Carrying amounts approximate fair value.
Financial Services Net Receivables: For floating-rate loans, wholesale financings, and operating lease and other trade receivables, carrying values approximate fair values. For fixed rate loans, fair values are estimated using the income approach by discounting cash flows to their present value based on current rates for comparable loans. Finance lease receivables and related allowance for credit losses have been excluded from the accompanying table.
Debt: The carrying amounts of financial services commercial paper, variable rate bank loans and variable rate term notes approximate fair value. For fixed rate debt, fair values are estimated using the income approach by discounting cash flows to their present value based on current rates for comparable debt.
- 32 -
PACCAR Inc – Form 10-Q
The Company’s estimate of fair value for fixed rate loans and debt that are not carried at fair value was as follows:
September 30, 2016 | December 31, 2015 | June 30, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | CARRYING AMOUNT | FAIR VALUE | CARRYING AMOUNT | FAIR VALUE | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Financial Services fixed rate loans | $ | 3,633.9 | $ | 3,662.4 | $ | 3,660.6 | $ | 3,729.0 | $ | 3,534.7 | $ | 3,536.0 | $ | 3,607.4 | $ | 3,638.4 | ||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Financial Services fixed rate debt | 4,964.3 | 5,009.1 | 4,167.9 | 4,192.2 | 5,032.2 | 5,038.3 | 4,915.2 | 4,929.3 |
NOTE K - Employee Benefit Plans
The Company has several defined benefit pension plans, which cover a majority of its employees. The following information details the components of net pension expense for the Company’s defined benefit plans:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30 | September 30 | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Service cost | $ | 22.2 | $ | 22.9 | $ | 66.7 | $ | 68.7 | $ | 22.2 | $ | 22.6 | $ | 46.0 | $ | 44.5 | ||||||||||||||||
Interest on projected benefit obligation | 23.4 | 23.0 | 71.1 | 69.2 | 20.0 | 24.1 | 40.4 | 47.7 | ||||||||||||||||||||||||
Expected return on assets | (35.2 | ) | (35.2 | ) | (106.9 | ) | (105.7 | ) | (39.6 | ) | (36.1 | ) | (79.4 | ) | (71.7 | ) | ||||||||||||||||
Amortization of prior service costs | .3 | .3 | .9 | .9 | .3 | .3 | .6 | .6 | ||||||||||||||||||||||||
Recognized actuarial loss | 6.9 | 10.3 | 20.8 | 30.9 | 5.9 | 7.4 | 12.6 | 13.9 | ||||||||||||||||||||||||
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Net pension expense | $ | 17.6 | $ | 21.3 | $ | 52.6 | $ | 64.0 | $ | 8.8 | $ | 18.3 | $ | 20.2 | $ | 35.0 | ||||||||||||||||
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On January 1, 2017, the Company changed the method used to estimate service cost and interest cost components of pension expense from a single weighted-average method, which is a single discount rate determined at the pension plans measurement date, to an individual spot rate approach, which applies specific spot rates along the yield curve to the relevant projected cash flows. This approach is a more precise measurement of net periodic benefit costs and does not impact the benefit obligation. The Company considers this a change in estimate inseparable from a change in accounting principle and is being accounted for prospectively. This change will lower net pension expense by approximately $15.0 in 2017.
During the three and ninesix months ended SeptemberJune 30, 2016,2017, the Company contributed $5.8$5.5 and $65.1$10.4 to its pension plans, respectively, and $3.5$54.2 and $59.2$59.3 for the three and ninesix months ended SeptemberJune 30, 2015,2016, respectively.
- 30 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
NOTE L - European Commission SettlementCommitments and Contingencies
In the first halfquarter of 2016, the Company recorded a charge of €752.7€850.0 ($833.0)942.6) in connection with an investigation by the EC of all major European truck manufacturers, including DAF Trucks N.V., its subsidiary DAF Trucks Deutschland GmbH (collectively, “DAF”) and the Company as their parent. On July 19, 2016, the EC reached a settlement with DAF and the Company under which the EC imposed a fine of €752.7 ($833.0) for infringement of European Union competition rules. As a result of the settlement, the Company reversed, in the second quarter of 2016, €97.3 ($109.6) of the previously recorded charge. DAF paid the fine in August 2016. Following the EC settlement, claims and a petition to certify a claim as a class action have been filed against DAF and other truck manufacturers. Others may bringEC-related claims against the Company or its subsidiaries. While the Company believes it has meritorious defenses, such claims will likely take a significant period of time to resolve, and it is not possible to estimate a range of potential loss. An adverse outcome of such proceedings could have a material impact on the Company’s results of operations.
The Company 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 various proceedings and contingent liabilities will have a material effect on the consolidated financial statements.
- 3331 -
PACCAR Inc – Form 10-Q
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW:
PACCAR is a global technology company whose Truck segment includes the design and manufacture of high-quality light-, medium- and heavy-duty commercial trucks. In North America, trucks are sold under the Kenworth and Peterbilt nameplates, in Europe, under the DAF nameplate and in Australia and South America, under the Kenworth and DAF nameplates. The Parts segment includes the distribution of aftermarket parts for trucks and related commercial vehicles. The Company’s Financial Services segment derives its earnings primarily from financing or leasing PACCAR products in North America, Europe and Australia. The Company’s Other business includes the manufacturing and marketing of industrial winches.
ThirdSecond Quarter Highlights:Highlights
First NineSix Months Highlights:Highlights
- 3432 -
PACCAR Inc – Form 10-Q
In 2017, the Company will open an advanced technology research and development center in 2016 comparedSilicon Valley, California to $181.1 million in 2015 reflecting additional investments forcoordinate next-generation product development and identify emerging technologies to enhance future vehicle performance. Technology areas of focus will include advanced driver assistance systems, artificial intelligence, vehicle connectivity and augmented reality.
The Company is constructing a new parts160,000 square-foot Parts distribution center in Renton, Washington and construction ofToronto, Canada. The $35 million facility is expected to open inmid-2018.
In 2018, the Company’s Dynacraft division plans to construct a new cab paint130,000 square-foot manufacturing facility in Europe.
The Company has launched aDenton, Texas and manufacture PACCAR’s new proprietary tandem20,000-pound front axle in North America that reduces vehicle weight by up to 150 poundsfor Peterbilt and improves fuel economy. The axle will be available to customers in January 2017. In addition, the Company is enhancing its range of MX engines for 2017. The updated PACCAR engines will deliver increased power and reduced operating costs for North American customers.
In the third quarter, the Company launched its DAF Connect telematics system, which provides customers with fleet management data to enhance vehicle and driver performance. Customers can access information through an online service, enabling them to optimize vehicle utilization and uptime, reduce operational expenses and enhance logistical efficiency.Kenworth Class 8 trucks.
The PACCAR Financial Services (PFS) group of companies has operations covering four continents and 2324 countries. The global breadth of PFS and its rigorous credit application process support a portfolio of loans and leases with total assets of $12.37$12.69 billion. PFS issued $1.84 billion$950.5 million in medium-term notes during the first nine monthshalf of 20162017 to support portfolio growth and repay maturing debt.growth.
Truck Outlook
Class 8 truckTruck industry retail sales in the U.S. and Canada in 20162017 are expected to be 215,000200,000 to 225,000220,000 units compared to 278,400215,700 in 2015. Estimates for the U.S. and Canada Class 8 truck industry retail sales in 2017 are in the range of 200,000 to 230,000 units. In Europe, the 2016 truck industry registrations for over 16-tonne vehicles are projected to increase to a range of 290,000 to 300,000 units, compared to 269,100 truck registrations in 2015.2016. In Europe, the 2017 truck industry sales in the above registrations for over16-tonne truck market vehicles are projectedexpected to be 290,000 to 310,000 units compared to 302,500 in a range of 260,000 to 290,000 units.2016. In South America, heavy-duty truck industry sales in 20162017 are estimated to be in a range of 60,00055,000 to 70,00060,000 units compared to 74,00056,500 in 2015. In South America, the 2017 heavy-duty truck industry sales are estimated to be in a range of 70,000 to 80,000 units.2016.
Parts Outlook
In 2016,2017, PACCAR Parts sales in North America are expected to be 2-4% lower than 2015 sales. In 2017, parts sales are expectedgrow6-8% compared to grow 2-4%. In Europe, 2016 aftermarket parts sales are expected to be comparable to 2015 sales. In 2017, Europe aftermarket sales are expected to increase 1-3%2-3%.
Financial Services Outlook
Based on the truck market outlook, average earning assets in 20162017 are expected to be comparable to the record levels achieved in 2015.2016. Current good levels of freight tonnage, freight rates and fleet utilization are contributing to customers’ profitability and cash flow. If current freight transportation conditions decline due to weaker economic conditions, then past due accounts, truck repossessions and credit losses would likely increase from the current low levels and new business volume would likely decline. In 2017, average earning assets are expected to be comparable to 2016.
Capital Spending and R&D Outlook
Capital investments in 20162017 are expected to be $375 to $400 million, and R&D is expected to be $240 to $250 million focused on enhanced aftermarket support, manufacturing facilities and new product development.
- 35 -
PACCAR Inc – Form 10-Q
In 2017, capital investments are projected to be $375 to $425 million, and R&D is expected to be $270$250 to $300$270 million. The Company is investing for future growth in PACCAR’s integrated powertrain, advanced driver assistance and truck connectivity technologies, and additional capacity and operating efficiency of the Company’s manufacturing and parts distribution facilities. DAF’s new $110 million cab paint facility is on schedule to open in mid-2017, and Financial Services will open its new used truck center in Chicago, Illinois early next year.
See the Forward-Looking Statements section of Management’s Discussion and Analysis for factors that may affect these outlooks.
