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, 20192020
OR
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File No. 001-14817
PACCAR Inc
(Exact name of registrant as specified in its charter)
Delaware | 91-0351110 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
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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)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common stock, $1 par value | PCAR | The NASDAQ Global Select Market LLC |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer | ☒ |
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| Accelerated filer | ☐ |
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Non-accelerated filer | ☐ |
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| Smaller reporting company | ☐ |
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| 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 ☒
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 — 345,873,618 shares346,148,924 shares as of October 25, 2019July 30, 2020
PACCAR Inc – Form 10-Q
INDEX
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PART I. |
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ITEM 1. |
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| 3 | |
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| Consolidated Balance Sheets – | 4 |
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| 6 | |
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| 7 | |
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| 8 | |
ITEM 2. |
| MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. |
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ITEM 4. |
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PART II. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 6. |
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- 2 -
PACCAR Inc – Form 10-Q
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Comprehensive Income (Unaudited)
(Millions Except Per Share Amounts)
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| Three Months Ended |
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| Nine Months Ended |
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| Three Months Ended |
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| Six Months Ended |
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| September 30 |
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| September 30 |
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| June 30 |
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| June 30 |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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TRUCK, PARTS AND OTHER: |
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Net sales and revenues |
| $ | 6,004.2 |
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| $ | 5,416.9 |
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| $ | 18,408.8 |
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| $ | 16,205.9 |
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| $ | 2,701.9 |
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| $ | 6,266.5 |
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| $ | 7,479.9 |
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| $ | 12,404.6 |
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Cost of sales and revenues |
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| 5,106.8 |
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| 4,653.6 |
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| 15,665.6 |
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| 13,836.4 |
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| 2,441.5 |
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| 5,341.7 |
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| 6,631.1 |
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| 10,558.8 |
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Research and development |
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| 82.2 |
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| 72.9 |
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| 243.0 |
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| 225.6 |
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| 66.5 |
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| 82.5 |
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| 137.5 |
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| 160.8 |
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Selling, general and administrative |
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| 136.8 |
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| 124.2 |
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| 413.5 |
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| 388.3 |
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| 93.9 |
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| 139.8 |
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| 225.3 |
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| 276.7 |
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Interest and other (income), net |
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| (11.6 | ) |
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| (7.4 | ) |
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| (31.7 | ) |
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| (42.5 | ) |
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| (19.5 | ) |
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| (9.8 | ) |
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| (32.6 | ) |
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| (20.1 | ) |
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| 5,314.2 |
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| 4,843.3 |
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| 16,290.4 |
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| 14,407.8 |
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| 2,582.4 |
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| 5,554.2 |
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| 6,961.3 |
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| 10,976.2 |
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Truck, Parts and Other Income Before Income Taxes |
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| 690.0 |
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| 573.6 |
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| 2,118.4 |
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| 1,798.1 |
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| 119.5 |
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| 712.3 |
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| 518.6 |
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| 1,428.4 |
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FINANCIAL SERVICES: |
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Interest and fees |
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| 148.3 |
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| 128.0 |
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| 433.2 |
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| 365.3 |
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| 126.2 |
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| 147.8 |
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| 268.3 |
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| 284.9 |
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Operating lease, rental and other revenues |
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| 214.5 |
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| 211.9 |
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| 640.5 |
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| 644.8 |
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| 234.1 |
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| 213.6 |
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| 475.7 |
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| 426.0 |
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Revenues |
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| 362.8 |
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| 339.9 |
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| 1,073.7 |
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| 1,010.1 |
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| 360.3 |
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| 361.4 |
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| 744.0 |
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| 710.9 |
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Interest and other borrowing expenses |
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| 59.6 |
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| 49.0 |
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| 173.0 |
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| 136.0 |
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| 46.9 |
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| 60.0 |
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| 103.3 |
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| 113.4 |
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Depreciation and other expenses |
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| 195.3 |
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| 178.5 |
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| 556.3 |
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| 550.4 |
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| 224.1 |
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| 183.6 |
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| 453.5 |
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| 361.0 |
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Selling, general and administrative |
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| 35.8 |
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| 29.3 |
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| 101.8 |
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| 90.2 |
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| 26.3 |
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| 33.5 |
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| 58.9 |
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| 66.0 |
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Provision for losses on receivables |
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| 5.6 |
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| 4.3 |
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| 11.8 |
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| 14.8 |
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| 7.5 |
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| 4.0 |
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| 24.5 |
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| 6.2 |
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| 296.3 |
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| 261.1 |
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| 842.9 |
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| 791.4 |
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| 304.8 |
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| 281.1 |
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| 640.2 |
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| 546.6 |
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Financial Services Income Before Income Taxes |
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| 66.5 |
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| 78.8 |
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| 230.8 |
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| 218.7 |
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| 55.5 |
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| 80.3 |
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| 103.8 |
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| 164.3 |
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Investment income |
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| 21.1 |
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| 16.4 |
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| 62.2 |
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| 41.0 |
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| 9.0 |
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| 21.8 |
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| 23.8 |
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| 41.1 |
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Total Income Before Income Taxes |
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| 777.6 |
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| 668.8 |
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| 2,411.4 |
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| 2,057.8 |
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| 184.0 |
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| 814.4 |
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| 646.2 |
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| 1,633.8 |
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Income taxes |
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| 169.7 |
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| 123.5 |
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| 554.8 |
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| 440.8 |
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| 36.3 |
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| 194.7 |
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| 139.1 |
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| 385.1 |
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Net Income |
| $ | 607.9 |
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| $ | 545.3 |
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| $ | 1,856.6 |
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| $ | 1,617.0 |
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| $ | 147.7 |
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| $ | 619.7 |
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| $ | 507.1 |
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| $ | 1,248.7 |
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Net Income Per Share |
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Basic |
| $ | 1.75 |
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| $ | 1.55 |
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| $ | 5.35 |
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| $ | 4.60 |
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| $ | .43 |
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| $ | 1.79 |
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| $ | 1.46 |
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| $ | 3.60 |
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Diluted |
| $ | 1.75 |
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| $ | 1.55 |
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| $ | 5.34 |
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| $ | 4.59 |
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| $ | .43 |
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| $ | 1.78 |
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| $ | 1.46 |
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| $ | 3.59 |
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Weighted Average Number of Common Shares Outstanding |
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Basic |
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| 346.6 |
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| 350.7 |
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| 346.9 |
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| 351.6 |
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| 346.4 |
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| 347.0 |
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| 346.7 |
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| 347.1 |
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Diluted |
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| 347.2 |
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| 351.5 |
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| 347.6 |
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| 352.5 |
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| 346.8 |
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| 347.7 |
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| 347.1 |
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| 347.8 |
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Comprehensive Income |
| $ | 480.1 |
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| $ | 544.0 |
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| $ | 1,765.1 |
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| $ | 1,515.6 |
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| $ | 241.7 |
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| $ | 653.0 |
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| $ | 317.3 |
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| $ | 1,285.0 |
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See Notes to Consolidated Financial Statements.
- 3 -
PACCAR Inc – Form 10-Q
Consolidated Balance Sheets (Millions)
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| September 30 |
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| December 31 |
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| June 30 |
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| December 31 |
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| 2019 |
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| 2018* |
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| 2020 |
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| 2019* |
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| (Unaudited) |
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| (Unaudited) |
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ASSETS |
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TRUCK, PARTS AND OTHER: |
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Current Assets |
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Cash and cash equivalents |
| $ | 3,535.2 |
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| $ | 3,279.2 |
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| $ | 3,020.1 |
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| $ | 4,007.3 |
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Trade and other receivables, net |
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| 1,729.0 |
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| 1,314.4 |
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Marketable debt securities |
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| 1,107.8 |
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| 1,020.4 |
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Trade and other receivables, net (allowance for losses: 2020 - $.6, 2019 - $.6) |
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| 1,248.3 |
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| 1,306.1 |
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Marketable debt securities (amortized cost: 2020 - $1,126.7, 2019 - $1,154.0; allowance for credit losses: NaN) |
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| 1,147.2 |
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| 1,162.1 |
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Inventories, net |
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| 1,292.6 |
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| 1,184.7 |
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| 1,136.4 |
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| 1,153.2 |
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Other current assets |
|
| 387.3 |
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| 364.7 |
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| 492.1 |
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| 388.0 |
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Total Truck, Parts and Other Current Assets |
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| 8,051.9 |
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| 7,163.4 |
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| 7,044.1 |
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| 8,016.7 |
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Equipment on operating leases, net |
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| 600.0 |
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| 786.6 |
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| 471.7 |
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| 545.5 |
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Property, plant and equipment, net |
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| 2,690.8 |
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| 2,480.9 |
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| 3,025.0 |
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| 2,883.8 |
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Other noncurrent assets, net |
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| 810.5 |
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| 651.9 |
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| 818.0 |
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| 843.7 |
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Total Truck, Parts and Other Assets |
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| 12,153.2 |
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| 11,082.8 |
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| 11,358.8 |
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| 12,289.7 |
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FINANCIAL SERVICES: |
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Cash and cash equivalents |
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| 134.3 |
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| 156.7 |
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| 107.9 |
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| 167.8 |
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Finance and other receivables, net |
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| 11,671.7 |
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| 10,840.8 |
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Finance and other receivables, net (allowance for losses: 2020 - $123.5, 2019 - $112.4) |
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| 11,133.1 |
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| 12,086.0 |
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Equipment on operating leases, net |
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| 2,941.0 |
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| 2,855.0 |
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| 2,951.8 |
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| 3,102.6 |
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Other assets |
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| 867.5 |
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| 547.1 |
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| 854.8 |
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| 715.0 |
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Total Financial Services Assets |
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| 15,614.5 |
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| 14,399.6 |
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| 15,047.6 |
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| 16,071.4 |
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| $ | 27,767.7 |
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| $ | 25,482.4 |
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| $ | 26,406.4 |
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| $ | 28,361.1 |
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* | The December 31, |
See Notes to Consolidated Financial Statements.
- 4 -
PACCAR Inc – Form 10-Q
Consolidated Balance Sheets (Millions)
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| September 30 |
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| December 31 |
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| June 30 |
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| December 31 |
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| 2019 |
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| 2018* |
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| 2020 |
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| 2019* |
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| (Unaudited) |
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| (Unaudited) |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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TRUCK, PARTS AND OTHER: |
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Current Liabilities |
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Accounts payable, accrued expenses and other |
| $ | 3,539.8 |
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| $ | 3,027.7 |
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| $ | 3,136.4 |
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| $ | 3,194.2 |
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Dividend payable |
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| 695.1 |
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| 796.5 |
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Total Truck, Parts and Other Current Liabilities |
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| 3,539.8 |
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| 3,722.8 |
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| 3,136.4 |
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| 3,990.7 |
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Residual value guarantees and deferred revenues |
|
| 646.0 |
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| 842.4 |
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| 506.0 |
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| 587.3 |
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Other liabilities |
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| 1,372.0 |
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| 1,145.7 |
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| 1,327.1 |
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| 1,435.1 |
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Total Truck, Parts and Other Liabilities |
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| 5,557.8 |
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| 5,710.9 |
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| 4,969.5 |
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| 6,013.1 |
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FINANCIAL SERVICES: |
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Accounts payable, accrued expenses and other |
|
| 637.5 |
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| 523.2 |
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| 488.6 |
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| 629.0 |
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Commercial paper and bank loans |
|
| 4,140.0 |
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| 3,540.8 |
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| 2,979.8 |
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|
| 4,110.2 |
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Term notes |
|
| 6,716.0 |
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| 6,409.7 |
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| 7,416.8 |
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|
| 7,112.5 |
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Deferred taxes and other liabilities |
|
| 753.7 |
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| 704.9 |
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| 774.9 |
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|
| 790.2 |
|
Total Financial Services Liabilities |
|
| 12,247.2 |
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|
| 11,178.6 |
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| 11,660.1 |
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| 12,641.9 |
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|
STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value - authorized 1.0 million shares, NaN issued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $1 par value - authorized 1.2 billion shares, issued 347.4 and 346.6 million shares |
|
| 347.4 |
|
|
| 346.6 |
| ||||||||
Common stock, $1 par value - authorized 1.2 billion shares, issued 346.5 and 346.3 million shares |
|
| 346.5 |
|
|
| 346.3 |
| ||||||||
Additional paid-in capital |
|
| 116.8 |
|
|
| 69.4 |
|
|
| 82.7 |
|
|
| 61.4 |
|
Treasury stock, at cost - 1.7 million and nil shares |
|
| (110.2 | ) |
|
|
|
| ||||||||
Treasury stock, at cost - .7 million and nil shares |
|
| (41.6 | ) |
|
|
|
| ||||||||
Retained earnings |
|
| 10,798.7 |
|
|
| 9,275.4 |
|
|
| 10,679.1 |
|
|
| 10,398.5 |
|
Accumulated other comprehensive loss |
|
| (1,190.0 | ) |
|
| (1,098.5 | ) |
|
| (1,289.9 | ) |
|
| (1,100.1 | ) |
Total Stockholders' Equity |
|
| 9,962.7 |
|
|
| 8,592.9 |
|
|
| 9,776.8 |
|
|
| 9,706.1 |
|
|
| $ | 27,767.7 |
|
| $ | 25,482.4 |
|
| $ | 26,406.4 |
|
| $ | 28,361.1 |
|
* | 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 |
|
| Six Months Ended |
| ||||||||||
|
| September 30 |
|
| June 30 |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
| $ | 1,856.6 |
|
| $ | 1,617.0 |
|
| $ | 507.1 |
|
| $ | 1,248.7 |
|
Adjustments to reconcile net income to cash provided by operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
| 243.1 |
|
|
| 255.6 |
|
|
| 122.4 |
|
|
| 162.6 |
|
Equipment on operating leases and other |
|
| 549.3 |
|
|
| 538.8 |
|
|
| 390.9 |
|
|
| 357.7 |
|
Provision for losses on financial services receivables |
|
| 11.8 |
|
|
| 14.8 |
|
|
| 24.5 |
|
|
| 6.2 |
|
Other, net |
|
| 53.0 |
|
|
| 10.8 |
|
|
| 6.1 |
|
|
| 28.5 |
|
Pension contributions |
|
| (16.5 | ) |
|
| (85.7 | ) |
|
| (28.5 | ) |
|
| (11.2 | ) |
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
| (503.4 | ) |
|
| (588.5 | ) |
|
| 30.4 |
|
|
| (436.6 | ) |
Wholesale receivables on new trucks |
|
| (472.8 | ) |
|
| (375.0 | ) |
|
| 694.7 |
|
|
| (321.0 | ) |
Inventories |
|
| (135.2 | ) |
|
| (427.2 | ) |
|
| (15.5 | ) |
|
| (148.7 | ) |
Accounts payable and accrued expenses |
|
| 468.3 |
|
|
| 762.9 |
|
|
| (233.2 | ) |
|
| 397.6 |
|
Income taxes, warranty and other |
|
| (137.6 | ) |
|
| 203.7 |
|
|
| (138.1 | ) |
|
| (94.3 | ) |
Net Cash Provided by Operating Activities |
|
| 1,916.6 |
|
|
| 1,927.2 |
|
|
| 1,360.8 |
|
|
| 1,189.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originations of retail loans and finance leases |
|
| (2,973.6 | ) |
|
| (2,889.2 | ) |
|
| (1,572.8 | ) |
|
| (1,975.6 | ) |
Collections on retail loans and finance leases |
|
| 2,484.5 |
|
|
| 2,198.9 |
|
|
| 1,467.0 |
|
|
| 1,563.2 |
|
Net increase in wholesale receivables on used equipment |
|
| (29.9 | ) |
|
| (5.3 | ) |
|
| (8.1 | ) |
|
| (14.1 | ) |
Purchases of marketable debt securities |
|
| (678.0 | ) |
|
| (477.3 | ) |
|
| (327.7 | ) |
|
| (394.2 | ) |
Proceeds from sales and maturities of marketable debt securities |
|
| 587.4 |
|
|
| 820.5 |
|
|
| 339.4 |
|
|
| 306.4 |
|
Payments for property, plant and equipment |
|
| (387.2 | ) |
|
| (334.5 | ) |
|
| (312.2 | ) |
|
| (249.9 | ) |
Acquisitions of equipment for operating leases |
|
| (1,038.4 | ) |
|
| (1,078.4 | ) |
|
| (439.6 | ) |
|
| (660.4 | ) |
Proceeds from asset disposals |
|
| 477.6 |
|
|
| 490.7 |
|
|
| 242.6 |
|
|
| 299.2 |
|
Other, net |
|
| 1.1 |
|
|
| (1.9 | ) |
|
| 17.3 |
|
|
|
|
|
Net Cash Used in Investing Activities |
|
| (1,556.5 | ) |
|
| (1,276.5 | ) |
|
| (594.1 | ) |
|
| (1,125.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of cash dividends |
|
| (1,027.8 | ) |
|
| (706.6 | ) |
|
| (1,018.0 | ) |
|
| (917.0 | ) |
Purchases of treasury stock |
|
| (110.2 | ) |
|
| (153.2 | ) |
|
| (41.6 | ) |
|
| (56.5 | ) |
Proceeds from stock compensation transactions |
|
| 33.8 |
|
|
| 13.2 |
|
|
| 11.3 |
|
|
| 23.9 |
|
Net increase in commercial paper and short-term bank loans and other |
|
| 636.5 |
|
|
| 99.9 |
| ||||||||
Net (decrease) increase in commercial paper and short-term bank loans and other |
|
| (1,192.5 | ) |
|
| 330.6 |
| ||||||||
Proceeds from term debt |
|
| 2,056.2 |
|
|
| 2,085.3 |
|
|
| 1,474.8 |
|
|
| 1,453.9 |
|
Payments on term debt |
|
| (1,677.2 | ) |
|
| (1,402.3 | ) |
|
| (1,012.4 | ) |
|
| (1,116.9 | ) |
Net Cash Used in Financing Activities |
|
| (88.7 | ) |
|
| (63.7 | ) |
|
| (1,778.4 | ) |
|
| (282.0 | ) |
Effect of exchange rate changes on cash |
|
| (37.8 | ) |
|
| (37.7 | ) |
|
| (35.4 | ) |
|
| 1.4 |
|
Net Increase in Cash and Cash Equivalents |
|
| 233.6 |
|
|
| 549.3 |
| ||||||||
Net Decrease in Cash and Cash Equivalents |
|
| (1,047.1 | ) |
|
| (216.5 | ) | ||||||||
Cash and cash equivalents at beginning of period |
|
| 3,435.9 |
|
|
| 2,364.7 |
|
|
| 4,175.1 |
|
|
| 3,435.9 |
|
Cash and cash equivalents at end of period |
| $ | 3,669.5 |
|
| $ | 2,914.0 |
|
| $ | 3,128.0 |
|
| $ | 3,219.4 |
|
See Notes to Consolidated Financial Statements.
- 6 -
PACCAR Inc – Form 10-Q
Consolidated Statements of Stockholders’ Equity (Unaudited)
(Millions Except Per Share Amounts)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
COMMON STOCK, $1 PAR VALUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 347.2 |
|
| $ | 352.2 |
|
| $ | 346.6 |
|
| $ | 351.8 |
|
| $ | 346.4 |
|
| $ | 347.0 |
|
| $ | 346.3 |
|
| $ | 346.6 |
|
Stock compensation |
|
| .2 |
|
|
|
|
|
|
| .8 |
|
|
| .4 |
|
|
| .1 |
|
|
| .2 |
|
|
| .2 |
|
|
| .6 |
|
Balance at end of period |
|
| 347.4 |
|
|
| 352.2 |
|
|
| 347.4 |
|
|
| 352.2 |
|
|
| 346.5 |
|
|
| 347.2 |
|
|
| 346.5 |
|
|
| 347.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| 105.1 |
|
|
| 143.8 |
|
|
| 69.4 |
|
|
| 123.2 |
|
|
| 74.2 |
|
|
| 94.3 |
|
|
| 61.4 |
|
|
| 69.4 |
|
Stock compensation |
|
| 11.7 |
|
|
| 4.8 |
|
|
| 47.4 |
|
|
| 25.4 |
|
|
| 8.5 |
|
|
| 10.8 |
|
|
| 21.3 |
|
|
| 35.7 |
|
Balance at end of period |
|
| 116.8 |
|
|
| 148.6 |
|
|
| 116.8 |
|
|
| 148.6 |
|
|
| 82.7 |
|
|
| 105.1 |
|
|
| 82.7 |
|
|
| 105.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TREASURY STOCK, AT COST: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| (56.5 | ) |
|
| (94.2 | ) |
|
|
|
|
|
|
|
|
|
| (41.5 | ) |
|
| (33.4 | ) |
|
|
|
|
|
|
|
|
Purchases |
|
| (53.7 | ) |
|
| (59.0 | ) |
|
| (110.2 | ) |
|
| (153.2 | ) |
|
| (.1 | ) |
|
| (23.1 | ) |
|
| (41.6 | ) |
|
| (56.5 | ) |
Balance at end of period |
|
| (110.2 | ) |
|
| (153.2 | ) |
|
| (110.2 | ) |
|
| (153.2 | ) |
|
| (41.6 | ) |
|
| (56.5 | ) |
|
| (41.6 | ) |
|
| (56.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| 10,301.8 |
|
|
| 9,271.3 |
|
|
| 9,275.4 |
|
|
| 8,369.1 |
|
|
| 10,642.2 |
|
|
| 9,793.1 |
|
|
| 10,398.5 |
|
|
| 9,275.4 |
|
Net income |
|
| 607.9 |
|
|
| 545.3 |
|
|
| 1,856.6 |
|
|
| 1,617.0 |
|
|
| 147.7 |
|
|
| 619.7 |
|
|
| 507.1 |
|
|
| 1,248.7 |
|
Cash dividends declared on common stock |
|
| (111.0 | ) |
|
| (98.2 | ) |
|
| (333.3 | ) |
|
| (284.8 | ) |
|
| (110.8 | ) |
|
| (111.0 | ) |
|
| (221.9 | ) |
|
| (222.3 | ) |
Cumulative effect of change in accounting principles |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17.1 |
| ||||||||||||||||
Cumulative effect of change in accounting principle |
|
|
|
|
|
|
|
|
|
| (4.6 | ) |
|
|
|
| ||||||||||||||||
Balance at end of period |
|
| 10,798.7 |
|
|
| 9,718.4 |
|
|
| 10,798.7 |
|
|
| 9,718.4 |
|
|
| 10,679.1 |
|
|
| 10,301.8 |
|
|
| 10,679.1 |
|
|
| 10,301.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE LOSS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| (1,062.2 | ) |
|
| (893.7 | ) |
|
| (1,098.5 | ) |
|
| (793.6 | ) |
|
| (1,383.9 | ) |
|
| (1,095.5 | ) |
|
| (1,100.1 | ) |
|
| (1,098.5 | ) |
Other comprehensive loss |
|
| (127.8 | ) |
|
| (1.3 | ) |
|
| (91.5 | ) |
|
| (101.4 | ) | ||||||||||||||||
Other comprehensive income (loss) |
|
| 94.0 |
|
|
| 33.3 |
|
|
| (189.8 | ) |
|
| 36.3 |
| ||||||||||||||||
Balance at end of period |
|
| (1,190.0 | ) |
|
| (895.0 | ) |
|
| (1,190.0 | ) |
|
| (895.0 | ) |
|
| (1,289.9 | ) |
|
| (1,062.2 | ) |
|
| (1,289.9 | ) |
|
| (1,062.2 | ) |
Total Stockholders’ Equity |
| $ | 9,962.7 |
|
| $ | 9,171.0 |
|
| $ | 9,962.7 |
|
| $ | 9,171.0 |
|
| $ | 9,776.8 |
|
| $ | 9,635.4 |
|
| $ | 9,776.8 |
|
| $ | 9,635.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared on common stock, per share |
| $ | .32 |
|
| $ | .28 |
|
| $ | .96 |
|
| $ | .81 |
|
| $ | .32 |
|
| $ | .32 |
|
| $ | .64 |
|
| $ | .64 |
|
See Notes to Consolidated Financial Statements.
- 7 -
PACCAR Inc – Form 10-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 Form 10‑Q and Article 10 of Regulation S-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) considered necessary for a fair presentation have been included. Operating results for the three and ninesix months ended SeptemberJune 30, 20192020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020. For further information, refer to the consolidated financial statements and footnotes included in PACCAR Inc’s (PACCAR or the Company) Annual Report on Form 10‑K for the year ended December 31, 2018.2019.
Earnings per Share: Basic earnings per common share are computed by dividing earnings by the weighted average number of common shares outstanding, plus the effect of any participating securities. Diluted earnings per common share are computed assuming that all potentially dilutive securities are converted into common shares under the treasury stock method. The dilutive and antidilutive options are shown separately in the table below.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Additional shares |
|
| 592,700 |
|
|
| 811,800 |
|
|
| 617,900 |
|
|
| 868,800 |
|
|
| 406,400 |
|
|
| 663,300 |
|
|
| 420,100 |
|
|
| 630,500 |
|
Antidilutive options |
|
| 1,842,200 |
|
|
| 1,174,200 |
|
|
| 2,030,100 |
|
|
| 1,177,600 |
|
|
| 1,912,200 |
|
|
| 1,867,700 |
|
|
| 1,909,400 |
|
|
| 2,037,400 |
|
Reclassifications: Due to the adoption of the new lease accounting standard, the Company reclassified certain prior period balances to conform to the 2019 presentation. Operating cash flows from sales-type finance leases and dealer direct loans on new trucks for the nine months ended September 30, 2018 were reclassified to Income taxes, warranty and other (increase of $65.8 million) and Trade and other receivables (decrease of $18.3 million), respectively, within cash provided by operating activities in the Consolidated Statements of Cash Flows. The Company changed its presentation of Finance leases as of December 31, 2018 in Note E from gross to net of unearned interest on finance leases for comparability with the current period. As of December 31, 2018, unearned interest on finance leases was $387.5 million.
New Accounting Pronouncements
New LeaseCredit Loss Standard
In FebruaryJune 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), including subsequently issued ASUs to clarify the implementation guidance in ASU 2016-02. Under the new lease standard, lessees recognize a right-of-use asset and a lease liability for virtually all leases (other than short-term leases). Lessor accounting is largely unchanged, except for a reduction in the capitalization of certain initial direct costs and the classification of certain cash flows. This ASU may be applied retrospectively in each reporting period presented or modified retrospectively with the cumulative effect adjustment to the opening balance of retained earnings. The Company adopted this ASU on January 1, 2019 on a modified retrospective basis, with no effect on Retained earnings.
The Company elected the package of practical expedients for its leases existing prior to the adoption of this ASU that will retain prior conclusions about lease identification, lease classification and initial direct costs under the new standard. For lessee accounting, the Company elected the short-term lease exemption to not recognize right-of-use assets and lease liabilities for any leases with a duration of twelve months or less. For lessor accounting, the Company elected to exclude taxes collected from customers, such as sales and use and value added, from the measurement of lease income and expense.
The new standard requires lessors within the scope of ASC 942, Financial Services – Depository and Lending, to classify principal payments received from sales-type and direct financing leases in investing activities in the statement of cash flows. The Company continues to present cash receipts from direct finance leases as an investing cash inflow and reclassified cash flows from sales-type leases from operating to investing activities. For the nine months ended September 30, 2019, total cash originations and cash receipts from sales-type leases were $132.6 million and $144.7 million, respectively.
- 8 -
PACCAR Inc – Form 10-Q
|
|
The cumulative effect of the changes made to the Company’s Consolidated Balance Sheet on January 1, 2019 for the adoption of ASU 2016-02 was as follows:
|
| BALANCE AT DECEMBER 31, 2018 |
|
| CHANGE DUE TO NEW STANDARD |
|
| BALANCE AT JANUARY 1, 2019 |
| |||
Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
TRUCK, PARTS AND OTHER: |
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets, net |
| $ | 651.9 |
|
| $ | 40.9 |
|
| $ | 692.8 |
|
FINANCIAL SERVICES: |
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
| 547.1 |
|
|
| 5.8 |
|
|
| 552.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
TRUCK, PARTS AND OTHER: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
| 3,027.7 |
|
|
| 12.6 |
|
|
| 3,040.3 |
|
Other liabilities |
|
| 1,145.7 |
|
|
| 28.5 |
|
|
| 1,174.2 |
|
FINANCIAL SERVICES: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
| 523.2 |
|
|
| 1.3 |
|
|
| 524.5 |
|
Deferred taxes and other liabilities |
|
| 704.9 |
|
|
| 4.3 |
|
|
| 709.2 |
|
Other Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, including subsequently issued ASUs to clarify the implementation guidance in ASU 2016-13. The amendment introduces new guidance for credit losses on financial assets measured at amortized cost, including finance receivables, trade receivables and held-to-maturityavailable-for-sale debt securities. Under this new model, expected credit losses will beare based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability, replacing the currentprevious incurred loss model. This ASU also updates the methodology for recording credit losses on available-for-sale debt securities from the write-down for other-than-temporary impairment to the allowance approach. The ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted. This amendment should be appliedThe Company adopted this ASU on January 1, 2020 on a modified retrospective basis as required, with a cumulative effect adjustment to retainedRetained earnings as of the beginning of the period of adoption. The Company expects thatstandard requires the application of the new standard, based on current portfolio balances and economic conditions, will increasecredit impairment model for debt securities prospectively.
The cumulative effect of the allowance for credit losses on its finance receivable portfolio by approximately $5 million. Upon adoption,changes made to the Company’s Consolidated Balance Sheet on January 1, 2020 for the actual adjustment may differ dependingadoption of ASU 2016-13 was as follows:
| BALANCE AT DECEMBER 31, 2019 |
|
| CHANGE DUE TO NEW STANDARD |
|
| BALANCE AT JANUARY 1, 2020 |
| ||||
Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL SERVICES: |
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Finance and other receivables, net |
| $ | 12,086.0 |
|
| $ | (6.2 | ) |
| $ | 12,079.8 |
|
Other assets |
|
| 715.0 |
|
|
| .1 |
|
|
| 715.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes and other liabilities |
|
| 790.2 |
|
|
| (1.5 | ) |
|
| 788.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
| 10,398.5 |
|
|
| (4.6 | ) |
|
| 10,393.9 |
|
- 8 -
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Other New Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on portfolio balancesFinancial Reporting. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and economic conditionsexceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period and will be in effect for a limited time through December 31, 2022. Adoption is permitted at theany time. The estimated increase in allowance for losses to trade receivables and available-for-sale debt securitiesCompany is less than $1 million.currently evaluating the impact on its consolidated financial statements.
In addition to adopting the ASUsASU disclosed above, the Company adopted the following standardstandards on its effective date of January 1, 2019,2020, which had no material impact on the Company’s consolidated financial statements.
STANDARD |
| DESCRIPTION |
|
|
|
2018-15 | Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. | |
2019-12 | Income Taxes (Topic |
The FASB also issued the following standardsstandard which areis not expected to have a material impact on the Company’s consolidated financial statements.
STANDARD |
| DESCRIPTION |
| EFFECTIVE DATE |
|
|
| ||
2018-14 * |
| Compensation – Retirement Benefits – Defined Benefit Plans – General (Topic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. |
| January 1, 2021 |
|
|
|
* | The Company will adopt on the effective date. |
- 9 -
PACCAR Inc – Form 10-Q
|
|
NOTE B – Sales and Revenues
Truck, Parts and Other
The Company enters into sales contracts with customers associated with purchases of the Company’s products and services including trucks, parts, product support, and other related services. Generally, the Company recognizes revenue for the amount of consideration it will receive for delivering a product or service to a customer. Revenue is recognized when the customer obtains control of the product or receives benefits of the service. The Company excludes sales taxes, value added taxes and other related taxes assessed by government agencies from revenue. There are no significant financing components included in product or service revenue since generally customers pay shortly after the products or services are transferred. In the Truck and Parts segment, when the Company grants extended payment terms on selected receivables and charges interest, interest income is recognized when earned.
