01—Abstract
Summary
Summary of the 10-K filed March 17, 2000. Cited figures are marked; the original filing is the authoritative source.
PACCAR Inc's 1999 10-K shows a record year.
Net income rose 40% to $583.6 milliona ($7.41 diluted EPS), on net sales of $8.65 billion (up 14%). Truck unit deliveries reached a record 108,000 (up 15%), and truck income before taxes climbed 42% to $758.7 million. Gross margins widened to 15.8% from 15.1%, and SG&A fell to 6.7% of sales from 7.7%.
Results were helped by operating efficiencies, cost reductions, and a $17.5 millionb after-tax gain on the sale of PACCAR Automotive (retail auto parts). Cash and marketable securities reached $1.06 billion, and operating cash flow was $840.2 million. The outlook is mixed.
Orders and backlog strengthened in Europe, where DAF plans to raise build rates, but U.S. and Canadian orders have softened on lower used-truck prices, higher fuel costs, and higher interest rates, so production there may need to be reduced. Financial Services grew strongly, with average earning assets up about 25% to $4.0 billionc and pretax income up 25% to $77.8 million. However, credit losses rose in late 1999 as high fuel prices squeezed truck operators, and management expects this to persist near term.
Balance sheet risk is modest on the truck side, with Truck and Other long-term debt of just $182 milliond. Financial Services carries most of the leverage: $3.4 billion of borrowings against $4.4 billion of net receivables.
Management says the company is well capitalized, and the 10-K notes that the Year 2000 transition caused no significant problems. Investors should watch North American order trends and the credit quality of the finance portfolio.
02—Key points
Key Highlights
- Record 1999 results: net income of $583.6 million, up 40% from $416.8 million, with diluted EPS of $7.41 versus $5.30 in 1998
- Record truck sales of 108,000 units (up 15%); truck segment pretax income rose 42% to a record $758.7 million
- Gross margin improved to 15.8% from 15.1%, and SG&A fell to 6.7% of sales from 7.7%
- Sold PACCAR Automotive retail parts business to CSK Auto for $143.2 million cash, generating a $33.2 million pretax gain
- Financial Services pretax income up 25% to $77.8 million, but credit losses are rising due to high fuel prices affecting truck operators
- Outlook is mixed: European orders and backlog strengthened, while U.S. and Canadian orders declined, which may force lower production rates
- Strong liquidity with $1.06 billion in cash and marketable securities; Truck and Other long-term debt is only $182 million; $2 million share buyback authorized
03—Questions
Frequently Asked Questions
How did PACCAR perform financially in 1999?
PACCAR delivered record results. Net sales rose 14% to $8.65 billion, net income increased 40% to $583.6 million, and diluted EPS reached $7.41, up from $5.30. The gains came from a 15% rise in truck volume, better gross margins, lower SG&A as a share of sales, and an after-tax gain from a business divestiture.
What is the outlook for PACCAR's truck business heading into 2000?
The outlook is uneven. Europe shows stronger orders and backlog, and DAF plans to increase build rates. In the U.S. and Canada, orders and backlog have fallen due to lower used-truck prices, higher fuel prices, and higher interest rates, so production may need to be cut there. Management also plans to expand North American medium-duty output with the reopened Quebec plant, which can build up to 20,000 trucks a year.
Are there risks in PACCAR's Financial Services segment?
Yes. Credit losses increased in late 1999 as high fuel prices squeezed truck operators' margins. Management expects this to continue until fuel prices fall or the costs are passed on to customers. The loss provision rose to $20.7 million from $14.0 million. Overall portfolio quality is still described as good, and the segment's borrowings of about $3.4 billion are largely matched to its receivables.
How strong is PACCAR's balance sheet and liquidity?
Liquidity is strong. Cash and marketable securities totaled $1.06 billion at year-end, and operating cash flow was $840.2 million. Truck and Other long-term debt is only $182.2 million, while most of the company's debt sits in Financial Services and is funded through commercial paper and medium-term notes. The company also has $1.07 billion of unused credit lines and $195 million of remaining shelf registration capacity, with a new $2.5 billion shelf planned.
Did PACCAR face any significant legal, environmental, or Year 2000 issues?
No material ones were disclosed. Management says legal proceedings will not materially affect financial position. Environmental cleanup liabilities are estimated at $27 million to $56 million, with a reserve established, and the company does not expect a material adverse effect. PACCAR completed its Year 2000 work before year-end 1999 at a cost of $26 million and reported no significant system failures.
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