- 33 -
PACCAR Inc – Form 10-Q
RESULTS OF OPERATIONS:
Three Months Ended September 30 | Nine Months Ended September 30 | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||
($ in millions, except per share amounts) | 2016 | 2015 | 2016 | 2015 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Net sales and revenues: | ||||||||||||||||||||||||||||||||
Truck | $ | 3,170.7 | $ | 3,744.7 | $ | 9,782.4 | $ | 11,497.2 | $ | 3,553.6 | $ | 3,341.2 | $ | 6,683.7 | $ | 6,611.7 | ||||||||||||||||
Parts | 764.8 | 778.0 | 2,240.7 | 2,307.2 | 823.1 | 756.4 | 1,609.8 | 1,475.9 | ||||||||||||||||||||||||
Other | 17.7 | 23.5 | 56.5 | 75.9 | 21.2 | 18.2 | 40.1 | 38.8 | ||||||||||||||||||||||||
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Truck, Parts and Other | 3,953.2 | 4,546.2 | 12,079.6 | 13,880.3 | 4,397.9 | 4,115.8 | 8,333.6 | 8,126.4 | ||||||||||||||||||||||||
Financial Services | 296.2 | 301.0 | 883.0 | 879.5 | 306.3 | 297.4 | 608.5 | 586.8 | ||||||||||||||||||||||||
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$ | 4,249.4 | $ | 4,847.2 | $ | 12,962.6 | $ | 14,759.8 | $ | 4,704.2 | $ | 4,413.2 | $ | 8,942.1 | $ | 8,713.2 | |||||||||||||||||
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Income (loss) before income taxes: | ||||||||||||||||||||||||||||||||
Truck | $ | 284.9 | $ | 388.3 | $ | 918.4 | $ | 1,147.5 | $ | 323.7 | $ | 329.4 | $ | 565.4 | $ | 633.5 | ||||||||||||||||
Parts | 138.3 | 145.4 | 406.3 | 430.0 | 152.4 | 133.4 | 304.1 | 268.0 | ||||||||||||||||||||||||
Other* | (7.8 | ) | (8.3 | ) | (862.4 | ) | (28.4 | ) | (8.8 | ) | 99.7 | (19.4 | ) | (854.6 | ) | |||||||||||||||||
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Truck, Parts and Other | 415.4 | 525.4 | 462.3 | 1,549.1 | 467.3 | 562.5 | 850.1 | 46.9 | ||||||||||||||||||||||||
Financial Services | 71.0 | 92.9 | 228.6 | 272.7 | 63.0 | 77.3 | 120.3 | 157.6 | ||||||||||||||||||||||||
Investment income | 8.5 | 6.2 | 20.6 | 16.6 | 8.7 | 6.4 | 16.8 | 12.1 | ||||||||||||||||||||||||
Income taxes | (148.7 | ) | (193.3 | ) | (478.6 | ) | (581.6 | ) | (166.0 | ) | (164.9 | ) | (303.9 | ) | (329.9 | ) | ||||||||||||||||
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Net income | $ | 346.2 | $ | 431.2 | $ | 232.9 | $ | 1,256.8 | ||||||||||||||||||||||||
Net income (loss) | $ | 373.0 | $ | 481.3 | $ | 683.3 | $ | (113.3 | ) | |||||||||||||||||||||||
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Diluted earnings per share | $ | .98 | $ | 1.21 | $ | .66 | $ | 3.53 | ||||||||||||||||||||||||
Diluted earnings (loss) per share | $ | 1.06 | $ | 1.37 | $ | 1.94 | $ | (.32 | ) | |||||||||||||||||||||||
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Return on revenues | 8.1 | % | 8.9 | % | 1.8 | % | 8.5 | % | ||||||||||||||||||||||||
Adjusted return on revenues** | 8.1 | % | 8.9 | % | 8.2 | % | 8.5 | % | ||||||||||||||||||||||||
After-tax return on revenues | 7.9 | % | 10.9 | % | 7.6 | % | (1.3 | %) | ||||||||||||||||||||||||
After-tax adjusted return on revenues** | 8.4 | % | 8.3 | % |
* | Other includes a favorable adjustment to the EC charge of $109.6 in the second quarter of 2016 and an expense of $833.0 for the first |
** |
The following provides an analysis of the results of operations for the Company’s three reportable segments - Truck, Parts and Financial Services. Where possible, the Company has quantified the impact of factors identified in the following discussion and analysis. In cases where it is not possible to quantify the impact of factors, the Company lists them in estimated order of importance. Factors for which the Company is unable to specifically quantify the impact include market demand, fuel prices, freight tonnage and economic conditions affecting the Company’s results of operations.
- 3634 -
PACCAR Inc – Form 10-Q
20162017 Compared to 2015:2016:
Truck
The Company’s Truck segment accounted for 76% and 75% of revenues in the thirdsecond quarter and first ninesix months of 20162017, respectively, compared to 77% and 78%76% in the thirdsecond quarter and first ninesix months of 2015, respectively.2016.
The Company’s new truck deliveries are summarized below:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | June 30 | June 30 | |||||||||||||||||||||||||||||||||||||||||||||
2016 | 2015 | % Change | 2016 | 2015 | % Change | 2017 | 2016 | % CHANGE | 2017 | 2016 | % CHANGE | |||||||||||||||||||||||||||||||||||||
U.S. and Canada | 18,800 | 24,200 | (22 | ) | 57,100 | 75,400 | (24 | ) | 21,200 | 19,800 | 7 | 38,200 | 38,300 | |||||||||||||||||||||||||||||||||||
Europe | 11,600 | 11,100 | 5 | 38,200 | 32,400 | 18 | 13,800 | 13,100 | 5 | 28,100 | 26,600 | 6 | ||||||||||||||||||||||||||||||||||||
Mexico, South America, | 4,500 | 4,100 | 10 | 11,700 | 11,500 | 2 | 4,400 | 3,900 | 13 | 8,100 | 7,200 | 13 | ||||||||||||||||||||||||||||||||||||
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Total units | 34,900 | 39,400 | (11 | ) | 107,000 | 119,300 | (10 | ) | 39,400 | 36,800 | 7 | 74,400 | 72,100 | 3 | ||||||||||||||||||||||||||||||||||
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In the first nine months of 2016, industry retail sales in the heavy-duty market in the U.S. and Canada decreased to 166,700 units from 212,000 units in the same period of 2015. The Company’s heavy-duty truck retail market share was 27.9% in the first nine months of 2016 compared to 28.1% in the first nine months of 2015. The medium-duty market was 65,100 units in the first nine months of 2016 compared to 60,400 units in the same period of 2015. The Company’s medium-duty market share was 15.8% in the first nine months of 2016 and 16.0% in the first nine months of 2015.
The over16-tonne truck market in Western and Central Europe in the first nine months of 2016 was 224,700 units compared to 194,900 units in the first nine months of 2015. DAF market share was 15.6% in the first nine months of 2016 compared to 14.6% in the same period of 2015. The 6 to16-tonne market in the first nine months of 2016 was 38,400 units compared to 34,600 units in the first nine months of 2015. DAF market share in the 6 to 16-tonne market in the first nine months of 2016 was 9.7% compared to 8.9% in the same period of 2015.
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($ in millions) | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||||||||||
2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||||||||||||||||||||||||||||||||||
Truck net sales and revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. and Canada | $ | 1,901.5 | $ | 2,535.3 | (25 | ) | $ | 5,855.7 | $ | 7,982.8 | (27 | ) | ||||||||||||||||||||||||||||||||||||
Europe | 843.2 | 816.2 | 3 | 2,821.9 | 2,393.4 | 18 | ||||||||||||||||||||||||||||||||||||||||||
Mexico, South America, | 426.0 | 393.2 | 8 | 1,104.8 | 1,121.0 | (1 | ) | |||||||||||||||||||||||||||||||||||||||||
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$ | 3,170.7 | $ | 3,744.7 | (15 | ) | $ | 9,782.4 | $ | 11,497.2 | (15 | ) | |||||||||||||||||||||||||||||||||||||
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Truck income before | $ | 284.9 | $ | 388.3 | (27 | ) | $ | 918.4 | $ | 1,147.5 | (20 | ) | ||||||||||||||||||||||||||||||||||||
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Pre-tax return on revenues | 9.0 | % | 10.4 | % | 9.4 | % | 10.0 | % |
In the third quarter,first six months of 2017, industry retail sales in the heavy-duty market in the U.S. and Canada decreased to 96,000 units from 115,800 units in the same period of 2016. The Company’s heavy-duty truck retail market share was 29.6% in the first half of 2017 compared to 26.6% in the first half of 2016. The medium-duty market was 44,500 units in the first half of 2017 compared to 45,500 units in the same period of 2016. The Company’s medium-duty market share was 15.8% in the first half of 2017 compared to 15.7% in 2016.
The over16-tonne truck market in Europe in the first six months of 2017 was 157,100 units compared to 154,500 units in the first six months of 2016. DAF EU market share was 15.2% in the first six months of 2017 compared to 16.0% in the same period of 2016. The 6 to16-tonne market in the first six months of 2017 was 26,100 units compared to 25,500 units in the first six months of 2016. DAF market share in the 6 to16-tonne market in the first six months of 2017 was 10.8% compared to 9.9% in the same period of 2016. DAF deliveries in 2017 also reflect higher deliveries to Russia.
The Company’s worldwide truck net sales and revenues decreasedare summarized below:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
($ in millions) | June 30 | June 30 | ||||||||||||||||||||||
2017 | 2016 | % CHANGE | 2017 | 2016 | % CHANGE | |||||||||||||||||||
Truck net sales and revenues: | ||||||||||||||||||||||||
U.S. and Canada | $ | 2,181.7 | $ | 2,006.7 | 9 | $ | 3,986.3 | $ | 3,954.2 | 1 | ||||||||||||||
Europe | 962.4 | 969.3 | (1 | ) | 1,934.8 | 1,978.7 | (2 | ) | ||||||||||||||||
Mexico, South America, | 409.5 | 365.2 | 12 | 762.6 | 678.8 | 12 | ||||||||||||||||||
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$ | 3,553.6 | $ | 3,341.2 | 6 | $ | 6,683.7 | $ | 6,611.7 | 1 | |||||||||||||||
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Truck income before income taxes | $ | 323.7 | $ | 329.4 | (2 | ) | $ | 565.4 | $ | 633.5 | (11 | ) | ||||||||||||
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Pre-tax return on revenues | 9.1 | % | 9.9 | % | 8.5 | % | 9.6 | % |
The Company’s worldwide truck net sales and revenues in the second quarter increased to $3.17$3.55 billion in 2017 from $3.34 billion in 2016, from $3.74 billion in 2015, primarily due to lowerhigher truck deliveries, primarily in the U.S. and Canada, partially offset byCanada. In the first half, worldwide truck net sales and revenues were $6.68 billion in 2017 compared to $6.61 billion in 2016, reflecting higher truck deliveries in Europe and Mexico. In the first nine months, worldwide truck net sales andHigher revenues decreased to $9.78 billion in 2016 from $11.50 billion in 2015, primarily due to lowerincreased truck deliveries in the U.S.second quarter and Canada,first half were partially offset by higher truck deliveries in Europe.the effects of translating weaker foreign currencies into the U.S. dollar, primarily the euro and the British pound.
- 3735 -
PACCAR Inc – Form 10-Q
For the thirdsecond quarter and first nine monthshalf of 2016,2017, Truck segment income before income taxes andpre-tax return on revenues reflect lower gross margins and the lower truck unit deliveries.effects of translating weaker foreign currencies into the U.S. dollar, primarily the euro and the British pound.