The following table disaggregates Truck, Parts and Other revenues by major sources:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Truck |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck sales |
| $ | 4,784.6 |
|
| $ | 4,253.6 |
|
| $ | 14,714.6 |
|
| $ | 12,702.7 |
|
| $ | 1,708.1 |
|
| $ | 5,016.4 |
|
| $ | 5,291.7 |
|
| $ | 9,930.0 |
|
Revenues from extended warranties, operating leases and other |
|
| 192.8 |
|
|
| 175.8 |
|
|
| 582.0 |
|
|
| 547.5 |
|
|
| 150.3 |
|
|
| 195.5 |
|
|
| 324.3 |
|
|
| 389.2 |
|
|
|
| 4,977.4 |
|
|
| 4,429.4 |
|
|
| 15,296.6 |
|
|
| 13,250.2 |
|
|
| 1,858.4 |
|
|
| 5,211.9 |
|
|
| 5,616.0 |
|
|
| 10,319.2 |
|
Parts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parts sales |
|
| 973.2 |
|
|
| 933.2 |
|
|
| 2,946.0 |
|
|
| 2,787.8 |
|
|
| 799.4 |
|
|
| 996.2 |
|
|
| 1,769.4 |
|
|
| 1,972.8 |
|
Revenues from dealer services and other |
|
| 27.7 |
|
|
| 26.9 |
|
|
| 85.0 |
|
|
| 80.2 |
|
|
| 24.3 |
|
|
| 29.2 |
|
|
| 52.9 |
|
|
| 57.3 |
|
|
|
| 1,000.9 |
|
|
| 960.1 |
|
|
| 3,031.0 |
|
|
| 2,868.0 |
|
|
| 823.7 |
|
|
| 1,025.4 |
|
|
| 1,822.3 |
|
|
| 2,030.1 |
|
Winch sales and other |
|
| 25.9 |
|
|
| 27.4 |
|
|
| 81.2 |
|
|
| 87.7 |
|
|
| 19.8 |
|
|
| 29.2 |
|
|
| 41.6 |
|
|
| 55.3 |
|
Truck, Parts and Other sales and revenues |
| $ | 6,004.2 |
|
| $ | 5,416.9 |
|
| $ | 18,408.8 |
|
| $ | 16,205.9 |
|
| $ | 2,701.9 |
|
| $ | 6,266.5 |
|
| $ | 7,479.9 |
|
| $ | 12,404.6 |
|
The Company recognizes truck and parts sales as revenuerevenues when control of the products is transferred to customers which generally occurs upon shipment, except for certain truck sales which are subject to a residual value guarantee (RVG) by the Company. The
- 9 -
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
standard payment term for trucks and aftermarket parts is typically within 30 days, but the Company may grant extended payment terms on selected receivables. The Company recognizes revenue for the invoice amount adjusted for estimated sales incentives and returns. Sales incentives and returns are estimated based on historical experience and are adjusted to current period revenuerevenues when the most likely amount of consideration the Company expects to receive changes or becomes fixed. Truck and part sales include a standard product warranty which is included in cost of sales. The Company has elected to treat delivery services as a fulfillment activity with revenues recognized when the customer obtains control of the product. Delivery revenue is included in revenues and the related costs are included in cost of sales. As a practical expedient, the Company is not disclosing truck order backlog, as a significant majority of the backlog has a duration of less than one year.
Truck sales with RVGs that allow customers the option to return their truck are accounted for as a sale when the customer does not have an economic incentive to return the truck to the Company, or as an operating lease when the customer does have an economic incentive to return the truck. The estimate of customers’ economic incentive to return the trucks is based on an analysis of historical guaranteed buyback value and estimated market value. When truck sales with RVGs are accounted for as a sale, revenue is recognized when the truck is transferred to the customer less an amount for expected returns. Expected return rates are estimated by using a historical weighted average return rate over a four-yearfive-year period. The estimated value of the truck assets to be returned and the related return liabilities at SeptemberJune 30, 20192020 were $435.9$494.1 and $455.2,$523.9, respectively, compared to $319.8$473.0 and $329.3$503.4 at December 31, 2018,2019, respectively. The Company’s total commitment to acquire trucks at a guaranteed value for contracts accounted for as a sale was $937.8$954.0 at SeptemberJune 30, 2019.2020.
Revenues from extended warranties, operating leases and other include optional extended warranty and repair and maintenance (R&M) service contracts which can be purchased for periods generally ranging up to five years. The Company defers revenue based on stand-alone observable selling prices when it receives payments in advance and generally recognizes the revenue on a straight-line basis over the warranty or repair and maintenanceR&M contract periods. See Note H,F, Product Support Liabilities, in the Notes to the Consolidated Financial Statements for further information. Also included are truck sales with an RVG accounted for as an operating lease. A liability is created for the residual value obligation with the remainder of the proceeds recorded as deferred revenue. The deferred revenue is recognized on a straight-line basis over the guarantee period, which typically ranges from three to five years. TotalDeferred revenue related to trucks sold with an RVG was $115.3 at June 30, 2020. The Company expects to recognize approximately $38.0 of the remaining deferred revenue in 2020, $45.6 in 2021, $19.7 in 2022, $8.6 in 2023, $3.3 in 2024 and $.1 thereafter. For the three and six months ended June 30, 2020, total operating lease income from truck sales with RVGs was $43.7$23.3 and $133.5$50.3, respectively, compared to $48.1 and $89.8 for the three and ninesix months ended SeptemberJune 30, 2019, respectively.
- 10 -
PACCAR Inc – Form 10-Q
|
|
The Company’s total commitment to acquire trucks at a guaranteed value for contracts accounted for as a lease was $390.7 at June 30, 2020.
Aftermarket parts sales allow for returns which are estimated at the time of sale based on historical data. At SeptemberJune 30, 2019,2020, the estimated value of the returned goods asset and the related return liability were $51.8$60.8 and $115.9,$137.9, respectively, compared to $49.0$56.3 and $104.5$126.3 at December 31, 2018,2019, respectively. Parts dealer services and other revenues are recognized as services are performed.
Revenue from winch sales and other is primarily derived from the industrial winch business. Winch sales are recognized when the product is transferred to a customer, which generally occurs upon shipment. Also within this category are other revenues not attributable to a reportable segment.
Financial Services
The Company’s Financial Services segment products include loans to customers collateralized by the vehicles being financed, finance leases to lease equipment to retail customers and dealers, dealer wholesale financing which includes floating-rate wholesale loans to PACCAR dealers for new and used trucks, and operating leases which include rentals on Company owned equipment. Interest income from loans, finance leases and other receivables is recognized using the interest method. Certain loan origination costs are deferred and amortized to interest income over the expected life of the contracts using the straight-line method which approximates the interest method.
Operating lease rental revenue is recognized on a straight-line basis over the term of the lease. Customer contracts may include additional services such as excess mileage, repair and maintenance and other services on which revenue is recognized when earned. The Company’s full-service lease arrangements bundle these additional services. Rents for full-service lease contracts are allocated between lease and non-lease components based on the relative stand-alone price of each component. Taxes, such as sales and use and value added, which are collected by the Company from a customer, are excluded from the measurement of lease income and expenses.
Recognition of interest income and rental revenue is suspended (put on non-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, 0 finance receivables more than 90 days past due were accruing interest at SeptemberJune 30, 20192020 or December 31, 2018.2019. 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
- 10 -
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
payments for three months and collection of remaining amounts is considered probable (if contractually modified). Payments received while the finance receivable is on non-accrual status are applied to interest and principal in accordance with the contractual terms.
Finance leases are secured by the trucks and related equipment being leased and the lease terms generally range from three to five years depending on the type and use of the equipment. The lessee is required to either purchase the equipment or guarantee to the Company a stated residual value upon the disposition of the equipment at the end of the finance lease term.
Operating lease terms generally range from three to five years. At the end of the operating lease term, the lessee has the option to return the equipment to the Company or purchase the equipment at its fair market value.
The Company determines its estimate of the residual value of leased vehicles by considering the length of the lease term, the truck model, the expected usage of the truck and anticipated market demand. If the sales price of the truck at the end of the agreement differs from the Company’s estimated residual value, a gain or loss will result. Future market conditions, changes in government regulations and other factors outside the Company’s control could impact the ultimate sales price of trucks returned under these contracts. Residual values are reviewed regularly and adjusted if market conditions warrant.
The Company recognized lease income as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 30, 2019 |
|
| September 30, 2019 |
| ||
Finance lease income |
| $ | 35.0 |
|
| $ | 107.8 |
|
Operating lease income |
|
| 194.4 |
|
|
| 599.3 |
|
Total lease income |
| $ | 229.4 |
|
| $ | 707.1 |
|
- 11 -
PACCAR Inc – Form 10-Q
|
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2020 |
|
| June 30, 2020 |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Finance lease income |
| $ | 45.2 |
|
| $ | 37.5 |
|
| $ | 92.4 |
|
| $ | 72.8 |
|
Operating lease income |
|
| 191.7 |
|
|
| 204.2 |
|
|
| 394.5 |
|
|
| 404.9 |
|
Total lease income |
| $ | 236.9 |
|
| $ | 241.7 |
|
| $ | 486.9 |
|
| $ | 477.7 |
|
NOTE C - Investments in Marketable Debt Securities
The Company's investments in marketable debt securities are classified as available-for-sale. These investments are stated at fair value withand may include an allowance for credit losses. Changes in the allowance for credit losses are recognized in the current period earnings and any unrealized gains or losses, net of tax, are 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 the third‑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 the third‑party providers. These procedures help ensure 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. Realizedthe result of credit 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.
unrealized losses. In assessing default risk,credit losses, 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, theguarantor. The Company considers its intent for selling the securitiessecurity and whether it is more likely than not the Company will be able to hold these securitiesthe security until the recovery of any credit losses and unrealized losses. Charges against the allowance for credit losses occur when a security with credit losses is sold or the Company no longer intends to hold that security.
Marketable debt securities at SeptemberJune 30, 20192020 and December 31, 20182019 consisted of the following:
|
| AMORTIZED |
|
| UNREALIZED |
|
| UNREALIZED |
|
| FAIR |
|
| AMORTIZED |
|
| UNREALIZED |
|
| UNREALIZED |
|
| FAIR |
| ||||||||
At September 30, 2019 |
| COST |
|
| GAINS |
|
| LOSSES |
|
| VALUE |
| ||||||||||||||||||||
At June 30, 2020 |
| COST |
|
| GAINS |
|
| LOSSES |
|
| VALUE |
| ||||||||||||||||||||
U.S. tax-exempt securities |
| $ | 316.8 |
|
| $ | 1.9 |
|
| $ | .3 |
|
| $ | 318.4 |
|
| $ | 311.6 |
|
| $ | 4.7 |
|
| $ | .1 |
|
| $ | 316.2 |
|
U.S. corporate securities |
|
| 160.6 |
|
|
| 2.0 |
|
|
|
|
|
|
| 162.6 |
|
|
| 173.8 |
|
|
| 4.0 |
|
|
|
|
|
|
| 177.8 |
|
U.S. government and agency securities |
|
| 126.1 |
|
|
| 1.0 |
|
|
|
|
|
|
| 127.1 |
|
|
| 120.0 |
|
|
| 3.4 |
|
|
|
|
|
|
| 123.4 |
|
Non-U.S. corporate securities |
|
| 303.0 |
|
|
| 2.6 |
|
|
| .2 |
|
|
| 305.4 |
|
|
| 299.8 |
|
|
| 5.2 |
|
|
| .2 |
|
|
| 304.8 |
|
Non-U.S. government securities |
|
| 65.0 |
|
|
| .3 |
|
|
|
|
|
|
| 65.3 |
|
|
| 81.2 |
|
|
| .5 |
|
|
|
|
|
|
| 81.7 |
|
Other debt securities |
|
| 127.8 |
|
|
| 1.3 |
|
|
| .1 |
|
|
| 129.0 |
|
|
| 140.3 |
|
|
| 3.0 |
|
|
|
|
|
|
| 143.3 |
|
|
| $ | 1,099.3 |
|
| $ | 9.1 |
|
| $ | .6 |
|
| $ | 1,107.8 |
|
| $ | 1,126.7 |
|
| $ | 20.8 |
|
| $ | .3 |
|
| $ | 1,147.2 |
|
- 11 -
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
|
| AMORTIZED |
|
| UNREALIZED |
|
| UNREALIZED |
|
| FAIR |
|
| AMORTIZED |
|
| UNREALIZED |
|
| UNREALIZED |
|
| FAIR |
| ||||||||
At December 31, 2018 |
| COST |
|
| GAINS |
|
| LOSSES |
|
| VALUE |
| ||||||||||||||||||||
At December 31, 2019 |
| COST |
|
| GAINS |
|
| LOSSES |
|
| VALUE |
| ||||||||||||||||||||
U.S. tax-exempt securities |
| $ | 326.0 |
|
| $ | .3 |
|
| $ | 1.2 |
|
| $ | 325.1 |
|
| $ | 318.1 |
|
| $ | 2.2 |
|
| $ | .1 |
|
| $ | 320.2 |
|
U.S. corporate securities |
|
| 147.6 |
|
|
| .2 |
|
|
| .4 |
|
|
| 147.4 |
|
|
| 163.8 |
|
|
| 1.9 |
|
|
|
|
|
|
| 165.7 |
|
U.S. government and agency securities |
|
| 98.9 |
|
|
| .2 |
|
|
| .4 |
|
|
| 98.7 |
|
|
| 128.4 |
|
|
| .9 |
|
|
|
|
|
|
| 129.3 |
|
Non-U.S. corporate securities |
|
| 272.5 |
|
|
| .4 |
|
|
| 1.6 |
|
|
| 271.3 |
|
|
| 347.7 |
|
|
| 2.3 |
|
|
| .2 |
|
|
| 349.8 |
|
Non-U.S. government securities |
|
| 55.9 |
|
|
| .1 |
|
|
| .1 |
|
|
| 55.9 |
|
|
| 72.3 |
|
|
| .2 |
|
|
| .1 |
|
|
| 72.4 |
|
Other debt securities |
|
| 122.6 |
|
|
| .2 |
|
|
| .8 |
|
|
| 122.0 |
|
|
| 123.7 |
|
|
| 1.1 |
|
|
| .1 |
|
|
| 124.7 |
|
|
| $ | 1,023.5 |
|
| $ | 1.4 |
|
| $ | 4.5 |
|
| $ | 1,020.4 |
|
| $ | 1,154.0 |
|
| $ | 8.6 |
|
| $ | .5 |
|
| $ | 1,162.1 |
|
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 $1.0$1.2 and $1.1$.4 and gross realized losses were $.4$.3 and $.7$.2 for the nine-monthsix months periods ended SeptemberJune 30, 2020 and 2019, and 2018, respectively.
- 12 -
PACCAR Inc – Form 10-Q
|
|
Marketable debt securities with continuous unrealized losses and their related fair values were as follows:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| June 30, 2020 |
| December 31, 2019 |
| |||||||||||||||||||
|
| LESS THAN |
|
| TWELVE MONTHS |
|
| LESS THAN |
|
| TWELVE MONTHS |
|
| LESS THAN |
|
| TWELVE MONTHS |
| LESS THAN |
|
| TWELVE MONTHS |
| |||||||
|
| TWELVE MONTHS |
|
| OR GREATER |
|
| TWELVE MONTHS |
|
| OR GREATER |
|
| TWELVE MONTHS |
|
| OR GREATER |
| TWELVE MONTHS |
|
| OR GREATER |
| |||||||
Fair value |
| $ | 134.4 |
|
| $ | 66.6 |
|
| $ | 252.8 |
|
| $ | 397.9 |
|
| $ | 66.6 |
|
|
|
| $ | 177.0 |
|
| $ | 31.4 |
|
Unrealized losses |
|
| .4 |
|
|
| .2 |
|
|
| .8 |
|
|
| 3.7 |
|
|
| .3 |
|
|
|
|
| .4 |
|
|
| .1 |
|
ForThe unrealized losses on the investment securitiesinvestments above were due to higher market yields and decreased market liquidity. The Company did not identify any indicators of a credit loss in gross unrealized loss positions identified above, the its assessments. Accordingly, 0 allowance for credit losses was recorded at June 30, 2020 and December 31, 2019. The Company does not currently intend, to sell the investment securities. Itand it is more likely than not that the Companyit will not be required to sell the investment securities before recovery of the unrealized losses, and thelosses. The Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized 0 other-than-temporary impairments during the periods presented.
Contractual maturities onof marketable debt securities at SeptemberJune 30, 20192020 were as follows:
|
| AMORTIZED |
|
| FAIR |
|
| AMORTIZED |
|
| FAIR |
| ||||
Maturities: |
| COST |
|
| VALUE |
|
| COST |
|
| VALUE |
| ||||
Within one year |
| $ | 273.5 |
|
| $ | 273.8 |
|
| $ | 311.5 |
|
| $ | 314.1 |
|
One to five years |
|
| 769.2 |
|
|
| 777.4 |
|
|
| 799.3 |
|
|
| 817.2 |
|
Six to ten years |
|
| 20.0 |
|
|
| 20.0 |
|
|
| 15.3 |
|
|
| 15.3 |
|
More than ten years |
|
| 36.6 |
|
|
| 36.6 |
|
|
| .6 |
|
|
| .6 |
|
|
| $ | 1,099.3 |
|
| $ | 1,107.8 |
|
| $ | 1,126.7 |
|
| $ | 1,147.2 |
|
Marketable debt securities included $49.8$14.3 and $7.4$49.7 of variable rate demand obligations (VRDOs) at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. VRDOs are debt instruments with long-term scheduled maturities which have interest rates that reset periodically. Actual maturities of VRDOs may differ from contractual maturities because these securities may be sold when interest rates are reset.
NOTE D - Inventories
Inventories are stated at the lower of cost or market. Cost of inventories in the U.S. is determined principally by the last‑in, first-out (LIFO) method. Cost of all other inventories is determined principally by the first-in, first-out (FIFO) method.
Inventories include the following:
|
| September 30 |
|
| December 31 |
|
| June 30 |
|
| December 31 |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Finished products |
| $ | 629.7 |
|
| $ | 563.2 |
|
| $ | 638.7 |
|
| $ | 584.6 |
|
Work in process and raw materials |
|
| 848.7 |
|
|
| 803.3 |
|
|
| 685.0 |
|
|
| 754.9 |
|
|
|
| 1,478.4 |
|
|
| 1,366.5 |
|
|
| 1,323.7 |
|
|
| 1,339.5 |
|
Less LIFO reserve |
|
| (185.8 | ) |
|
| (181.8 | ) |
|
| (187.3 | ) |
|
| (186.3 | ) |
|
| $ | 1,292.6 |
|
| $ | 1,184.7 |
|
| $ | 1,136.4 |
|
| $ | 1,153.2 |
|
- 12 -
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Under the LIFO method of accounting (used for approximately 48%43% of SeptemberJune 30, 20192020 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.
- 13 -
PACCAR Inc – Form 10-Q
|
|
NOTE E - Finance and Other Receivables
Finance and other receivables include the following:
|
| September 30 |
|
| December 31 |
|
| June 30 |
|
| December 31 |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Loans |
| $ | 5,021.1 |
|
| $ | 4,630.5 |
|
| $ | 5,305.2 |
|
| $ | 5,241.7 |
|
Finance leases |
|
| 3,795.0 |
|
|
| 3,807.2 |
|
|
| 3,624.8 |
|
|
| 3,906.7 |
|
Dealer wholesale financing |
|
| 2,813.5 |
|
|
| 2,342.3 |
|
|
| 2,172.6 |
|
|
| 2,907.4 |
|
Operating lease receivables and other |
|
| 157.0 |
|
|
| 174.6 |
|
|
| 154.0 |
|
|
| 142.6 |
|
|
|
| 11,786.6 |
|
|
| 10,954.6 |
|
|
| 11,256.6 |
|
|
| 12,198.4 |
|
Less allowance for losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases |
|
| (105.0 | ) |
|
| (103.8 | ) |
|
| (115.5 | ) |
|
| (104.4 | ) |
Dealer wholesale financing |
|
| (6.4 | ) |
|
| (6.8 | ) |
|
| (3.5 | ) |
|
| (4.3 | ) |
Operating lease receivables and other |
|
| (3.5 | ) |
|
| (3.2 | ) |
|
| (4.5 | ) |
|
| (3.7 | ) |
|
| $ | 11,671.7 |
|
| $ | 10,840.8 |
|
| $ | 11,133.1 |
|
| $ | 12,086.0 |
|
Included in Finance and other receivables, net on the Consolidated Balance Sheets is accrued interest receivable (net of allowance for credit losses) of $32.4 and $29.5 as of June 30, 2020 and December 31, 2019, respectively. The net activity ofdealer direct loans and dealer wholesale financing on new trucks is shown in the operating section of the Consolidated Statements of Cash Flows since those receivables finance the sale of Company inventory.
Annual minimum payments due on finance lease receivables and a reconciliation of the undiscounted cash flows to the net investment in finance leases are as follows:
|
| FINANCE |
| |
At September 30, 2019 |
| LEASES |
| |
Remainder of 2019 |
| $ | 463.4 |
|
2020 |
|
| 1,189.3 |
|
2021 |
|
| 935.3 |
|
2022 |
|
| 648.4 |
|
2023 |
|
| 404.3 |
|
Thereafter |
|
| 244.1 |
|
|
|
| 3,884.8 |
|
Unguaranteed residual values |
|
| 311.0 |
|
Unearned interest on finance leases |
|
| (400.8 | ) |
Net investment in finance leases |
| $ | 3,795.0 |
|
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 a loan or finance lease for credit reasons and grants a concession, the modification is classified as a troubled debt restructuring (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.
- 14 -
PACCAR Inc – Form 10-Q
|
|
In accordance with FASB statement, Prudential Regulator Guidance Concerning Troubled Debt Restructurings, issued on March 22, 2020, short-term modifications granted to customers were not considered TDRs if they were not past-due and were seeking to manage their liquidity needs because of the effects of the COVID-19 pandemic.
On average, modifications extended contractual terms by approximately three months in 2020 and five months in 2019 and six months in 2018 and did not have a significant effect on the weighted average term or interest rate of the total portfolio at SeptemberJune 30, 20192020 and December 31, 2018.2019.
- 13 -
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 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 on non-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.
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,amortized cost basis, 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 and economic forecasts discussed below.
The Company evaluates finance receivables that are not individually impaired and share similar risk characteristics 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. Informationconditions, and expected changes in future macroeconomic conditions that affect collectability. Historical credit loss information provides relevant information of expected credit losses. The historical information used includes assumptions regarding the likelihood of collecting current and past due accounts, repossession rates, and 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. Adjustments to historical loss information are made for changes in forecasted economic conditions that are specific to the industry and markets in which the Company conducts business. The Company utilizes economic forecasts from third party sourcesand determines expected losses based on historical experience under similar market conditions. 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 incurredexpected 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 are charged 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 and charge-off is not significant. In cases where repossession is delayed (e.g., for legal proceedings), the Company records a partial charge-off. The charge-off is determined by comparing the fair value of the collateral, less costcosts to sell, to the recorded investment.amortized cost basis.
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
- 14 -
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
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.
The allowance for credit losses is summarized as follows:
|
| 2020 |
| |||||||||||||||||
|
| DEALER |
|
| CUSTOMER |
|
|
|
|
|
|
|
|
| ||||||
|
| WHOLESALE |
|
| RETAIL |
|
| RETAIL |
|
| OTHER* |
|
| TOTAL** |
| |||||
Balance at January 1 |
| $ | 4.3 |
|
| $ | 9.2 |
|
| $ | 101.4 |
|
| $ | 3.7 |
|
| $ | 118.6 |
|
Provision for losses |
|
| (.7 | ) |
|
| (.2 | ) |
|
| 23.9 |
|
|
| 1.5 |
|
|
| 24.5 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
| (17.7 | ) |
|
| (.8 | ) |
|
| (18.5 | ) |
Recoveries |
|
|
|
|
|
|
|
|
|
| 2.2 |
|
|
| .3 |
|
|
| 2.5 |
|
Currency translation and other |
|
| (.1 | ) |
|
| (.1 | ) |
|
| (3.2 | ) |
|
| (.2 | ) |
|
| (3.6 | ) |
Balance at June 30 |
| $ | 3.5 |
|
| $ | 8.9 |
|
| $ | 106.6 |
|
| $ | 4.5 |
|
| $ | 123.5 |
|
|
| 2019 |
| |||||||||||||||||
|
| DEALER |
|
| CUSTOMER |
|
|
|
|
|
|
|
|
| ||||||
|
| WHOLESALE |
|
| RETAIL |
|
| RETAIL |
|
| OTHER* |
|
| TOTAL |
| |||||
Balance at January 1 |
| $ | 6.8 |
|
| $ | 10.0 |
|
| $ | 93.8 |
|
| $ | 3.2 |
|
| $ | 113.8 |
|
Provision for losses |
|
| (.1 | ) |
|
| (.4 | ) |
|
| 5.4 |
|
|
| 1.3 |
|
|
| 6.2 |
|
Charge-offs |
|
| (.1 | ) |
|
|
|
|
|
| (8.4 | ) |
|
| (.6 | ) |
|
| (9.1 | ) |
Recoveries |
|
|
|
|
|
|
|
|
|
| 6.9 |
|
|
| .1 |
|
|
| 7.0 |
|
Currency translation and other |
|
| (.1 | ) |
|
| .1 |
|
|
| .6 |
|
|
|
|
|
|
| .6 |
|
Balance at June 30 |
| $ | 6.5 |
|
| $ | 9.7 |
|
| $ | 98.3 |
|
| $ | 4.0 |
|
| $ | 118.5 |
|
* | Operating leases and other trade receivables. |
** | The beginning balance has been adjusted for the adoption of ASU 2016-13. |
Information regarding finance receivables evaluated and determined individually and collectively is as follows:
|
|
|
| DEALER |
|
| CUSTOMER |
|
|
|
|
| ||||||
At June 30, 2020 |
| WHOLESALE |
|
| RETAIL |
|
| RETAIL |
|
| TOTAL |
| ||||||
Amortized cost basis for impaired finance receivables evaluated individually |
|
|
|
|
|
|
| $ | 1.6 |
|
| $ | 72.3 |
|
| $ | 73.9 |
|
Allowance for impaired finance receivables determined individually |
|
|
|
|
|
|
|
|
|
|
|
| 6.0 |
|
|
| 6.0 |
|
Amortized cost basis for finance receivables evaluated collectively |
|
|
| $ | 2,172.6 |
|
|
| 1,618.0 |
|
|
| 7,238.1 |
|
|
| 11,028.7 |
|
Allowance for finance receivables determined collectively |
|
|
|
| 3.5 |
|
|
| 8.9 |
|
|
| 100.6 |
|
|
| 113.0 |
|
|
|
|
| DEALER |
|
| CUSTOMER |
|
|
|
|
| ||||||
At December 31, 2019 |
| WHOLESALE |
|
| RETAIL |
|
| RETAIL |
|
| TOTAL |
| ||||||
Amortized cost basis for impaired finance receivables evaluated individually |
|
|
|
|
|
|
| $ | 2.3 |
|
| $ | 47.6 |
|
| $ | 49.9 |
|
Allowance for impaired finance receivables determined individually |
|
|
|
|
|
|
|
|
|
|
|
| 6.5 |
|
|
| 6.5 |
|
Amortized cost basis for finance receivables evaluated collectively |
|
|
| $ | 2,907.4 |
|
|
| 1,643.3 |
|
|
| 7,455.2 |
|
|
| 12,005.9 |
|
Allowance for finance receivables determined collectively |
|
|
|
| 4.3 |
|
|
| 9.2 |
|
|
| 88.7 |
|
|
| 102.2 |
|
- 15 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
The allowance for credit losses is summarized as follows:
|
| 2019 |
| |||||||||||||||||
|
| DEALER |
|
| CUSTOMER |
|
|
|
|
|
|
|
|
| ||||||
|
| WHOLESALE |
|
| RETAIL |
|
| RETAIL |
|
| OTHER* |
|
| TOTAL |
| |||||
Balance at January 1 |
| $ | 6.8 |
|
| $ | 10.0 |
|
| $ | 93.8 |
|
| $ | 3.2 |
|
| $ | 113.8 |
|
Provision for losses |
|
|
|
|
|
| (.9 | ) |
|
| 9.7 |
|
|
| 3.0 |
|
|
| 11.8 |
|
Charge-offs |
|
| (.2 | ) |
|
|
|
|
|
| (15.6 | ) |
|
| (2.7 | ) |
|
| (18.5 | ) |
Recoveries |
|
|
|
|
|
|
|
|
|
| 8.8 |
|
|
| .1 |
|
|
| 8.9 |
|
Currency translation and other |
|
| (.2 | ) |
|
| .2 |
|
|
| (1.0 | ) |
|
| (.1 | ) |
|
| (1.1 | ) |
Balance at September 30 |
| $ | 6.4 |
|
| $ | 9.3 |
|
| $ | 95.7 |
|
| $ | 3.5 |
|
| $ | 114.9 |
|
|
| 2018 |
| |||||||||||||||||
|
| DEALER |
|
| CUSTOMER |
|
|
|
|
|
|
|
|
| ||||||
|
| WHOLESALE |
|
| RETAIL |
|
| RETAIL |
|
| OTHER* |
|
| TOTAL |
| |||||
Balance at January 1 |
| $ | 6.0 |
|
| $ | 9.4 |
|
| $ | 92.5 |
|
| $ | 9.3 |
|
| $ | 117.2 |
|
Provision for losses |
|
| .6 |
|
|
| (.1 | ) |
|
| 12.8 |
|
|
| 1.5 |
|
|
| 14.8 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
| (15.5 | ) |
|
| (6.5 | ) |
|
| (22.0 | ) |
Recoveries |
|
|
|
|
|
|
|
|
|
| 6.7 |
|
|
| .3 |
|
|
| 7.0 |
|
Currency translation and other |
|
|
|
|
|
|
|
|
|
| (1.1 | ) |
|
| (.2 | ) |
|
| (1.3 | ) |
Balance at September 30 |
| $ | 6.6 |
|
| $ | 9.3 |
|
| $ | 95.4 |
|
| $ | 4.4 |
|
| $ | 115.7 |
|
|
|
Information regarding finance receivables evaluated and determined individually and collectively is as follows:
|
| DEALER |
|
| CUSTOMER |
|
|
|
|
| ||||||
At September 30, 2019 |
| WHOLESALE |
|
| RETAIL |
|
| RETAIL |
|
| TOTAL |
| ||||
Recorded investment for impaired finance receivables evaluated individually |
| $ | 24.3 |
|
| $ | 2.3 |
|
| $ | 51.3 |
|
| $ | 77.9 |
|
Allowance for impaired finance receivables determined individually |
|
| 2.0 |
|
|
|
|
|
|
| 7.1 |
|
|
| 9.1 |
|
Recorded investment for finance receivables evaluated collectively |
|
| 2,789.2 |
|
|
| 1,557.6 |
|
|
| 7,204.9 |
|
|
| 11,551.7 |
|
Allowance for finance receivables determined collectively |
|
| 4.4 |
|
|
| 9.3 |
|
|
| 88.6 |
|
|
| 102.3 |
|
|
| DEALER |
|
| CUSTOMER |
|
|
|
|
| ||||||
At December 31, 2018 |
| WHOLESALE |
|
| RETAIL |
|
| RETAIL |
|
| TOTAL |
| ||||
Recorded investment for impaired finance receivables evaluated individually |
| $ | .1 |
|
| $ | 2.5 |
|
| $ | 36.7 |
|
| $ | 39.3 |
|
Allowance for impaired finance receivables determined individually |
|
| .1 |
|
|
|
|
|
|
| 5.8 |
|
|
| 5.9 |
|
Recorded investment for finance receivables evaluated collectively |
|
| 2,342.2 |
|
|
| 1,462.1 |
|
|
| 6,936.4 |
|
|
| 10,740.7 |
|
Allowance for finance receivables determined collectively |
|
| 6.7 |
|
|
| 10.0 |
|
|
| 88.0 |
|
|
| 104.7 |
|
- 16 -
PACCAR Inc – Form 10-Q
|
|
The recorded investment foramortized cost basis of finance receivables that are on non-accrual status is as follows:
|
| September 30 |
|
| December 31 |
|
| June 30 |
|
| December 31 |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Dealer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
| $ | 24.3 |
|
| $ | .1 |
| ||||||||
Retail |
|
| 2.3 |
|
|
|
|
|
| $ | 1.6 |
|
| $ | 2.3 |
|
Customer retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet |
|
| 44.3 |
|
|
| 27.5 |
|
|
| 62.9 |
|
|
| 40.2 |
|
Owner/operator |
|
| 6.8 |
|
|
| 7.9 |
|
|
| 9.4 |
|
|
| 7.2 |
|
|
| $ | 77.7 |
|
| $ | 35.5 |
|
| $ | 73.9 |
|
| $ | 49.7 |
|
Impaired Loans
Impaired loans are summarized below. The impaired loans with a specific reserve represent the unpaid principal balance. The recorded investmentamortized cost basis of impaired loans as of SeptemberJune 30, 20192020 and December 31, 20182019 was not significantly different than the unpaid principal balance.