The major factors for the changes in net sales and revenues, cost of sales and revenues and gross margin between the three months ended SeptemberJune 30, 20162017 and 20152016 for the Truck segment are as follows:
($ in millions) | Net Sales and Revenues | Cost of Sales and Revenues | Gross Margin | NET SALES AND REVENUES | COST OF SALES AND REVENUES | GROSS MARGIN | ||||||||||||||||||
Three Months Ended September 30, 2015 | $ | 3,744.7 | $ | 3,267.0 | $ | 477.7 | ||||||||||||||||||
(Decrease) increase | ||||||||||||||||||||||||
Three Months Ended June 30, 2016 | $ | 3,341.2 | $ | 2,917.1 | $ | 424.1 | ||||||||||||||||||
Increase (decrease) | ||||||||||||||||||||||||
Truck delivery volume | (567.3 | ) | (489.2 | ) | (78.1 | ) | 299.8 | 259.2 | 40.6 | |||||||||||||||
Average truck sales prices | (33.9 | ) | (33.9 | ) | (8.5 | ) | (8.5 | ) | ||||||||||||||||
Average per truck material, labor and other direct costs | (3.3 | ) | 3.3 | 3.4 | (3.4 | ) | ||||||||||||||||||
Factory overhead and other indirect costs | (6.8 | ) | 6.8 | 13.4 | (13.4 | ) | ||||||||||||||||||
Operating leases | 20.8 | 20.4 | .4 | (22.2 | ) | (21.0 | ) | (1.2 | ) | |||||||||||||||
Currency translation | 6.4 | 8.1 | (1.7 | ) | (56.7 | ) | (39.4 | ) | (17.3 | ) | ||||||||||||||
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Total decrease | (574.0 | ) | (470.8 | ) | (103.2 | ) | ||||||||||||||||||
Total increase (decrease) | 212.4 | 215.6 | (3.2 | ) | ||||||||||||||||||||
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Three Months Ended September 30, 2016 | $ | 3,170.7 | $ | 2,796.2 | $ | 374.5 | ||||||||||||||||||
Three Months Ended June 30, 2017 | $ | 3,553.6 | $ | 3,132.7 | $ | 420.9 | ||||||||||||||||||
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- 36 -
PACCAR Inc – Form 10-Q
The major factors for the changes in net sales and revenues, cost of sales and revenues and gross margin between the six months ended June 30, 2017 and 2016 for the Truck segment are as follows:
($ in millions) | NET SALES AND REVENUES | COST OF SALES AND REVENUES | GROSS MARGIN | |||||||||
Six Months Ended June 30, 2016 | $ | 6,611.7 | $ | 5,793.2 | $ | 818.5 | ||||||
Increase (decrease) | ||||||||||||
Truck delivery volume | 244.5 | 217.4 | 27.1 | |||||||||
Average truck sales prices | 2.6 | 2.6 | ||||||||||
Average per truck material, labor and other direct costs | 26.6 | (26.6 | ) | |||||||||
Factory overhead and other indirect costs | 22.7 | (22.7 | ) | |||||||||
Operating leases | (69.2 | ) | (66.8 | ) | (2.4 | ) | ||||||
Currency translation | (105.9 | ) | (64.9 | ) | (41.0 | ) | ||||||
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Total increase (decrease) | 72.0 | 135.0 | (63.0 | ) | ||||||||
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Six Months Ended June 30, 2017 | $ | 6,683.7 | $ | 5,928.2 | $ | 755.5 | ||||||
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Truck SG&A for the second quarter of 2017 decreased to $48.0 million from $50.7 million in the second quarter of 2016, primarily due to lower sales and marketing costs ($3.9 million), partially offset by higher salaries and related costs ($2.0 million). For the first six months, Truck SG&A of $99.1 million in 2017 was comparable to $99.8 million in 2016.
As a percentage of sales, Truck SG&A decreased to 11.8% from 12.8%1.4% in the thirdsecond quarter of 20152017 from 1.5% in the second quarter of 2016, reflecting higher sales volume. For the first half of 2017 and 2016, SG&A as a percentage of sales was 1.5%.
- 37 -
PACCAR Inc – Form 10-Q
Parts
The Company’s Parts segment accounted for 17% of revenues in the second quarter of 2017 and 2016, and for the first half, the Parts segment accounted for 18% of revenues in 2017 compared to 17% in 2016.
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||
($ in millions) | 2017 | 2016 | % CHANGE | 2017 | 2016 | % CHANGE | ||||||||||||||||||
Parts net sales and revenues: | ||||||||||||||||||||||||
U.S. and Canada | $ | 545.1 | $ | 483.3 | 13 | $ | 1,062.6 | $ | 938.5 | 13 | ||||||||||||||
Europe | 191.5 | 192.1 | 382.2 | 385.3 | (1 | ) | ||||||||||||||||||
Mexico, South America, | 86.5 | 81.0 | 7 | 165.0 | 152.1 | 8 | ||||||||||||||||||
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$ | 823.1 | $ | 756.4 | 9 | $ | 1,609.8 | $ | 1,475.9 | 9 | |||||||||||||||
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Parts income before income taxes | $ | 152.4 | $ | 133.4 | 14 | $ | 304.1 | $ | 268.0 | 13 | ||||||||||||||
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Pre-tax return on revenues | 18.5 | % | 17.6 | % | 18.9 | % | 18.2 | % |
The Company’s worldwide parts net sales and revenues for the second quarter increased to a record $823.1 million in 2017 from $756.4 million in 2016, and for the first six months, worldwide parts net sales and revenues increased to a record $1.61 billion in 2017 from $1.48 billion in 2016, primarily due to higher aftermarket demand in the U.S. and Canada.
For the second quarter and first half of 2017, the increase in Parts segment income before income taxes andpre-tax return on revenues was primarily due to the higher sales volume.
The major factors for the changes in net sales and revenues, cost of sales and revenues and gross margin between the three months ended June 30, 2017 and 2016 for the Parts segment are as follows:
($ in millions) | NET SALES | COST OF SALES | GROSS MARGIN | |||||||||
Three Months Ended June 30, 2016 | $ | 756.4 | $ | 555.6 | $ | 200.8 | ||||||
Increase (decrease) | ||||||||||||
Aftermarket parts volume | 72.6 | 41.1 | 31.5 | |||||||||
Average aftermarket parts sales prices | 5.2 | 5.2 | ||||||||||
Average aftermarket parts direct costs | 9.4 | (9.4 | ) | |||||||||
Warehouse and other indirect costs | 3.8 | (3.8 | ) | |||||||||
Currency translation | (11.1 | ) | (5.5 | ) | (5.6 | ) | ||||||
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Total increase | 66.7 | 48.8 | 17.9 | |||||||||
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Three Months Ended June 30, 2017 | $ | 823.1 | $ | 604.4 | $ | 218.7 | ||||||
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- 38 -
PACCAR Inc – Form 10-Q
The major factors for the changes in net sales and revenues, cost of sales and revenues and gross margin between the ninesix months ended SeptemberJune 30, 20162017 and 20152016 for the TruckParts segment are as follows:
($ in millions) | Net Sales and Revenues | Cost of Sales and Revenues | Gross Margin | |||||||||
Nine Months Ended September 30, 2015 | $ | 11,497.2 | $ | 10,087.8 | $ | 1,409.4 | ||||||
(Decrease) increase | ||||||||||||
Truck delivery volume | (1,582.8 | ) | (1,347.4 | ) | (235.4 | ) | ||||||
Average truck sales prices | (150.9 | ) | (150.9 | ) | ||||||||
Average per truck material, labor and other direct costs | (136.3 | ) | 136.3 | |||||||||
Factory overhead and other indirect costs | (37.1 | ) | 37.1 | |||||||||
Operating leases | 63.0 | 61.5 | 1.5 | |||||||||
Currency translation | (44.1 | ) | (39.1 | ) | (5.0 | ) | ||||||
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Total decrease | (1,714.8 | ) | (1,498.4 | ) | (216.4 | ) | ||||||
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Nine Months Ended September 30, 2016 | $ | 9,782.4 | $ | 8,589.4 | $ | 1,193.0 | ||||||
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($ in millions) | NET SALES | COST OF SALES | GROSS MARGIN | |||||||||
Six Months Ended June 30, 2016 | $ | 1,475.9 | $ | 1,074.7 | $ | 401.2 | ||||||
Increase (decrease) | ||||||||||||
Aftermarket parts volume | 151.2 | 91.3 | 59.9 | |||||||||
Average aftermarket parts sales prices | 5.0 | 5.0 | ||||||||||
Average aftermarket parts direct costs | 11.7 | (11.7 | ) | |||||||||
Warehouse and other indirect costs | 7.3 | (7.3 | ) | |||||||||
Currency translation | (22.3 | ) | (10.1 | ) | (12.2 | ) | ||||||
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Total increase | 133.9 | 100.2 | 33.7 | |||||||||
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Six Months Ended June 30, 2017 | $ | 1,609.8 | $ | 1,174.9 | $ | 434.9 | ||||||
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Truck SG&A for the third quarter of 2016 was $47.8 million compared to $46.5 million in the third quarter of 2015. In the first nine months of 2016, Truck SG&A increased to $147.6 million from $137.7 million in the first nine months of 2015, primarily due to higher salaries and related expenses.
As a percentage of sales, Truck SG&A increased to 1.5% in the third quarter and first nine months of 2016 from 1.2% in the third quarter and first nine months of 2015, primarily due to lower net sales.
- 39 -
PACCAR Inc – Form 10-Q
Parts
The Company’s Parts segment accounted for 18% and 17% of revenues in the third quarter and first nine months of 2016, respectively, compared to 16% in the third quarter and first nine months of 2015.
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
($ in millions) | 2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||||||||
Parts net sales and revenues: | ||||||||||||||||||||||||
U.S. and Canada | $ | 501.5 | $ | 510.9 | (2 | ) | $ | 1,440.0 | $ | 1,495.7 | (4 | ) | ||||||||||||
Europe | 185.5 | 189.8 | (2 | ) | 570.8 | 576.2 | (1 | ) | ||||||||||||||||
Mexico, South America, | 77.8 | 77.3 | 1 | 229.9 | 235.3 | (2 | ) | |||||||||||||||||
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$ | 764.8 | $ | 778.0 | (2 | ) | $ | 2,240.7 | $ | 2,307.2 | (3 | ) | |||||||||||||
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Parts income before | $ | 138.3 | $ | 145.4 | (5 | ) | $ | 406.3 | $ | 430.0 | (6 | ) | ||||||||||||
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Pre-tax return on revenues | 18.1 | % | 18.7 | % | 18.1 | % | 18.6 | % | ||||||||||||||||
The Company’s worldwide parts net sales and revenues for the third quarter decreased to $764.8 million in 2016 from $778.0 million in 2015, and for the first nine months, worldwide parts net sales and revenues decreased to $2.24 billion in 2016 from $2.31 billion in 2015, primarily due to lower aftermarket demand in North America.
For the third quarter and first nine months of 2016, the decrease in Parts segment income before income taxes and pre-tax return on revenues was primarily due to lower sales volume and margins in North America.
The major factors for the changes in net sales, cost of sales and gross margin between the three months ended September 30, 2016 and 2015 for the Parts segment are as follows:
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($ in millions) | Net Sales | Cost of Sales | Gross Margin | |||||||||||||||||||||
Three Months Ended September 30, 2015 | $ | 778.0 | $ | 564.4 | $ | 213.6 | ||||||||||||||||||
(Decrease) increase | ||||||||||||||||||||||||
Aftermarket parts volume | (8.7 | ) | (4.9 | ) | (3.8 | ) | ||||||||||||||||||
Average aftermarket parts sales prices | 3.3 | 3.3 | ||||||||||||||||||||||
Average aftermarket parts direct costs | .1 | (.1 | ) | |||||||||||||||||||||
Warehouse and other indirect costs | 1.7 | (1.7 | ) | |||||||||||||||||||||
Currency translation | (7.8 | ) | (1.3 | ) | (6.5 | ) | ||||||||||||||||||
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Total decrease | (13.2 | ) | (4.4 | ) | (8.8 | ) | ||||||||||||||||||
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Three Months Ended September 30, 2016 | $ | 764.8 | $ | 560.0 | $ | 204.8 | ||||||||||||||||||
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- 40 -
PACCAR Inc – Form 10-Q
The major factors for the changes in net sales, cost of sales and gross margin between the nine months ended September 30, 2016 and 2015 for the Parts segment are as follows:
($ in millions) | Net Sales | Cost of Sales | Gross Margin | |||||||||
Nine Months Ended September 30, 2015 | $ | 2,307.2 | $ | 1,673.5 | $ | 633.7 | ||||||
(Decrease) increase | ||||||||||||
Aftermarket parts volume | (39.3 | ) | (27.3 | ) | (12.0 | ) | ||||||
Average aftermarket parts sales prices | (4.6 | ) | (4.6 | ) | ||||||||
Average aftermarket parts direct costs | (9.1 | ) | 9.1 | |||||||||
Warehouse and other indirect costs | 6.7 | (6.7 | ) | |||||||||
Currency translation | (22.6 | ) | (9.1 | ) | (13.5 | ) | ||||||
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Total decrease | (66.5 | ) | (38.8 | ) | (27.7 | ) | ||||||
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Nine Months Ended September 30, 2016 | $ | 2,240.7 | $ | 1,634.7 | $ | 606.0 | ||||||
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Parts SG&A expense for the thirdsecond quarter of 2016 was $48.1$48.3 million in 2017 compared to $48.2$48.4 million in the third quarter of 2015. In2016. For the first ninesix months, of 2016, Parts SG&A was $144.3$95.5 million in 2017 compared to $145.2$96.2 million in the first nine months of 2015.2016.
As a percentage of sales, Parts SG&A increaseddecreased to 6.3%5.9% in the thirdsecond quarter of 20162017 from 6.2%6.4% in the thirdsecond quarter of 2015.2016. For the first ninesix months of 2016,2017, Parts SG&A as a percentage of sales was 6.4%5.9%, updown from 6.3%6.5% in the first ninesix months of 2015.2016. The increasedecrease for both periods was primarily due to lowerhigher net sales.
- 4139 -
PACCAR Inc – Form 10-Q
Financial Services
The Company’s Financial Services segment accounted for 7% of revenues in the thirdsecond quarter and first ninesix months of 2016 compared to 6% in the third quarter2017 and first nine months of 2015.2016.
($ in millions) | Three Months Ended September 30 | Nine Months Ended September 30 | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||||||||||||||||||||||||
2016 | 2015 | % Change | 2016 | 2015 | % Change | 2017 | 2016 | % CHANGE | 2017 | 2016 | % CHANGE | |||||||||||||||||||||||||||||||||||||
New loan and lease volume: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. and Canada | $ | 654.4 | $ | 730.9 | (10 | ) | $ | 1,849.2 | $ | 2,073.8 | (11 | ) | $ | 617.1 | $ | 702.9 | (12 | ) | $ | 1,020.8 | $ | 1,194.8 | (15 | ) | ||||||||||||||||||||||||
Europe | 248.6 | 233.8 | 6 | 795.8 | 740.7 | 7 | 263.7 | 278.0 | (5 | ) | 504.1 | 547.2 | (8 | ) | ||||||||||||||||||||||||||||||||||
Mexico and Australia | 155.4 | 165.7 | (6 | ) | 423.9 | 470.1 | (10 | ) | ||||||||||||||||||||||||||||||||||||||||
Mexico, Australia and other | 219.4 | 139.4 | 57 | 376.5 | 268.5 | 40 | ||||||||||||||||||||||||||||||||||||||||||
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$ | 1,058.4 | $ | 1,130.4 | (6 | ) | $ | 3,068.9 | $ | 3,284.6 | (7 | ) | $ | 1,100.2 | $ | 1,120.3 | (2 | ) | $ | 1,901.4 | $ | 2,010.5 | (5 | ) | |||||||||||||||||||||||||
New loan and lease volume by product: | New loan and lease volume by product: |
| New loan and lease volume by product: |
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Loans and finance leases | $ | 710.4 | $ | 862.7 | (18 | ) | $ | 2,144.3 | $ | 2,445.3 | (12 | ) | $ | 834.2 | $ | 801.2 | 4 | $ | 1,433.8 | $ | 1,433.9 | |||||||||||||||||||||||||||
Equipment on operating lease | 348.0 | 267.7 | 30 | 924.6 | 839.3 | 10 | 266.0 | 319.1 | (17 | ) | 467.6 | 576.6 | (19 | ) | ||||||||||||||||||||||||||||||||||
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$ | 1,058.4 | $ | 1,130.4 | (6 | ) | $ | 3,068.9 | $ | 3,284.6 | (7 | ) | $ | 1,100.2 | $ | 1,120.3 | (2 | ) | $ | 1,901.4 | $ | 2,010.5 | (5 | ) | |||||||||||||||||||||||||
New loan and lease unit volume: | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans and finance leases | 7,210 | 8,380 | (14 | ) | 21,880 | 24,180 | (10 | ) | 8,190 | 7,900 | 4 | 14,880 | 14,670 | 1 | ||||||||||||||||||||||||||||||||||
Equipment on operating lease | 3,290 | 2,790 | 18 | 9,040 | 8,290 | 9 | 2,590 | 3,180 | (19 | ) | 4,730 | 5,750 | (18 | ) | ||||||||||||||||||||||||||||||||||
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10,500 | 11,170 | (6 | ) | 30,920 | 32,470 | (5 | ) | 10,780 | 11,080 | (3 | ) | 19,610 | 20,420 | (4 | ) | |||||||||||||||||||||||||||||||||
Average earning assets: | Average earning assets: |
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U.S. and Canada | $ | 7,505.4 | $ | 7,647.8 | (2 | ) | $ | 7,464.2 | $ | 7,399.5 | 1 | $ | 7,210.8 | $ | 7,471.4 | (3 | ) | $ | 7,233.6 | $ | 7,443.2 | (3 | ) | |||||||||||||||||||||||||
Europe | 2,616.3 | 2,511.1 | 4 | 2,682.2 | 2,467.1 | 9 | 2,805.6 | 2,743.3 | 2 | 2,755.1 | 2,714.7 | 1 | ||||||||||||||||||||||||||||||||||||
Mexico and Australia | 1,463.6 | 1,485.7 | (1 | ) | 1,463.8 | 1,549.3 | (6 | ) | ||||||||||||||||||||||||||||||||||||||||
Mexico, Australia and other | 1,591.4 | 1,464.9 | 9 | 1,533.9 | 1,464.5 | 5 | ||||||||||||||||||||||||||||||||||||||||||
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$ | 11,585.3 | $ | 11,644.6 | (1 | ) | $ | 11,610.2 | $ | 11,415.9 | 2 | $ | 11,607.8 | $ | 11,679.6 | (1 | ) | $ | 11,522.6 | $ | 11,622.4 | (1 | ) | ||||||||||||||||||||||||||
Average earning assets by product: | Average earning assets by product: |
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Loans and finance leases | $ | 7,286.8 | $ | 7,227.3 | 1 | $ | 7,303.8 | $ | 7,218.4 | 1 | $ | 7,303.9 | $ | 7,360.4 | (1 | ) | $ | 7,282.8 | $ | 7,311.8 | ||||||||||||||||||||||||||||
Dealer wholesale financing | 1,592.3 | 1,871.5 | (15 | ) | 1,680.7 | 1,729.1 | (3 | ) | 1,463.1 | 1,676.1 | (13 | ) | 1,442.3 | 1,724.8 | (16 | ) | ||||||||||||||||||||||||||||||||
Equipment on lease and other | 2,706.2 | 2,545.8 | 6 | 2,625.7 | 2,468.4 | 6 | 2,840.8 | 2,643.1 | 7 | 2,797.5 | 2,585.8 | 8 | ||||||||||||||||||||||||||||||||||||
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$ | 11,585.3 | $ | 11,644.6 | (1 | ) | $ | 11,610.2 | $ | 11,415.9 | 2 | $ | 11,607.8 | $ | 11,679.6 | (1 | ) | $ | 11,522.6 | $ | 11,622.4 | (1 | ) | ||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. and Canada | $ | 173.6 | $ | 177.5 | (2 | ) | $ | 512.4 | $ | 507.9 | 1 | $ | 175.9 | $ | 171.6 | 3 | $ | 356.8 | $ | 338.8 | 5 | |||||||||||||||||||||||||||
Europe | 71.8 | 69.9 | 3 | 214.8 | 206.7 | 4 | 73.4 | 73.3 | 143.5 | 143.0 | ||||||||||||||||||||||||||||||||||||||
Mexico and Australia | 50.8 | 53.6 | (5 | ) | 155.8 | 164.9 | (6 | ) | ||||||||||||||||||||||||||||||||||||||||
Mexico, Australia and other | 57.0 | 52.5 | 9 | 108.2 | 105.0 | 3 | ||||||||||||||||||||||||||||||||||||||||||
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$ | 296.2 | $ | 301.0 | (2 | ) | $ | 883.0 | $ | 879.5 | $ | 306.3 | $ | 297.4 | 3 | $ | 608.5 | $ | 586.8 | 4 | |||||||||||||||||||||||||||||
Revenue by product: | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans and finance leases | $ | 92.1 | $ | 95.4 | (3 | ) | $ | 278.0 | $ | 289.7 | (4 | ) | $ | 91.4 | $ | 93.2 | (2 | ) | $ | 181.5 | $ | 185.9 | (2 | ) | ||||||||||||||||||||||||
Dealer wholesale financing | 13.8 | 15.5 | (11 | ) | 42.4 | 43.2 | (2 | ) | 12.8 | 13.9 | (8 | ) | 24.9 | 28.6 | (13 | ) | ||||||||||||||||||||||||||||||||
Equipment on lease and other | 190.3 | 190.1 | 562.6 | 546.6 | 3 | 202.1 | 190.3 | 6 | 402.1 | 372.3 | 8 | |||||||||||||||||||||||||||||||||||||
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$ | 306.3 | $ | 297.4 | 3 | $ | 608.5 | $ | 586.8 | 4 | |||||||||||||||||||||||||||||||||||||||
$ | 296.2 | $ | 301.0 | (2 | ) | $ | 883.0 | $ | 879.5 |
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Income before income taxes | $ | 71.0 | $ | 92.9 | (24 | ) | $ | 228.6 | $ | 272.7 | (16 | ) | $ | 63.0 | $ | 77.3 | (18 | ) | $ | 120.3 | $ | 157.6 | (24 | ) | ||||||||||||||||||||||||
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For the thirdsecond quarter, new loan and lease volume was $1,058.4$1,100.2 million in 20162017 compared to $1,130.4$1,120.3 million in 20152016 and for the first nine monthshalf was $3,068.9$1,901.4 million in 2017 compared to $2,010.5 million in 2016, compared to $3,284.6 million in 2015, primarily due toreflecting lower truck deliveries in the U.S. and Canada.market share.
In the thirdsecond quarter of 2016,2017, PFS finance market share on new PACCAR truck sales was 27.3%24.9%, compared to 24.9%26.4% in the thirdsecond quarter of 2015.2016. In the first ninesix months of 2016,2017, PFS finance market share on new PACCAR truck sales was 25.7%24.4% compared to 25.3%25.0% in the first ninesix months of 2015.2016.
- 4240 -
PACCAR Inc – Form 10-Q
In the thirdsecond quarter of 2017, PFS revenue decreasedrevenues increased to $296.2$306.3 million from $297.4 million in 2016, from $301.0 million in 2015, primarily due to higher average operating lease earning assets, partially offset by the effects of translating weaker foreign currenciescurrency translation, which lowered second quarter 2017 PFS revenues by $5.7 million. In the first six months of 2017, PFS revenues increased to the U.S. dollar$608.5 million from $586.8 million in 2016, primarily due to higher average operating lease earning assets and lower revenues fromhigher used truck sales, partially offset by higher revenues from an increase in average operating lease assets. In the first nine months, PFS revenue increased to $883.0 million in 2016 from $879.5 million in 2015, primarily due to higher average earning asset balances, partially offset by the effects of translating weaker foreign currencies to the U.S. dollar and lower yields. The effects of currency translation, which lowered first half 2017 PFS revenues by $5.5 million and $19.2 million for the third quarter and first nine months of 2016, respectively.$12.5 million.
In the third quarter, PFS income before income taxes decreased to $71.0$63.0 million in 2016the second quarter of 2017 from $92.9$77.3 million in 2015,the second quarter of 2016, and in the first six months of 2017, PFS income before income taxes decreased to $120.3 million from $157.6 million in 2016. The decrease for both periods was primarily due to lower results on returned lease assets higher borrowing rates, a higher provision for losses on receivables, and the effects of translating weaker foreign currencies to the U.S. dollar. For the first nine months, PFS income before income taxes decreased to $228.6 million in 2016 from $272.7 million in 2015, primarily due to lower results on returned lease assets, lower yields and higher borrowing rates, a higher provisionrates.