|
| DEALER |
|
| CUSTOMER RETAIL |
|
|
|
|
|
| DEALER |
|
| CUSTOMER RETAIL |
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| OWNER/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OWNER/ |
|
|
|
|
| ||
At September 30, 2019 |
| WHOLESALE |
|
| RETAIL |
|
| FLEET |
|
| OPERATOR |
|
| TOTAL |
| |||||||||||||||||||||||||
At June 30, 2020 |
| WHOLESALE |
|
| RETAIL |
|
| FLEET |
|
| OPERATOR |
|
| TOTAL |
| |||||||||||||||||||||||||
Impaired loans with a specific reserve |
| $ | 24.3 |
|
|
|
|
|
| $ | 11.2 |
|
| $ | 2.9 |
|
| $ | 38.4 |
|
|
|
|
|
|
|
|
|
| $ | 24.8 |
|
| $ | 3.1 |
|
| $ | 27.9 |
|
Associated allowance |
|
| (2.0 | ) |
|
|
|
|
|
| (1.8 | ) |
|
| (.6 | ) |
|
| (4.4 | ) |
|
|
|
|
|
|
|
|
|
| (1.5 | ) |
|
| (.6 | ) |
|
| (2.1 | ) |
|
|
| 22.3 |
|
|
|
|
|
|
| 9.4 |
|
|
| 2.3 |
|
|
| 34.0 |
|
|
|
|
|
|
|
|
|
|
| 23.3 |
|
|
| 2.5 |
|
|
| 25.8 |
|
Impaired loans with no specific reserve |
|
|
|
|
| $ | 2.3 |
|
|
| 1.6 |
|
|
| .4 |
|
|
| 4.3 |
|
|
|
|
|
| $ | 1.6 |
|
|
| 5.8 |
|
|
| .4 |
|
|
| 7.8 |
|
Net carrying amount of impaired loans |
| $ | 22.3 |
|
| $ | 2.3 |
|
| $ | 11.0 |
|
| $ | 2.7 |
|
| $ | 38.3 |
|
|
|
|
|
| $ | 1.6 |
|
| $ | 29.1 |
|
| $ | 2.9 |
|
| $ | 33.6 |
|
Average recorded investment* |
| $ | 4.9 |
|
| $ | 2.4 |
|
| $ | 18.1 |
|
| $ | 3.4 |
|
| $ | 28.8 |
|
| $ | 4.9 |
|
| $ | 2.1 |
|
| $ | 22.0 |
|
| $ | 3.2 |
|
| $ | 32.2 |
|
* | Represents the average during the 12 months ended |
|
| DEALER |
|
| CUSTOMER RETAIL |
|
|
|
|
|
| DEALER |
|
| CUSTOMER RETAIL |
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| OWNER/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OWNER/ |
|
|
|
|
| ||
At December 31, 2018 |
| WHOLESALE |
|
| RETAIL |
|
| FLEET |
|
| OPERATOR |
|
| TOTAL |
| |||||||||||||||||||||||||
At December 31, 2019 |
| WHOLESALE |
|
| RETAIL |
|
| FLEET |
|
| OPERATOR |
|
| TOTAL |
| |||||||||||||||||||||||||
Impaired loans with a specific reserve |
| $ | .1 |
|
|
|
|
|
| $ | 14.5 |
|
| $ | 3.4 |
|
| $ | 18.0 |
|
|
|
|
|
|
|
|
|
| $ | 10.9 |
|
| $ | 3.1 |
|
| $ | 14.0 |
|
Associated allowance |
|
| (.1 | ) |
|
|
|
|
|
| (2.3 | ) |
|
| (1.0 | ) |
|
| (3.4 | ) |
|
|
|
|
|
|
|
|
|
| (2.1 | ) |
|
| (.6 | ) |
|
| (2.7 | ) |
|
|
|
|
|
|
|
|
|
|
| 12.2 |
|
|
| 2.4 |
|
|
| 14.6 |
|
|
|
|
|
|
|
|
|
|
| 8.8 |
|
|
| 2.5 |
|
|
| 11.3 |
|
Impaired loans with no specific reserve |
|
|
|
|
| $ | 2.5 |
|
|
| 4.9 |
|
|
| .3 |
|
|
| 7.7 |
|
|
|
|
|
| $ | 2.3 |
|
|
| 6.7 |
|
|
| .4 |
|
|
| 9.4 |
|
Net carrying amount of impaired loans |
|
|
|
|
| $ | 2.5 |
|
| $ | 17.1 |
|
| $ | 2.7 |
|
| $ | 22.3 |
|
|
|
|
|
| $ | 2.3 |
|
| $ | 15.5 |
|
| $ | 2.9 |
|
| $ | 20.7 |
|
Average recorded investment* |
| $ | .1 |
|
| $ | 3.5 |
|
| $ | 31.1 |
|
| $ | 2.3 |
|
| $ | 37.0 |
|
| $ | .1 |
|
| $ | 2.6 |
|
| $ | 21.2 |
|
| $ | 3.3 |
|
| $ | 27.2 |
|
* | Represents the average during the 12 months ended |
During the period the loans above were considered impaired, interest income recognized on a cash basis was as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Interest income recognized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | .1 |
|
|
|
|
|
| $ | .1 |
|
|
|
|
|
| $ | .1 |
|
|
|
|
|
| $ | .1 |
|
|
|
|
|
Customer Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet |
|
| .4 |
|
| $ | .6 |
|
|
| 1.0 |
|
| $ | 1.6 |
|
|
| .5 |
|
| $ | .3 |
|
|
| .8 |
|
| $ | .6 |
|
Owner/operator |
|
| .1 |
|
|
|
|
|
|
| .2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| .1 |
|
|
| .1 |
|
|
| $ | .6 |
|
| $ | .6 |
|
| $ | 1.3 |
|
| $ | 1.6 |
|
| $ | .6 |
|
| $ | .3 |
|
| $ | 1.0 |
|
| $ | .7 |
|
- 1716 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
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.
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 and at-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 be high‑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 on non-accrual status.
The tablestable below summarizesummarizes the amortized cost basis of the Company’s finance receivables bywithin each credit quality indicator by year of origination and portfolio class.
|
| DEALER |
|
| CUSTOMER RETAIL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revolving |
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| OWNER/ |
|
|
|
|
| ||||||||||||||||||||||||||||||||
At September 30, 2019 |
| WHOLESALE |
|
| RETAIL |
|
| FLEET |
|
| OPERATOR |
|
| TOTAL |
| ||||||||||||||||||||||||||||||||||||
At June 30, 2020 | 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| Loans |
|
| Total |
| ||||||||||||||||||||||||||||
Dealer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Performing |
| $ | 2,768.7 |
|
| $ | 1,557.6 |
|
| $ | 6,033.9 |
|
| $ | 1,108.4 |
|
| $ | 11,468.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,120.4 |
|
| $ | 2,120.4 |
|
Watch |
|
| 20.5 |
|
|
|
|
|
|
| 54.3 |
|
|
| 8.3 |
|
|
| 83.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 52.2 |
|
|
| 52.2 |
|
At-risk |
|
| 24.3 |
|
|
| 2.3 |
|
|
| 44.3 |
|
|
| 7.0 |
|
|
| 77.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,813.5 |
|
| $ | 1,559.9 |
|
| $ | 6,132.5 |
|
| $ | 1,123.7 |
|
| $ | 11,629.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,172.6 |
|
| $ | 2,172.6 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Performing | $ | 218.6 |
|
| $ | 516.8 |
|
| $ | 337.7 |
|
| $ | 204.2 |
|
| $ | 120.2 |
|
| $ | 191.7 |
|
| $ | 7.9 |
|
| $ | 1,597.1 |
| ||||||||||||||||||||
Watch |
| 2.2 |
|
|
| 11.3 |
|
|
| 5.9 |
|
|
| 1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 20.9 |
| ||||||||||||||||||||
At-risk |
|
|
|
|
| 1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.6 |
| ||||||||||||||||||||
| $ | 220.8 |
|
| $ | 529.7 |
|
| $ | 343.6 |
|
| $ | 205.7 |
|
| $ | 120.2 |
|
| $ | 191.7 |
|
| $ | 7.9 |
|
| $ | 1,619.6 |
| ||||||||||||||||||||
Total Dealer | $ | 220.8 |
|
| $ | 529.7 |
|
| $ | 343.6 |
|
| $ | 205.7 |
|
| $ | 120.2 |
|
| $ | 191.7 |
|
| $ | 2,180.5 |
|
| $ | 3,792.2 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Customer Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Fleet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Performing | $ | 1,177.8 |
|
| $ | 2,223.2 |
|
| $ | 1,410.2 |
|
| $ | 725.1 |
|
| $ | 365.2 |
|
| $ | 146.6 |
|
|
|
|
|
| $ | 6,048.1 |
| ||||||||||||||||||||
Watch |
| 6.0 |
|
|
| 18.6 |
|
|
| 25.7 |
|
|
| 19.6 |
|
|
| 3.3 |
|
|
| 1.4 |
|
|
|
|
|
|
| 74.6 |
| ||||||||||||||||||||
At-risk |
| 3.1 |
|
|
| 26.2 |
|
|
| 18.5 |
|
|
| 8.6 |
|
|
| 4.7 |
|
|
| 1.8 |
|
|
|
|
|
|
| 62.9 |
| ||||||||||||||||||||
|
| 1,186.9 |
|
|
| 2,268.0 |
|
|
| 1,454.4 |
|
|
| 753.3 |
|
|
| 373.2 |
|
|
| 149.8 |
|
|
|
|
|
|
| 6,185.6 |
| ||||||||||||||||||||
Owner/Operator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Performing | $ | 213.4 |
|
| $ | 407.7 |
|
| $ | 271.8 |
|
| $ | 132.7 |
|
| $ | 58.2 |
|
| $ | 18.9 |
|
|
|
|
|
| $ | 1,102.7 |
| ||||||||||||||||||||
Watch |
| 1.1 |
|
|
| 5.1 |
|
|
| 3.8 |
|
|
| 1.8 |
|
|
| .8 |
|
|
| .1 |
|
|
|
|
|
|
| 12.7 |
| ||||||||||||||||||||
At-risk |
| .7 |
|
|
| 1.7 |
|
|
| 3.5 |
|
|
| 1.7 |
|
|
| .9 |
|
|
| .9 |
|
|
|
|
|
|
| 9.4 |
| ||||||||||||||||||||
| $ | 215.2 |
|
| $ | 414.5 |
|
| $ | 279.1 |
|
| $ | 136.2 |
|
| $ | 59.9 |
|
| $ | 19.9 |
|
|
|
|
|
| $ | 1,124.8 |
| ||||||||||||||||||||
Total Customer Retail | $ | 1,402.1 |
|
| $ | 2,682.5 |
|
| $ | 1,733.5 |
|
| $ | 889.5 |
|
| $ | 433.1 |
|
| $ | 169.7 |
|
|
|
|
|
| $ | 7,310.4 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Total | $ | 1,622.9 |
|
| $ | 3,212.2 |
|
| $ | 2,077.1 |
|
| $ | 1,095.2 |
|
| $ | 553.3 |
|
| $ | 361.4 |
|
| $ | 2,180.5 |
|
| $ | 11,102.6 |
|
- 17 -
|
| DEALER |
|
| CUSTOMER RETAIL |
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| OWNER/ |
|
|
|
|
| |
At December 31, 2018 |
| WHOLESALE |
|
| RETAIL |
|
| FLEET |
|
| OPERATOR |
|
| TOTAL |
| |||||
Performing |
| $ | 2,329.5 |
|
| $ | 1,462.1 |
|
| $ | 5,759.0 |
|
| $ | 1,099.3 |
|
| $ | 10,649.9 |
|
Watch |
|
| 12.6 |
|
|
|
|
|
|
| 70.0 |
|
|
| 8.2 |
|
|
| 90.8 |
|
At-risk |
|
| .2 |
|
|
| 2.5 |
|
|
| 28.5 |
|
|
| 8.1 |
|
|
| 39.3 |
|
|
| $ | 2,342.3 |
|
| $ | 1,464.6 |
|
| $ | 5,857.5 |
|
| $ | 1,115.6 |
|
| $ | 10,780.0 |
|
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
The tables below summarize the amortized cost basis of 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.
|
| DEALER |
|
| CUSTOMER RETAIL |
|
|
|
|
|
| DEALER |
|
| CUSTOMER RETAIL |
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| OWNER/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OWNER/ |
|
|
|
|
| ||
At September 30, 2019 |
| WHOLESALE |
|
| RETAIL |
|
| FLEET |
|
| OPERATOR |
|
| TOTAL |
| |||||||||||||||||||||||||
At June 30, 2020 |
| WHOLESALE |
|
| RETAIL |
|
| FLEET |
|
| OPERATOR |
|
| TOTAL |
| |||||||||||||||||||||||||
Current and up to 30 days past due |
| $ | 2,778.7 |
|
| $ | 1,559.9 |
|
| $ | 6,080.0 |
|
| $ | 1,111.0 |
|
| $ | 11,529.6 |
|
| $ | 2,172.6 |
|
| $ | 1,619.6 |
|
| $ | 6,134.9 |
|
| $ | 1,107.4 |
|
| $ | 11,034.5 |
|
31 – 60 days past due |
|
| 34.8 |
|
|
|
|
|
|
| 14.5 |
|
|
| 6.7 |
|
|
| 56.0 |
|
|
|
|
|
|
|
|
|
|
| 18.8 |
|
|
| 6.9 |
|
|
| 25.7 |
|
Greater than 60 days past due |
|
|
|
|
|
|
|
|
|
| 38.0 |
|
|
| 6.0 |
|
|
| 44.0 |
|
|
|
|
|
|
|
|
|
|
| 31.9 |
|
|
| 10.5 |
|
|
| 42.4 |
|
|
| $ | 2,813.5 |
|
| $ | 1,559.9 |
|
| $ | 6,132.5 |
|
| $ | 1,123.7 |
|
| $ | 11,629.6 |
|
| $ | 2,172.6 |
|
| $ | 1,619.6 |
|
| $ | 6,185.6 |
|
| $ | 1,124.8 |
|
| $ | 11,102.6 |
|
|
| DEALER |
|
| CUSTOMER RETAIL |
|
|
|
|
|
| DEALER |
|
| CUSTOMER RETAIL |
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| OWNER/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OWNER/ |
|
|
|
|
| ||
At December 31, 2018 |
| WHOLESALE |
|
| RETAIL |
|
| FLEET |
|
| OPERATOR |
|
| TOTAL |
| |||||||||||||||||||||||||
At December 31, 2019 |
| WHOLESALE |
|
| RETAIL |
|
| FLEET |
|
| OPERATOR |
|
| TOTAL |
| |||||||||||||||||||||||||
Current and up to 30 days past due |
| $ | 2,342.1 |
|
| $ | 1,464.6 |
|
| $ | 5,835.6 |
|
| $ | 1,103.1 |
|
| $ | 10,745.4 |
|
| $ | 2,907.4 |
|
| $ | 1,645.6 |
|
| $ | 6,297.1 |
|
| $ | 1,140.7 |
|
| $ | 11,990.8 |
|
31 – 60 days past due |
|
| .1 |
|
|
|
|
|
|
| 11.2 |
|
|
| 6.7 |
|
|
| 18.0 |
|
|
|
|
|
|
|
|
|
|
| 23.0 |
|
|
| 8.7 |
|
|
| 31.7 |
|
Greater than 60 days past due |
|
| .1 |
|
|
|
|
|
|
| 10.7 |
|
|
| 5.8 |
|
|
| 16.6 |
|
|
|
|
|
|
|
|
|
|
| 27.6 |
|
|
| 5.7 |
|
|
| 33.3 |
|
|
| $ | 2,342.3 |
|
| $ | 1,464.6 |
|
| $ | 5,857.5 |
|
| $ | 1,115.6 |
|
| $ | 10,780.0 |
|
| $ | 2,907.4 |
|
| $ | 1,645.6 |
|
| $ | 6,347.7 |
|
| $ | 1,155.1 |
|
| $ | 12,055.8 |
|
Troubled Debt Restructurings
The balance of TDRs was $46.7 and $14.1 at June 30, 2020 and December 31, 2019, respectively. At modification date, the pre-modification and post-modification amortized cost basis balances for finance receivables modified during the period by portfolio class are as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2020 |
|
| June 30, 2020 |
| ||||||||||
|
| AMORTIZED COST BASIS |
|
| AMORTIZED COST BASIS |
| ||||||||||
|
| PRE- MODIFICATION |
|
| POST- MODIFICATION |
|
| PRE- MODIFICATION |
|
| POST- MODIFICATION |
| ||||
Fleet |
| $ | 15.6 |
|
| $ | 15.6 |
|
| $ | 39.0 |
|
| $ | 39.0 |
|
Owner/operator |
|
| 1.0 |
|
|
| 1.0 |
|
|
| 1.1 |
|
|
| 1.1 |
|
|
| $ | 16.6 |
|
| $ | 16.6 |
|
| $ | 40.1 |
|
| $ | 40.1 |
|
|
| Three Months Ended |
| Six Months Ended |
| |||||||
|
| June 30, 2019 |
| June 30, 2019 |
| |||||||
|
| AMORTIZED COST BASIS |
| AMORTIZED COST BASIS |
| |||||||
|
| PRE- MODIFICATION |
| POST- MODIFICATION |
| PRE- MODIFICATION |
|
| POST- MODIFICATION |
| ||
Fleet |
|
|
|
|
| $ | .6 |
|
| $ | .6 |
|
Owner/operator |
|
|
|
|
|
| .2 |
|
|
| .2 |
|
|
|
|
|
|
| $ | .8 |
|
| $ | .8 |
|
The effect on the allowance for credit losses from such modifications was not significant at June 30, 2020 and 2019.
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:
Six Months Ended June 30, |
|
|
|
|
| 2020 |
|
| 2019 | |
Fleet |
|
|
|
|
| $ | 2.1 |
|
|
|
Owner/operator |
|
|
|
|
|
| .1 |
|
|
|
|
|
|
|
|
| $ | 2.2 |
|
|
|
There were $.1 and nil finance receivables modified as TDRs during the previous twelve months that subsequently defaulted and were charged off in the six months ended June 30, 2020 and 2019, respectively.
- 18 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Troubled Debt RestructuringsRepossessions
The balance of TDRs was $16.3 and $20.1 at September 30, 2019 and December 31, 2018, respectively. At modification date, the pre-modification and post-modification recorded investment balances for finance receivables modified during the period by portfolio class are as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2019 |
|
| September 30, 2019 |
| ||||||||||
|
| RECORDED INVESTMENT |
|
| RECORDED INVESTMENT |
| ||||||||||
|
| PRE- MODIFICATION |
|
| POST- MODIFICATION |
|
| PRE- MODIFICATION |
|
| POST- MODIFICATION |
| ||||
Fleet |
| $ | 1.6 |
|
| $ | 1.6 |
|
| $ | 2.2 |
|
| $ | 2.2 |
|
Owner/operator |
|
| .1 |
|
|
| .1 |
|
|
| .3 |
|
|
| .3 |
|
|
| $ | 1.7 |
|
| $ | 1.7 |
|
| $ | 2.5 |
|
| $ | 2.5 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2018 |
|
| September 30, 2018 |
| ||||||||||
|
| RECORDED INVESTMENT |
|
| RECORDED INVESTMENT |
| ||||||||||
|
| PRE- MODIFICATION |
|
| POST- MODIFICATION |
|
| PRE- MODIFICATION |
|
| POST- MODIFICATION |
| ||||
Fleet |
| $ | .5 |
|
| $ | .5 |
|
| $ | 8.4 |
|
| $ | 8.4 |
|
Owner/operator |
|
| .1 |
|
|
| .1 |
|
|
| .5 |
|
|
| .5 |
|
|
| $ | .6 |
|
| $ | .6 |
|
| $ | 8.9 |
|
| $ | 8.9 |
|
The effect on the allowance for credit losses from such modifications was not significant at September 30, 2019 and 2018.
For the nine months ended September 30, 2019, there were 0 TDRs modified during the previous twelve months that subsequently defaulted (i.e., became more than 30 days past due) compared to $.7 of fleet accounts during the same period in 2018.
There were 0 finance receivables modified as TDRs during the previous twelve months that subsequently defaulted and were charged off in the nine months ended September 30, 2019 and 2018.
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, 20192020 and December 31, 20182019 was $29.4$23.7 and $10.8,$25.6, respectively. Proceeds from the sales of repossessed assets were $41.2$47.5 and $51.1$30.4 for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, 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.
NOTE F – EQUIPMENT ON OPERATING LEASES
The Company’s Financial Services segment leases equipment under operating leases to its customers. In addition, in the Truck segment, some equipment sold to customers in Europe subject to an RVG by the Company is accounted for as an operating lease. Equipment is recorded at cost and is depreciated on the straight-line basis to the lower of the estimated residual value or guarantee value. Lease and guarantee periods generally range from three to five years. Estimated useful lives of the equipment range from three to nine years. The Company reviews residual values of equipment on operating leases periodically to determine that recorded amounts are appropriate.
- 19 -
PACCAR Inc – Form 10-Q
|
|
A summary of equipment on operating leases for the Truck, Parts and Other and for the Financial Services segments is as follows:
|
| TRUCK, PARTS AND OTHER |
|
| FINANCIAL SERVICES |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Equipment on operating leases |
| $ | 750.1 |
|
| $ | 948.1 |
|
| $ | 4,150.1 |
|
| $ | 4,098.3 |
|
Less allowance for depreciation |
|
| (150.1 | ) |
|
| (161.5 | ) |
|
| (1,209.1 | ) |
|
| (1,243.3 | ) |
|
| $ | 600.0 |
|
| $ | 786.6 |
|
| $ | 2,941.0 |
|
| $ | 2,855.0 |
|
Annual minimum lease payments due on Financial Services operating leases beginning October 1, 2019 for each fiscal year ended December 31 are $173.4 for the remainder of 2019, then, $586.0, $420.0, $234.3, $103.5 and $36.0 thereafter.
When the equipment is sold subject to an RVG, the full sales price is received from the customer. A liability is established for the residual value obligation with the remainder of the proceeds recorded as deferred lease revenue. These amounts are summarized below:
|
| TRUCK, PARTS AND OTHER |
| |||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
Residual value guarantees |
| $ | 466.8 |
|
| $ | 591.1 |
|
Deferred lease revenues |
|
| 179.2 |
|
|
| 251.3 |
|
|
| $ | 646.0 |
|
| $ | 842.4 |
|
|
|
|
|
|
|
|
|
|
Annual maturities of the RVGs beginning October 1, 2019 for each fiscal year ended December 31 are $49.4 for the remainder of 2019, then $155.2, $141.4, $51.1, $47.7 and $22.0 thereafter. The deferred lease revenue is amortized on a straight-line basis over the RVG contract period. Annual amortization of deferred revenues beginning October 1, 2019 for each fiscal year ended December 31 is $24.6 for the remainder of 2019, then, $77.5, $43.7, $21.8, $11.0 and $.6 thereafter.
NOTE G – Leases
The Company leases certain facilities and computer equipment. The Company determines whether an arrangement is or contains a lease at inception. The Company accounts for lease and non-lease components separately. The consideration in the contract is allocated to each separate lease and non-lease component of the contract generally based on the relative stand-alone price of the components. The lease component is accounted for in accordance with the lease standard and the non-lease component is accounted for in accordance with other standards. The Company uses its incremental borrowing rate in determining the present value of lease payments unless the rate implicit in the lease is available. The lease term may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option. Leases that have a term of 12 months or less at the commencement date (“short-term leases”) are not included in the right-of-use assets and the lease liabilities. Lease expense for the short-term leases are recognized on a straight-line basis over the lease term.
The components of lease expense were as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 30, 2019 |
|
| September 30, 2019 |
| ||
Finance lease cost |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
| $ | .2 |
|
| $ | .7 |
|
Interest on lease liabilities |
|
|
|
|
|
| .1 |
|
Operating lease cost |
|
| 3.9 |
|
|
| 12.2 |
|
Short-term lease cost |
|
| .2 |
|
|
| .5 |
|
Variable lease cost |
|
| .5 |
|
|
| 1.4 |
|
Total lease cost |
| $ | 4.8 |
|
| $ | 14.9 |
|
- 20 -
PACCAR Inc – Form 10-Q
|
|
Balance sheet information related to leases was as follows:
At September 30, 2019 |
| OPERATING LEASES |
|
| FINANCE LEASES |
| ||
TRUCK, PARTS AND OTHER |
|
|
|
|
|
|
|
|
Other noncurrent assets |
| $ | 34.4 |
|
| $ | 1.5 |
|
FINANCIAL SERVICES |
|
|
|
|
|
|
|
|
Other assets |
|
| 5.3 |
|
|
|
|
|
Total right-of-use assets |
| $ | 39.7 |
|
| $ | 1.5 |
|
|
|
|
|
|
|
|
|
|
TRUCK, PARTS AND OTHER: |
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
| $ | 12.6 |
|
| $ | .9 |
|
Other liabilities |
|
| 22.8 |
|
|
| .7 |
|
FINANCIAL SERVICES: |
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
| 1.5 |
|
|
|
|
|
Deferred taxes and other liabilities |
|
| 3.9 |
|
|
|
|
|
Total lease liabilities |
| $ | 40.8 |
|
| $ | 1.6 |
|
The weighted-average remaining lease term and discount rate are as follows:
At September 30, 2019 |
| OPERATING LEASES |
|
| FINANCE LEASES |
| ||
Weighted-average remaining lease term |
| 4.0 years |
|
| 2.1 years |
| ||
Weighted-average discount rate |
|
| 1.9 | % |
|
| 3.8 | % |
Maturities of lease liabilities are as follows:
At September 30, 2019 |
| OPERATING LEASES |
|
| FINANCE LEASES |
| ||
Remainder of 2019 |
| $ | 4.0 |
|
| $ | .3 |
|
2020 |
|
| 15.5 |
|
|
| .8 |
|
2021 |
|
| 9.7 |
|
|
| .4 |
|
2022 |
|
| 6.7 |
|
|
| .1 |
|
2023 |
|
| 2.8 |
|
|
| .1 |
|
Thereafter |
|
| 3.8 |
|
|
|
|
|
Total lease payments |
|
| 42.5 |
|
|
| 1.7 |
|
Less: interest |
|
| (1.7 | ) |
|
| (.1 | ) |
Total lease liabilities |
| $ | 40.8 |
|
| $ | 1.6 |
|
Cash flow information related to leases was as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 30, 2019 |
|
| September 30, 2019 |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 4.2 |
|
| $ | 12.5 |
|
Operating cash flows from finance leases |
|
| .1 |
|
|
| .1 |
|
Financing cash flows from finance leases |
|
| .3 |
|
|
| .8 |
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease liabilities |
|
|
|
|
|
|
|
|
Operating leases |
|
| .5 |
|
|
| 6.7 |
|
Finance leases |
|
| .1 |
|
|
| .8 |
|
- 21 -
PACCAR Inc – Form 10-Q
|
|
NOTE H - Product Support Liabilities
Product support liabilities include estimated future payments related to product warranties and deferred revenues on optional extended warranties and repair and maintenance (R&M) contracts.R&M. 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 | 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Balance at January 1 | $ | 380.2 |
|
| $ | 298.8 |
| $ | 440.0 |
|
| $ | 380.2 |
|
Cost accruals |
| 288.7 |
|
|
| 237.0 |
|
| 147.7 |
|
|
| 191.2 |
|
Payments |
| (263.6 | ) |
|
| (204.4 | ) |
| (224.7 | ) |
|
| (170.2 | ) |
Change in estimates for pre-existing warranties |
| 14.4 |
|
|
| 27.3 |
|
| 47.6 |
|
|
| 4.3 |
|
Currency translation and other |
| (7.0 | ) |
|
| (2.2 | ) |
| (4.6 | ) |
|
| (.8 | ) |
Balance at September 30 | $ | 412.7 |
|
| $ | 356.5 |
| |||||||
Balance at June 30 | $ | 406.0 |
|
| $ | 404.7 |
|
DEFERRED REVENUES ON EXTENDED WARRANTIES AND R&M CONTRACTS |
| 2019 |
|
|
| 2018 |
|
| 2020 |
|
|
| 2019 |
|
Balance at January 1 | $ | 699.9 |
|
| $ | 653.9 |
| $ | 801.4 |
|
| $ | 699.9 |
|
Deferred revenues |
| 378.3 |
|
|
| 331.0 |
|
| 187.4 |
|
|
| 251.3 |
|
Revenues recognized |
| (293.5 | ) |
|
| (288.5 | ) |
| (209.5 | ) |
|
| (194.9 | ) |
Currency translation |
| (16.0 | ) |
|
| (11.9 | ) |
| (8.5 | ) |
|
| (2.0 | ) |
Balance at September 30 | $ | 768.7 |
|
| $ | 684.5 |
| |||||||
Balance at June 30 | $ | 770.8 |
|
| $ | 754.3 |
|
The Company expects to recognize approximately $67.7$132.3 of the remaining deferred revenue on extended warranties and R&M contracts in 2019, $237.8 in 2020, $211.8$260.3 in 2021, $148.7$203.3 in 2022, $69.4$108.0 in 2023, $47.5 in 2024 and $33.3$19.4 thereafter.