Included in Financial Services “Other Assets” on the Company’s Consolidated Balance Sheets are used trucks held for sale, net of impairments, of $217.6 million at June 30, 2017 and $267.2 million at December 31, 2016. These trucks are primarily related to units returned from matured operating leases in the ordinary course of business, and may also include trucks acquired from repossessions or through acquisitions of used trucks in trades related to new truck sales.
The Company recognized losses on receivables andused trucks, excluding repossessions, of $10.0 million in the effectssecond quarter of translating weaker foreign currencies2017 compared to $2.8 million in the U.S. dollar, partially offset by lower average earning assets. The currency exchange impact lowered PFS income before income taxes by $2.0second quarter of 2016, including losses on multiple unit transactions of $7.1 million in the second quarter of 2017 compared to $2.5 million in the second quarter of 2016. Used truck losses related to repossessions, which are recognized as credit losses, were $1.4 million and $7.1$1.2 million forin the thirdsecond quarter of 2017 and 2016, respectively.
The Company recognized losses on used trucks, excluding repossessions, of $22.9 million in the first nine monthshalf of 2017 compared to $5.2 million in the first half of 2016, including losses on multiple unit transactions of $15.6 million in the first half of 2017 compared to $3.7 million in the first half of 2016. Used truck losses related to repossessions, which are recognized as credit losses, were $3.1 million and $1.8 million in the first half of 2017 and 2016, respectively.
The major factors for the changes in interest and fees, interest and other borrowing expenses and finance margin between the three months ended SeptemberJune 30, 20162017 and 20152016 are outlined below:
($ in millions) | Interest and Fees | Interest and Other Borrowing Expenses | Finance Margin | INTEREST AND FEES | INTEREST AND OTHER BORROWING EXPENSES | FINANCE MARGIN | ||||||||||||||||||
Three Months Ended September 30, 2015 | $ | 110.9 | $ | 29.2 | $ | 81.7 | ||||||||||||||||||
Three Months Ended June 30, 2016 | $ | 107.1 | $ | 32.6 | $ | 74.5 | ||||||||||||||||||
(Decrease) increase | ||||||||||||||||||||||||
Average finance receivables | (3.0 | ) | (3.0 | ) | (.9 | ) | (.9 | ) | ||||||||||||||||
Average debt balances | (.6 | ) | .6 | .4 | (.4 | ) | ||||||||||||||||||
Yields | .9 | .9 | (.1 | ) | (.1 | ) | ||||||||||||||||||
Borrowing rates | 4.3 | (4.3 | ) | 5.0 | (5.0 | ) | ||||||||||||||||||
Currency translation | (2.9 | ) | (.7 | ) | (2.2 | ) | (1.9 | ) | (.6 | ) | (1.3 | ) | ||||||||||||
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Total (decrease) increase | (5.0 | ) | 3.0 | (8.0 | ) | (2.9 | ) | 4.8 | (7.7 | ) | ||||||||||||||
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Three Months Ended September 30, 2016 | $ | 105.9 | $ | 32.2 | $ | 73.7 | ||||||||||||||||||
Three Months Ended June 30, 2017 | $ | 104.2 | $ | 37.4 | $ | 66.8 | ||||||||||||||||||
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- 4341 -
PACCAR Inc – Form 10-Q
The major factors for the changes in interest and fees, interest and other borrowing expenses and finance margin between the ninesix months ended SeptemberJune 30, 20162017 and 20152016 are outlined below:
($ in millions) | Interest and Fees | Interest and Other Borrowing Expenses | Finance Margin | INTEREST AND FEES | INTEREST AND OTHER BORROWING EXPENSES | FINANCE MARGIN | ||||||||||||||||||||||
Nine Months Ended September 30, 2015 | $ | 332.9 | $ | 87.9 | $ | 245.0 | ||||||||||||||||||||||
Increase (decrease) | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2016 | $ | 214.5 | $ | 62.9 | $ | 151.6 | ||||||||||||||||||||||
(Decrease) increase | ||||||||||||||||||||||||||||
Average finance receivables | 3.3 | 3.3 | (3.3 | ) | (3.3 | ) | ||||||||||||||||||||||
Average debt balances | .7 | (.7 | ) | .6 | (.6 | ) | ||||||||||||||||||||||
Yields | (5.0 | ) | (5.0 | ) | ||||||||||||||||||||||||
Borrowing rates | 9.7 | (9.7 | ) | 9.5 | (9.5 | ) | ||||||||||||||||||||||
Currency translation | (10.8 | ) | (3.2 | ) | (7.6 | ) | (4.8 | ) | (1.5 | ) | (3.3 | ) | ||||||||||||||||
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Total (decrease) increase | (12.5 | ) | 7.2 | (19.7 | ) | (8.1 | ) | 8.6 | (16.7 | ) | ||||||||||||||||||
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Nine Months Ended September 30, 2016 | $ | 320.4 | $ | 95.1 | $ | 225.3 | ||||||||||||||||||||||
Six Months Ended June 30, 2017 | $ | 206.4 | $ | 71.5 | $ | 134.9 | ||||||||||||||||||||||
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The following table summarizes operating lease, rental and other revenues and depreciation and other expenses:
($ in millions) | Three Months Ended September 30 | Nine Months Ended September 30 | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Operating lease and rental revenues | $ | 180.2 | $ | 174.0 | $ | 534.9 | $ | 516.1 | $ | 193.7 | $ | 180.5 | $ | 376.4 | $ | 354.7 | ||||||||||||||||
Used truck sales and other | 10.1 | 16.1 | 27.7 | 30.5 | 8.4 | 9.8 | 25.7 | 17.6 | ||||||||||||||||||||||||
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Operating lease, rental and other revenues | $ | 190.3 | $ | 190.1 | $ | 562.6 | $ | 546.6 | $ | 202.1 | $ | 190.3 | $ | 402.1 | $ | 372.3 | ||||||||||||||||
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Depreciation of operating lease equipment | $ | 130.4 | $ | 118.2 | $ | 378.1 | $ | 346.0 | $ | 144.5 | $ | 126.2 | $ | 285.1 | $ | 247.7 | ||||||||||||||||
Vehicle operating expenses | 22.2 | 21.6 | 67.2 | 69.2 | 22.7 | 22.1 | 46.7 | 45.0 | ||||||||||||||||||||||||
Cost of used truck sales and other | 10.0 | 12.7 | 24.6 | 23.6 | 5.6 | 8.1 | 20.7 | 14.6 | ||||||||||||||||||||||||
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Depreciation and other expenses | $ | 162.6 | $ | 152.5 | $ | 469.9 | $ | 438.8 | $ | 172.8 | $ | 156.4 | $ | 352.5 | $ | 307.3 | ||||||||||||||||
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- 4442 -
PACCAR Inc – Form 10-Q
The major factors for the changes in operating lease, rental and other revenues, depreciation and other expenses and lease margin between the three months ended SeptemberJune 30, 20162017 and 20152016 are outlined below:
($ in millions) | Operating Lease, Rental and Other Revenues | Depreciation and Other Expenses | Lease Margin | OPERATING LEASE, RENTAL AND OTHER REVENUES | DEPRECIATION AND OTHER EXPENSES | LEASE MARGIN | ||||||||||||||||||
Three Months Ended September 30, 2015 | $ | 190.1 | $ | 152.5 | $ | 37.6 | ||||||||||||||||||
Three Months Ended June 30, 2016 | $ | 190.3 | $ | 156.4 | $ | 33.9 | ||||||||||||||||||
(Decrease) increase | ||||||||||||||||||||||||
Used truck sales | (5.9 | ) | (5.4 | ) | (.5 | ) | (2.1 | ) | (2.4 | ) | .3 | |||||||||||||
Results on returned lease assets | 7.3 | (7.3 | ) | 7.5 | (7.5 | ) | ||||||||||||||||||
Average operating lease assets | 6.9 | 5.6 | 1.3 | 15.7 | 13.1 | 2.6 | ||||||||||||||||||
Revenue and cost per asset | 1.5 | 1.8 | (.3 | ) | 1.3 | 1.1 | .2 | |||||||||||||||||
Currency translation and other | (2.3 | ) | .8 | (3.1 | ) | (3.1 | ) | (2.9 | ) | (.2 | ) | |||||||||||||
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Total increase (decrease) | .2 | 10.1 | (9.9 | ) | 11.8 | 16.4 | (4.6 | ) | ||||||||||||||||
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Three Months Ended September 30, 2016 | $ | 190.3 | $ | 162.6 | $ | 27.7 | ||||||||||||||||||
Three Months Ended June 30, 2017 | $ | 202.1 | $ | 172.8 | $ | 29.3 | ||||||||||||||||||
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- 45 -
PACCAR Inc – Form 10-Q
The major factors for the changes in operating lease, rental and other revenues, depreciation and other expenses and lease margin between the ninesix months ended SeptemberJune 30, 20162017 and 20152016 are outlined below:
($ in millions) | Operating Lease, Rental and Other Revenues | Depreciation and Other Expenses | Lease Margin | OPERATING LEASE, RENTAL AND OTHER REVENUES | DEPRECIATION AND OTHER EXPENSES | LEASE MARGIN | ||||||||||||||||||
Nine Months Ended September 30, 2015 | $ | 546.6 | $ | 438.8 | $ | 107.8 | ||||||||||||||||||
(Decrease) increase | ||||||||||||||||||||||||
Six Months Ended June 30, 2016 | $ | 372.3 | $ | 307.3 | $ | 65.0 | ||||||||||||||||||
Increase (decrease) | ||||||||||||||||||||||||
Used truck sales | (3.1 | ) | (1.6 | ) | (1.5 | ) | 7.4 | 6.1 | 1.3 | |||||||||||||||
Results on returned lease assets | 14.7 | (14.7 | ) | 19.0 | (19.0 | ) | ||||||||||||||||||
Average operating lease assets | 17.8 | 14.4 | 3.4 | 29.3 | 24.4 | 4.9 | ||||||||||||||||||
Revenue and cost per asset | 8.7 | 7.2 | 1.5 | .1 | 1.9 | (1.8 | ) | |||||||||||||||||
Currency translation and other | (7.4 | ) | (3.6 | ) | (3.8 | ) | (7.0 | ) | (6.2 | ) | (.8 | ) | ||||||||||||
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Total increase (decrease) | 16.0 | 31.1 | (15.1 | ) | 29.8 | 45.2 | (15.4 | ) | ||||||||||||||||
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Nine Months Ended September 30, 2016 | $ | 562.6 | $ | 469.9 | $ | 92.7 | ||||||||||||||||||
Six Months Ended June 30, 2017 | $ | 402.1 | $ | 352.5 | $ | 49.6 | ||||||||||||||||||
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- 43 -
PACCAR Inc – Form 10-Q
The following table summarizes the provision for losses on receivables and net charge-offs:
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||||||||||
($ in millions) | Provision For Losses on Receivables | Net Charge-Offs | Provision For Losses on Receivables | Net Charge-Offs | ||||||||||||
U.S. and Canada | $ | 3.9 | $ | 3.8 | $ | 10.2 | $ | 11.2 | ||||||||
Europe | .2 | .4 | 1.0 | .9 | ||||||||||||
Mexico and Australia | 1.0 | .7 | 3.3 | 2.7 | ||||||||||||
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$ | 5.1 | $ | 4.9 | $ | 14.5 | $ | 14.8 | |||||||||
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- 46 -
PACCAR Inc – Form 10-Q
Three Months Ended September 30, 2015 | Nine Months Ended September 30, 2015 | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | |||||||||||||||||||||||||||||
($ in millions) | Provision For Losses on Receivables | Net Charge-Offs | Provision For Losses on Receivables | Net Charge-Offs | PROVISION FOR LOSSES ON RECEIVABLES | NET CHARGE-OFFS | PROVISION FOR LOSSES ON RECEIVABLES | NET CHARGE-OFFS | ||||||||||||||||||||||||
U.S. and Canada | $ | 1.0 | $ | .9 | $ | 4.3 | $ | 2.2 | $ | 4.6 | $ | 3.5 | $ | 8.3 | $ | 8.1 | ||||||||||||||||
Europe | .4 | .3 | 1.6 | 1.6 | .8 | .5 | 1.4 | .7 | ||||||||||||||||||||||||
Mexico and Australia | 1.0 | 1.6 | 2.8 | 3.4 | ||||||||||||||||||||||||||||
Mexico, Australia and other | 1.4 | .3 | 3.0 | .9 | ||||||||||||||||||||||||||||
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$ | 2.4 | $ | 2.8 | $ | 8.7 | $ | 7.2 | $ | 6.8 | $ | 4.3 | $ | 12.7 | $ | 9.7 | |||||||||||||||||
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Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | |||||||||||||||||||||||||||||||
($ in millions) | PROVISION FOR LOSSES ON RECEIVABLES | NET CHARGE-OFFS | PROVISION FOR LOSSES ON RECEIVABLES | NET CHARGE-OFFS | ||||||||||||||||||||||||||||
U.S. and Canada | $ | 4.2 | $ | 3.0 | $ | 6.3 | $ | 7.4 | ||||||||||||||||||||||||
Europe | .7 | .6 | .8 | .5 | ||||||||||||||||||||||||||||
Mexico, Australia and other | 1.1 | 1.1 | 2.3 | 2.0 | ||||||||||||||||||||||||||||
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$ | 6.0 | $ | 4.7 | $ | 9.4 | $ | 9.9 | |||||||||||||||||||||||||
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The provision for losses on receivables was $5.1$6.8 million for the thirdsecond quarter of 2016, an increase of $2.7 million2017 compared to the third quarter of 2015, reflecting higher retail portfolio balances$6.0 million in the U.S. and Canada and Europe, partially offset by improved portfolio performance in Europe.2016. For the first nine monthshalf of 2016,2017, the provision for losses on receivables was $14.5 million, an increase of $5.8$12.7 million compared to the first nine months of 2015,$9.4 million in 2016, reflecting higher losses in the oil and gas sector in the U.S. and Canada, higher retailcontinued good portfolio balances in the U.S. and Canada and Europe, partially offset by improved portfolio performance in Europe.performance.
The Company modifies loans and finance leases as a normal part of its Financial Services operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress, but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company’s modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification. When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts that the Company considers likely to perform under the modified terms. When the Company modifies loans and finance leases for credit reasons and grants a concession, the modifications are classified as troubled debt restructurings (TDR).
- 44 -
PACCAR Inc – Form 10-Q
The post-modification balance of accounts modified during the ninesix months ended SeptemberJune 30, 20162017 and 20152016 are summarized below:
($ in millions) Nine Months Ended September 30, | 2016 | 2015 | ||||||||||||||||||||||||||||||
($ in millions) Six Months Ended June 30, | 2017 | 2016 | ||||||||||||||||||||||||||||||
Recorded Investment | % of Total Portfolio* | Recorded Investment | % of Total Portfolio* | RECORDED INVESTMENT | % OF TOTAL PORTFOLIO* | RECORDED INVESTMENT | % OF TOTAL PORTFOLIO* | |||||||||||||||||||||||||
Commercial | $ | 186.8 | 3.4 | % | $ | 119.9 | 2.2 | % | $ | 105.4 | 2.8 | % | $ | 93.9 | 2.6 | % | ||||||||||||||||
Insignificant delay | 80.1 | 1.5 | % | 49.3 | .9 | % | 46.0 | 1.2 | % | 57.1 | 1.6 | % | ||||||||||||||||||||
Credit – no concession | 45.9 | .8 | % | 30.9 | .6 | % | 37.4 | 1.0 | % | 16.3 | .4 | % | ||||||||||||||||||||
Credit – TDR | 26.7 | .5 | % | 13.4 | .2 | % | 17.0 | .5 | % | 17.2 | .5 | % | ||||||||||||||||||||
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$ | 339.5 | 6.2 | % | $ | 213.5 | 3.9 | % | $ | 205.8 | 5.5 | % | $ | 184.5 | 5.1 | % | |||||||||||||||||
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* | Recorded investment immediately after modification as a percentage of ending retail portfolio, on an annualized basis. |
ModificationDuring the first six months of 2017, total modification activity increased in the first nine months of 2016 compared to the first ninesix months of 2015. The increase in2016, primarily due to higher modifications for commercial reasons primarily reflects a higher volume of refinancings, including a contract modification for one large customer in the U.S. The increase in modifications for insignificant delay reflects more fleet customers requesting payment relief for up to three months. Creditcredit – no concession, modifications increased primarily due to extensions granted to two customers in Mexico. Credit – TDR modifications increased mainly due toreflecting contract modifications for two largemultiple fleet customers in Mexico and the U.S.
- 47 -
PACCAR Inc – Form 10-Q
The following table summarizes the Company’s 30+ days past due accounts:
September 30 2016 | December 31 2015 | September 30 2015 | June 30 2017 | December 31 2016 | June 30 2016 | |||||||||||||||||||
Percentage of retail loan and lease | ||||||||||||||||||||||||
U.S. and Canada | .3 | % | .3 | % | .4 | % | .2 | % | .3 | % | .3 | % | ||||||||||||
Europe | .6 | % | .7 | % | .8 | % | .9 | % | .5 | % | .8 | % | ||||||||||||
Mexico and Australia | 2.2 | % | 1.3 | % | 1.8 | % | ||||||||||||||||||
Mexico, Australia and other | 2.3 | % | 1.8 | % | 2.4 | % | ||||||||||||||||||
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Worldwide | .6 | % | .5 | % | .6 | % | .6 | % | .5 | % | .7 | % | ||||||||||||
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Accounts 30+ days past due ofwas .6% at SeptemberJune 30, 2016 increased from2017 compared to .5% at December 31, 2015, primarily due to2016, as higher past due accounts in Europe and Mexico and Australia,were partially offset by lower past dues in Europe.the U.S. and Canada. The Company continues to focus on maintaining low past due balances.
When the Company modifies a 30+ days past due account, the customer is then generally considered current under the revised contractual terms. The Company modified $2.8$10.5 million of accounts worldwide during the thirdsecond quarter of 2016,2017, $2.6 million during the fourth quarter of 20152016 and $5.0$.9 million during the thirdsecond quarter of 20152016 that were 30+ days past due and became current at the time of modification. Had these accounts not been modified and continued to not make payments, the pro forma percentage of retail loan and lease accounts 30+ days past due would have been as follows:
September 30 2016 | December 31 2015 | September 30 2015 | June 30 2017 | December 31 2016 | June 30 2016 | |||||||||||||||||||
Pro forma percentage of retail loan and | ||||||||||||||||||||||||
U.S. and Canada | .3 | % | .3 | % | .4 | % | .2 | % | .3 | % | .3 | % | ||||||||||||
Europe | .6 | % | .7 | % | .8 | % | .9 | % | .5 | % | .8 | % | ||||||||||||
Mexico and Australia | 2.5 | % | 1.6 | % | 2.2 | % | ||||||||||||||||||
Mexico, Australia and other | 3.1 | % | 2.0 | % | 2.5 | % | ||||||||||||||||||
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Worldwide | .6 | % | .6 | % | .7 | % | .8 | % | .6 | % | .7 | % | ||||||||||||
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Modifications of accounts in prior quarters that were more than 30 days past due at the time of modification are included in past dues if they were not performing under the modified terms at SeptemberJune 30, 2016,2017, December 31, 20152016 and SeptemberJune 30, 2015.2016. The effect on the allowance for credit losses from such modifications was not significant at SeptemberJune 30, 2016,2017, December 31, 20152016 and SeptemberJune 30, 2015.2016.
The Company’s annualizedpre-tax return on average earning assets for Financial Services was 2.4% and 2.6%2.2% for the thirdsecond quarter of 2016 and 2.1% for the first ninesix months of 2016, respectively,2017, compared to 3.2%2.7% for the same periods in 2015.2016.
- 45 -
PACCAR Inc – Form 10-Q
Other
Other includes the winch business as well as sales, income and expenses not attributable to a reportable segment, including the EC charge and a portion of corporate expense. Other sales represent less than 1% of consolidated net sales and revenues for both the thirdsecond quarter and first nine monthshalf of 20162017 and 2015.2016. Other SG&A declined to $9.6of $11.5 million for the thirdsecond quarter of 2016 from $12.32017 was comparable to $10.9 million for the thirdsecond quarter of 2015, and for2016. For the first nine months,half, other SG&A decreased to $34.0of $24.5 million in 2016 from $41.82017 was comparable to $24.4 million in 2015. The decrease in SG&A for both periods was primarily due to lower salaries and related expenses and lower professional fees.
- 48 -
PACCAR Inc – Form 10-Q
2016.
For the thirdsecond quarter, other income (loss) before tax was a loss of $7.8$8.8 million in 2017 compared to income of $99.7 million in 2016, comparedreflecting the favorable $109.6 million adjustment to a lossthe EC charge in the second quarter of $8.3 million in 2015.2016. For the first ninesix months, other income (loss) before tax was a loss of $862.4$19.4 million in 20162017 compared to a loss of $28.4$854.6 million in 2015.2016. The higherlower loss in the first nine months of 20162017 was primarily due to the $833.0 million EC charge and lower pre-tax results fromin the winch business which has been affected by lower oilfield related business.first half of 2016.
Investment income infor the thirdsecond quarter increased to $8.5$8.7 million in 2017 from $6.4 million in 2016, from $6.2 million in 2015, primarily due to higher realized gains in 2016. Forand for the first ninesix months, investment income increased to $20.6$16.8 million in 20162017 from $16.6$12.1 million in 2015,2016. The higher investment income in the second quarter and first six months of 2017 was primarily due to higher realized gains andyields on investments due to higher average portfolio balances,market interest rates in the U.S., partially offset by the effects of translating weaker foreign currencies to the U.S. dollar.lower average portfolio balances.
Income Taxes
ForThe effective tax rate for the thirdsecond quarter of 2017 was 30.8% compared to 25.5% for the second quarter of 2016, and the effective tax rate declined to 30.0% in 2016 from 31.0% in 2015, primarily due tofor the mixfirst half of income generated in jurisdictions with lower tax rates in 2016 as2017 was 30.8% compared to 2015, partially offset by lower research tax credits152.3% in the same period of 2016. For the first nine months, the effective tax rate was 67.3% in 2016 compared to 31.6% in 2015, and substantiallySubstantially all of the difference in tax rates for both periods was due to thenon-taxable favorable $109.6 million adjustment to the EC charge in the second quarter of 2016 and thenon-deductible expense of $833.0 million for the EC charge in the first half of 2016.