NOTE I - Stockholders’ Equity
Comprehensive Income
The components of comprehensive income are as follow:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30 |
|
| September 30 |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Net income |
| $ | 607.9 |
|
| $ | 545.3 |
|
| $ | 1,856.6 |
|
| $ | 1,617.0 |
|
Other comprehensive (loss) income (OCI): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on derivative contracts |
|
| (13.6 | ) |
|
| (8.9 | ) |
|
| (30.0 | ) |
|
| (6.2 | ) |
Tax effect |
|
| 3.8 |
|
|
| 2.5 |
|
|
| 8.2 |
|
|
| 2.1 |
|
|
|
| (9.8 | ) |
|
| (6.4 | ) |
|
| (21.8 | ) |
|
| (4.1 | ) |
Unrealized gains (losses) on marketable debt securities |
|
| .1 |
|
|
| (1.5 | ) |
|
| 11.6 |
|
|
| (3.6 | ) |
Tax effect |
|
| .1 |
|
|
| .4 |
|
|
| (2.8 | ) |
|
| .9 |
|
|
|
| .2 |
|
|
| (1.1 | ) |
|
| 8.8 |
|
|
| (2.7 | ) |
Pension plans |
|
| 11.0 |
|
|
| 10.2 |
|
|
| 21.1 |
|
|
| 34.1 |
|
Tax effect |
|
| (2.7 | ) |
|
| (2.4 | ) |
|
| (5.0 | ) |
|
| (8.2 | ) |
|
|
| 8.3 |
|
|
| 7.8 |
|
|
| 16.1 |
|
|
| 25.9 |
|
Foreign currency translation losses |
|
| (126.5 | ) |
|
| (1.6 | ) |
|
| (94.6 | ) |
|
| (120.5 | ) |
Net other comprehensive loss |
|
| (127.8 | ) |
|
| (1.3 | ) |
|
| (91.5 | ) |
|
| (101.4 | ) |
Comprehensive income |
| $ | 480.1 |
|
| $ | 544.0 |
|
| $ | 1,765.1 |
|
| $ | 1,515.6 |
|
- 2219 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
NOTE G - Stockholders’ Equity
Comprehensive Income
The components of comprehensive income are as follow:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net income |
| $ | 147.7 |
|
| $ | 619.7 |
|
| $ | 507.1 |
|
| $ | 1,248.7 |
|
Other comprehensive (loss) income (OCI): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains on derivative contracts |
|
| (32.2 | ) |
|
| (.6 | ) |
|
| 19.2 |
|
|
| (16.4 | ) |
Tax effect |
|
| 7.2 |
|
|
| .2 |
|
|
| (2.8 | ) |
|
| 4.4 |
|
|
|
| (25.0 | ) |
|
| (.4 | ) |
|
| 16.4 |
|
|
| (12.0 | ) |
Unrealized gains on marketable debt securities |
|
| 14.5 |
|
|
| 5.3 |
|
|
| 12.4 |
|
|
| 11.5 |
|
Tax effect |
|
| (3.5 | ) |
|
| (1.3 | ) |
|
| (3.0 | ) |
|
| (2.9 | ) |
|
|
| 11.0 |
|
|
| 4.0 |
|
|
| 9.4 |
|
|
| 8.6 |
|
Pension plans |
|
| 11.2 |
|
|
| 9.4 |
|
|
| 42.3 |
|
|
| 10.1 |
|
Tax effect |
|
| (2.6 | ) |
|
| (2.2 | ) |
|
| (10.2 | ) |
|
| (2.3 | ) |
|
|
| 8.6 |
|
|
| 7.2 |
|
|
| 32.1 |
|
|
| 7.8 |
|
Foreign currency translation gains (losses) |
|
| 99.4 |
|
|
| 22.5 |
|
|
| (247.7 | ) |
|
| 31.9 |
|
Net other comprehensive income (loss) |
|
| 94.0 |
|
|
| 33.3 |
|
|
| (189.8 | ) |
|
| 36.3 |
|
Comprehensive income |
| $ | 241.7 |
|
| $ | 653.0 |
|
| $ | 317.3 |
|
| $ | 1,285.0 |
|
Accumulated Other Comprehensive Income (Loss)
The components of AOCI and the changes in AOCI, net of tax, included in the Consolidated Balance Sheets and the Consolidated Statements of Stockholders’ Equity consisted of the following:
Three Months Ended September 30, 2019 |
| DERIVATIVE CONTRACTS |
|
| MARKETABLE DEBT SECURITIES |
|
| PENSION PLANS |
|
| FOREIGN CURRENCY TRANSLATION |
|
| TOTAL |
| |||||||||||||||||||||||||
Balance at July 1, 2019 |
| $ | (10.0 | ) |
| $ | 6.3 |
|
| $ | (470.0 | ) |
| $ | (588.5 | ) |
| $ | (1,062.2 | ) | ||||||||||||||||||||
Three Months Ended June 30, 2020 |
| DERIVATIVE CONTRACTS |
|
| MARKETABLE DEBT SECURITIES |
|
| PENSION PLANS |
|
| FOREIGN CURRENCY TRANSLATION |
|
| TOTAL |
| |||||||||||||||||||||||||
Balance at April 1, 2020 |
| $ | 26.1 |
|
| $ | 4.5 |
|
| $ | (494.2 | ) |
| $ | (920.3 | ) |
| $ | (1,383.9 | ) | ||||||||||||||||||||
Recorded into AOCI |
|
| 20.0 |
|
|
| .3 |
|
|
| 4.2 |
|
|
| (126.5 | ) |
|
| (102.0 | ) |
|
| (37.2 | ) |
|
| 11.5 |
|
|
| (1.2 | ) |
|
| 99.4 |
|
|
| 72.5 |
|
Reclassified out of AOCI |
|
| (29.8 | ) |
|
| (.1 | ) |
|
| 4.1 |
|
|
|
|
|
|
| (25.8 | ) |
|
| 12.2 |
|
|
| (.5 | ) |
|
| 9.8 |
|
|
|
|
|
|
| 21.5 |
|
Net other comprehensive (loss) income |
|
| (9.8 | ) |
|
| .2 |
|
|
| 8.3 |
|
|
| (126.5 | ) |
|
| (127.8 | ) |
|
| (25.0 | ) |
|
| 11.0 |
|
|
| 8.6 |
|
|
| 99.4 |
|
|
| 94.0 |
|
Balance at September 30, 2019 |
| $ | (19.8 | ) |
| $ | 6.5 |
|
| $ | (461.7 | ) |
| $ | (715.0 | ) |
| $ | (1,190.0 | ) | ||||||||||||||||||||
Balance at June 30, 2020 |
| $ | 1.1 |
|
| $ | 15.5 |
|
| $ | (485.6 | ) |
| $ | (820.9 | ) |
| $ | (1,289.9 | ) |
Three Months Ended September 30, 2018 |
| DERIVATIVE CONTRACTS |
|
| MARKETABLE DEBT SECURITIES |
|
| PENSION PLANS |
|
| FOREIGN CURRENCY TRANSLATION |
|
| TOTAL |
| |||||||||||||||||||||||||
Balance at July 1, 2018 |
| $ | 3.5 |
|
| $ | (3.4 | ) |
| $ | (357.5 | ) |
| $ | (536.3 | ) |
| $ | (893.7 | ) | ||||||||||||||||||||
Three Months Ended June 30, 2019 |
| DERIVATIVE CONTRACTS |
|
| MARKETABLE DEBT SECURITIES |
|
| PENSION PLANS |
|
| FOREIGN CURRENCY TRANSLATION |
|
| TOTAL |
| |||||||||||||||||||||||||
Balance at April 1, 2019 |
| $ | (9.6 | ) |
| $ | 2.3 |
|
| $ | (477.2 | ) |
| $ | (611.0 | ) |
| $ | (1,095.5 | ) | ||||||||||||||||||||
Recorded into AOCI |
|
| (5.4 | ) |
|
| (1.2 | ) |
|
| 1.0 |
|
|
| (1.6 | ) |
|
| (7.2 | ) |
|
| (8.2 | ) |
|
| 4.1 |
|
|
| 2.4 |
|
|
| 22.5 |
|
|
| 20.8 |
|
Reclassified out of AOCI |
|
| (1.0 | ) |
|
| .1 |
|
|
| 6.8 |
|
|
|
|
|
|
| 5.9 |
|
|
| 7.8 |
|
|
| (.1 | ) |
|
| 4.8 |
|
|
|
|
|
|
| 12.5 |
|
Net other comprehensive (loss) income |
|
| (6.4 | ) |
|
| (1.1 | ) |
|
| 7.8 |
|
|
| (1.6 | ) |
|
| (1.3 | ) |
|
| (.4 | ) |
|
| 4.0 |
|
|
| 7.2 |
|
|
| 22.5 |
|
|
| 33.3 |
|
Balance at September 30, 2018 |
| $ | (2.9 | ) |
| $ | (4.5 | ) |
| $ | (349.7 | ) |
| $ | (537.9 | ) |
| $ | (895.0 | ) | ||||||||||||||||||||
Balance at June 30, 2019 |
| $ | (10.0 | ) |
| $ | 6.3 |
|
| $ | (470.0 | ) |
| $ | (588.5 | ) |
| $ | (1,062.2 | ) |
Nine Months Ended September 30, 2019 |
| DERIVATIVE CONTRACTS |
|
| MARKETABLE DEBT SECURITIES |
|
| PENSION PLANS |
|
| FOREIGN CURRENCY TRANSLATION |
|
| TOTAL |
| |||||
Balance at January 1, 2019 |
| $ | 2.0 |
|
| $ | (2.3 | ) |
| $ | (477.8 | ) |
| $ | (620.4 | ) |
| $ | (1,098.5 | ) |
Recorded into AOCI |
|
| (10.9 | ) |
|
| 9.0 |
|
|
| 3.5 |
|
|
| (94.6 | ) |
|
| (93.0 | ) |
Reclassified out of AOCI |
|
| (10.9 | ) |
|
| (.2 | ) |
|
| 12.6 |
|
|
|
|
|
|
| 1.5 |
|
Net other comprehensive (loss) income |
|
| (21.8 | ) |
|
| 8.8 |
|
|
| 16.1 |
|
|
| (94.6 | ) |
|
| (91.5 | ) |
Balance at September 30, 2019 |
| $ | (19.8 | ) |
| $ | 6.5 |
|
| $ | (461.7 | ) |
| $ | (715.0 | ) |
| $ | (1,190.0 | ) |
Nine Months Ended September 30, 2018 |
| DERIVATIVE CONTRACTS |
|
| MARKETABLE DEBT SECURITIES |
|
| PENSION PLANS |
|
| FOREIGN CURRENCY TRANSLATION |
|
| TOTAL |
| |||||
Balance at January 1, 2018 |
| $ | 1.2 |
|
| $ | (1.8 | ) |
| $ | (375.6 | ) |
| $ | (417.4 | ) |
| $ | (793.6 | ) |
Recorded into AOCI |
|
| 60.4 |
|
|
| (2.5 | ) |
|
| 5.0 |
|
|
| (120.5 | ) |
|
| (57.6 | ) |
Reclassified out of AOCI |
|
| (64.5 | ) |
|
| (.2 | ) |
|
| 20.9 |
|
|
|
|
|
|
| (43.8 | ) |
Net other comprehensive (loss) income |
|
| (4.1 | ) |
|
| (2.7 | ) |
|
| 25.9 |
|
|
| (120.5 | ) |
|
| (101.4 | ) |
Balance at September 30, 2018 |
| $ | (2.9 | ) |
| $ | (4.5 | ) |
| $ | (349.7 | ) |
| $ | (537.9 | ) |
| $ | (895.0 | ) |
Six Months Ended June 30, 2020 |
| DERIVATIVE CONTRACTS |
|
| MARKETABLE DEBT SECURITIES |
|
| PENSION PLANS |
|
| FOREIGN CURRENCY TRANSLATION |
|
| TOTAL |
| |||||
Balance at January 1, 2020 |
| $ | (15.3 | ) |
| $ | 6.1 |
|
| $ | (517.7 | ) |
| $ | (573.2 | ) |
| $ | (1,100.1 | ) |
Recorded into AOCI |
|
| 61.4 |
|
|
| 10.2 |
|
|
| 8.8 |
|
|
| (247.7 | ) |
|
| (167.3 | ) |
Reclassified out of AOCI |
|
| (45.0 | ) |
|
| (.8 | ) |
|
| 23.3 |
|
|
|
|
|
|
| (22.5 | ) |
Net other comprehensive income (loss) |
|
| 16.4 |
|
|
| 9.4 |
|
|
| 32.1 |
|
|
| (247.7 | ) |
|
| (189.8 | ) |
Balance at June 30, 2020 |
| $ | 1.1 |
|
| $ | 15.5 |
|
| $ | (485.6 | ) |
| $ | (820.9 | ) |
| $ | (1,289.9 | ) |
- 2320 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Six Months Ended June 30, 2019 |
| DERIVATIVE CONTRACTS |
|
| MARKETABLE DEBT SECURITIES |
|
| PENSION PLANS |
|
| FOREIGN CURRENCY TRANSLATION |
|
| TOTAL |
| |||||
Balance at January 1, 2019 |
| $ | 2.0 |
|
| $ | (2.3 | ) |
| $ | (477.8 | ) |
| $ | (620.4 | ) |
| $ | (1,098.5 | ) |
Recorded into AOCI |
|
| (30.9 | ) |
|
| 8.7 |
|
|
| (.7 | ) |
|
| 31.9 |
|
|
| 9.0 |
|
Reclassified out of AOCI |
|
| 18.9 |
|
|
| (.1 | ) |
|
| 8.5 |
|
|
|
|
|
|
| 27.3 |
|
Net other comprehensive (loss) income |
|
| (12.0 | ) |
|
| 8.6 |
|
|
| 7.8 |
|
|
| 31.9 |
|
|
| 36.3 |
|
Balance at June 30, 2019 |
| $ | (10.0 | ) |
| $ | 6.3 |
|
| $ | (470.0 | ) |
| $ | (588.5 | ) |
| $ | (1,062.2 | ) |
Reclassifications out of AOCI were as follows:
|
|
|
| Three Months Ended |
|
|
|
| Three Months Ended |
| ||||||||||
|
| LINE ITEM IN THE CONSOLIDATED STATEMENTS OF |
| September 30 |
|
| LINE ITEM IN THE CONSOLIDATED STATEMENTS OF |
| June 30 |
| ||||||||||
AOCI COMPONENTS |
| COMPREHENSIVE INCOME |
|
| 2019 |
|
|
| 2018 |
|
| COMPREHENSIVE INCOME |
|
| 2020 |
|
|
| 2019 |
|
Unrealized (gains) and losses on derivative contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
| Net sales and revenues |
| $ | (3.2 | ) |
| $ | 4.3 |
|
| Net sales and revenues |
| $ | (11.7 | ) |
| $ | 7.7 |
|
|
| Cost of sales and revenues |
|
| (.3 | ) |
|
| (1.6 | ) |
| Cost of sales and revenues |
|
| (1.1 | ) |
|
| (1.6 | ) |
|
| Interest and other (income), net |
|
| (.1 | ) |
|
| .5 |
|
| Interest and other (income), net |
|
| 1.3 |
|
|
| .2 |
|
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate contracts |
| Interest and other borrowing expenses |
|
| (35.0 | ) |
|
| (3.7 | ) |
| Interest and other borrowing expenses |
|
| 30.4 |
|
|
| 5.0 |
|
|
| Pre-tax expense reduction |
|
| (38.6 | ) |
|
| (.5 | ) |
| Pre-tax expense increase |
|
| 18.9 |
|
|
| 11.3 |
|
|
| Tax expense (benefit) |
|
| 8.8 |
|
|
| (.5 | ) |
| Tax benefit |
|
| (6.7 | ) |
|
| (3.5 | ) |
|
| After-tax expense reduction |
|
| (29.8 | ) |
|
| (1.0 | ) |
| After-tax expense increase |
|
| 12.2 |
|
|
| 7.8 |
|
Unrealized (gains) and losses on marketable debt securities: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Unrealized gains on marketable debt securities: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Marketable debt securities |
| Investment (income) expense |
|
| (.2 | ) |
|
| .1 |
|
| Investment income |
|
| (.6 | ) |
|
| (.1 | ) |
|
| Tax expense |
|
| .1 |
|
|
|
|
|
| Tax expense |
|
| .1 |
|
|
|
|
|
|
| After-tax income (reduction) increase |
|
| (.1 | ) |
|
| .1 |
|
| After-tax income reduction |
|
| (.5 | ) |
|
| (.1 | ) |
Pension plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
| Interest and other (income), net |
|
| 5.0 |
|
|
| 8.7 |
|
| Interest and other (income), net |
|
| 11.7 |
|
|
| 5.9 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Prior service costs |
| Interest and other (income), net |
|
| .4 |
|
|
| .3 |
|
| Interest and other (income), net |
|
| .3 |
|
|
| .3 |
|
Settlement loss |
| Interest and other (income), net |
|
| 1.0 |
|
|
|
|
| ||||||||||
|
| Pre-tax expense increase |
|
| 5.4 |
|
|
| 9.0 |
|
| Pre-tax expense increase |
|
| 13.0 |
|
|
| 6.2 |
|
|
| Tax benefit |
|
| (1.3 | ) |
|
| (2.2 | ) |
| Tax benefit |
|
| (3.2 | ) |
|
| (1.4 | ) |
|
| After-tax expense increase |
|
| 4.1 |
|
|
| 6.8 |
|
| After-tax expense increase |
|
| 9.8 |
|
|
| 4.8 |
|
Total reclassifications out of AOCI |
|
|
| $ | (25.8 | ) |
| $ | 5.9 |
|
|
|
| $ | 21.5 |
|
| $ | 12.5 |
|
|
|
|
| Nine Months Ended |
| |||||
|
| LINE ITEM IN THE CONSOLIDATED STATEMENTS OF |
| September 30 |
| |||||
AOCI COMPONENTS |
| COMPREHENSIVE INCOME |
|
| 2019 |
|
|
| 2018 |
|
Unrealized losses and (gains) on derivative contracts: |
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
| Net sales and revenues |
| $ | 13.9 |
|
| $ | 6.1 |
|
|
| Cost of sales and revenues |
|
| (4.0 | ) |
|
| (5.2 | ) |
|
| Interest and other (income), net |
|
| .6 |
|
|
| (.2 | ) |
Financial Services |
|
|
|
|
|
|
|
|
|
|
Interest-rate contracts |
| Interest and other borrowing expenses |
|
| (23.3 | ) |
|
| (86.5 | ) |
|
| Pre-tax expense reduction |
|
| (12.8 | ) |
|
| (85.8 | ) |
|
| Tax expense |
|
| 1.9 |
|
|
| 21.3 |
|
|
| After-tax expense reduction |
|
| (10.9 | ) |
|
| (64.5 | ) |
Unrealized gains on marketable debt securities: |
|
|
|
|
|
|
|
|
|
|
Marketable debt securities |
| Investment income |
|
| (.3 | ) |
|
| (.3 | ) |
|
| Tax expense |
|
| .1 |
|
|
| .1 |
|
|
| After-tax income reduction |
|
| (.2 | ) |
|
| (.2 | ) |
Pension plans: |
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
| Interest and other (income), net |
|
| 15.3 |
|
|
| 26.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs |
| Interest and other (income), net |
|
| 1.1 |
|
|
| 1.0 |
|
|
| Pre-tax expense increase |
|
| 16.4 |
|
|
| 27.5 |
|
|
| Tax benefit |
|
| (3.8 | ) |
|
| (6.6 | ) |
|
| After-tax expense increase |
|
| 12.6 |
|
|
| 20.9 |
|
Total reclassifications out of AOCI |
|
|
| $ | 1.5 |
|
| $ | (43.8 | ) |
- 2421 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
|
|
|
| Six Months Ended |
| |||||
|
| LINE ITEM IN THE CONSOLIDATED STATEMENTS OF |
| June 30 |
| |||||
AOCI COMPONENTS |
| COMPREHENSIVE INCOME |
|
| 2020 |
|
|
| 2019 |
|
Unrealized (gains) losses on derivative contracts: |
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
| Net sales and revenues |
| $ | (11.6 | ) |
| $ | 17.1 |
|
|
| Cost of sales and revenues |
|
| (2.3 | ) |
|
| (3.7 | ) |
|
| Interest and other (income), net |
|
| (4.8 | ) |
|
| .7 |
|
Financial Services |
|
|
|
|
|
|
|
|
|
|
Interest-rate contracts |
| Interest and other borrowing expenses |
|
| (37.3 | ) |
|
| 11.7 |
|
|
| Pre-tax expense (reduction) increase |
|
| (56.0 | ) |
|
| 25.8 |
|
|
| Tax expense (benefit) |
|
| 11.0 |
|
|
| (6.9 | ) |
|
| After-tax expense (reduction) increase |
|
| (45.0 | ) |
|
| 18.9 |
|
Unrealized gains on marketable debt securities: |
|
|
|
|
|
|
|
|
|
|
Marketable debt securities |
| Investment income |
|
| (1.0 | ) |
|
| (.1 | ) |
|
| Tax expense |
|
| .2 |
|
|
|
|
|
|
| After-tax income reduction |
|
| (.8 | ) |
|
| (.1 | ) |
Pension plans: |
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
| Interest and other (income), net |
|
| 22.0 |
|
|
| 10.3 |
|
Prior service costs |
| Interest and other (income), net |
|
| .7 |
|
|
| .7 |
|
Settlement loss |
| Interest and other (income), net |
|
| 8.0 |
|
|
|
|
|
|
| Pre-tax expense increase |
|
| 30.7 |
|
|
| 11.0 |
|
|
| Tax benefit |
|
| (7.4 | ) |
|
| (2.5 | ) |
|
| After-tax expense increase |
|
| 23.3 |
|
|
| 8.5 |
|
Total reclassifications out of AOCI |
|
|
| $ | (22.5 | ) |
| $ | 27.3 |
|
Stock Compensation Plans
Stock-based compensation expense was $2.0$2.5 and $12.8$8.2 for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, and $2.1 and $11.1
$10.8 for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively.
During the first ninesix months of 2019,2020, the Company issued 799,483263,442 common shares under deferred and stock compensation arrangements.
Other Capital Stock Changes
During the first ninesix months of 2019,2020, the Company purchased 1,681,534701,555 treasury shares, of which 1,668,945686,008 shares were repurchased pursuant to the Company’s common stock repurchase plans. The Company also acquired 12,58915,547 shares under the Company’s Long-Term Incentive Plan. Stock repurchases of $430.5$390.0 million remain authorized under the current $500.0 million program approved by the PACCAR Board of Directors on December 4, 2018.
NOTE JH - Income Taxes
The effective tax rate for the thirdsecond quarter of 20192020 was 21.8%19.7% compared to 18.5% in23.9% for the thirdsecond quarter of 2018.2019. The effective tax
rate for the first ninesix months of 20192020 was 23.0%21.5% compared to 21.4% 23.6% for the first six months of 2019. The lower effective tax rate in the same periodsecond quarter and first half of 2018. The lower tax rate in the third quarter of 20182020 was due primarily to a one-time reduction in tax liability related to extended warranty contracts and higher realized R&D credits.benefits.
- 22 -
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
NOTE KI - Segment Information
PACCAR operates in 3 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 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 Form 10-K for the year ended December 31, 2018.2019.
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 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.
In Europe, the Financial Services and Truck segments centralized the marketing of used trucks, including those units sold by the Truck segment subject to an RVG. Beginning in the fourth quarter of 2019, when a customer returns the truck at the end of the RVG contract, the Company’s Truck segment records a reduction in an RVG liability and the Company’s Financial Services segment records a used truck asset and revenue from the subsequent sale. Certain gains and losses from the sale of these used trucks are shared with the Truck segment. Revenue from the sale of used trucks from the Truck segment in Europe in prior periods are immaterial.
- 2523 -
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 as well as sales, income and expense not attributable to a reportable segment. Other also includes non-service cost components of pension (income) expense and a portion of corporate expenses.
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
| September 30 |
|
| September 30 |
| June 30 |
|
| June 30 |
| ||||||||||||||||||||
|
| 2019 |
|
|
| 2018 |
|
|
| 2019 |
|
|
| 2018 |
|
| 2020 |
|
|
| 2019 |
|
|
| 2020 |
|
|
| 2019 |
|
Net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck | $ | 5,102.6 |
|
| $ | 4,677.8 |
|
| $ | 15,638.5 |
|
| $ | 13,892.5 |
| $ | 1,930.9 |
|
| $ | 5,309.3 |
|
| $ | 5,794.1 |
|
| $ | 10,535.9 |
|
Less intersegment |
| (125.2 | ) |
|
| (248.4 | ) |
|
| (341.9 | ) |
|
| (642.3 | ) |
| (72.5 | ) |
|
| (97.4 | ) |
|
| (178.1 | ) |
|
| (216.7 | ) |
External customers |
| 4,977.4 |
|
|
| 4,429.4 |
|
|
| 15,296.6 |
|
|
| 13,250.2 |
|
| 1,858.4 |
|
|
| 5,211.9 |
|
|
| 5,616.0 |
|
|
| 10,319.2 |
|
Parts |
| 1,012.8 |
|
|
| 974.8 |
|
|
| 3,066.6 |
|
|
| 2,911.4 |
|
| 834.6 |
|
|
| 1,037.8 |
|
|
| 1,845.3 |
|
|
| 2,053.8 |
|
Less intersegment |
| (11.9 | ) |
|
| (14.7 | ) |
|
| (35.6 | ) |
|
| (43.4 | ) |
| (10.9 | ) |
|
| (12.4 | ) |
|
| (23.0 | ) |
|
| (23.7 | ) |
External customers |
| 1,000.9 |
|
|
| 960.1 |
|
|
| 3,031.0 |
|
|
| 2,868.0 |
|
| 823.7 |
|
|
| 1,025.4 |
|
|
| 1,822.3 |
|
|
| 2,030.1 |
|
Other |
| 25.9 |
|
|
| 27.4 |
|
|
| 81.2 |
|
|
| 87.7 |
|
| 19.8 |
|
|
| 29.2 |
|
|
| 41.6 |
|
|
| 55.3 |
|
|
| 6,004.2 |
|
|
| 5,416.9 |
|
|
| 18,408.8 |
|
|
| 16,205.9 |
|
| 2,701.9 |
|
|
| 6,266.5 |
|
|
| 7,479.9 |
|
|
| 12,404.6 |
|
Financial Services |
| 362.8 |
|
|
| 339.9 |
|
|
| 1,073.7 |
|
|
| 1,010.1 |
|
| 360.3 |
|
|
| 361.4 |
|
|
| 744.0 |
|
|
| 710.9 |
|
| $ | 6,367.0 |
|
| $ | 5,756.8 |
|
| $ | 19,482.5 |
|
| $ | 17,216.0 |
| $ | 3,062.2 |
|
| $ | 6,627.9 |
|
| $ | 8,223.9 |
|
| $ | 13,115.5 |
|
Income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(Loss) income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Truck | $ | 481.5 |
|
| $ | 391.0 |
|
| $ | 1,509.2 |
|
| $ | 1,220.2 |
| $ | (46.2 | ) |
| $ | 510.7 |
|
| $ | 136.9 |
|
| $ | 1,027.7 |
|
Parts |
| 207.4 |
|
|
| 188.5 |
|
|
| 625.6 |
|
|
| 574.8 |
|
| 151.9 |
|
|
| 210.6 |
|
|
| 366.6 |
|
|
| 418.2 |
|
Other |
| 1.1 |
|
|
| (5.9 | ) |
|
| (16.4 | ) |
|
| 3.1 |
|
| 13.8 |
|
|
| (9.0 | ) |
|
| 15.1 |
|
|
| (17.5 | ) |
|
| 690.0 |
|
|
| 573.6 |
|
|
| 2,118.4 |
|
|
| 1,798.1 |
|
| 119.5 |
|
|
| 712.3 |
|
|
| 518.6 |
|
|
| 1,428.4 |
|
Financial Services |
| 66.5 |
|
|
| 78.8 |
|
|
| 230.8 |
|
|
| 218.7 |
|
| 55.5 |
|
|
| 80.3 |
|
|
| 103.8 |
|
|
| 164.3 |
|
Investment income |
| 21.1 |
|
|
| 16.4 |
|
|
| 62.2 |
|
|
| 41.0 |
|
| 9.0 |
|
|
| 21.8 |
|
|
| 23.8 |
|
|
| 41.1 |
|
| $ | 777.6 |
|
| $ | 668.8 |
|
| $ | 2,411.4 |
|
| $ | 2,057.8 |
| $ | 184.0 |
|
| $ | 814.4 |
|
| $ | 646.2 |
|
| $ | 1,633.8 |
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck | $ | 95.8 |
|
| $ | 93.6 |
|
| $ | 290.5 |
|
| $ | 306.9 |
| $ | 62.3 |
|
| $ | 97.3 |
|
| $ | 145.5 |
|
| $ | 194.7 |
|
Parts |
| 2.5 |
|
|
| 2.3 |
|
|
| 7.8 |
|
|
| 6.7 |
|
| 2.5 |
|
|
| 2.6 |
|
|
| 5.0 |
|
|
| 5.3 |
|
Other |
| 4.1 |
|
|
| 4.5 |
|
|
| 12.7 |
|
|
| 13.4 |
|
| 5.2 |
|
|
| 4.6 |
|
|
| 10.3 |
|
|
| 8.6 |
|
|
| 102.4 |
|
|
| 100.4 |
|
|
| 311.0 |
|
|
| 327.0 |
|
| 70.0 |
|
|
| 104.5 |
|
|
| 160.8 |
|
|
| 208.6 |
|
Financial Services |
| 169.7 |
|
|
| 152.2 |
|
|
| 481.4 |
|
|
| 467.4 |
|
| 171.3 |
|
|
| 156.7 |
|
|
| 352.5 |
|
|
| 311.7 |
|
| $ | 272.1 |
|
| $ | 252.6 |
|
| $ | 792.4 |
|
| $ | 794.4 |
| $ | 241.3 |
|
| $ | 261.2 |
|
| $ | 513.3 |
|
| $ | 520.3 |
|
NOTE LJ - Derivative Financial Instruments
As part of its risk management strategy, the Company enters into derivative contracts to hedge against interest rate and foreign currency risk. Certain derivative instruments designated as fair value hedges, cash flow hedges or net investment hedges are subject to hedge accounting. Derivative instruments that are not subject to hedge accounting are held as derivatives not designated as hedging instruments. 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.
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 derivative counterparties is limited to the asset position of its derivative portfolio. The asset position of the Company’s derivative portfolio is $103.8was $137.0 at SeptemberJune 30, 2019.2020.
The Company uses regression analysis to assess effectiveness of interest-rate contracts and net investment hedges at inception and uses quantitative or qualitative analysis to assess subsequent effectiveness 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. Hedge accounting is discontinued prospectively when the Company determines that a derivative financial instrument has ceased to be a highly effective hedge. Cash flows from derivative instruments are included in Operating activities in the Condensed Consolidated Statements of Cash Flows.
- 2624 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
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, 2019,2020, the notional amount of the Company’s interest-rate contracts was $3,228.2.$3,073.8. Notional maturities for all interest-rate contracts are $171.1$268.1 for the remainder of 2019, $636.6 for 2020, $1,361.6$1,157.0 for 2021, $696.2$869.1 for 2022, $132.6$513.9 for 2023, $149.0$149.2 for 2024, $35.4 for 2025 and $81.1 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. The Company enters into foreign-exchange contracts as net investment hedges to reduce the foreign currency exposure from its investments in foreign subsidiaries. At SeptemberJune 30, 2019,2020, the notional amount of the outstanding foreign-exchange contracts was $1,108.0.$1,075.0. Foreign-exchange contracts mature within one year.