($ in millions) | Three Months Ended September 30 | Nine Months Ended September 30 | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Domestic income before taxes | $ | 318.5 | $ | 437.7 | $ | 959.6 | $ | 1,311.2 | $ | 351.8 | $ | 327.9 | $ | 610.9 | $ | 641.1 | ||||||||||||||||
Foreign income (loss) before taxes | 176.4 | 186.8 | (248.1 | ) | 527.2 | 187.2 | 318.3 | 376.3 | (424.5 | ) | ||||||||||||||||||||||
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Total income before taxes | $ | 494.9 | $ | 624.5 | $ | 711.5 | $ | 1,838.4 | $ | 539.0 | $ | 646.2 | $ | 987.2 | $ | 216.6 | ||||||||||||||||
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Domestic pre-tax return on revenues | 13.2 | % | 14.5 | % | 13.2 | % | 14.3 | % | 13.2 | % | 13.3 | % | 12.4 | % | 13.1 | % | ||||||||||||||||
Foreign pre-tax return on revenues | 9.6 | % | 10.2 | % | (4.4 | )% | 9.5 | % | 9.2 | % | 16.3 | % | 9.4 | % | (11.1 | )% | ||||||||||||||||
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Total pre-tax return on revenues | 11.6 | % | 12.9 | % | 5.5 | % | 12.5 | % | 11.5 | % | 14.6 | % | 11.0 | % | 2.5 | % | ||||||||||||||||
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For the thirdsecond quarter of 2017, the increase in domestic income before income taxes was primarily due to higher revenues from truck and parts operations. The decline in income before income taxes and return on revenues for foreign operations was primarily due to the favorable $109.6 million adjustment to the EC charge in the second quarter of 2016.
For the first nine monthshalf of 2016,2017, the declinedecrease in income before income taxes and return on revenues for domestic operations was primarily due to lower revenues from truck operations.
For the third quarter of 2016, the decline in income before income taxes and return on revenues for foreign operations was primarily due to lower Parts segment margins and lower Financial Services results. For In the first nine monthshalf of 2016, the EC charge of $833.0 million resulted in a loss before income taxes and a negative return on revenues for foreign operations. InExcluding the first nine months, excluding the2016 EC charge, foreign operations income before income taxes and return on revenues increaseddecreased in the first half of 2017 primarily due to improved revenues andlower margins from EuropeanEurope and Mexico truck operations.
- 46 -
PACCAR Inc – Form 10-Q
LIQUIDITY AND CAPITAL RESOURCES:
($ in millions) | September 30 2016 | December 31 2015 | June 30 2017 | December 31 2016 | ||||||||||||
Cash and cash equivalents | $ | 1,787.9 | $ | 2,016.4 | $ | 1,879.8 | $ | 1,915.7 | ||||||||
Marketable debt securities | 1,078.9 | 1,448.1 | 1,244.6 | 1,140.9 | ||||||||||||
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$ | 2,866.8 | $ | 3,464.5 | $ | 3,124.4 | $ | 3,056.6 | |||||||||
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The Company’s total cash and marketable debt securities at SeptemberJune 30, 2016 decreased $597.72017 increased $67.8 million from the balances at December 31, 2015, primarily2016, due to an increase in marketable debt securities, partially offset by a decrease in marketable debt securities.
- 49 -
PACCAR Inc – Form 10-Q
cash and cash equivalents.
The change in cash and cash equivalents is summarized below:
($ in millions) Nine Months Ended September 30, | 2016 | 2015 | ||||||||||||||
($ in millions) Six Months Ended June 30, | 2017 | 2016 | ||||||||||||||
Operating activities: | ||||||||||||||||
Net income | $ | 232.9 | $ | 1,256.8 | ||||||||||||
Net income (loss) | $ | 683.3 | $ | (113.3 | ) | |||||||||||
Net income items not affecting cash | 762.3 | 673.2 | 532.1 | 498.9 | ||||||||||||
European Commission charge | 833.0 | |||||||||||||||
Changes in operating assets and liabilities, net | 495.3 | (78.8 | ) | (30.2 | ) | 430.8 | ||||||||||
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Net cash provided by operating activities | 1,490.5 | 1,851.2 | 1,185.2 | 1,649.4 | ||||||||||||
Net cash used in investing activities | (921.4 | ) | (1,401.7 | ) | (770.3 | ) | (786.1 | ) | ||||||||
Net cash (used in) provided by financing activities | (832.0 | ) | 24.9 | |||||||||||||
Net cash used in financing activities | (507.8 | ) | (841.8 | ) | ||||||||||||
Effect of exchange rate changes on cash | 34.4 | (85.9 | ) | 57.0 | 27.0 | |||||||||||
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Net (decrease) increase in cash and cash equivalents | (228.5 | ) | 388.5 | (35.9 | ) | 48.5 | ||||||||||
Cash and cash equivalents at beginning of period | 2,016.4 | 1,737.6 | 1,915.7 | 2,016.4 | ||||||||||||
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Cash and cash equivalents at end of period | $ | 1,787.9 | $ | 2,126.1 | $ | 1,879.8 | $ | 2,064.9 | ||||||||
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Operating activities:Cash provided by operations decreased by $360.7$464.2 million to $1,490.5$1,185.2 million in the first nine monthshalf of 20162017 from $1,851.2$1,649.4 million in 2015. Lower operating cash flows reflect lower2016. The net loss in 2016 reflects the ECnon-cash charge of $833.0 million, compared to net income of $1,023.9$683.3 million in 2016, which includes payment of the $833.0 million EC charge.2017. In addition, there were lower cash inflows of $133.4from operations reflects $402.0 million from Financial Services segment wholesale receivables, as originations exceeded cash receipts in the first half of 2017 ($176.0 million) compared to cash receipts exceeding originations in 2016 ($226.0 million). In addition, lower cash from operations reflects a higher cash usage of $209.5 million from accounts receivable as sales and services exceeded cash receipts. These outflows were partially offset by a higher cash inflow of $196.9 million from accounts payable and accrued expenses as purchases of goods and services exceeding payments in accounts payable and accrued expenses. These outflows were offset by Financial Services segment wholesale receivables of $579.1 million as the first nine months of 2016 was a cash inflow of $211.8 million versus a cash outflow of $367.3 million in 2015. In addition, there was a lower cash outflow for payment of income taxes of $181.1 million.exceeded payments.
Investing activities: Cash used in investing activities decreased by $480.3$15.8 million to $921.4$770.3 million in the first nine monthshalf of 20162017 from $1,401.7$786.1 million in 2015.2016. Lower net cash used in investing activities reflects $586.8less net originations of $104.3 million from retail loans and direct financing leases. This was offset by $104.8 million in marketable debt securities as there was $370.7$76.3 million in net purchases of marketable debt securities in 2017 compared to $28.5 million in net proceeds from sales of marketable debt securities in the first nine months of 2016 versus $216.1 million in net purchases of marketable debt securities in 2015. This was partially offset by higher cash used in the acquisitions of equipment for operating leases of $109.1 million and higher payments for property, plant and equipment of $54.5 million.2016.
Financing activities: Cash used in financing activities was $832.0decreased by $334.0 million to $507.8 million for the first nine monthshalf of 2016 compared to cash provided by financing activities of $24.92017 from $841.8 million in 2015.2016. The Company paid $745.2$382.5 million in dividends in the first nine monthshalf of 20162017 compared to $595.7$661.0 million in 2015;2016; the increasedecrease of $149.5$278.5 million was primarily due to an increase for the 2015a lower 2016 special dividend paid in January 2016.2017. In the first nine monthshalf of 2016, the Company issued $1,864.4repurchased 1.1 million shares of term debt, repaid term debt of $1,622.6common stock for $56.3 million, and reduced its outstanding commercial paper and short-term bank loans by $283.6 million.there were no stock repurchases in 2017. In the first nine monthshalf of 2015,2017, the Company issued $1,936.5$959.8 million of term debt, increased its outstanding commercial paper and short-term bank loans by $7.4$336.9 million and repaid term debt of $1,268.8$1.44 billion. In the first half of 2016, the Company issued $1.37 billion of term debt, repaid term debt of $1.11 billion and reduced its outstanding commercial paper and short-term bank loans by $389.2 million. This resulted in cash used in borrowing activities of $41.8$144.1 million in the first nine monthshalf of 2016, $716.92017, $12.2 million lowerhigher than the cash provided byused in borrowing activities of $675.1$131.9 million in 2015.2016.
- 47 -
PACCAR Inc – Form 10-Q
Credit Lines and Other
The Company has line of credit arrangements of $3.43$3.49 billion, of which $3.26$3.27 billion were unused at SeptemberJune 30, 2016.2017. Included in these arrangements are $3.0 billion of syndicated bank facilities, of which $1.0 billion expires in June 2017,2018, $1.0 billion expires in June 20202021 and $1.0 billion expires in June 2021.2022. The Company intends to extend or replace these credit facilities on or before expiration withto maintain facilities of similar amounts and duration. These credit facilities are maintained primarily to provide backup liquidity for commercial paper borrowings and maturing medium-term notes. There were no borrowings under the syndicated bank facilities for the ninesix months ended SeptemberJune 30, 2016.
- 50 -
PACCAR Inc – Form 10-Q
2017.
On September 23, 2015, PACCAR’s Board of Directors approved the repurchase of up to $300.0 million of the Company’s common stock, and as of SeptemberJune 30, 2016, $192.62017, $206.7 million of shares have been repurchased pursuant to the 2015 authorization.
Truck, Parts and Other
The Company provides funding for working capital, capital expenditures, R&D, dividends, stock repurchases and other business initiatives and commitments primarily from cash provided by operations. Management expects this method of funding to continue in the future. On July 19, 2016, the EC concluded its investigation of all major European truck manufacturers and reached a settlement with DAF under which the EC imposed a fine on DAF of €752.7 million ($833.0 million) for infringement of European Union competition rules. The fine is not tax deductible. In August 2016, DAF paid the fine.
Investments for property, plant and equipment in the first nine monthshalf of 20162017 increased to $260.0$157.4 million from $180.2$151.5 million for the same period of 2015,2016, primarily due to higher investments by DAF in Europe and the construction of a new parts distribution center in Renton, Washington.Europe. Over the past decade, the Company’s combined investments in worldwide capital projects and R&D totaled $6.05$6.16 billion, and have significantly increased the operating capacity and efficiency of its facilities and enhanced the quality and operating efficiency of the Company’s premium products.
In 2016, capital investments are expected to be $375 to $400 million and R&D is expected to be $240 to $250 million focused on enhanced aftermarket support, manufacturing facilities and new product development. In 2017, capital investments are expected to be $375 to $425 million, and R&D is expected to be $270$250 to $300$270 million. The Company is investing for future growth in PACCAR’s new truck models, integrated powertrain, advanced driver assistance and truck connectivity technologies, and additional capacity and operating efficiency of the Company’s manufacturing and parts distribution facilities.
The Company conducts business in certain countries which have been experiencing or may experience significant financial stress, fiscal or political strain and are subject to the corresponding potential for default. The Company routinely monitors its financial exposure to global financial conditions, global counterparties and operating environments. As of SeptemberJune 30, 2016,2017, the Company’s exposures in such countries were insignificant.
Financial Services
The Company funds its financial services activities primarily from collections on existing finance receivables and borrowings in the capital markets. The primary sources of borrowings in the capital markets are commercial paper and medium-term notes issued in the public markets and, to a lesser extent, bank loans. An additional source of funds is loans from other PACCAR companies.
The Company issues commercial paper for a portion of its funding in its Financial Services segment. Some of this commercial paper is converted to fixed interest rate debt through the use of interest-rate swaps, which are used to manage interest-rate risk.
In November 2015, the Company’s U.S. finance subsidiary, PACCAR Financial Corp. (PFC), filed a shelf registration under the Securities Act of 1933. The total amount of medium-term notes outstanding for PFC as of SeptemberJune 30, 20162017 was $4.65$4.15 billion. The registration expires in November 2018 and does not limit the principal amount of debt securities that may be issued during that period.