The following table presents the balance sheet classification, fair value, gross and pro forma net amounts of derivative financial instruments:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||
|
| ASSETS |
|
| LIABILITIES |
|
| ASSETS |
|
| LIABILITIES |
|
| ASSETS |
|
| LIABILITIES |
|
| ASSETS |
|
| LIABILITIES |
| ||||||||
Derivatives designated under hedge accounting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | 82.7 |
|
|
|
|
|
| $ | 84.5 |
|
|
|
|
|
| $ | 82.9 |
|
|
|
|
|
| $ | 45.8 |
|
|
|
|
|
Deferred taxes and other liabilities |
|
|
|
|
| $ | 26.8 |
|
|
|
|
|
| $ | 18.5 |
|
|
|
|
|
| $ | 50.8 |
|
|
|
|
|
| $ | 31.0 |
|
Foreign-exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
| 18.0 |
|
|
|
|
|
|
| 8.9 |
|
|
|
|
|
|
| 33.1 |
|
|
|
|
|
|
| 10.1 |
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
|
|
|
|
| 4.3 |
|
|
|
|
|
|
| 4.2 |
|
|
|
|
|
|
| 3.4 |
|
|
|
|
|
|
| 9.2 |
|
|
| $ | 100.7 |
|
| $ | 31.1 |
|
| $ | 93.4 |
|
| $ | 22.7 |
|
| $ | 116.0 |
|
| $ | 54.2 |
|
| $ | 55.9 |
|
| $ | 40.2 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
| $ | .7 |
|
|
|
|
|
| $ | .4 |
|
|
|
|
|
| $ | 14.1 |
|
|
|
|
|
| $ | .4 |
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
|
|
|
| $ | .8 |
|
|
|
|
|
| $ | .9 |
|
|
|
|
|
| $ | .9 |
|
|
|
|
|
| $ | 1.8 |
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
| 2.4 |
|
|
|
|
|
|
| .9 |
|
|
|
|
|
|
| 6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes and other liabilities |
|
|
|
|
|
| .1 |
|
|
|
|
|
|
| 1.0 |
|
|
|
|
|
|
| .1 |
|
|
|
|
|
|
| 2.3 |
|
|
| $ | 3.1 |
|
| $ | .9 |
|
| $ | 1.3 |
|
| $ | 1.9 |
|
| $ | 21.0 |
|
| $ | 1.0 |
|
| $ | .4 |
|
| $ | 4.1 |
|
Gross amounts recognized in Balance Sheets |
| $ | 103.8 |
|
| $ | 32.0 |
|
| $ | 94.7 |
|
| $ | 24.6 |
|
| $ | 137.0 |
|
| $ | 55.2 |
|
| $ | 56.3 |
|
| $ | 44.3 |
|
Less amounts not offset in financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
|
| (1.0 | ) |
|
| (1.0 | ) |
|
| (.9 | ) |
|
| (.9 | ) |
|
| (.9 | ) |
|
| (.9 | ) |
|
| (.4 | ) |
|
| (.4 | ) |
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate contracts |
|
| (6.9 | ) |
|
| (6.9 | ) |
|
| (3.9 | ) |
|
| (3.9 | ) |
|
| (5.0 | ) |
|
| (5.0 | ) |
|
| (8.6 | ) |
|
| (8.6 | ) |
Pro forma net amount |
| $ | 95.9 |
|
| $ | 24.1 |
|
| $ | 89.9 |
|
| $ | 19.8 |
|
| $ | 131.1 |
|
| $ | 49.3 |
|
| $ | 47.3 |
|
| $ | 35.3 |
|
- 2725 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
The following table presents the amount of (income) expense(gain) loss from derivative financial instruments recognized inreclassified from AOCI into the Consolidated Statements of Comprehensive Income:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
| $ | (3.6 | ) |
| $ | 3.2 |
|
| $ | 10.5 |
|
| $ | .7 |
|
| $ | (11.5 | ) |
| $ | 6.3 |
|
| $ | (18.7 | ) |
| $ | 14.1 |
|
Net investment hedges |
|
| 2.3 |
|
|
|
|
|
|
| 2.3 |
|
|
|
|
|
|
| 1.0 |
|
|
|
|
|
|
| 3.5 |
|
|
|
|
|
Total |
| $ | (1.3 | ) |
| $ | 3.2 |
|
| $ | 12.8 |
|
| $ | .7 |
|
| $ | (10.5 | ) |
| $ | 6.3 |
|
| $ | (15.2 | ) |
| $ | 14.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges |
|
| .3 |
|
|
| .4 |
|
|
| 1.2 |
|
|
| 1.3 |
|
|
| .2 |
|
|
| .3 |
|
|
| .5 |
|
|
| .9 |
|
Cash flow hedges |
|
| (35.0 | ) |
|
| (3.7 | ) |
|
| (23.3 | ) |
|
| (86.5 | ) |
|
| 30.4 |
|
|
| 5.0 |
|
|
| (37.3 | ) |
|
| 11.7 |
|
Total |
| $ | (34.7 | ) |
| $ | (3.3 | ) |
| $ | (22.1 | ) |
| $ | (85.2 | ) |
| $ | 30.6 |
|
| $ | 5.3 |
|
| $ | (36.8 | ) |
| $ | 12.6 |
|
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 following table presents the amounts recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:
|
|
|
|
|
| September 30 |
|
| December 31 |
|
|
|
|
|
| June 30 |
|
| December 31 |
| ||||
|
|
|
|
|
| 2019 |
|
| 2018 |
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||||
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of the hedged liabilities |
|
|
|
|
| $ | 90.7 |
|
| $ | 188.7 |
|
|
|
|
|
| $ | 91.7 |
|
| $ | 90.5 |
|
Cumulative basis adjustment included in the carrying amount |
|
|
|
|
|
| (.7 | ) |
|
| (1.3 | ) |
|
|
|
|
|
| (1.7 | ) |
|
| (.5 | ) |
The above table excludes the cumulative basis adjustments on discontinued hedge relationships of ($1.8)$(1.0) and ($2.9)$(1.5) as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively.
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. 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 8.88.0 years.
The following table presents the pre-tax effects of derivative instruments recognized in other comprehensive income (loss) (OCI):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2020 |
| ||||||||||||||||||
|
| INTEREST- |
|
| FOREIGN- |
|
| INTEREST- |
| FOREIGN- |
|
| INTEREST- |
|
| FOREIGN- |
|
| INTEREST- |
|
| FOREIGN- |
| |||||||
|
| RATE |
|
| EXCHANGE |
|
| RATE |
| EXCHANGE |
|
| RATE |
|
| EXCHANGE |
|
| RATE |
|
| EXCHANGE |
| |||||||
|
| CONTRACTS |
|
| CONTRACTS |
|
| CONTRACTS |
| CONTRACTS |
|
| CONTRACTS |
|
| CONTRACTS |
|
| CONTRACTS |
|
| CONTRACTS |
| |||||||
Gain (loss) recognized in OCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
(Loss) gain recognized in OCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Truck, Parts and Other |
|
|
|
|
| $ | (1.0 | ) |
|
|
| $ | (17.2 | ) |
|
|
|
|
| $ | (17.2 | ) |
|
|
|
|
| $ | 53.4 |
|
Financial Services |
| $ | 26.0 |
|
|
|
|
|
|
|
|
|
|
|
| $ | (33.9 | ) |
|
|
|
|
| $ | 21.8 |
|
|
|
|
|
|
| $ | 26.0 |
|
| $ | (1.0 | ) |
|
|
| $ | (17.2 | ) |
| $ | (33.9 | ) |
| $ | (17.2 | ) |
| $ | 21.8 |
|
| $ | 53.4 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2019 |
|
| June 30, 2019 |
| ||||||||||
|
| INTEREST- |
|
| FOREIGN- |
|
| INTEREST- |
|
| FOREIGN- |
| ||||
|
| RATE |
|
| EXCHANGE |
|
| RATE |
|
| EXCHANGE |
| ||||
|
| CONTRACTS |
|
| CONTRACTS |
|
| CONTRACTS |
|
| CONTRACTS |
| ||||
Loss recognized in OCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
| $ | (.2 | ) |
|
|
|
|
| $ | (16.2 | ) |
Financial Services |
| $ | (11.7 | ) |
|
|
|
|
| $ | (26.0 | ) |
|
|
|
|
|
| $ | (11.7 | ) |
| $ | (.2 | ) |
| $ | (26.0 | ) |
| $ | (16.2 | ) |
- 2826 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2018 |
|
| September 30, 2018 |
| ||||||||||
|
| INTEREST- |
|
| FOREIGN- |
|
| INTEREST- |
|
| FOREIGN- |
| ||||
|
| RATE |
|
| EXCHANGE |
|
| RATE |
|
| EXCHANGE |
| ||||
|
| CONTRACTS |
|
| CONTRACTS |
|
| CONTRACTS |
|
| CONTRACTS |
| ||||
Gain (loss) recognized in OCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
| $ | (11.3 | ) |
|
|
|
|
| $ | (4.9 | ) |
Financial Services |
| $ | 2.9 |
|
|
|
|
|
| $ | 84.5 |
|
|
|
|
|
|
| $ | 2.9 |
|
| $ | (11.3 | ) |
| $ | 84.5 |
|
| $ | (4.9 | ) |
The amount of gain recorded in AOCI at SeptemberJune 30, 20192020 that is estimated to be reclassified into earnings in the following 12 months if interest rates and exchange rates remain unchanged is approximately $10.3,$20.9, 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 gains or losses reclassified out of AOCI into net income based on the probability that the original forecasted transactions would not occur was nil for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
Net Investment Hedges
Changes in the fair value of derivatives designated as net investment hedges are recorded in AOCI as an adjustment to the Cumulative Translation Adjustment (CTA). At SeptemberJune 30, 2019,2020, the notional amount of the outstanding net investment hedges was $348.2.$344.8. For the three and ninesix months ended SeptemberJune 30, 20192020, the pre-tax (loss) gain recognized in OCI for the net investment hedges was $14.4.$(5.4) and $9.6, respectively.
Derivatives Not Designated As Hedging Instruments
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 derivatives not designated as hedging instruments are recorded in earnings in the period in which the change occurs.
The (income) expense(gain) loss recognized in earnings related to derivatives not designated as hedging instruments was as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||
|
| September 30, 2019 |
|
| September 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2020 |
| ||||||||||||
|
| INTEREST- |
| FOREIGN- |
|
| INTEREST- |
| FOREIGN- |
|
| INTEREST- |
| FOREIGN- |
|
| INTEREST- |
| FOREIGN- |
| ||||
|
| RATE |
| EXCHANGE |
|
| RATE |
| EXCHANGE |
|
| RATE |
| EXCHANGE |
|
| RATE |
| EXCHANGE |
| ||||
|
| CONTRACTS |
| CONTRACTS |
|
| CONTRACTS |
| CONTRACTS |
|
| CONTRACTS |
| CONTRACTS |
|
| CONTRACTS |
| CONTRACTS |
| ||||
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and revenues |
|
|
| $ | .8 |
|
|
|
| $ | .8 |
|
|
|
|
|
|
|
|
|
| $ | 1.2 |
|
Interest and other (income), net |
|
|
|
| 2.0 |
|
|
|
|
| 4.6 |
|
|
|
| $ | 5.9 |
|
|
|
|
| (19.3 | ) |
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other borrowing expenses |
|
|
|
| (8.3 | ) |
|
|
|
| (13.0 | ) |
|
|
|
| 3.2 |
|
|
|
|
| (8.8 | ) |
Selling, general and administrative |
|
|
|
| .4 |
|
|
|
|
| (.1 | ) | ||||||||||||
Total |
|
|
| $ | (5.5 | ) |
|
|
| $ | (7.6 | ) |
|
|
| $ | 9.5 |
|
|
|
| $ | (27.0 | ) |
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||
|
| September 30, 2018 |
|
| September 30, 2018 |
|
| June 30, 2019 |
|
| June 30, 2019 |
| ||||||||||||
|
| INTEREST- |
| FOREIGN- |
|
| INTEREST- |
| FOREIGN- |
|
| INTEREST- |
| FOREIGN- |
|
| INTEREST- |
| FOREIGN- |
| ||||
|
| RATE |
| EXCHANGE |
|
| RATE |
| EXCHANGE |
|
| RATE |
| EXCHANGE |
|
| RATE |
| EXCHANGE |
| ||||
|
| CONTRACTS |
| CONTRACTS |
|
| CONTRACTS |
| CONTRACTS |
|
| CONTRACTS |
| CONTRACTS |
|
| CONTRACTS |
| CONTRACTS |
| ||||
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and revenues |
|
|
| $ | (1.1 | ) |
|
|
| $ | .1 |
|
|
|
| $ | (.2 | ) |
|
|
|
|
|
|
Interest and other (income), net |
|
|
|
| (.3 | ) |
|
|
|
| 3.4 |
|
|
|
|
| 1.1 |
|
|
|
| $ | 2.6 |
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other borrowing expenses |
|
|
|
| (.5 | ) |
|
|
|
| (8.9 | ) |
|
|
|
| 1.5 |
|
|
|
|
| (4.7 | ) |
Selling, general and administrative |
|
|
|
| 1.1 |
|
|
|
|
| 1.6 |
| ||||||||||||
Total |
|
|
| $ | (.8 | ) |
|
|
| $ | (3.8 | ) |
|
|
| $ | 2.4 |
|
|
|
| $ | (2.1 | ) |
- 2927 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
NOTE MK - 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 measurement 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.
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 0 transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2019. 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, 2019 |
| LEVEL 1 |
|
| LEVEL 2 |
|
| TOTAL |
| |||||||||||||||
At June 30, 2020 |
| LEVEL 1 |
|
| LEVEL 2 |
|
| TOTAL |
| |||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. tax-exempt securities |
|
|
|
|
| $ | 318.4 |
|
| $ | 318.4 |
|
|
|
|
|
| $ | 316.2 |
|
| $ | 316.2 |
|
U.S. corporate securities |
|
|
|
|
|
| 162.6 |
|
|
| 162.6 |
|
|
|
|
|
|
| 177.8 |
|
|
| 177.8 |
|
U.S. government and agency securities |
| $ | 126.2 |
|
|
| .9 |
|
|
| 127.1 |
|
| $ | 118.4 |
|
|
| 5.0 |
|
|
| 123.4 |
|
Non-U.S. corporate securities |
|
|
|
|
|
| 305.4 |
|
|
| 305.4 |
|
|
|
|
|
|
| 304.8 |
|
|
| 304.8 |
|
Non-U.S. government securities |
|
|
|
|
|
| 65.3 |
|
|
| 65.3 |
|
|
|
|
|
|
| 81.7 |
|
|
| 81.7 |
|
Other debt securities |
|
|
|
|
|
| 129.0 |
|
|
| 129.0 |
|
|
|
|
|
|
| 143.3 |
|
|
| 143.3 |
|
Total marketable debt securities |
| $ | 126.2 |
|
| $ | 981.6 |
|
| $ | 1,107.8 |
|
| $ | 118.4 |
|
| $ | 1,028.8 |
|
| $ | 1,147.2 |
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
| $ | 80.8 |
|
| $ | 80.8 |
|
|
|
|
|
| $ | 80.3 |
|
| $ | 80.3 |
|
Interest-rate swaps |
|
|
|
|
|
| 1.9 |
|
|
| 1.9 |
|
|
|
|
|
|
| 2.6 |
|
|
| 2.6 |
|
Foreign-exchange contracts |
|
|
|
|
|
| 21.1 |
|
|
| 21.1 |
|
|
|
|
|
|
| 54.1 |
|
|
| 54.1 |
|
Total derivative assets |
|
|
|
|
| $ | 103.8 |
|
| $ | 103.8 |
|
|
|
|
|
| $ | 137.0 |
|
| $ | 137.0 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
| $ | 2.8 |
|
| $ | 2.8 |
|
|
|
|
|
| $ | 3.1 |
|
| $ | 3.1 |
|
Interest-rate swaps |
|
|
|
|
|
| 24.0 |
|
|
| 24.0 |
|
|
|
|
|
|
| 47.7 |
|
|
| 47.7 |
|
Foreign-exchange contracts |
|
|
|
|
|
| 5.2 |
|
|
| 5.2 |
|
|
|
|
|
|
| 4.4 |
|
|
| 4.4 |
|
Total derivative liabilities |
|
|
|
|
| $ | 32.0 |
|
| $ | 32.0 |
|
|
|
|
|
| $ | 55.2 |
|
| $ | 55.2 |
|
At December 31, 2018 |
| LEVEL 1 |
|
| LEVEL 2 |
|
| TOTAL |
| |||||||||||||||
At December 31, 2019 |
| LEVEL 1 |
|
| LEVEL 2 |
|
| TOTAL |
| |||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. tax-exempt securities |
|
|
|
|
| $ | 325.1 |
|
| $ | 325.1 |
|
|
|
|
|
| $ | 320.2 |
|
| $ | 320.2 |
|
U.S. corporate securities |
|
|
|
|
|
| 147.4 |
|
|
| 147.4 |
|
|
|
|
|
|
| 165.7 |
|
|
| 165.7 |
|
U.S. government and agency securities |
| $ | 97.1 |
|
|
| 1.6 |
|
|
| 98.7 |
|
| $ | 128.4 |
|
|
| .9 |
|
|
| 129.3 |
|
Non-U.S. corporate securities |
|
|
|
|
|
| 271.3 |
|
|
| 271.3 |
|
|
|
|
|
|
| 349.8 |
|
|
| 349.8 |
|
Non-U.S. government securities |
|
|
|
|
|
| 55.9 |
|
|
| 55.9 |
|
|
|
|
|
|
| 72.4 |
|
|
| 72.4 |
|
Other debt securities |
|
|
|
|
|
| 122.0 |
|
|
| 122.0 |
|
|
|
|
|
|
| 124.7 |
|
|
| 124.7 |
|
Total marketable debt securities |
| $ | 97.1 |
|
| $ | 923.3 |
|
| $ | 1,020.4 |
|
| $ | 128.4 |
|
| $ | 1,033.7 |
|
| $ | 1,162.1 |
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
| $ | 75.4 |
|
| $ | 75.4 |
|
|
|
|
|
| $ | 43.8 |
|
| $ | 43.8 |
|
Interest-rate swaps |
|
|
|
|
|
| 9.1 |
|
|
| 9.1 |
|
|
|
|
|
|
| 2.0 |
|
|
| 2.0 |
|
Foreign-exchange contracts |
|
|
|
|
|
| 10.2 |
|
|
| 10.2 |
|
|
|
|
|
|
| 10.5 |
|
|
| 10.5 |
|
Total derivative assets |
|
|
|
|
| $ | 94.7 |
|
| $ | 94.7 |
|
|
|
|
|
| $ | 56.3 |
|
| $ | 56.3 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
| $ | 11.2 |
|
| $ | 11.2 |
|
|
|
|
|
| $ | 13.5 |
|
| $ | 13.5 |
|
Interest-rate swaps |
|
|
|
|
|
| 7.3 |
|
|
| 7.3 |
|
|
|
|
|
|
| 17.5 |
|
|
| 17.5 |
|
Foreign-exchange contracts |
|
|
|
|
|
| 6.1 |
|
|
| 6.1 |
|
|
|
|
|
|
| 13.3 |
|
|
| 13.3 |
|
Total derivative liabilities |
|
|
|
|
| $ | 24.6 |
|
| $ | 24.6 |
|
|
|
|
|
| $ | 44.3 |
|
| $ | 44.3 |
|
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.
- 3129 -
PACCAR Inc – Form 10-Q
Notes to Consolidated Financial Statements (Unaudited) | (Millions, Except Share Amounts) |
Cash and Cash Equivalents: Carrying amounts approximate fair value.
Financial Services Net Receivables: For floating-ratefloating rate loans, wholesale financing 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 assumptions regarding the credit and market risks to approximate 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.
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, 2019 |
|
| December 31, 2018 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||
|
| CARRYING |
|
| FAIR |
|
| CARRYING |
|
| FAIR |
|
| CARRYING |
|
| FAIR |
|
| CARRYING |
|
| FAIR |
| ||||||||
|
| AMOUNT |
|
| VALUE |
|
| AMOUNT |
|
| VALUE |
|
| AMOUNT |
|
| VALUE |
|
| AMOUNT |
|
| VALUE |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services fixed rate loans |
| $ | 4,729.3 |
|
| $ | 4,820.2 |
|
| $ | 4,265.4 |
|
| $ | 4,269.5 |
|
| $ | 4,897.2 |
|
| $ | 5,072.5 |
|
| $ | 4,914.4 |
|
| $ | 4,992.2 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services fixed rate debt |
|
| 5,593.1 |
|
|
| 5,669.5 |
|
|
| 5,419.2 |
|
|
| 5,396.4 |
|
|
| 6,348.5 |
|
|
| 6,555.0 |
|
|
| 5,925.9 |
|
|
| 5,990.7 |
|
NOTE NL - 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 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Service cost |
| $ | 25.3 |
|
| $ | 27.0 |
|
| $ | 77.1 |
|
| $ | 81.7 |
|
| $ | 32.3 |
|
| $ | 27.1 |
|
| $ | 65.2 |
|
| $ | 51.8 |
|
Interest on projected benefit obligation |
|
| 23.7 |
|
|
| 21.3 |
|
|
| 71.7 |
|
|
| 64.3 |
|
|
| 20.7 |
|
|
| 24.3 |
|
|
| 41.3 |
|
|
| 48.0 |
|
Expected return on assets |
|
| (43.8 | ) |
|
| (43.9 | ) |
|
| (132.3 | ) |
|
| (133.2 | ) |
|
| (47.3 | ) |
|
| (43.9 | ) |
|
| (94.7 | ) |
|
| (88.5 | ) |
Amortization of prior service costs |
|
| .4 |
|
|
| .3 |
|
|
| 1.1 |
|
|
| 1.0 |
|
|
| .3 |
|
|
| .3 |
|
|
| .7 |
|
|
| .7 |
|
Recognized actuarial loss |
|
| 5.0 |
|
|
| 8.7 |
|
|
| 15.3 |
|
|
| 26.5 |
|
|
| 11.7 |
|
|
| 5.9 |
|
|
| 22.0 |
|
|
| 10.3 |
|
Settlement loss |
|
| 1.0 |
|
|
|
|
|
|
| 8.0 |
|
|
|
|
| ||||||||||||||||
Net pension expense |
| $ | 10.6 |
|
| $ | 13.4 |
|
| $ | 32.9 |
|
| $ | 40.3 |
|
| $ | 18.7 |
|
| $ | 13.7 |
|
| $ | 42.5 |
|
| $ | 22.3 |
|
The components of net pension expense other than service cost are included in Interest and other (income), net on the Consolidated Statements of Comprehensive Income.
During the three and ninesix months ended SeptemberJune 30, 2019,2020, the Company contributed $5.3$5.2 and $16.5$28.5 to its pension plans, respectively, and $5.0$5.4 and $85.7$11.2 for the three and ninesix months ended SeptemberJune 30, 2018, respectively.2019, respectively .
NOTE OM – Commitments and Contingencies
On July 19, 2016, the European Commission (EC) concluded its investigation of all major European truck manufacturers and reached a settlement with DAF. Following the settlement, claims and lawsuits have been filed against the Company, DAF and certain DAF subsidiaries and other truck manufacturers in various European jurisdictions. These claims and lawsuits include a number of collective proceedings, including proposed class actions in the United Kingdom, alleging EC-related claims and seeking unspecified damages. Others may bring EC-related claims and lawsuits against the Company or its subsidiaries. While the Company believes it has meritorious defenses, such claims and lawsuits will likely take a significant period of time to resolve. The Company cannot reasonably estimate a range of loss, if any, that may result given the early stage of these claims and lawsuits. An adverse outcome of such proceedings could have a material impact on the Company’s results of operations.
The Company and its subsidiaries are parties toPACCAR is also a defendant in various other lawsuits incidental tolegal proceedings and, in addition, there are various other contingent liabilities arising in the ordinarynormal course of business. Management believesAfter consultation with legal counsel, management does not anticipate that the disposition of such lawsuitsthese various other proceedings and contingent liabilities will not materially affecthave a material effect on the Company's business orconsolidated financial condition.
statements.
- 3230 -
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, Australia and Brasil. The Company’s Other business includes the manufacturing and marketing of industrial winches.
Third
PACCAR’s financial results for the three and six months ended June 30, 2020 were impacted by the COVID-19 pandemic. The Company’s truck and engine production was suspended at its factories worldwide starting March 24, 2020. Truck and engine production restarted in Europe and Australia on April 20, 2020, and factories gradually resumed operations in North America and Brasil in early May. Effects of the pandemic in the first six months included reduced truck deliveries, increased costs associated with suspension of production, lower aftermarket parts sales and higher provision for losses on Financial Services receivables. Increased costs related to suspension of production primarily included reduced labor efficiency, costs to prepare factories for safe re-opening and reduced factory utilization. The Company implemented cost saving measures in the first six months to partially offset the increased costs. During the pandemic, the Company’s Parts segment continued to provide aftermarket support through its parts distribution centers, and the Financial Services segment continued to provide financing, leasing services and related support to customers.
Second Quarter Financial Highlights:
• | Worldwide net sales and revenues were |
• | Truck |
• | Parts sales were |
• | Financial Services revenues were |
• | Net income was |
• | Capital investments |
• | Research and development (R&D) expenses were |
First NineSix Months Financial Highlights:
• | Worldwide net sales and revenues were |
• | Truck |
• | Parts sales were |
• | Financial Services revenues were |
• | Net income was |
• | Capital investments |
• | R&D expenses were |
DAF,
Peterbilt, Kenworth and DAF continue to be global leaders in zero emissions vehicles, with customers field testing more than 60 battery electric, hydrogen fuel cell and hybrid trucks in North America and Europe. Kenworth is delivering 10 hydrogen fuel cell Kenworth T680 trucks to several customers for field testing in the Port of Los Angeles. Peterbilt dealers have opened nearly 200 TRP retail stores, which provide high quality aftermarket productshas developed three application-
- 31 -
specific battery electric truck models and services to ownersmany of all makesthese vehicles are accumulating test miles with customers. Peterbilt Model 579EV trucks are deployed in port and regional haul applications. DAF has developed a range of light-, medium-electric and heavy-duty trucks, trailers, buses and engines. TRP storeshybrid vehicles that are located close toundergoing extensive field testing by customers in ordera variety of applications in Europe.
PACCAR Parts opened a 250,000 square foot Parts Distribution Center (PDC) in Las Vegas, Nevada, and a 160,000 square foot PDC in Ponta Grossa, Brasil, in the second quarter of 2020.
PACCAR Financial Services recently opened used truck centers in Denton, Texas, and Prague, Czech Republic, and plans to provide fast delivery, comprehensive parts selection and technical expertise for all brands of trucks.open a used truck facility in Madrid, Spain.
The PACCAR Financial Services (PFS) group of companies has operations covering four continents and 2526 countries. The global breadth of PFS and its rigorous credit application process support a portfolio of loans and leases with record total assets of $15.61$15.05 billion. PFS issued $2.04$1.33 billion in medium-term notes during the first ninesix months of 20192020 to support portfolio growthnew business volume and repay maturing debt.
- 33 -
PACCAR Inc – Form 10-Q
Truck Outlook
TruckThe Company suspended truck production worldwide on March 24, 2020, due to the COVID-19 pandemic. The Company began truck production at selected factories in Europe and Australia on April 20, 2020. Resumption of North America and Brasil truck production occurred in early May. The Company adjusted its manufacturing facilities for social distancing and implemented deep cleaning procedures. Initial truck production rates at all facilities were lower than those in effect at the time of the worldwide closure. Future production volumes will depend on market demand for trucks, parts availability from the Company’s suppliers and further government directives related to the COVID-19 pandemic. Assuming no significant impacts from a resurgence of the COVID-19 pandemic, the Company expects 2020 truck industry retail salesvolumes as follows: in the U.S. and Canada in 2019 are expected to be 310,000 to 320,000 units compared to 284,800 in 2018. Estimates for the U.S. and Canada truck industry retail sales are expected to be 160,000 to 190,000 units compared to 308,800 in 2020 are2019; in the range of 230,000 to 260,000 units. In Europe, the 2019 truck industry registrations for over 16-tonne vehicles are expected to be 310,000190,000 to 320,000220,000 units compared to 318,800 truck registrations320,200 in 2018. The 2020 European truck industry registrations2019; and in the above 16-tonne truck market are projected to be in a range of 260,000 to 290,000 units. In South America, heavy-duty truck industry registrations in 2019 are estimated at 60,000 to increase to 95,000 to 105,000 units80,000 as compared to 88,300105,100 in 2018. 2019.
Parts Outlook
The 2020 heavy-dutyCompany continues to provide strong aftermarket support to enable the shipment of essential goods and services to communities around the world while following social distancing and hygiene protocols. Strengthening economies and higher truck industry salestraffic in South America are projected to beJune resulted in a range of 100,000 to 110,000 units.
Parts Outlook
In 2019, PACCAR Parts sales are expected to grow 5-7%increased demand for aftermarket parts as compared to 2018 sales. Inearlier in the quarter. The Company is not providing specific guidance on expected 2020 PACCAR Parts sales are expectedgrowth due to increase 4-7%.the uncertainty surrounding the impact of the pandemic. If general economic weakness persists, lower freight volumes could reduce the demand for replacement parts, resulting in lower parts revenues and operating results.
Financial Services Outlook
BasedPACCAR Financial Services continues to provide financing and leasing services and related support to customers during the COVID‑19 pandemic. The size of the portfolio will be affected by the amount of new truck financing volume. Depending on the length and depth of the economic weakness associated with the pandemic, lower truck market outlook, average earning assetssales volume would result in 2019lower volumes of new business. The lower level of economic activity is affecting some industries more than others. The Company does not have a concentration of exposure in any one segment or industry. Although past-dues and credit losses are expected to increase 8-10% compared to 2018. Current strongat low levels, ofcontinued economic weakness could result in lower freight tonnage are contributing tovolumes which could adversely impact customers’ profitabilityoperating results and cash flow.flows. The Company has granted a large number of loan modifications to customers seeking to conserve cash in this uncertain environment. Substantially all modifications related to the COVID-19 pandemic were completed in the six months ended June 30, 2020. The modifications, which generally provided payment relief for up to three months, were evaluated and granted to credit worthy customers on a case-by-case basis. If current freight transportation conditions decline due to weaker economic conditions thenfurther worsen, it would likely lead to more credit modification requests, higher past due accounts, truck repossessions andincreased provisions for credit losses, would likely increase from the current low levels and new business volume would likely decline.In 2020, average earning assets are expected to remain similar to 2019 levels.lower used truck values.
Capital SpendingInvestments and R&D Outlook
Capital investments in 20192020 are expected to be $675$525 to $725$575 million and R&D is expected to be $325$265 to $335 million. In 2020, capital investments are projected to be$625 to $675 million and R&D is expected to be $320 to $350$295 million. The Company is investing for long-term growth in newaerodynamic truck models, integrated powertrains includingdiesel and zero emission electrification and hydrogen fuel cellemissions powertrain technologies, enhanced aerodynamic truck designs, advanced driver assistance systems, connected vehicle services and truck connectivity, and expandednext-generation manufacturing and parts distribution facilities.
See the Forward-Looking Statements section of Management’s Discussion and Analysis for factors that may affect these outlooks.
- 32 -
RESULTS OF OPERATIONS:
The Company’s results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019 are presented below.
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||
($ in millions, except per share amounts) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck | $ | 4,977.4 |
|
| $ | 4,429.4 |
|
| $ | 15,296.6 |
|
| $ | 13,250.2 |
|
| $ | 1,858.4 |
|
| $ | 5,211.9 |
|
| $ | 5,616.0 |
|
| $ | 10,319.2 |
|
Parts |
| 1,000.9 |
|
|
| 960.1 |
|
|
| 3,031.0 |
|
|
| 2,868.0 |
|
|
| 823.7 |
|
|
| 1,025.4 |
|
|
| 1,822.3 |
|
|
| 2,030.1 |
|
Other |
| 25.9 |
|
|
| 27.4 |
|
|
| 81.2 |
|
|
| 87.7 |
|
|
| 19.8 |
|
|
| 29.2 |
|
|
| 41.6 |
|
|
| 55.3 |
|
Truck, Parts and Other |
| 6,004.2 |
|
|
| 5,416.9 |
|
|
| 18,408.8 |
|
|
| 16,205.9 |
|
|
| 2,701.9 |
|
|
| 6,266.5 |
|
|
| 7,479.9 |
|
|
| 12,404.6 |
|
Financial Services |
| 362.8 |
|
|
| 339.9 |
|
|
| 1,073.7 |
|
|
| 1,010.1 |
|
|
| 360.3 |
|
|
| 361.4 |
|
|
| 744.0 |
|
|
| 710.9 |
|
| $ | 6,367.0 |
|
| $ | 5,756.8 |
|
| $ | 19,482.5 |
|
| $ | 17,216.0 |
|
| $ | 3,062.2 |
|
| $ | 6,627.9 |
|
| $ | 8,223.9 |
|
| $ | 13,115.5 |
|
Income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
(Loss) income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Truck | $ | 481.5 |
|
| $ | 391.0 |
|
| $ | 1,509.2 |
|
| $ | 1,220.2 |
|
| $ | (46.2 | ) |
| $ | 510.7 |
|
| $ | 136.9 |
|
| $ | 1,027.7 |
|
Parts |
| 207.4 |
|
|
| 188.5 |
|
|
| 625.6 |
|
|
| 574.8 |
|
|
| 151.9 |
|
|
| 210.6 |
|
|
| 366.6 |
|
|
| 418.2 |
|
Other |
| 1.1 |
|
|
| (5.9 | ) |
|
| (16.4 | ) |
|
| 3.1 |
|
|
| 13.8 |
|
|
| (9.0 | ) |
|
| 15.1 |
|
|
| (17.5 | ) |
Truck, Parts and Other |
| 690.0 |
|
|
| 573.6 |
|
|
| 2,118.4 |
|
|
| 1,798.1 |
|
|
| 119.5 |
|
|
| 712.3 |
|
|
| 518.6 |
|
|
| 1,428.4 |
|
Financial Services |
| 66.5 |
|
|
| 78.8 |
|
|
| 230.8 |
|
|
| 218.7 |
|
|
| 55.5 |
|
|
| 80.3 |
|
|
| 103.8 |
|
|
| 164.3 |
|
Investment income |
| 21.1 |
|
|
| 16.4 |
|
|
| 62.2 |
|
|
| 41.0 |
|
|
| 9.0 |
|
|
| 21.8 |
|
|
| 23.8 |
|
|
| 41.1 |
|
Income taxes |
| (169.7 | ) |
|
| (123.5 | ) |
|
| (554.8 | ) |
|
| (440.8 | ) |
|
| (36.3 | ) |
|
| (194.7 | ) |
|
| (139.1 | ) |
|
| (385.1 | ) |
Net income | $ | 607.9 |
|
| $ | 545.3 |
|
| $ | 1,856.6 |
|
| $ | 1,617.0 |
|
| $ | 147.7 |
|
| $ | 619.7 |
|
| $ | 507.1 |
|
| $ | 1,248.7 |
|
Diluted earnings per share | $ | 1.75 |
|
| $ | 1.55 |
|
| $ | 5.34 |
|
| $ | 4.59 |
|
| $ | .43 |
|
| $ | 1.78 |
|
| $ | 1.46 |
|
| $ | 3.59 |
|
After-tax return on revenues |
| 9.5 | % |
|
| 9.5 | % |
|
| 9.5 | % |
|
| 9.4 | % |
|
| 4.8 | % |
|
| 9.3 | % |
|
| 6.2 | % |
|
| 9.5 | % |
- 34 -
PACCAR Inc – Form 10-Q
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 COVID-19 related factors, market demand, fuel prices, freight tonnage and economic conditions affecting the Company’s results of operations.
20192020 Compared to 2018:2019:
Truck
The Company’s Truck segment accounted for 78%61% and 68% of revenues in the thirdsecond quarter and 79% for the first ninesix months of 2019,2020, respectively, compared to 77%79% in the thirdsecond quarter and first ninesix months of 2018.2019.
The Company’s new truck deliveries are summarized below:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||||||||||||||||||
|
|
| 2019 |
|
|
| 2018 |
|
| % CHANGE |
|
|
| 2019 |
|
|
| 2018 |
|
| % CHANGE |
|
|
| 2020 |
|
|
| 2019 |
|
| % CHANGE |
|
|
| 2020 |
|
|
| 2019 |
|
| % CHANGE |
| ||||
U.S. and Canada |
|
| 31,700 |
|
|
| 28,400 |
|
|
| 12 |
|
|
| 90,600 |
|
|
| 78,500 |
|
|
| 15 |
|
|
| 9,300 |
|
|
| 30,000 |
|
|
| (69 | ) |
|
| 31,500 |
|
|
| 58,900 |
|
|
| (47 | ) |
Europe |
|
| 12,700 |
|
|
| 14,300 |
|
|
| (11 | ) |
|
| 45,300 |
|
|
| 45,800 |
|
|
| (1 | ) |
|
| 6,400 |
|
|
| 15,700 |
|
|
| (59 | ) |
|
| 18,000 |
|
|
| 32,600 |
|
|
| (45 | ) |
Mexico, South America, Australia and other |
|
| 4,900 |
|
|
| 5,100 |
|
|
| (4 | ) |
|
| 17,200 |
|
|
| 14,400 |
|
|
| 19 |
|
|
| 2,400 |
|
|
| 6,600 |
|
|
| (64 | ) |
|
| 7,000 |
|
|
| 12,300 |
|
|
| (43 | ) |
Total units |
|
| 49,300 |
|
|
| 47,800 |
|
|
| 3 |
|
|
| 153,100 |
|
|
| 138,700 |
|
|
| 10 |
|
|
| 18,100 |
|
|
| 52,300 |
|
|
| (65 | ) |
|
| 56,500 |
|
|
| 103,800 |
|
|
| (46 | ) |
The decrease in new truck deliveries worldwide in the second quarter and first six months of 2020 compared to the same period of 2019 is driven primarily by lower build rates, including a temporary suspension of worldwide truck production as a result of the COVID-19 pandemic.
Market share data discussed below is provided by third party sources and is measured by either registrations or retail sales for the Company’s dealer network as a percentage of total registrations or retail sales depending on the geographic market. In the U.S. and Canada, market share is based on retail sales. In Europe, market share is based primarily on registrations.
In the first ninesix months of 2019,2020, industry retail sales in the heavy-duty market in the U.S. and Canada increaseddecreased to 236,80093,900 units from 203,700151,800 units in the same period of 2018.2019. The Company’s heavy-duty truck retail market share was 29.2%29.6% in the first ninesix months of 20192020 compared to 29.4%29.1% in the first ninesix months of 2018.2019. The medium-duty market was 87,70035,400 units in the first ninesix months of 2019 2020
- 33 -
compared to 76,50058,900 units in the same period of 2018.2019. The Company’s medium-duty market share was 15.9%23.6% in the first ninesix months of 20192020 compared to 17.3%15.4% in the first ninesix months of 2018.2019.
The over 16‑tonne truck market in Europe in the first ninesix months of 20192020 was 250,700105,700 units compared to 236,800192,100 units in the first ninesix months of 2018.2019. DAF EU over 16‑tonne market share was 16.4%15.8% in the first ninesix months of 20192020 compared to 16.6%16.7% in the same period of 2018.2019. The 6 to 16‑tonne market in the first ninesix months of 20192020 was 40,30019,300 units compared to 38,10030,200 units in the first ninesix months of 2018.2019. DAF market share in the 6 to 16-tonne market in the first ninesix months of 20192020 was 9.3%10.0% compared to 9.1%9.9% in the same period of 2018.2019.
The Company’s worldwide truck net sales and revenues are summarized below:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||||||||||||||||||
($ in millions) |
|
| 2019 |
|
|
| 2018 |
|
| % CHANGE |
|
|
| 2019 |
|
|
| 2018 |
|
| % CHANGE |
|
|
| 2020 |
|
|
| 2019 |
|
| % CHANGE |
|
|
| 2020 |
|
|
| 2019 |
|
| % CHANGE |
| ||||
Truck net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
| $ | 3,489.9 |
|
| $ | 2,982.7 |
|
|
| 17 |
|
| $ | 10,060.6 |
|
| $ | 8,389.6 |
|
|
| 20 |
|
| $ | 1,056.6 |
|
| $ | 3,357.7 |
|
|
| (69 | ) |
| $ | 3,473.0 |
|
| $ | 6,570.7 |
|
|
| (47 | ) |
Europe |
|
| 1,000.4 |
|
|
| 953.6 |
|
|
| 5 |
|
|
| 3,604.3 |
|
|
| 3,401.5 |
|
|
| 6 |
|
|
| 561.5 |
|
|
| 1,248.9 |
|
|
| (55 | ) |
|
| 1,481.1 |
|
|
| 2,603.9 |
|
|
| (43 | ) |
Mexico, South America, Australia and other |
|
| 487.1 |
|
|
| 493.1 |
|
|
| (1 | ) |
|
| 1,631.7 |
|
|
| 1,459.1 |
|
|
| 12 |
|
|
| 240.3 |
|
|
| 605.3 |
|
|
| (60 | ) |
|
| 661.9 |
|
|
| 1,144.6 |
|
|
| (42 | ) |
|
| $ | 4,977.4 |
|
| $ | 4,429.4 |
|
|
| 12 |
|
| $ | 15,296.6 |
|
| $ | 13,250.2 |
|
|
| 15 |
|
| $ | 1,858.4 |
|
| $ | 5,211.9 |
|
|
| (64 | ) |
| $ | 5,616.0 |
|
| $ | 10,319.2 |
|
|
| (46 | ) |
Truck income before income taxes |
| $ | 481.5 |
|
| $ | 391.0 |
|
|
| 23 |
|
| $ | 1,509.2 |
|
| $ | 1,220.2 |
|
|
| 24 |
| ||||||||||||||||||||||||
Truck (loss) income before income taxes |
| $ | (46.2 | ) |
| $ | 510.7 |
|
|
| (109 | ) |
| $ | 136.9 |
|
| $ | 1,027.7 |
|
|
| (87 | ) | ||||||||||||||||||||||||
Pre-tax return on revenues |
|
| 9.7 | % |
|
| 8.8 | % |
|
|
|
|
|
| 9.9 | % |
|
| 9.2 | % |
|
|
|
|
|
| (2.5 | )% |
|
| 9.8 | % |
|
|
|
|
|
| 2.4 | % |
|
| 10.0 | % |
|
|
|
|
The Company’s worldwide truck net sales and revenues in the thirdsecond quarter increaseddecreased to $4.98$1.86 billion in 2020 from $5.21 billion in 2019, from $4.43and the first six months decreased to $5.62 billion in 2018, primarily due2020 compared to higher truck deliveries in the U.S. and Canada, partially offset by unfavorable currency translation effects. In the first nine months, worldwide truck net sales and revenues were $15.30$10.32 billion in 2019 compared to $13.25 billion in 2018 primarily due to higher lower truck unit deliveries in all markets, primarily the U.S. and Canada and Latin America, partially offset byEurope, as well as unfavorable currency translation effects.
For the thirdsecond quarter and first ninesix months of 2019,2020, Truck segment (loss) income before taxes and pretax return on revenues reflect the impact of higherlower truck unit deliveries and higher margins.
- 35 -
PACCAR Inc – Form 10-Qlower margins, driven primarily by reduced demand and the worldwide truck plant closures as a result of the COVID-19 pandemic.
The major factors for the Truck segment changes in net sales and revenues, cost of sales and revenues and gross margin between the three months ended SeptemberJune 30, 20192020 and 2018 for the Truck segment2019 are as follows:
|
| NET |
|
| COST OF |
|
|
|
|
|
| NET |
|
| COST OF |
|
|
|
|
| ||||
|
| SALES AND |
|
| SALES AND |
|
| GROSS |
|
| SALES AND |
|
| SALES AND |
|
| GROSS |
| ||||||
($ in millions) |
| REVENUES |
|
| REVENUES |
|
| MARGIN |
|
| REVENUES |
|
| REVENUES |
|
| MARGIN |
| ||||||
Three Months Ended September 30, 2018 |
| $ | 4,429.4 |
|
| $ | 3,929.2 |
|
| $ | 500.2 |
| ||||||||||||
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Three Months Ended June 30, 2019 |
| $ | 5,211.9 |
|
| $ | 4,576.4 |
|
| $ | 635.5 |
| ||||||||||||
(Decrease) increase |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Truck sales volume |
|
| 454.9 |
|
|
| 379.7 |
|
|
| 75.2 |
|
|
| (3,288.6 | ) |
|
| (2,704.8 | ) |
|
| (583.8 | ) |
Average truck sales prices |
|
| 135.8 |
|
|
|
|
|
|
| 135.8 |
|
|
| 12.4 |
|
|
|
|
|
|
| 12.4 |
|
Average per truck material, labor and other direct costs |
|
|
|
|
|
| 80.1 |
|
|
| (80.1 | ) |
|
|
|
|
|
| 86.1 |
|
|
| (86.1 | ) |
Factory overhead and other indirect costs |
|
|
|
|
|
| 8.4 |
|
|
| (8.4 | ) |
|
|
|
|
|
| (110.0 | ) |
|
| 110.0 |
|
Extended warranties, operating leases and other |
|
| 19.2 |
|
|
| 24.0 |
|
|
| (4.8 | ) |
|
| (47.0 | ) |
|
| (4.7 | ) |
|
| (42.3 | ) |
Currency translation |
|
| (61.9 | ) |
|
| (56.2 | ) |
|
| (5.7 | ) |
|
| (30.3 | ) |
|
| (32.1 | ) |
|
| 1.8 |
|
Total increase |
|
| 548.0 |
|
|
| 436.0 |
|
|
| 112.0 |
| ||||||||||||
Three Months Ended September 30, 2019 |
| $ | 4,977.4 |
|
| $ | 4,365.2 |
|
| $ | 612.2 |
| ||||||||||||
Total decrease |
|
| (3,353.5 | ) |
|
| (2,765.5 | ) |
|
| (588.0 | ) | ||||||||||||
Three Months Ended June 30, 2020 |
| $ | 1,858.4 |
|
| $ | 1,810.9 |
|
| $ | 47.5 |
|
• | Truck sales volume |
• | Average truck sales prices increased sales by |
• | Average cost per truck increased cost of sales by |
• | Factory overhead and other indirect costs |
• | Extended warranties, operating leases and other |
- 34 -
• | The currency translation effect on sales and cost of sales reflects a decline in the value of foreign currencies relative to the U.S. dollar, primarily the |
• | Truck gross margin was |
- 36 -
PACCAR Inc – Form 10-Q
The major factors for the Truck segment changes in net sales and revenues, cost of sales and revenues and gross margin between the ninesix months ended SeptemberJune 30, 20192020 and 2018 for the Truck segment2019 are as follows:
|
| NET |
|
| COST OF |
|
|
|
|
|
| NET |
|
| COST OF |
|
|
|
|
| ||||
|
| SALES AND |
|
| SALES AND |
|
| GROSS |
|
| SALES AND |
|
| SALES AND |
|
| GROSS |
| ||||||
($ in millions) |
| REVENUES |
|
| REVENUES |
|
| MARGIN |
|
| REVENUES |
|
| REVENUES |
|
| MARGIN |
| ||||||
Nine Months Ended September 30, 2018 |
| $ | 13,250.2 |
|
| $ | 11,686.1 |
|
| $ | 1,564.1 |
| ||||||||||||
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Six Months Ended June 30, 2019 |
| $ | 10,319.2 |
|
| $ | 9,045.3 |
|
| $ | 1,273.9 |
| ||||||||||||
(Decrease) increase |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Truck sales volume |
|
| 1,941.6 |
|
|
| 1,666.2 |
|
|
| 275.4 |
|
|
| (4,579.2 | ) |
|
| (3,757.2 | ) |
|
| (822.0 | ) |
Average truck sales prices |
|
| 371.0 |
|
|
|
|
|
|
| 371.0 |
|
|
| 16.4 |
|
|
|
|
|
|
| 16.4 |
|
Average per truck material, labor and other direct costs |
|
|
|
|
|
| 212.3 |
|
|
| (212.3 | ) |
|
|
|
|
|
| 171.6 |
|
|
| (171.6 | ) |
Factory overhead and other indirect costs |
|
|
|
|
|
| 65.5 |
|
|
| (65.5 | ) |
|
|
|
|
|
| (123.7 | ) |
|
| 123.7 |
|
Extended warranties, operating leases and other |
|
| 61.5 |
|
|
| 75.2 |
|
|
| (13.7 | ) |
|
| (59.5 | ) |
|
| 11.2 |
|
|
| (70.7 | ) |
Currency translation |
|
| (327.7 | ) |
|
| (294.8 | ) |
|
| (32.9 | ) |
|
| (80.9 | ) |
|
| (79.0 | ) |
|
| (1.9 | ) |
Total increase |
|
| 2,046.4 |
|
|
| 1,724.4 |
|
|
| 322.0 |
| ||||||||||||
Nine Months Ended September 30, 2019 |
| $ | 15,296.6 |
|
| $ | 13,410.5 |
|
| $ | 1,886.1 |
| ||||||||||||
Total decrease |
|
| (4,703.2 | ) |
|
| (3,777.1 | ) |
|
| (926.1 | ) | ||||||||||||
Six Months Ended June 30, 2020 |
| $ | 5,616.0 |
|
| $ | 5,268.2 |
|
| $ | 347.8 |
|
• | Truck sales volume |
• | Average truck sales prices increased sales by |
• | Average cost per truck increased cost of sales by |
• | Factory overhead and other indirect costs |
• | Extended warranties, operating leases and other |
• | The currency translation effect on sales and cost of sales reflects a decline in the value of foreign currencies relative to the U.S. dollar, primarily the |
• | Truck gross margin was |
Truck SG&A expense increaseddecreased in the thirdsecond quarter of 20192020 to $66.3$43.8 million from $55.5$64.5 million in 2018,2019, and for the first ninesix months of 2020, Truck SG&A increased decreasedto $192.5$104.7 million from $126.2 million in 2019 from $179.4 million in 2018.2019. The increasedecrease in both periods was primarily due to higher professional fees, partially offset bylower salaries and related expenses, sales and marketing costs, travel expenses and favorable currency translation effects.
As a percentage of sales, Truck SG&A was 1.3%increased to 2.4% and 1.9% in both the thirdsecond quarter and first six months of 2020, respectively compared to 1.2% in the second quarter and first six months of 2019 and 2018. For the first nine months, Truck SG&A decreased to 1.3% in 2019 from 1.4% in the same period of 2018, primarily due to higherlower net sales volume.and partially offset by lower spending.
- 35 -
Parts
The Company’s Parts segment accounted for 16%27% and 22% of revenues in the thirdsecond quarter and first ninesix months of 20192020, respectively, compared to 17%15% in the thirdsecond quarter and first ninesix months of 2018.2019.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||||||||||||||||||
($ in millions) |
|
| 2019 |
|
|
| 2018 |
|
| % CHANGE |
|
|
| 2019 |
|
|
| 2018 |
|
| % CHANGE |
|
|
| 2020 |
|
|
| 2019 |
|
| % CHANGE |
|
|
| 2020 |
|
|
| 2019 |
|
| % CHANGE |
| ||||
Parts net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
| $ | 684.6 |
|
| $ | 642.0 |
|
|
| 7 |
|
| $ | 2,068.3 |
|
| $ | 1,898.1 |
|
|
| 9 |
|
| $ | 578.3 |
|
| $ | 701.0 |
|
|
| (18 | ) |
| $ | 1,264.2 |
|
| $ | 1,383.7 |
|
|
| (9 | ) |
Europe |
|
| 214.0 |
|
|
| 221.3 |
|
|
| (3 | ) |
|
| 675.3 |
|
|
| 690.9 |
|
|
| (2 | ) |
|
| 178.5 |
|
|
| 229.8 |
|
|
| (22 | ) |
|
| 401.8 |
|
|
| 461.3 |
|
|
| (13 | ) |
Mexico, South America, Australia and other |
|
| 102.3 |
|
|
| 96.8 |
|
|
| 6 |
|
|
| 287.4 |
|
|
| 279.0 |
|
|
| 3 |
|
|
| 66.9 |
|
|
| 94.6 |
|
|
| (29 | ) |
|
| 156.3 |
|
|
| 185.1 |
|
|
| (16 | ) |
|
| $ | 1,000.9 |
|
| $ | 960.1 |
|
|
| 4 |
|
| $ | 3,031.0 |
|
| $ | 2,868.0 |
|
|
| 6 |
|
| $ | 823.7 |
|
| $ | 1,025.4 |
|
|
| (20 | ) |
| $ | 1,822.3 |
|
| $ | 2,030.1 |
|
|
| (10 | ) |
Parts income before income taxes |
| $ | 207.4 |
|
| $ | 188.5 |
|
|
| 10 |
|
| $ | 625.6 |
|
| $ | 574.8 |
|
|
| 9 |
|
| $ | 151.9 |
|
| $ | 210.6 |
|
|
| (28 | ) |
| $ | 366.6 |
|
| $ | 418.2 |
|
|
| (12 | ) |
Pre-tax return on revenues |
|
| 20.7 | % |
|
| 19.6 | % |
|
|
|
|
|
| 20.6 | % |
|
| 20.0 | % |
|
|
|
|
|
| 18.4 | % |
|
| 20.5 | % |
|
|
|
|
|
| 20.1 | % |
|
| 20.6 | % |
|
|
|
|
- 37 -
PACCAR Inc – Form 10-Q
The Company’s worldwide parts net sales and revenues for the thirdsecond quarter increaseddecreased to $1.00$823.7 million in 2020 from $1.03 billion in 2019 from $960.1 million in 2018.2019. For the first ninesix months, worldwide parts net sales and revenues increaseddecreased to $3.03$1.82 billion in 20192020 from $2.87$2.03 billion in 2018.2019. The increasedecrease in both periods was primarily due to lower sales volume and unfavorable currency translation, partially offset by higher aftermarket demand in the U.S. and Canada.prices.
For the thirdsecond quarter and first ninesix months of 2019,2020, the increasedecrease in Parts segment income before income taxes and pre-tax return on revenues was primarily due to higher saleslower volume partially offset byand margins as well as unfavorable currency translation. Parts income before taxes for the second quarter and first half of 2020 included a $10.2 million gain on the sale of the prior Las Vegas parts distribution facility which was replaced by a new larger facility. The gain was recorded in Interest and other (income), net on the Consolidated Statements of Comprehensive Income.
The major factors for the changes in Parts segment net sales and revenues, cost of sales and revenues and gross margin between the three months ended SeptemberJune 30, 20192020 and 2018 for the Parts segment2019 are as follows:
|
| NET |
|
| COST OF |
|
|
|
|
|
| NET |
|
| COST OF |
|
|
|
|
| ||||
|
| SALES AND |
|
| SALES AND |
|
| GROSS |
|
| SALES AND |
|
| SALES AND |
|
| GROSS |
| ||||||
($ in millions) |
| REVENUES |
|
| REVENUES |
|
| MARGIN |
|
| REVENUES |
|
| REVENUES |
|
| MARGIN |
| ||||||
Three Months Ended September 30, 2018 |
| $ | 960.1 |
|
| $ | 701.2 |
|
| $ | 258.9 |
| ||||||||||||
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Three Months Ended June 30, 2019 |
| $ | 1,025.4 |
|
| $ | 741.8 |
|
| $ | 283.6 |
| ||||||||||||
(Decrease) increase |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Aftermarket parts volume |
|
| 4.9 |
|
|
| 2.4 |
|
|
| 2.5 |
|
|
| (210.5 | ) |
|
| (137.9 | ) |
|
| (72.6 | ) |
Average aftermarket parts sales prices |
|
| 49.1 |
|
|
|
|
|
|
| 49.1 |
|
|
| 16.7 |
|
|
|
|
|
|
| 16.7 |
|
Average aftermarket parts direct costs |
|
|
|
|
|
| 22.2 |
|
|
| (22.2 | ) |
|
|
|
|
|
| 14.3 |
|
|
| (14.3 | ) |
Warehouse and other indirect costs |
|
|
|
|
|
| 3.7 |
|
|
| (3.7 | ) |
|
|
|
|
|
| 2.9 |
|
|
| (2.9 | ) |
Currency translation |
|
| (13.2 | ) |
|
| (8.6 | ) |
|
| (4.6 | ) |
|
| (7.9 | ) |
|
| (5.5 | ) |
|
| (2.4 | ) |
Total increase |
|
| 40.8 |
|
|
| 19.7 |
|
|
| 21.1 |
| ||||||||||||
Three Months Ended September 30, 2019 |
| $ | 1,000.9 |
|
| $ | 720.9 |
|
| $ | 280.0 |
| ||||||||||||
Total decrease |
|
| (201.7 | ) |
|
| (126.2 | ) |
|
| (75.5 | ) | ||||||||||||
Three Months Ended June 30, 2020 |
| $ | 823.7 |
|
| $ | 615.6 |
|
| $ | 208.1 |
|
• | Aftermarket parts sales volume |
• | Average aftermarket parts sales prices increased |
• | Average aftermarket parts direct costs increased |
• | Warehouse and other indirect costs increased |
• | The currency translation effect on sales and cost of sales reflects a decline in the value of foreign currencies relative to the U.S. dollar, primarily the |
• | Parts gross |
- 3836 -
PACCAR Inc – Form 10-Q
The major factors for the changes in Parts segment net sales and revenues, cost of sales and revenues and gross margin between the ninesix months ended SeptemberJune 30, 20192020 and 2018 for the Parts segment2019 are as follows:
|
| NET |
|
| COST OF |
|
|
|
|
|
| NET |
|
| COST OF |
|
|
|
|
| ||||
|
| SALES AND |
|
| SALES AND |
|
| GROSS |
|
| SALES AND |
|
| SALES AND |
|
| GROSS |
| ||||||
($ in millions) |
| REVENUES |
|
| REVENUES |
|
| MARGIN |
|
| REVENUES |
|
| REVENUES |
|
| MARGIN |
| ||||||
Nine Months Ended September 30, 2018 |
| $ | 2,868.0 |
|
| $ | 2,080.1 |
|
| $ | 787.9 |
| ||||||||||||
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Six Months Ended June 30, 2019 |
| $ | 2,030.1 |
|
| $ | 1,468.1 |
|
| $ | 562.0 |
| ||||||||||||
(Decrease) increase |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Aftermarket parts volume |
|
| 78.5 |
|
|
| 53.3 |
|
|
| 25.2 |
|
|
| (235.8 | ) |
|
| (155.7 | ) |
|
| (80.1 | ) |
Average aftermarket parts sales prices |
|
| 139.8 |
|
|
|
|
|
|
| 139.8 |
|
|
| 46.3 |
|
|
|
|
|
|
| 46.3 |
|
Average aftermarket parts direct costs |
|
|
|
|
|
| 77.5 |
|
|
| (77.5 | ) |
|
|
|
|
|
| 19.6 |
|
|
| (19.6 | ) |
Warehouse and other indirect costs |
|
|
|
|
|
| 13.6 |
|
|
| (13.6 | ) |
|
|
|
|
|
| 9.8 |
|
|
| (9.8 | ) |
Currency translation |
|
| (55.3 | ) |
|
| (35.5 | ) |
|
| (19.8 | ) |
|
| (18.3 | ) |
|
| (12.0 | ) |
|
| (6.3 | ) |
Total increase |
|
| 163.0 |
|
|
| 108.9 |
|
|
| 54.1 |
| ||||||||||||
Nine Months Ended September 30, 2019 |
| $ | 3,031.0 |
|
| $ | 2,189.0 |
|
| $ | 842.0 |
| ||||||||||||
Total decrease |
|
| (207.8 | ) |
|
| (138.3 | ) |
|
| (69.5 | ) | ||||||||||||
Six Months Ended June 30, 2020 |
| $ | 1,822.3 |
|
| $ | 1,329.8 |
|
| $ | 492.5 |
|
• | Aftermarket parts sales volume |
• | Average aftermarket parts sales prices increased sales by |
• | Average aftermarket parts direct costs increased |
• | Warehouse and other indirect costs increased |
• | The currency translation effect on sales and cost of sales reflects a decline in the value of foreign currencies relative to the U.S. dollar, primarily the |
• | Parts gross margins in the first |
Parts SG&A expense increaseddecreased in the thirdsecond quarter of 20192020 to $52.1$44.7 million from $51.6$53.3 million in 2018,2019, and for the first ninesix months, Parts SG&A increaseddecreased to $156.7$94.0 million in 20192020 from $155.1$104.6 million in 2018.2019. The increasedecrease in both periods was primarily due to higher lower salaries and related expenses, partially offset by lower travel expenses, sales and marketing costs and favorable currency translation effects.
As a percentage of sales, Parts SG&A decreasedwas 5.4% and 5.2% in the second quarter and first six months of 2020, respectively, compared to 5.2% in the thirdsecond quarter and first ninesix months of 2019 from 5.4% in the third quarter and first nine months of 2018, primarily due to higher net sales.2019.