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PACCAR Inc – Form 10-Q
As of SeptemberJune 30, 2016,2017, the Company’s European finance subsidiary, PACCAR Financial Europe, had €1,319.7 million€1.22 billion available for issuance under a €2.50 billion medium-term note program listed on the Professional Securities Market of the London Stock Exchange. This program replaced an expiring program in the second quarter of 20162017 and is renewable annually through the filing of new listing particulars.
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PACCAR Inc – Form 10-Q
In April 2016, PACCAR Financial Mexico registered a 10.00 billion peso medium-term note and commercial paper program with the Comision Nacional Bancaria y de Valores. The registration expires in April 2021 and limits the amount of commercial paper (up to one year) to 5.00 billion pesos. At SeptemberJune 30, 2016, 8.177.40 billion pesos were available for issuance.
In the event of a future significant disruption in the financial markets, the Company may not be able to issue replacement commercial paper. As a result, the Company is exposed to liquidity risk from the shorter maturity of short-term borrowings paid to lenders compared to the longer timing of receivable collections from customers. The Company believes its cash balances and investments, collections on existing finance receivables, syndicated bank lines and current investment-grade credit ratings of A+/A1 will continue to provide it with sufficient resources and access to capital markets at competitive interest rates and therefore contribute to the Company maintaining its liquidity and financial stability. A decrease in these credit ratings could negatively impact the Company’s ability to access capital markets at competitive interest rates and the Company’s ability to maintain liquidity and financial stability. PACCAR believes its Financial Services companies will be able to continue funding receivables, servicing debt and paying dividends through internally generated funds, access to public and private debt markets and lines of credit.
RECONCILIATION OF GAAP TONON-GAAP TO GAAP FINANCIAL MEASURES:
This Form10-Q includes “adjusted net income(non-GAAP)” and “adjusted net income per diluted share(non-GAAP)”, which are financial measures that are not in accordance with U.S. generally accepted accounting principles (“GAAP”), since they exclude thenon-recurring EC charge.charge in 2016. These measures differ from the most directly comparable measures calculated in accordance with GAAP and may not be comparable to similarly titlednon-GAAP financial measures used by other companies. In addition, thisForm 10-Q includes the financial ratios noted below calculated based onnon-GAAP measures.
Management utilizes thesenon-GAAP measures to evaluate the Company’s performance and believes these measures allow investors and management to evaluate operating trends by excluding a significantnon-recurring charge that is not representative of underlying operating trends. Reconciliations from the most directly comparable GAAP measures to adjustednon-GAAP measures are as follows:
($ in millions, except per share amounts) | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | ||||||
Net income (loss) | $ | 481.3 | $ | (113.3 | ) | |||
Non-recurring European Commission charge | (109.6 | ) | 833.0 | |||||
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Adjusted net income(non-GAAP) | $ | 371.7 | $ | 719.7 | ||||
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Per diluted share | ||||||||
Net income (loss) | $ | 1.37 | $ | (.32 | ) | |||
Non-recurring European Commission charge | (.31 | ) | 2.37 | |||||
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Adjusted net income(non-GAAP) | $ | 1.06 | $ | 2.05 | ||||
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After-tax return on revenues | 10.9 | % | (1.3 | )% | ||||
Non-recurring European Commission charge | (2.5 | )% | 9.6 | % | ||||
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After-tax adjusted return on revenues(non-GAAP) * | 8.4 | % | 8.3 | % | ||||
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* Calculated using adjusted net income. | ||||||||
(in millions) | ||||||||
Shares used in per diluted share calculations: | ||||||||
GAAP | 351.6 | 351.1 | ||||||
Non-GAAP | 351.6 | 351.8 |
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PACCAR Inc – Form 10-Q
Reconciliations of adjusted net income (non-GAAP) and adjusted net income per diluted share (non-GAAP) to the most directly comparable GAAP measures are as follows:
(in millions) | Nine Months Ended September 30, 2016 | |||
Adjusted net income (non-GAAP) | $ | 1,065.9 | ||
Non-recurring European Commission charge | (833.0 | ) | ||
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Net income | $ | 232.9 | ||
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Nine Months Ended September 30, 2016 | ||||
Per diluted share: | ||||
Adjusted net income (non-GAAP) | $ | 3.03 | ||
Non-recurring European Commission charge | (2.37 | ) | ||
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Net income | $ | .66 | ||
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FORWARD-LOOKING STATEMENTS:
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements relating to future results of operations or financial position and any other statement that does not relate to any historical or current fact. Such statements are based on currently available operating, financial and other information and are subject to risks and uncertainties that may affect actual results. Risks and uncertainties include, but are not limited to: a significant decline in industry sales; competitive pressures; reduced market share; reduced availability of or higher prices for fuel; increased safety, emissions, or other regulations resulting in higher costs and/or sales restrictions; currency or commodity price fluctuations; lower used truck prices; insufficient or under-utilization of manufacturing capacity; supplier interruptions; insufficient liquidity in the capital markets; fluctuations in interest rates; changes in the levels of the Financial Services segment new business volume due to unit fluctuations in new PACCAR truck sales or reduced market shares; changes affecting the profitability of truck owners and operators; price changes impacting truck sales prices and residual values; insufficient supplier capacity or access to raw materials; labor disruptions; shortages of commercial truck drivers; increased warranty costs or litigation; or legislative and governmental regulations. A more detailed description of these and other risks is included under the heading Part 1, Item 1A, “Risk Factors” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2015.2016.
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PACCAR Inc – Form 10-Q
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There were no material changes in the Company’s market risk during the ninesix months ended SeptemberJune 30, 2016.2017. For additional information, refer to Item 7A as presented in the 20152016 Annual Report on Form10-K.
ITEM 4. | CONTROLS AND PROCEDURES |
The Company’s management, with the participation of the Principal Executive Officer and Principal Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule13a-15(e)) as of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
There have been no significant changes in the Company’s internal controls over financial reporting that occurred during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
For Items 3, 4 and 5, there was no reportable information for the ninesix months ended SeptemberJune 30, 2016.2017.
ITEM 1. | 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 business or financial condition.
ITEM 1A. | RISK FACTORS |
For information regarding risk factors, refer to Part I, Item 1A as presented in the 20152016 Annual Report on Form10-K. Except for the item described below, there There have been no other material changes in the Company’s risk factors during the ninesix months ended SeptemberJune 30, 2016.
Product Liability, Litigation and Regulatory Actions. Following the recent EC settlement, claims and a petition to certify a claim as a class action have been filed against DAF and other truck manufacturers. Others may bring EC-related claims against the Company or its subsidiaries. While the Company believes it has meritorious defenses, such claims will likely take a significant period of time to resolve. An adverse outcome of such proceedings could have a material impact on the Company’s results of operations.2017.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
For Items 2(a) and (b), there was no reportable information for the ninesix months ended SeptemberJune 30, 2016.2017.
(c) | Issuer purchases of equity securities. |
On September 23, 2015, the Company’s Board of Directors approved a plan to repurchase up to $300 million of the Company’s outstanding common stock. As of SeptemberJune 30, 2016,2017, the Company has repurchased 3.84.1 million shares for $192.6$206.7 million under this plan. There were no repurchases made under this plan during the thirdsecond quarter of 2016.2017.
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PACCAR Inc – Form 10-Q
ITEM 6. | EXHIBITS |
Any exhibits filed herewith are listed in the accompanying index to exhibits.
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PACCAR Inc – Form 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PACCAR Inc | ||||||||
(Registrant) | ||||||||
Date |
| By | /s/ M. T. Barkley | |||||
M. T. Barkley | ||||||||
Senior Vice President and Controller | ||||||||
(Authorized Officer and Chief Accounting Officer) |
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PACCAR Inc – Form 10-Q
Exhibit (in order of assigned index numbers)
Exhibit | Exhibit Description | Form | Date of First Filing | Exhibit Number | File Number | |||||||
(3) (i) | Articles of Incorporation: | |||||||||||
Amended and Restated Certificate of Incorporation of PACCAR Inc | 10-Q | May 4, 2016 | 3(i) | 001-14817 | ||||||||
(ii) | Bylaws: | |||||||||||
(a) | Fourth Amended and Restated Bylaws of PACCAR Inc | 8-K | April 29, 2016 | 3(ii) | 001-14817 | |||||||
(4) | Instruments defining the rights of security holders, including indentures**: | |||||||||||
(a) | Indenture for Senior Debt Securities dated as of November 20, 2009 between PACCAR Financial Corp. and The Bank of New York Mellon Trust Company, N.A. | S-3 | November 20, 2009 | 4.1 | 333-163273 | |||||||
(b) | Forms of Medium-Term Note, Series | |||||||||||
S-3 | November 7, 2012 | 4.2 and4.3 | 333-184808 | |||||||||
Forms of Medium-Term Note, Series O (PACCAR Financial Corp.) | S-3 | November 5, 2015 | 4.2 and 4.3 | 333-207838 | ||||||||
Form of InterNotes, Series C (PACCAR Financial Corp.) | S-3 | November 5, 2015 | 4.4 | 333-207838 | ||||||||
Terms and Conditions of the Notes applicable to the | ||||||||||||
10-Q | November 6, 2014 | 4(h) | 001-14817 | |||||||||
Terms and Conditions of the Notes applicable to the | 10-Q | August 6, 2015 | 4(g) | 001-14817 | ||||||||
(g) | Terms and Conditions of the Notes applicable to the €2,500,000,000 Medium Term Note Programme of PACCAR Financial Europe B.V. set forth in the Listing Particulars dated May 9, 2016 | 10-K | February 21, 2017 | 4(i) | 001-14817 | |||||||
(h) | Terms and Conditions of the Notes applicable to the €2,500,000,000 Medium Term Note Programme of PACCAR Financial Europe B.V. set forth in the Listing Particulars dated May 10, 2017* | |||||||||||
** | Pursuant to the Instructions to Exhibits, certain instruments defining the rights of holders of long-term debt securities of the Company and its wholly owned subsidiaries are not filed because the total amount of securities authorized under any such instrument does not exceed 10 percent of the Company’s total assets. The Company will file copies of such instruments upon request of the Commission. |
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PACCAR Inc – Form 10-Q
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PACCAR Inc – Form 10-Q
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PACCAR Inc – Form 10-Q
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Second Amended and Restated PACCAR Inc Restricted Stock and Deferred Compensation Plan forNon-Employee Directors, Form of Amended Restricted Stock Grant Agreement | 10-K | February 26, 2015 | 10(u) | 001-14817 | ||||||||||||||
(31) | Rule13a-14(a)/15d-14(a) Certifications: | |||||||||||||||||
(a) | Certification of Principal Executive Officer* | |||||||||||||||||
(b) | Certification of Principal Financial Officer* | |||||||||||||||||
(32) | Section 1350 Certifications: | |||||||||||||||||
Certification pursuant to rule13a-14(b) and section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350)* | ||||||||||||||||||
(101.INS) | XBRL Instance Document* | |||||||||||||||||
(101.SCH) | XBRL Taxonomy Extension Schema Document* | |||||||||||||||||
(101.CAL) | XBRL Taxonomy Extension Calculation Linkbase Document* | |||||||||||||||||
(101.DEF) | XBRL Taxonomy Extension Definition Linkbase Document* | |||||||||||||||||
(101.LAB) | XBRL Taxonomy Extension Label Linkbase Document* | |||||||||||||||||
(101.PRE) | XBRL Taxonomy Extension Presentation Linkbase Document* |
* | filed herewith |
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