- 3937 -
PACCAR Inc – Form 10-Q
Financial Services
The Company’s Financial Services segment accounted for 6%12% and 9% of revenues in the thirdsecond quarter and first ninesix months of 20192020, respectively, compared to 5% in the second quarter and 2018.first six months of 2019.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||||||||||||||||||
($ in millions) |
|
| 2019 |
|
|
| 2018 |
|
| % CHANGE |
|
|
| 2019 |
|
|
| 2018 |
|
| % CHANGE |
|
|
| 2020 |
|
|
| 2019 |
|
| % CHANGE |
|
|
| 2020 |
|
|
| 2019 |
|
| % CHANGE |
| ||||
New loan and lease volume: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
| $ | 920.7 |
|
| $ | 765.1 |
|
|
| 20 |
|
| $ | 2,497.3 |
|
| $ | 2,226.7 |
|
|
| 12 |
|
| $ | 576.4 |
|
| $ | 930.8 |
|
|
| (38 | ) |
| $ | 1,243.8 |
|
| $ | 1,576.6 |
|
|
| (21 | ) |
Europe |
|
| 285.3 |
|
|
| 316.8 |
|
|
| (10 | ) |
|
| 964.2 |
|
|
| 963.2 |
|
|
|
|
|
|
| 171.6 |
|
|
| 352.9 |
|
|
| (51 | ) |
|
| 472.2 |
|
|
| 678.9 |
|
|
| (30 | ) |
Mexico, Australia and other |
|
| 211.8 |
|
|
| 182.4 |
|
|
| 16 |
|
|
| 645.8 |
|
|
| 580.8 |
|
|
| 11 |
|
|
| 149.9 |
|
|
| 245.9 |
|
|
| (39 | ) |
|
| 307.9 |
|
|
| 434.0 |
|
|
| (29 | ) |
|
| $ | 1,417.8 |
|
| $ | 1,264.3 |
|
|
| 12 |
|
| $ | 4,107.3 |
|
| $ | 3,770.7 |
|
|
| 9 |
|
| $ | 897.9 |
|
| $ | 1,529.6 |
|
|
| (41 | ) |
| $ | 2,023.9 |
|
| $ | 2,689.5 |
|
|
| (25 | ) |
New loan and lease volume by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance leases |
| $ | 1,059.5 |
|
| $ | 1,013.3 |
|
|
| 5 |
|
| $ | 3,122.9 |
|
| $ | 3,047.1 |
|
|
| 2 |
|
| $ | 745.7 |
|
| $ | 1,158.9 |
|
|
| (36 | ) |
| $ | 1,611.0 |
|
| $ | 2,063.4 |
|
|
| (22 | ) |
Equipment on operating lease |
|
| 358.3 |
|
|
| 251.0 |
|
|
| 43 |
|
|
| 984.4 |
|
|
| 723.6 |
|
|
| 36 |
|
|
| 152.2 |
|
|
| 370.7 |
|
|
| (59 | ) |
|
| 412.9 |
|
|
| 626.1 |
|
|
| (34 | ) |
|
| $ | 1,417.8 |
|
| $ | 1,264.3 |
|
|
| 12 |
|
| $ | 4,107.3 |
|
| $ | 3,770.7 |
|
|
| 9 |
|
| $ | 897.9 |
|
| $ | 1,529.6 |
|
|
| (41 | ) |
| $ | 2,023.9 |
|
| $ | 2,689.5 |
|
|
| (25 | ) |
New loan and lease unit volume: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance leases |
|
| 9,270 |
|
|
| 9,220 |
|
|
| 1 |
|
|
| 27,760 |
|
|
| 30,310 |
|
|
| (8 | ) |
|
| 6,870 |
|
|
| 10,150 |
|
|
| (32 | ) |
|
| 14,770 |
|
|
| 18,490 |
|
|
| (20 | ) |
Equipment on operating lease |
|
| 3,560 |
|
|
| 2,480 |
|
|
| 44 |
|
|
| 9,860 |
|
|
| 6,910 |
|
|
| 43 |
|
|
| 1,650 |
|
|
| 3,600 |
|
|
| (54 | ) |
|
| 4,310 |
|
|
| 6,300 |
|
|
| (32 | ) |
|
|
| 12,830 |
|
|
| 11,700 |
|
|
| 10 |
|
|
| 37,620 |
|
|
| 37,220 |
|
|
| 1 |
|
|
| 8,520 |
|
|
| 13,750 |
|
|
| (38 | ) |
|
| 19,080 |
|
|
| 24,790 |
|
|
| (23 | ) |
Average earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
| $ | 9,016.2 |
|
| $ | 7,908.1 |
|
|
| 14 |
|
| $ | 8,689.0 |
|
| $ | 7,716.7 |
|
|
| 13 |
|
| $ | 9,058.7 |
|
| $ | 8,718.6 |
|
|
| 4 |
|
| $ | 9,204.7 |
|
| $ | 8,522.9 |
|
|
| 8 |
|
Europe |
|
| 3,394.3 |
|
|
| 3,276.0 |
|
|
| 4 |
|
|
| 3,539.0 |
|
|
| 3,335.3 |
|
|
| 6 |
|
|
| 3,353.5 |
|
|
| 3,602.1 |
|
|
| (7 | ) |
|
| 3,461.2 |
|
|
| 3,612.2 |
|
|
| (4 | ) |
Mexico, Australia and other |
|
| 1,936.8 |
|
|
| 1,774.0 |
|
|
| 9 |
|
|
| 1,884.2 |
|
|
| 1,745.6 |
|
|
| 8 |
|
|
| 1,629.8 |
|
|
| 1,912.1 |
|
|
| (15 | ) |
|
| 1,726.6 |
|
|
| 1,852.9 |
|
|
| (7 | ) |
|
| $ | 14,347.3 |
|
| $ | 12,958.1 |
|
|
| 11 |
|
| $ | 14,112.2 |
|
| $ | 12,797.6 |
|
|
| 10 |
|
| $ | 14,042.0 |
|
| $ | 14,232.8 |
|
|
| (1 | ) |
| $ | 14,392.5 |
|
| $ | 13,988.0 |
|
|
| 3 |
|
Average earning assets by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance leases |
| $ | 8,841.4 |
|
| $ | 8,178.4 |
|
|
| 8 |
|
| $ | 8,697.6 |
|
| $ | 8,008.2 |
|
|
| 9 |
|
| $ | 8,863.2 |
|
| $ | 8,718.5 |
|
|
| 2 |
|
| $ | 8,928.9 |
|
| $ | 8,623.7 |
|
|
| 4 |
|
Dealer wholesale financing |
|
| 2,389.1 |
|
|
| 1,827.8 |
|
|
| 31 |
|
|
| 2,360.0 |
|
|
| 1,788.2 |
|
|
| 32 |
|
|
| 2,114.2 |
|
|
| 2,468.0 |
|
|
| (14 | ) |
|
| 2,341.0 |
|
|
| 2,341.4 |
|
|
|
|
|
Equipment on lease and other |
|
| 3,116.8 |
|
|
| 2,951.9 |
|
|
| 6 |
|
|
| 3,054.6 |
|
|
| 3,001.2 |
|
|
| 2 |
|
|
| 3,064.6 |
|
|
| 3,046.3 |
|
|
| 1 |
|
|
| 3,122.6 |
|
|
| 3,022.9 |
|
|
| 3 |
|
|
| $ | 14,347.3 |
|
| $ | 12,958.1 |
|
|
| 11 |
|
| $ | 14,112.2 |
|
| $ | 12,797.6 |
|
|
| 10 |
|
| $ | 14,042.0 |
|
| $ | 14,232.8 |
|
|
| (1 | ) |
| $ | 14,392.5 |
|
| $ | 13,988.0 |
|
|
| 3 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
| $ | 204.3 |
|
| $ | 192.4 |
|
|
| 6 |
|
| $ | 601.3 |
|
| $ | 569.0 |
|
|
| 6 |
|
| $ | 190.9 |
|
| $ | 200.9 |
|
|
| (5 | ) |
| $ | 394.1 |
|
| $ | 397.0 |
|
|
| (1 | ) |
Europe |
|
| 92.6 |
|
|
| 86.8 |
|
|
| 7 |
|
|
| 278.6 |
|
|
| 261.4 |
|
|
| 7 |
|
|
| 118.5 |
|
|
| 94.8 |
|
|
| 25 |
|
|
| 237.6 |
|
|
| 186.0 |
|
|
| 28 |
|
Mexico, Australia and other |
|
| 65.9 |
|
|
| 60.7 |
|
|
| 9 |
|
|
| 193.8 |
|
|
| 179.7 |
|
|
| 8 |
|
|
| 50.9 |
|
|
| 65.7 |
|
|
| (23 | ) |
|
| 112.3 |
|
|
| 127.9 |
|
|
| (12 | ) |
|
| $ | 362.8 |
|
| $ | 339.9 |
|
|
| 7 |
|
| $ | 1,073.7 |
|
| $ | 1,010.1 |
|
|
| 6 |
|
| $ | 360.3 |
|
| $ | 361.4 |
|
|
|
|
|
| $ | 744.0 |
|
| $ | 710.9 |
|
|
| 5 |
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance leases |
| $ | 121.2 |
|
| $ | 109.2 |
|
|
| 11 |
|
| $ | 350.8 |
|
| $ | 313.7 |
|
|
| 12 |
|
| $ | 110.2 |
|
| $ | 115.9 |
|
|
| (5 | ) |
| $ | 226.6 |
|
| $ | 229.6 |
|
|
| (1 | ) |
Dealer wholesale financing |
|
| 27.1 |
|
|
| 18.8 |
|
|
| 44 |
|
|
| 82.4 |
|
|
| 51.6 |
|
|
| 60 |
|
|
| 16.0 |
|
|
| 31.9 |
|
|
| (50 | ) |
|
| 41.7 |
|
|
| 55.3 |
|
|
| (25 | ) |
Equipment on lease and other |
|
| 214.5 |
|
|
| 211.9 |
|
|
| 1 |
|
|
| 640.5 |
|
|
| 644.8 |
|
|
| (1 | ) |
|
| 234.1 |
|
|
| 213.6 |
|
|
| 10 |
|
|
| 475.7 |
|
|
| 426.0 |
|
|
| 12 |
|
|
| $ | 362.8 |
|
| $ | 339.9 |
|
|
| 7 |
|
| $ | 1,073.7 |
|
| $ | 1,010.1 |
|
|
| 6 |
|
| $ | 360.3 |
|
| $ | 361.4 |
|
|
|
|
|
| $ | 744.0 |
|
| $ | 710.9 |
|
|
| 5 |
|
Income before income taxes |
| $ | 66.5 |
|
| $ | 78.8 |
|
|
| (16 | ) |
| $ | 230.8 |
|
| $ | 218.7 |
|
|
| 6 |
|
| $ | 55.5 |
|
| $ | 80.3 |
|
|
| (31 | ) |
| $ | 103.8 |
|
| $ | 164.3 |
|
|
| (37 | ) |
For the thirdsecond quarter, new loan and lease volume was $1,417.8$897.9 million in 20192020 compared to $1,264.3$1,529.6 million in 20182019 and for the first nine monthshalf was $4,107.3$2,023.9 million in 2020 compared to $2,689.5 million in 2019, compared to $3,770.7 million in 2018, primarily reflecting higherlower truck deliveries in the U.S. and Canada.worldwide.
In the thirdsecond quarter of 2019,2020, PFS finance market share on new PACCAR truck sales was 25.3% comparedincreased to 22.9%26.7% from 23.1% in the thirdsecond quarter of 2018.2019. In the first ninesix months of 2019,2020, PFS finance market share on new PACCAR truck sales was 23.4% comparedincreased to 23.8%25.7% from 22.6% in the first ninesix months of 2018.2019.
In the thirdsecond quarter of 2019,2020, PFS revenues were $360.3 million compared to $361.4 million in 2019. In the first six months of 2020, PFS revenues increased to a record $362.8$744.0 million from $339.9$710.9 million in 2018, and2019, driven primarily by higher used truck sales in the first nine months of 2019, PFS revenues increased to $1,073.7 million from $1,010.1 million in 2018. The increase in both periods was primarily due to revenue on higher average earning assets and higher portfolio yields reflecting higher market interest rates in North America, partially offset by the effects of translating weaker foreign currencies to the U.S. dollar.Europe. The effects of currency translation decreased PFS revenues by $5.4$12.0 million and $22.8$17.9 million in the thirdsecond quarter and first nine monthshalf of 2019,2020, respectively, primarily due to thea weaker Mexican peso and euro.
- 4038 -
PACCAR Inc – Form 10-Q
PFS income before income taxes decreased to $66.5$55.5 million in the thirdsecond quarter of 20192020 from $78.8$80.3 million in the thirdsecond quarter of 2018, primarily due to lower lease margins.2019. In the first ninesix months of 2019,2020, PFS income before income taxes increaseddecreased to $230.8 million$103.8 from $218.7$164.3 million in 2018,2019. The decrease in both periods was primarily due to lower used truck results, lower yields and a higher average earning asset balances, partially offset by higher SG&A expenses dueprovision for credit losses. The effectsof translating weaker foreign currencies to certain initial direct costs which are immediately expensed in 2019 with the adoption of the new lease standard. Currency exchange effectsU.S. dollar decreased PFS income before income taxes by $.5$4.4 million and $3.4$5.4 million for the thirdsecond quarter and first nine monthshalf of 2019,2020, respectively.
Included in Financial Services “Other assets” on the Company’s Consolidated Balance Sheets are used trucks held for sale, net of impairments, of $398.6$463.4 million at SeptemberJune 30, 20192020 and $226.4$391.4 million at December 31, 2018.2019. These trucks are primarily units returned from matured operating leases in the ordinary course of business, and also include trucks acquired from repossessions or through acquisitions of used trucks in trades related to new truck sales.sales and trucks returned from residual value guarantees (RVGs).
The Company recognized losses on used trucks, excluding repossessions, of $16.2$24.9 million in the thirdsecond quarter of 20192020 compared to $9.0$11.3 million in the thirdsecond quarter of 2018,2019, including losses on multiple unit transactions of $7.0 million in the second quarter of 2020 compared to $3.6 million in the thirdsecond quarter of 2019 compared to $4.6 million in the third quarter of 2018.2019. Used truck losses related to repossessions, which are recognized as credit losses, and used truck gains, which are recognized as credit recoveries, were not significant for either the thirdsecond quarter of 20192020 or 2018.2019.
The Company recognized losses on used trucks, excluding repossessions, of $34.5$51.2 million in the first ninesix months of 20192020 compared to $29.0$18.3 million in the first ninesix months of 2018,2019, including losses on multiple unit transactions of $10.5$14.5 million in the first ninesix months of 20192020 compared to $17.3$6.9 million in the first ninesix months of 2018.2019. Used truck losses related to repossessions, which are recognized as credit losses, and used truck gains, which are recognized as credit recoveries, were not significant for either the first ninesix months of 20192020 or 2018.2019.
The major factors for the changes in interest and fees, interest and other borrowing expenses and finance margin between the three months ended SeptemberJune 30, 20192020 and 20182019 are outlined below:
|
|
|
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|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
($ 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, 2018 |
| $ | 128.0 |
|
| $ | 49.0 |
|
| $ | 79.0 |
| ||||||||||||
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Three Months Ended June 30, 2019 |
| $ | 147.8 |
|
| $ | 60.0 |
|
| $ | 87.8 |
| ||||||||||||
(Decrease) Increase |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Average finance receivables |
|
| 18.1 |
|
|
|
|
|
|
| 18.1 |
|
|
| (.5 | ) |
|
|
|
|
|
| (.5 | ) |
Average debt balances |
|
|
|
|
|
| 8.2 |
|
|
| (8.2 | ) |
|
|
|
|
|
| .1 |
|
|
| (.1 | ) |
Yields |
|
| 3.9 |
|
|
|
|
|
|
| 3.9 |
|
|
| (15.4 | ) |
|
|
|
|
|
| (15.4 | ) |
Borrowing rates |
|
|
|
|
|
| 3.1 |
|
|
| (3.1 | ) |
|
|
|
|
|
| (10.6 | ) |
|
| 10.6 |
|
Currency translation and other |
|
| (1.7 | ) |
|
| (.7 | ) |
|
| (1.0 | ) |
|
| (5.7 | ) |
|
| (2.6 | ) |
|
| (3.1 | ) |
Total increase |
|
| 20.3 |
|
|
| 10.6 |
|
|
| 9.7 |
| ||||||||||||
Three Months Ended September 30, 2019 |
| $ | 148.3 |
|
| $ | 59.6 |
|
| $ | 88.7 |
| ||||||||||||
Total decrease |
|
| (21.6 | ) |
|
| (13.1 | ) |
|
| (8.5 | ) | ||||||||||||
Three Months Ended June 30, 2020 |
| $ | 126.2 |
|
| $ | 46.9 |
|
| $ | 79.3 |
|
• | Average finance receivables |
• |
|
|
|
• |
|
• | The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the |
- 4139 -
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, 20192020 and 20182019 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, 2018 |
| $ | 365.3 |
|
| $ | 136.0 |
|
| $ | 229.3 |
| ||||||||||||
Six Months Ended June 30, 2019 |
| $ | 284.9 |
|
| $ | 113.4 |
|
| $ | 171.5 |
| ||||||||||||
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average finance receivables |
|
| 58.4 |
|
|
|
|
|
|
| 58.4 |
|
|
| 11.5 |
|
|
|
|
|
|
| 11.5 |
|
Average debt balances |
|
|
|
|
|
| 23.7 |
|
|
| (23.7 | ) |
|
|
|
|
|
| 5.8 |
|
|
| (5.8 | ) |
Yields |
|
| 16.1 |
|
|
|
|
|
|
| 16.1 |
|
|
| (19.9 | ) |
|
|
|
|
|
| (19.9 | ) |
Borrowing rates |
|
|
|
|
|
| 15.1 |
|
|
| (15.1 | ) |
|
|
|
|
|
| (12.7 | ) |
|
| 12.7 |
|
Currency translation and other |
|
| (6.6 | ) |
|
| (1.8 | ) |
|
| (4.8 | ) |
|
| (8.2 | ) |
|
| (3.2 | ) |
|
| (5.0 | ) |
Total increase |
|
| 67.9 |
|
|
| 37.0 |
|
|
| 30.9 |
| ||||||||||||
Nine Months Ended September 30, 2019 |
| $ | 433.2 |
|
| $ | 173.0 |
|
| $ | 260.2 |
| ||||||||||||
Total decrease |
|
| (16.6 | ) |
|
| (10.1 | ) |
|
| (6.5 | ) | ||||||||||||
Six Months Ended June 30, 2020 |
| $ | 268.3 |
|
| $ | 103.3 |
|
| $ | 165.0 |
|
• | Average finance receivables increased |
• | Average debt balances increased $ |
• |
|
• |
|
• | The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the |
The following table summarizes operating lease, rental and other revenues and depreciation and other expenses:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||
($ in millions) |
|
| 2019 |
|
|
| 2018 |
|
|
| 2019 |
|
|
| 2018 |
|
|
| 2020 |
|
|
| 2019 |
|
|
| 2020 |
|
|
| 2019 |
|
Operating lease and rental revenues |
| $ | 205.9 |
|
| $ | 204.0 |
|
| $ | 617.9 |
|
| $ | 617.3 |
|
| $ | 198.7 |
|
| $ | 206.2 |
|
| $ | 409.3 |
|
| $ | 412.0 |
|
Used truck sales and other |
|
| 8.6 |
|
|
| 7.9 |
|
|
| 22.6 |
|
|
| 27.5 |
|
|
| 35.4 |
|
|
| 7.4 |
|
|
| 66.4 |
|
|
| 14.0 |
|
Operating lease, rental and other revenues |
| $ | 214.5 |
|
| $ | 211.9 |
|
| $ | 640.5 |
|
| $ | 644.8 |
|
| $ | 234.1 |
|
| $ | 213.6 |
|
| $ | 475.7 |
|
| $ | 426.0 |
|
Depreciation of operating lease equipment |
| $ | 155.7 |
|
| $ | 144.2 |
|
| $ | 444.6 |
|
| $ | 444.5 |
|
| $ | 157.4 |
|
| $ | 145.5 |
|
| $ | 320.3 |
|
| $ | 288.9 |
|
Vehicle operating expenses |
|
| 35.5 |
|
|
| 31.6 |
|
|
| 102.1 |
|
|
| 89.5 |
|
|
| 33.5 |
|
|
| 34.7 |
|
|
| 72.1 |
|
|
| 66.6 |
|
Cost of used truck sales and other |
|
| 4.1 |
|
|
| 2.7 |
|
|
| 9.6 |
|
|
| 16.4 |
|
|
| 33.2 |
|
|
| 3.4 |
|
|
| 61.1 |
|
|
| 5.5 |
|
Depreciation and other expenses |
| $ | 195.3 |
|
| $ | 178.5 |
|
| $ | 556.3 |
|
| $ | 550.4 |
|
| $ | 224.1 |
|
| $ | 183.6 |
|
| $ | 453.5 |
|
| $ | 361.0 |
|
- 42 -
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, 20192020 and 20182019 are outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
| OPERATING LEASE, RENTAL AND OTHER REVENUES |
|
| DEPRECIATION AND OTHER EXPENSES |
|
| LEASE MARGIN |
| |||
Three Months Ended June 30, 2019 |
| $ | 213.6 |
|
| $ | 183.6 |
|
| $ | 30.0 |
|
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
Used truck sales |
|
| 28.3 |
|
|
| 29.7 |
|
|
| (1.4 | ) |
Results on returned lease assets |
|
|
|
|
|
| 10.5 |
|
|
| (10.5 | ) |
Average operating lease assets |
|
| .2 |
|
|
| .3 |
|
|
| (.1 | ) |
Revenue and cost per asset |
|
| (1.8 | ) |
|
| 4.9 |
|
|
| (6.7 | ) |
Currency translation and other |
|
| (6.2 | ) |
|
| (4.9 | ) |
|
| (1.3 | ) |
Total increase (decrease) |
|
| 20.5 |
|
|
| 40.5 |
|
|
| (20.0 | ) |
Three Months Ended June 30, 2020 |
| $ | 234.1 |
|
| $ | 224.1 |
|
| $ | 10.0 |
|
- 40 -
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
| OPERATING LEASE, RENTAL AND OTHER REVENUES |
|
| DEPRECIATION AND OTHER EXPENSES |
|
| LEASE MARGIN |
| |||
Three Months Ended September 30, 2018 |
| $ | 211.9 |
|
| $ | 178.5 |
|
| $ | 33.4 |
|
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
Used truck sales |
|
| 1.2 |
|
|
| 2.0 |
|
|
| (.8 | ) |
Results on returned lease assets |
|
|
|
|
|
| 8.6 |
|
|
| (8.6 | ) |
Average operating lease assets |
|
| 9.9 |
|
|
| 8.4 |
|
|
| 1.5 |
|
Revenue and cost per asset |
|
| (4.4 | ) |
|
| 2.3 |
|
|
| (6.7 | ) |
Currency translation and other |
|
| (4.1 | ) |
|
| (4.5 | ) |
|
| .4 |
|
Total increase (decrease) |
|
| 2.6 |
|
|
| 16.8 |
|
|
| (14.2 | ) |
Three Months Ended September 30, 2019 |
| $ | 214.5 |
|
| $ | 195.3 |
|
| $ | 19.2 |
|
• |
|
• | Results on returned lease assets increased depreciation and other expenses by |
• | Average operating lease assets increased |
• | Revenue per asset decreased |
|
|
The major factors for the changes in operating lease, rental and other revenues, depreciation and other expenses and lease margin between the nine months ended September 30, 2019 and 2018 are outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
| OPERATING LEASE, RENTAL AND OTHER REVENUES |
|
| DEPRECIATION AND OTHER EXPENSES |
|
| LEASE MARGIN |
| |||
Nine Months Ended September 30, 2018 |
| $ | 644.8 |
|
| $ | 550.4 |
|
| $ | 94.4 |
|
(Decrease) Increase |
|
|
|
|
|
|
|
|
|
|
|
|
Used truck sales |
|
| (4.9 | ) |
|
| (6.3 | ) |
|
| 1.4 |
|
Results on returned lease assets |
|
|
|
|
|
| 9.6 |
|
|
| (9.6 | ) |
Average operating lease assets |
|
| 25.3 |
|
|
| 21.9 |
|
|
| 3.4 |
|
Revenue and cost per asset |
|
| (9.5 | ) |
|
| (4.2 | ) |
|
| (5.3 | ) |
Currency translation and other |
|
| (15.2 | ) |
|
| (15.1 | ) |
|
| (.1 | ) |
Total (decrease) increase |
|
| (4.3 | ) |
|
| 5.9 |
|
|
| (10.2 | ) |
Nine Months Ended September 30, 2019 |
| $ | 640.5 |
|
| $ | 556.3 |
|
| $ | 84.2 |
|
|
|
|
|
|
|
|
|
• | The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the Mexican peso and the euro. |
- 43 -
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 six months ended June 30, 2020 and 2019 are outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
| OPERATING LEASE, RENTAL AND OTHER REVENUES |
|
| DEPRECIATION AND OTHER EXPENSES |
|
| LEASE MARGIN |
| |||
Six Months Ended June 30, 2019 |
| $ | 426.0 |
|
| $ | 361.0 |
|
| $ | 65.0 |
|
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
Used truck sales |
|
| 52.9 |
|
|
| 55.4 |
|
|
| (2.5 | ) |
Results on returned lease assets |
|
|
|
|
|
| 27.3 |
|
|
| (27.3 | ) |
Average operating lease assets |
|
| 5.5 |
|
|
| 5.1 |
|
|
| .4 |
|
Revenue and cost per asset |
|
| 1.5 |
|
|
| 13.0 |
|
|
| (11.5 | ) |
Currency translation and other |
|
| (10.2 | ) |
|
| (8.3 | ) |
|
| (1.9 | ) |
Total increase (decrease) |
|
| 49.7 |
|
|
| 92.5 |
|
|
| (42.8 | ) |
Six Months Ended June 30, 2020 |
| $ | 475.7 |
|
| $ | 453.5 |
|
| $ | 22.2 |
|
• | A higher sales volume of used trucks received on trade and upon RVG contract expiration increased operating lease, rental and other revenues by $52.9 million and increased depreciation and other expenses by $55.4 million. |
• | Results on returned lease assets increased depreciation and other expenses by $27.3 million primarily due to higher losses on sales of returned lease units in the U.S. and higher impairments in the U.S. and Europe as a result of lower truck market values. |
• | Average operating lease assets increased $135.8 million (excluding foreign exchange effects), which increased revenues by $5.5 million and related depreciation and other expenses by $5.1 million. |
• | Revenue per asset increased $1.5 million primarily due to higher rental income, partially offset by lower fleet utilization. Cost per asset increased $13.0 million due to higher depreciation expense and higher vehicle operating expenses. |
• | The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the euro and the Mexican peso. |
Financial Services SG&A expense increasedwas $26.3 million in the thirdsecond quarter of 20192020 compared to $35.8 million from $29.3$33.5 million in 2018,2019, and for the first ninesix months to $101.8was $58.9 million in 2019 from $90.22020 compared to $66.0 million in 2018.2019. The increasedecrease in both periods was due to higherlower salaries and related expenses to support portfolio growthas a result of cost controls and the adoption of the new lease accounting standard under which certain initial direct costs are immediately expensed ($3.0 million and $9.1 million for the three and nine months ended September 30, 2019, respectively). In prior years these costs were capitalized and amortized to expense over the lease term.lower travel expenses.
As a percentage of revenues, Financial Services SG&A increaseddecreased to 9.9%7.3% in the thirdsecond quarter of 20192020 from 8.6%9.3% in the same period of 2018,2019, and in the first ninesix months, increaseddecreased to 9.5%7.9% in 20192020 from 8.9%9.3% in 20182019. The decrease in both periods was driven primarily due to the factors noted above.by lower salaries and related expenses.
- 41 -
The following table summarizes the provision for losses on receivables and net charge-offs:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2020 |
| ||||||||||||||||||||
($ 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 |
| $ | 5.0 |
|
| $ | 5.6 |
|
| $ | 10.1 |
|
| $ | 7.8 |
|
| $ | 3.6 |
|
| $ | 4.2 |
|
| $ | 14.4 |
|
| $ | 11.4 |
|
Europe |
|
| (.6 | ) |
|
| .8 |
|
|
| (2.1 | ) |
|
| (.9 | ) |
|
| 1.4 |
|
|
| 1.0 |
|
|
| 5.7 |
|
|
| 1.9 |
|
Mexico, Australia and other |
|
| 1.2 |
|
|
| 1.1 |
|
|
| 3.8 |
|
|
| 2.7 |
|
|
| 2.5 |
|
|
| 1.6 |
|
|
| 4.4 |
|
|
| 2.7 |
|
|
| $ | 5.6 |
|
| $ | 7.5 |
|
| $ | 11.8 |
|
| $ | 9.6 |
|
| $ | 7.5 |
|
| $ | 6.8 |
|
| $ | 24.5 |
|
| $ | 16.0 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, 2018 |
|
| September 30, 2018 |
|
| June 30, 2019 |
|
| June 30, 2019 |
| ||||||||||||||||||||
($ 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 |
| $ | 2.4 |
|
| $ | .9 |
|
| $ | 7.5 |
|
| $ | 5.7 |
|
| $ | 1.7 |
|
| $ | 1.4 |
|
| $ | 5.1 |
|
| $ | 2.2 |
|
Europe |
|
| .4 |
|
|
| .2 |
|
|
| 2.3 |
|
|
| 7.3 |
|
|
| .9 |
|
|
| .7 |
|
|
| (1.5 | ) |
|
| (1.7 | ) |
Mexico, Australia and other |
|
| 1.5 |
|
|
| .6 |
|
|
| 5.0 |
|
|
| 2.0 |
|
|
| 1.4 |
|
|
| .7 |
|
|
| 2.6 |
|
|
| 1.6 |
|
|
| $ | 4.3 |
|
| $ | 1.7 |
|
| $ | 14.8 |
|
| $ | 15.0 |
|
| $ | 4.0 |
|
| $ | 2.8 |
|
| $ | 6.2 |
|
| $ | 2.1 |
|
The provision for losses on receivables was $5.6$7.5 million for the thirdsecond quarter of 20192020 compared to $4.3$4.0 million in 2018, reflecting continued good portfolio performance. For2019, and in the first ninesix months, of 2019, the provision for losses on receivables was $11.8 million$24.5 in 2020 compared to $14.8$6.2 million in 2018.2019. The decreaseincrease in the provision for losses for the first nine monthsin both periods was primarily driven by higherchallenging economic conditions related to the COVID-19 pandemic. In addition, the provision for losses in the first half of 2020 reflects the credit loss on a large fleet in the U.S. The provision for losses in 2019 also included recoveries on charged-off accounts in Europe.
The Company modifies loans and finance leases as a normal part of its Financial Services operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress, but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company’s modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification. When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts the Company considers likely to perform under the modified terms. When the Company modifies a loan or finance lease for credit reasons and grants a concession, the modification is classified as a troubled debt restructuring (TDR).
The post-modification balance of accounts modified during the ninesix months ended SeptemberJune 30, 20192020 and 20182019 are summarized below:
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||
($ in millions) |
| RECORDED INVESTMENT |
|
| % OF TOTAL PORTFOLIO* |
|
| RECORDED INVESTMENT |
|
| % OF TOTAL PORTFOLIO* |
|
| RECORDED INVESTMENT |
|
| % OF TOTAL PORTFOLIO* |
|
| RECORDED INVESTMENT |
|
| % OF TOTAL PORTFOLIO* |
| ||||||||
Commercial |
| $ | 227.5 |
|
|
| 3.5 | % |
| $ | 154.0 |
|
|
| 2.5 | % |
| $ | 131.3 |
|
|
| 2.9 | % |
| $ | 142.7 |
|
|
| 3.2 | % |
Insignificant delay |
|
| 69.5 |
|
|
| 1.1 | % |
|
| 37.1 |
|
|
| .6 | % |
|
| 2,306.7 |
|
|
| 51.7 | % |
|
| 36.6 |
|
|
| .8 | % |
Credit – no concession |
|
| 22.0 |
|
|
| .3 | % |
|
| 43.7 |
|
|
| .7 | % |
|
| 72.6 |
|
|
| 1.6 | % |
|
| 12.7 |
|
|
| .3 | % |
Credit – TDR |
|
| 2.5 |
|
|
|
|
|
|
| 8.9 |
|
|
| .1 | % |
|
| 40.1 |
|
|
| .9 | % |
|
| .8 |
|
|
|
|
|
|
| $ | 321.5 |
|
|
| 4.9 | % |
| $ | 243.7 |
|
|
| 3.9 | % |
| $ | 2,550.7 |
|
|
| 57.1 | % |
| $ | 192.8 |
|
|
| 4.3 | % |
* | Recorded investment immediately after modification as a percentage of ending retail portfolio, on an annualized basis. |
- 44 -
PACCAR Inc – Form 10-Q
During the first ninesix months of 2019,2020, total modification activity significantly increased compared to the first ninesix months of 2018 due to higher modifications for commercial reasons and insignificant delay, partially offset by lower modifications for credit – no concession and credit – TDR.2019. The increase in modifications for commercialCommercial reasons primarily reflects higher volumes of refinancing. The increase in modifications for insignificantInsignificant delay reflects more fleet customers requesting payment relief for up to three months.months related to COVID-19. The decreaseincrease in modifications for creditCredit – no concession is primarily due to lowerhigher volumes of refinancing and requests for payment relief in Europe, for customers in financial difficulty.the U.S. and Mexico. The decreaseincrease in modification for creditCredit –TDR is primarily due to the contract modifications for two fleet customers in 2018.the U.S. and two fleet customers in Mexico.
Substantially all modifications related to the COVID-19 pandemic were completed in the six months ended June 30, 2020. The Company has received some further customer requests for contract modifications in July 2020 due to the COVID-19 pandemic representing an immaterial amount of the portfolio.
- 42 -
The following table summarizes the Company’s 30+ days past due accounts:
|
| September 30 2019 |
|
| December 31 2018 |
|
| September 30 2018 |
|
| June 30 2020 |
|
| December 31 2019 |
|
| June 30 2019 |
| ||||||
Percentage of retail loan and lease accounts 30+ days past due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
| .4 | % |
|
| .1 | % |
|
| .2 | % |
|
| .3 | % |
|
| .4 | % |
|
| .5 | % |
Europe |
|
| 1.0 | % |
|
| .5 | % |
|
| .4 | % |
|
| 1.6 | % |
|
| .7 | % |
|
| .8 | % |
Mexico, Australia and other |
|
| 2.1 | % |
|
| 1.6 | % |
|
| 1.9 | % |
|
| 2.1 | % |
|
| 2.0 | % |
|
| 2.0 | % |
Worldwide |
|
| .7 | % |
|
| .4 | % |
|
| .5 | % |
|
| .8 | % |
|
| .7 | % |
|
| .8 | % |
Accounts 30+ days past due increased slightly to .7%.8% at SeptemberJune 30, 20192020 from .4%.7% at December 31, 2018,2019, and remain at historically low levels. 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 $7.7$35.2 million of accounts worldwide during the thirdsecond quarter of 2019, $7.22020, $1.7 million during the fourth quarter of 20182019 and $1.6$4.0 million during the thirdsecond quarter of 20182019 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 2019 |
|
| December 31 2018 |
|
| September 30 2018 |
|
| June 30 2020 |
|
| December 31 2019 |
|
| June 30 2019 |
| ||||||
Pro forma percentage of retail loan and lease accounts 30+ days past due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
| .4 | % |
|
| .2 | % |
|
| .2 | % |
|
| .3 | % |
|
| .4 | % |
|
| .6 | % |
Europe |
|
| 1.0 | % |
|
| .5 | % |
|
| .4 | % |
|
| 2.0 | % |
|
| .7 | % |
|
| .8 | % |
Mexico, Australia and other |
|
| 2.6 | % |
|
| 1.8 | % |
|
| 1.9 | % |
|
| 4.1 | % |
|
| 2.1 | % |
|
| 2.3 | % |
Worldwide |
|
| .8 | % |
|
| .5 | % |
|
| .5 | % |
|
| 1.2 | % |
|
| .7 | % |
|
| .8 | % |
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, 2019,2020, December 31, 20182019 and SeptemberJune 30, 2018.2019. The effect on the allowance for credit losses from such modifications was not significant at SeptemberJune 30, 2019,2020, December 31, 20182019 and SeptemberJune 30, 2018.2019.
The Company’s annualized pre-tax return on average assets for Financial Services was 1.7% and 2.0% fordecreased to 1.5% in the thirdsecond quarter and first nine monthsof 2020 from 2.1% in the same period of 2019, respectively, comparedand in the first six months, decreased to 2.3%1.3% in 2020 from 2.2% in 2019. The decrease in both periods was primarily driven by lower used truck results, lower yields and 2.2%increased provision for the same periods in 2018.losses.
Other
Other includes the winch business as well as sales, income and expenses not attributable to a reportable segment. Other also includes non-service cost components of pension (income) expense 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 2020 and 2019. Other SG&A decreased to $5.4 million for the second quarter of 2020 from $22.0 million for the second quarter of 2019 and 2018. Other SG&A increaseddecreased to $18.4 million for the third quarter of 2019 from $17.1 million for the third quarter of 2018 and increased to $64.3$26.6 million for the first nine monthshalf of 20192020 from $53.8$45.9 million for the first nine monthshalf of 2018.2019. The increasedecrease in both periods iswas primarily due to higherlower compensation costs.costs reflecting stringent cost controls.
For the thirdsecond quarter, Other income (loss) before tax was $1.1$13.8 million compared to $(9.0) million in 2019 compared to $(5.9) million in 2018.2019. For the first ninesix months, Other income (loss) income before tax was $(16.4)$15.1 million compared to $(17.5) million in 2019 compared to $3.1 million in 2018.2019. The income in the thirdsecond quarter and first half of 20192020 compared to loss in the same periodperiods of 20182019 was primarily due to lower salaries and related expenses and lower expected costs to resolve certain environmental matters. The loss in the first nine months of 2019 compared to income in the same period of 2018 was primarily due to higher compensation costs, higher expected costs to resolve certain environmental matters, andpartially offset by lower results from the winch business.
Investment income for the thirdsecond quarter increaseddecreased to $21.1$9.0 million in 20192020 from $16.4$21.8 million in 2018.2019. For the first ninesix months, investment income increaseddecreased to $62.2$23.8 million in 20192020 from $41.0$41.1 million in 2018.2019. The higherlower investment income in the thirdsecond quarter and first ninesix months of 20192020 was primarily due to higher average portfolio balances and higherlower yields on U.S. investments due to higherlower market interest rates.
- 4543 -
PACCAR Inc – Form 10-Q
Income Taxes
The effective tax rate for the thirdsecond quarter of 20192020 was 21.8%19.7% compared to 18.5%23.9% for the thirdsecond quarter of 2018.2019. The effective tax rate for the first ninesix months of 20192020 was 23.0%21.5% compared to 21.4% in23.6% for the same periodfirst six months of 2018.2019. The lower effective tax rate in the thirdsecond quarter and first half of 20182020 was due primarily to a one-time reduction in tax liability related to extended warranty contracts and higher realized R&D credits.benefits.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30 |
|
| September 30 |
|
| June 30 |
|
| June 30 |
| ||||||||||||||||||||
($ in millions) |
|
| 2019 |
|
|
| 2018 |
|
|
| 2019 |
|
|
| 2018 |
|
|
| 2020 |
|
|
| 2019 |
|
|
| 2020 |
|
|
| 2019 |
|
Domestic income before taxes |
| $ | 579.8 |
|
| $ | 438.5 |
|
| $ | 1,695.5 |
|
| $ | 1,311.0 |
|
| $ | 160.4 |
|
| $ | 566.1 |
|
| $ | 469.7 |
|
| $ | 1,115.7 |
|
Foreign income before taxes |
|
| 197.8 |
|
|
| 230.3 |
|
|
| 715.9 |
|
|
| 746.8 |
|
|
| 23.6 |
|
|
| 248.3 |
|
|
| 176.5 |
|
|
| 518.1 |
|
Total income before taxes |
| $ | 777.6 |
|
| $ | 668.8 |
|
| $ | 2,411.4 |
|
| $ | 2,057.8 |
|
| $ | 184.0 |
|
| $ | 814.4 |
|
| $ | 646.2 |
|
| $ | 1,633.8 |
|
Domestic pre-tax return on revenues |
|
| 14.5 | % |
|
| 12.8 | % |
|
| 14.7 | % |
|
| 13.4 | % |
|
| 9.9 | % |
|
| 14.5 | % |
|
| 10.3 | % |
|
| 14.8 | % |
Foreign pre-tax return on revenues |
|
| 8.3 | % |
|
| 9.9 | % |
|
| 9.0 | % |
|
| 10.0 | % |
|
| 1.6 | % |
|
| 9.1 | % |
|
| 4.8 | % |
|
| 9.3 | % |
Total pre-tax return on revenues |
|
| 12.2 | % |
|
| 11.6 | % |
|
| 12.4 | % |
|
| 12.0 | % |
|
| 6.0 | % |
|
| 12.3 | % |
|
| 7.9 | % |
|
| 12.5 | % |
For the thirdsecond quarter and first ninesix months of 2019,2020, both domestic income before income taxes and pre-tax return on revenues improved primarily due to higher revenues from truck operations. For the third quarter and first nine months of 2019, foreign income before income taxes and pre-tax return on revenues decreased primarily due to lower truck and finance results in Europerevenues and lower margins from truck volumes in Australia.operations.
LIQUIDITY AND CAPITAL RESOURCES:
| September 30 |
|
| December 31 |
| June 30 |
|
| December 31 |
| ||||
($ in millions) |
| 2019 |
|
|
| 2018 |
|
| 2020 |
|
|
| 2019 |
|
Cash and cash equivalents | $ | 3,669.5 |
|
| $ | 3,435.9 |
| $ | 3,128.0 |
|
| $ | 4,175.1 |
|
Marketable debt securities |
| 1,107.8 |
|
|
| 1,020.4 |
|
| 1,147.2 |
|
|
| 1,162.1 |
|
| $ | 4,777.3 |
|
| $ | 4,456.3 |
| $ | 4,275.2 |
|
| $ | 5,337.2 |
|
The Company’s total cash and marketable debt securities at SeptemberJune 30, 2019 increased $321.02020 decreased $1,062.0 million from the balances at December 31, 2018,2019, primarily due to an increasea decrease in cash and cash equivalents.equivalents, primarily reflecting $1,018.0 million of dividends paid during the first six months of 2020.
The change in cash and cash equivalents is summarized below:
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | 2019 |
|
| 2018 |
| |||||||||
Six Months Ended June 30, | 2020 |
|
| 2019 |
| |||||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 1,856.6 |
|
| $ | 1,617.0 |
| $ | 507.1 |
|
| $ | 1,248.7 |
|
Net income items not affecting cash |
| 859.1 |
|
|
| 820.0 |
|
| 543.9 |
|
|
| 555.0 |
|
Changes in operating assets and liabilities, net |
| (799.1 | ) |
|
| (509.8 | ) |
| 309.8 |
|
|
| (614.2 | ) |
Net cash provided by operating activities |
| 1,916.6 |
|
|
| 1,927.2 |
|
| 1,360.8 |
|
|
| 1,189.5 |
|
Net cash used in investing activities |
| (1,556.5 | ) |
|
| (1,276.5 | ) |
| (594.1 | ) |
|
| (1,125.4 | ) |
Net cash used in financing activities |
| (88.7 | ) |
|
| (63.7 | ) |
| (1,778.4 | ) |
|
| (282.0 | ) |
Effect of exchange rate changes on cash |
| (37.8 | ) |
|
| (37.7 | ) |
| (35.4 | ) |
|
| 1.4 |
|
Net increase in cash and cash equivalents |
| 233.6 |
|
|
| 549.3 |
| |||||||
Net decrease in cash and cash equivalents |
| (1,047.1 | ) |
|
| (216.5 | ) | |||||||
Cash and cash equivalents at beginning of period |
| 3,435.9 |
|
|
| 2,364.7 |
|
| 4,175.1 |
|
|
| 3,435.9 |
|
Cash and cash equivalents at end of period | $ | 3,669.5 |
|
| $ | 2,914.0 |
| $ | 3,128.0 |
|
| $ | 3,219.4 |
|
Operating activities: Cash provided by operations decreasedincreased by $10.6$171.3 million to $1,916.6$1,360.8 million in the first nine monthshalf of 20192020 from $1,927.2$1,189.5 million in 2018. Lower2019. Higher operating cash flows reflect $1,015.7 million from wholesale receivables as the first half of 2020 was a reductioncash inflow of $694.7 million vs. a cash outflow of $321.0 million in liabilities for residual value guarantees (RVG) and deferred revenues2019. In addition, higher cash from operations reflects a higher cash inflow of $349.0 million, primarily due to a lower volume of new RVG contracts$467.0 from accounts receivables as collections exceeded sales in 2020 ($30.4 million) compared to 2018.sales exceeding collections in 2019 ($436.6 million). Additionally, the decreaseincrease in operating cash flows reflectreflects lower cash inflows of $294.6 million from accounts payable and accrued expenses asnet purchases of goods and services exceeding payments were lower in 2019 compared to 2018.inventories by $133.2 million. The lowerhigher operating cash inflows were partially offset by lower net purchases of inventories of $292.0 million, higher net income of $239.6$741.6 million and lower pension contributionscash inflows from accounts payable and accrued expenses of $69.2 million.$630.8 million, as payments for goods and services exceeded purchases by $233.2 million in 2020 compared to goods and services received which exceeded payments by $397.6 million in 2019.
- 4644 -
PACCAR Inc – Form 10-Q
Investing activities: Cash used in investing activities increaseddecreased by $280.0$531.3 million to $1,556.5$594.1 million in the first nine monthshalf of 20192020 from $1,276.5$1,125.4 million in 2018. Higher2019. Lower net cash used in investing activities reflects $433.8 million for marketable debt securities as there were $90.6 million in net purchases of marketable debt securities in the first nine months of 2019 compared to $343.2 million in net proceeds from sales of marketable debt securities in 2018 and higher payments for property, plant and equipment of $52.7 million. This was partially offset by lower net originations from retail loans and finance leases of $201.2$306.6 million and fewer acquisitionslower cash used in the acquisition of equipment onfor operating leases of $40.0$220.8 million. In addition, lower net cash used reflects a $99.5 million increase from marketable debt securities, as there were $11.7 million in net proceeds from sale of marketable debt securities in the first half of 2020 compared to $87.8 million in net purchases of marketable debt securities in 2019. The lower cash usage was partially offset by lower proceeds from asset disposals of $56.6 million and higher payments for property, plant and equipment of $62.3 million.
Financing activities: Cash used in financing activities was $88.7$1,778.4 million for the first nine monthshalf of 2019, $25.02020, $1,496.4 million higher than the $63.7$282.0 million used in 2018. The Company paid $1,027.8 million in dividends in the first nine months of 2019, $321.2 million higher than the $706.6 million paid in 2018 due primarily to a higher special dividend paid in January 2019. In the first nine monthshalf of 2019,2020, the Company issued $2,056.2$1,474.8 million of term debt, repaid term debt of $1,677.2$1,012.4 million and decreased its outstanding commercial paper and short-term bank loans by $1,192.5 million. In the first half of 2019, the Company issued $1,453.9 million of term debt, repaid term debt of $1,116.9 million and increased its outstanding commercial paper and short-term bank loans by $636.5 million. In the first nine months of 2018, the Company issued $2,085.3 million of term debt, repaid term debt of $1,402.3 million and increased its outstanding commercial paper and short-term bank loans by $99.9$330.6 million. This resulted in cash providedused by borrowing activities of $1,015.5$730.1 million in the first nine monthshalf of 2019, $232.62020, $1,397.7 million higherlower than the cash provided by borrowing activities of $782.9$667.6 million in 2018.2019. The Company paid $1,018.0 million in dividends in the first half of 2020 compared to $917.0 million in 2019 due to a higher extra dividend paid in January 2020. In addition, the Company repurchased 1.7.7 million shares of common stock for $110.2$41.6 million in the first ninesix months of 20192020 compared to the purchase of 2.4.8 million shares for $153.2$56.5 million in the same period last year.
Credit Lines and Other
The Company has line of credit arrangements of $3.55$3.58 billion, of which $3.24$3.27 billion were unused at SeptemberJune 30, 2019.2020. Included in these arrangements are $3.00 billion of committed bank facilities, of which $1.00 billion expires in June 2020,2021, $1.00 billion expires in June 2023 and $1.00 billion expires in June 2024. The Company intends to extend or replace these credit facilities on or before expiration to 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 committed bank facilities for the ninethree months ended SeptemberJune 30, 2019.2020.
On July 9,December 4, 2018, PACCAR’s Board of Directors approved the repurchase of up to $300.0$500.0 million of the Company’s outstanding common stock, and on December 4, 2018, approved a plan to repurchase an additional $500.0 million of common stock upon completion of the prior plan. During the second quarter of 2019, the Company completed the repurchase of $300.0 million of the Company’s common stock under the authorization approved on July 9, 2018.stock. As of SeptemberJune 30, 2019,2020, the Company has repurchased $69.5$110.0 million of shares under the December 4, 2018 authorization. The Company has temporarily suspended its repurchases as a result of the economic uncertainty related to the COVID‑19 pandemic.
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.
Investments for manufacturing property, plant and equipment in the first ninesix months of 20192020 were $498.0$302.5 million compared to $292.1$305.2 million for the same period of 2018.2019. Over the past decade, the Company’s combined investments in worldwide capital projects and R&D totaled $6.56$7.05 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 2019,2020, total capital investments for PACCAR are expected to be $675$525 to $725$575 million and R&D is expected to be $325$265 to $335$295 million. In 2020, capital investments are projected to be $625 to $675 million and R&D is expected to be $320 to $350 million. The Company is investing for long-term growth in aerodynamic truck models, integrated powertrains including diesel electric, hybrid and hydrogen fuel cellzero emissions powertrain technologies, advanced driver assistance systems, digitalconnected vehicle services and next-generation manufacturing capabilities.
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 September 30, 2019, the Company’s exposures in such countries were insignificant.distribution facilities.
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.
In November 2018, 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, 20192020 was $5.20$6.15 billion. The registration expires in November 2021 and does not limit the principal amount of debt securities that may be issued during that period.
- 4745 -
PACCAR Inc – Form 10-Q
As of SeptemberJune 30, 2019,2020, the Company’s European finance subsidiary, PACCAR Financial Europe, had €1.35€1.60 billion available for issuance under a €2.50 billion medium-term note program listed on the Professional SecuritiesEuro MTF Market of the LondonLuxembourg Stock Exchange. This program has beenreplaced an expiring program in the second quarter of 2020 and is renewed annually through the filing of a new listing which expires in July 2020.listing.
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, 2019, 6.852020, 8.37 billion pesos were available for issuance.
In August 2018, the Company’s Australian subsidiary, PACCAR Financial Pty. Ltd. (PFPL), registered a medium-term note program. The program does not limit the principal amount of debt securities that may be issued under the program. The total amount of medium-term notes outstanding for PFPL as of SeptemberJune 30, 20192020 was 300.0 million Australian dollars.
The Company believes its cash balances and investments, collections on existing finance receivables, committed bank facilities 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. In the event of a decrease in the Company’s credit ratings or a disruption in the financial markets, the Company may not be able to refinance its maturing debt in the financial markets. In such circumstances, the Company would be exposed to liquidity risk to the degree that the timing of debt maturities differs from the timing of receivable collections from customers. The Company believes its various sources of liquidity, including committed bank facilities, would continue to provide it with sufficient funding resources to service its maturing debt obligations.
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 or tariffs 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; pandemics; litigation, including EC settlement-related claims; or legislative and governmental regulations. A more detailed description of these and other risks is included under the headings Part 1, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10‑K for the year ended December 31, 20182019 and in Part II, Item 1, “Legal Proceedings” and Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.
- 4846 -
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, 2019.2020. For additional information, refer to Item 7A as presented in the 20182019 Annual Report on Form 10‑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 Rule 13a-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 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.
- 4947 -
PACCAR Inc – Form 10-Q
PART II – OTHER INFORMATION
For Items 3, 4 and 5, there was no reportable information for the ninesix months ended SeptemberJune 30, 2019.2020.
ITEM 1.LEGAL PROCEEDINGS
On July 19, 2016, the European Commission (EC) concluded its investigation of all major European truck manufacturers and reached a settlement with DAF. Following the settlement, claims and lawsuits have been filed against the Company, DAF and certain DAF subsidiaries and other truck manufacturers in various European jurisdictions. These claims and lawsuits include a number of collective proceedings, including proposed class actions in the United Kingdom, alleging EC-related claims and seeking unspecified damages. Others may bring EC-related claims and lawsuits against the Company or its subsidiaries. While the Company believes it has meritorious defenses, such claims and lawsuits will likely take a significant period of time to resolve. The Company cannot reasonably estimate a range of loss, if any, that may result given the early stage of these claims and lawsuits. An adverse outcome of such proceedings could have a material impact on the Company’s results of operations.
The Company and its subsidiaries are parties toPACCAR is also a defendant in various other lawsuits incidental tolegal proceedings and, in addition, there are various other contingent liabilities arising in the ordinarynormal course of business. Management believesAfter consultation with legal counsel, management does not anticipate that the disposition of such lawsuitsthese various other proceedings and contingent liabilities will not materially affecthave a material effect on the Company's business orconsolidated financial condition.statements.
ITEM 1A.RISK FACTORS
For information regarding risk factors, refer to Part I, Item 1A as presented in the 20182019 Annual Report on Form 10-K. There have been no material changes in the Company’s risk factors during the ninesix months ended SeptemberJune 30, 2019,2020, except for anthe following update with respect toregarding the pending U.K. exit from the European Union and interest-rate risks relating to the anticipated LIBOR transition.COVID-19 pandemic.
U.K. Exit fromCOVID-19 Pandemic. The COVID-19 pandemic and various governmental responses to contain the European Union.outbreak have resulted in a significant reduction in global economic activity. National and local governments have issued various stay-at-home orders, travel restrictions and border closures affecting consumers and businesses. These restrictions have been lifted to various degrees in different locations, but are subject to being re-imposed. The U.K. continues to negotiateCompany’s operations have been designated as essential businesses in many jurisdictions as they support the termstransport of food, medical supplies and other essential materials which means the Company may operate under certain conditions including ensuring employee health and safety is maintained. The Company’s workforce at a given location could be affected by a localized outbreak of COVID-19, necessitating facility shutdowns. If the Company suspends production at one or more of its exit from the European Union (“Brexit”). On October 28, 2019, the deadline for the U.K. to exit the EU was extended from October 31, 2019 to January 31, 2020. The timing and termsfactories as a result of the U.K.’s exit from the EU remains uncertain. If the termspandemic or related impacts, or if one or more of the exit fromCompany’s suppliers could not produce needed parts or not produce at sufficient volumes to support the EU are not agreed, it is anticipated that the standard trade protocols of the World Trade Organization would become effective (“Hard Brexit”).Company’s production plans or aftermarket requirements, revenues and operating results could be adversely affected.
The Company manufactures medium-full extent and heavy-duty DAF trucks in the U.K. which are sold primarily in the U.K. and to a lesser extent in Europe and other world markets. In 2018, approximately 10%duration of the Company’s worldwide truck production was manufactured in the U.K. In the event of a Hard Brexit, it is anticipated there would be an increase in tariffs on truck components and parts from the EU which would increase the cost of all trucks and parts in the U.K. The higher cost of trucks and parts may impact manufacturing and parts sales and margins which could have an adverse impacteffect on the Company’s results of operations. The Company’s results could also be impacted bybusiness is uncertain and depends on the uncertainty regarding timing and termsseverity of the final agreement, which could cause delayspandemic and how quickly and to what extent global and local economies are able to recover from the effects of the pandemic. Prolonged unemployment, changes in capital investment decisions.
LIBOR (London Inter-Bank Offered Rate) Transition. Certain financing provided by PACCAR Financial Services to dealers and retail customers,consumer behavior as a result of COVID-19, as well as financing extended to PACCAR Financial Services, are basedother pandemic related economic factors such as business failures, lower housing and construction starts, lower automobile sales and disruptions in financial markets could have further adverse effects on variable interest rate contracts. These contracts utilize various benchmark rates, including LIBOR to establish applicable contract interest rates. PACCAR also utilizes hedging instrumentsthe Company’s truck and has line ofparts revenues and operating results and may result in higher finance portfolio past dues, credit arrangements which reference LIBOR (including other similar benchmark rates). In July 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced it intends to stop compelling banks to submit rates for calculation of LIBOR after 2021. At this time it is not clear if LIBOR will continue to exist,losses and if not, what alternative benchmark rate will replace LIBOR. Any new benchmark rate will likely not replicate LIBOR exactly, which could impact currently active contracts which terminate after 2021.
Substantially allused truck losses. Other unforeseen impacts of the COVID-19 pandemic could also impact the Company’s contracts which reference LIBOR, including dealer wholesale financing contracts, medium-term notes, hedging instrumentsbusiness and line of credit arrangements, include fall-back language that specifies the methods to establish contract interest rates in the absence of LIBOR, or provide for the use of an alternative benchmark rate should LIBOR be discontinued.
The Company has retail loan and lease contracts with customers of approximately $165 million that extend beyond 2021 and do not contain fall-back language or provide for the use of an alternative benchmark rate. The Company will seek to amend these contracts to allow for the use of an alternative benchmark rate.
Changes to benchmark rates may have an uncertain impact on finance receivables and other financial obligations, the interest rates on our current or future cost of funds and/or access to capital markets. The Company does not expect any changes to the use of LIBOR as a benchmark rate will have a material impact on the results of operations.
- 50 -
PACCAR Inc – Form 10-Q
ITEM 2.UNREGISTERED SALES OF EQUITYEQUITY SECURITIES AND USE OF PROCEEDS
For Items 2(a) and (b), there was no reportable information for the ninesix months ended SeptemberJune 30, 2019.2020.
(c) | Issuer purchases of equity securities. |
On December 4, 2018, PACCAR’s Board of Directors approved the repurchase of up to $500.0 million of the Company’s outstanding common stock. As of SeptemberJune 30, 2019,2020, the Company has repurchased $69.5$110.0 million of shares under this plan. The following are details ofThere were no repurchases made forunder this plan during the thirdsecond quarter of 2019:2020.
|
| Total Number of |
|
| Average |
|
| Maximum Dollar |
| |||
|
| Shares |
|
| Price Paid |
|
| Value that May Yet |
| |||
Period |
| Purchased |
|
| per Share |
|
| be Purchased |
| |||
July 1-31, 2019 |
|
|
|
|
|
|
|
|
| $ | 484,044,891 |
|
August 1-31, 2019 |
|
| 757,965 |
|
| $ | 64.30 |
|
| $ | 435,310,545 |
|
September 1-30, 2019 |
|
| 74,825 |
|
| $ | 64.42 |
|
| $ | 430,490,611 |
|
Total |
|
| 832,790 |
|
| $ | 64.31 |
|
| $ | 430,490,611 |
|
- 5148 -
PACCAR Inc – Form 10-Q
ITEM 6. | EXHIBITS |
Any exhibits filed herewith are listed in the accompanying index to exhibits.
INDEX TO EXHIBITS
Exhibit Number |
| Exhibit Description |
| Form |
| Date of First Filing |
| Exhibit Number |
| File Number | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) (i) |
|
|
| Articles of Incorporation: |
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amended and Restated Certificate of Incorporation of PACCAR Inc |
| 8-K |
| May 4, 2018 | 3(i) | 001-14817 | ||
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of PACCAR Inc | 8-K | April 24, 2020 |
| 3(i) |
| 001-14817 | ||||||
|
|
|
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|
|
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|
|
|
|
|
|
(ii) |
|
|
| Bylaws: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8-K |
| December 7, 2018 |
| 3(ii) |
| 001-14817 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
|
| Instruments defining the rights of security holders, including indentures**: |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
| S-3 |
| November 20, 2009 |
| 4.1 |
| 333-163273 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (b) |
| Forms of Medium-Term Note, Series N (PACCAR Financial Corp.) |
| S-3 |
| November 7, 2012 |
|
| 333-184808 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (c) |
| Forms of Medium-Term Note, Series O (PACCAR Financial Corp.) |
| S-3 |
| November 5, 2015 |
|
| 333-207838 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (d) |
| Forms of Medium-Term Note, Series P (PACCAR Financial Corp.) |
| S-3 |
| November 2, 2018 |
|
| 333-228141 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (e) |
|
| 10-Q |
|
|
| 4(h) |
| 001-14817 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (f) |
|
|
|
|
|
|
|
| 001-14817 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (g) |
|
| 10-Q |
|
|
|
|
| 001-14817 | |
|
|
|
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|
|
|
|
| (h) |
|
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| |||||
|
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| ||||
(i) | 10-K | February 19, 2020 | 4(j) | 001-14817 | ||||||||
|
|
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|
|
|
|
|
|
|
|
|
|
|
| ** |
| 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. |
- 52 -
PACCAR Inc – Form 10-Q
|
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| |||||||
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(10) |
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| Material Contracts: |
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|
|
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|
|
|
|
|
| (a) |
| PACCAR Inc Amended and Restated Supplemental Retirement Plan |
| 10-K |
| February 27, 2009 |
| 10(a) |
| 001-14817 |
- 49 -
Exhibit Number | Exhibit Description | Form | Date of First Filing | Exhibit Number | File Number | |||||||
|
|
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|
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|
|
|
|
| (b) |
|
| 10-Q |
| May 10, 2012 |
| 10(b) |
| 001-14817 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (c) |
| Deferred Incentive Compensation Plan (Amended and Restated as of December 31, 2004) |
| 10-K |
| February 27, 2006 |
| 10(b) |
| 001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (d) |
|
| DEF14A |
| March 14, 2014 |
| Appendix A |
| 001-14817 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (e) |
|
| 8-K |
| December 10, 2007 |
| 99.3 |
| 001-14817 | |
|
|
|
|
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|
|
|
|
|
|
| (f) |
| Amendment to Compensatory Arrangement with Non-Employee Directors |
| 10-K |
| February 26, 2015 |
| 10(g) |
| 001-14817 |
|
|
|
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|
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|
|
|
|
|
| (g) |
| PACCAR Inc Senior Executive Yearly Incentive Compensation Plan |
|
|
|
|
|
|
| 001-14817 |
|
|
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|
|
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|
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|
|
|
|
|
| (h) |
|
|
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|
| 001-14817 | |
|
|
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|
|
|
|
|
|
| (i) |
|
| 10-Q |
| August 7, 2013 |
| 10(k) |
| 001-14817 | |
|
|
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|
|
|
| (j) |
| PACCAR Inc Long Term Incentive Plan, 2014 Form of Nonstatutory Stock Option Agreement |
| 10-Q |
| August 7, 2013 |
| 10(l) |
| 001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (k) |
| PACCAR Inc Long Term Incentive Plan, 2016 Restricted Stock Award Agreement |
| 10-Q |
| August 6, 2015 |
| 10(q) |
| 001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (l) |
| PACCAR Inc Long Term Incentive Plan, 2018 Form of Restricted Stock Award Agreement |
| 10-K |
| February 21, 2019 |
| 10(m) |
| 001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (m) |
| PACCAR Inc Long Term Incentive Plan, Form of Restricted Stock Unit Agreement |
| 10-K |
| February 21, 2019 |
| 10(n) |
| 001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (n) |
| PACCAR Inc Savings Investment Plan, Amendment and Restatement effective September 1, 2016 |
| 10-Q |
| November 4, 2016 |
| 10(q) |
| 001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (o) |
|
| 8-K |
| May 16, 2007 |
| 10.1 |
| 001-14817 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (p) |
|
| 10-Q |
| October 27, 2008 |
| 10(o) |
| 001-14817 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (q) |
|
| 10-Q |
| November 7, 2013 |
| 10(u) |
| 001-14817 |
- 53 -
PACCAR Inc – Form 10-Q
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| ||
(r) | 10-K | February 19, 2020 | 10(r) | 001-14817 | ||||||||
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| 10-K |
| February 26, 2015 |
| 10(t) |
| 001-14817 | |
|
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|
|
| 10-K |
| February 26, 2015 |
| 10(u) |
| 001-14817 |
- 50 -
Exhibit Number | Exhibit Description | Form | Date of First Filing | Exhibit Number | File Number | |||||||
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(31) |
|
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| Rule 13a-14(a)/15d-14(a) Certifications: |
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| (a) |
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| (b) |
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| |
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| ||
(32) |
| Section 1350 Certifications: |
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(101.INS) |
| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||||||
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(101.SCH) |
| Inline XBRL Taxonomy Extension Schema Document* |
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(101.CAL) |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document* |
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(101.DEF) |
| Inline XBRL Taxonomy Extension Definition Linkbase Document* |
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(101.LAB) |
| Inline XBRL Taxonomy Extension Label Linkbase Document* |
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(101.PRE) |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document* |
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| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)* |
* | filed herewith |
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PACCAR Inc – Form 10-Q
SIGNATURE
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.
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| PACCAR Inc |
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| (Registrant) |
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Date |
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| By | /s/ M. T. Barkley |
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| M. T. Barkley |
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| Senior Vice President and Controller |
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| (Authorized Officer and Chief Accounting Officer) |
- 5552 -