Edgar Filing: PACCAR INC

pcar-10q_20190331.htm

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 March 31, 2019

☐	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 incorporation or organization)	(I.R.S. Employer Identification No.)

777 - 106th Ave. N.E., Bellevue, WA	98004
(Address of principal executive offices)	(Zip Code)

(425) 468-7400

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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 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 — 346,443,375 shares as of April 30, 2019

PACCAR Inc – Form 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION:

ITEM 1.	FINANCIAL STATEMENTS:
	Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2019 and 2018 (Unaudited)	3
	Consolidated Balance Sheets – March 31, 2019 (Unaudited) and December 31, 2018	4
	Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2019 and 2018 (Unaudited)	6
	Consolidated Statements of Stockholders' Equity – Three Months Ended March 31, 2019 and 2018 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	8
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44
ITEM 4.	CONTROLS AND PROCEDURES	44

PART II.	OTHER INFORMATION:

ITEM 1.	LEGAL PROCEEDINGS	44
ITEM 1A.	RISK FACTORS	44
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	45
ITEM 6.	EXHIBITS	46

INDEX TO EXHIBITS		46

SIGNATURE		49

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PACCAR Inc – Form 10-Q

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Statements of Comprehensive Income (Unaudited)

(Millions Except Per Share Amounts)

	Three Months Ended
	March 31
	2019			2018
TRUCK, PARTS AND OTHER:
Net sales and revenues	$	6,138.1		$	5,321.8

Cost of sales and revenues		5,217.1			4,535.5
Research and development		78.3			76.0
Selling, general and administrative		136.9			137.1
Interest and other (income), net		(10.3	)		(18.7	)
		5,422.0			4,729.9
Truck, Parts and Other Income Before Income Taxes		716.1			591.9

FINANCIAL SERVICES:
Interest and fees		137.1			115.7
Operating lease, rental and other revenues		212.4			216.5
Revenues		349.5			332.2

Interest and other borrowing expenses		53.4			41.3
Depreciation and other expenses		177.4			186.4
Selling, general and administrative		32.5			31.1
Provision for losses on receivables		2.2			5.9
		265.5			264.7
Financial Services Income Before Income Taxes		84.0			67.5
Investment income		19.3			10.0
Total Income Before Income Taxes		819.4			669.4
Income taxes		190.4			157.3
Net Income	$	629.0		$	512.1

Net Income Per Share
Basic	$	1.81		$	1.45
Diluted	$	1.81		$	1.45

Weighted Average Number of Common Shares Outstanding
Basic		347.2			352.5
Diluted		347.8			353.5

Comprehensive Income	$	632.0		$	587.4

See Notes to Consolidated Financial Statements.

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PACCAR Inc – Form 10-Q

Consolidated Balance Sheets (Millions)

	March 31		December 31
	2019		2018*
	(Unaudited)
ASSETS

TRUCK, PARTS AND OTHER:
Current Assets
Cash and cash equivalents	$	2,733.1	$	3,279.2
Trade and other receivables, net		1,736.2		1,314.4
Marketable debt securities		1,081.6		1,020.4
Inventories, net		1,272.6		1,184.7
Other current assets		401.7		364.7
Total Truck, Parts and Other Current Assets		7,225.2		7,163.4

Equipment on operating leases, net		757.4		786.6
Property, plant and equipment, net		2,521.5		2,480.9
Other noncurrent assets, net		744.2		651.9
Total Truck, Parts and Other Assets		11,248.3		11,082.8

FINANCIAL SERVICES:
Cash and cash equivalents		109.5		156.7
Finance and other receivables, net		11,355.7		10,840.8
Equipment on operating leases, net		2,824.1		2,855.0
Other assets		619.4		547.1
Total Financial Services Assets		14,908.7		14,399.6
	$	26,157.0	$	25,482.4

*	The December 31, 2018 consolidated balance sheet has been derived from audited financial statements.

See Notes to Consolidated Financial Statements.

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PACCAR Inc – Form 10-Q

Consolidated Balance Sheets (Millions)

	March 31			December 31
	2019			2018*
	(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY

TRUCK, PARTS AND OTHER:
Current Liabilities
Accounts payable, accrued expenses and other	$	3,507.4		$	3,027.7
Dividend payable					695.1
Total Truck, Parts and Other Current Liabilities		3,507.4			3,722.8
Residual value guarantees and deferred revenues		813.2			842.4
Other liabilities		1,272.2			1,145.7
Total Truck, Parts and Other Liabilities		5,592.8			5,710.9

FINANCIAL SERVICES:
Accounts payable, accrued expenses and other		570.3			523.2
Commercial paper and bank loans		3,424.8			3,540.8
Term notes		6,771.6			6,409.7
Deferred taxes and other liabilities		692.0			704.9
Total Financial Services Liabilities		11,458.7			11,178.6

STOCKHOLDERS' EQUITY:
Preferred stock, no par value - authorized 1.0 million shares, none issued
Common stock, $1 par value - authorized 1.2 billion shares, issued 347.0 and 346.6 million shares		347.0			346.6
Additional paid-in capital		94.3			69.4
Treasury stock, at cost - .5 million and nil shares		(33.4	)
Retained earnings		9,793.1			9,275.4
Accumulated other comprehensive loss		(1,095.5	)		(1,098.5	)
Total Stockholders' Equity		9,105.5			8,592.9
	$	26,157.0		$	25,482.4

*	The December 31, 2018 consolidated balance sheet has been derived from audited financial statements.

See Notes to Consolidated Financial Statements.

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PACCAR Inc – Form 10-Q

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Millions)

	Three Months Ended
	March 31
	2019			2018
OPERATING ACTIVITIES:
Net Income	$	629.0		$	512.1
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization:
Property, plant and equipment		81.4			93.6
Equipment on operating leases and other		177.7			179.9
Provision for losses on financial services receivables		2.2			5.9
Other, net		(9.0	)		(47.7	)
Pension contributions		(5.8	)		(75.6	)
Change in operating assets and liabilities:
Trade and other receivables		(442.5	)		(353.7	)
Wholesale receivables on new trucks		(402.7	)		(233.0	)
Inventories		(92.8	)		(135.5	)
Accounts payable and accrued expenses		405.3			441.3
Income taxes, warranty and other		20.2			138.0
Net Cash Provided by Operating Activities		363.0			525.3

INVESTING ACTIVITIES:
Originations of retail loans and finance leases		(888.1	)		(849.4	)
Collections on retail loans and finance leases		764.8			696.5
Net decrease in wholesale receivables on used equipment		4.3			21.8
Purchases of marketable debt securities		(202.6	)		(128.5	)
Proceeds from sales and maturities of marketable debt securities		146.6			448.6
Payments for property, plant and equipment		(102.8	)		(98.4	)
Acquisitions of equipment for operating leases		(287.4	)		(276.7	)
Proceeds from asset disposals		164.5			130.0
Net Cash Used in Investing Activities		(400.7	)		(56.1	)

FINANCING ACTIVITIES:
Payments of cash dividends		(806.1	)		(510.1	)
Purchases of treasury stock		(32.9	)		(13.5	)
Proceeds from stock compensation transactions		15.9			9.5
Net (decrease) increase in commercial paper, short-term bank loans and other		(113.9	)		284.3
Proceeds from term debt		636.7			398.7
Payments on term debt		(250.0	)		(508.2	)
Net Cash Used in Financing Activities		(550.3	)		(339.3	)
Effect of exchange rate changes on cash		(5.3	)		9.5
Net (Decrease) Increase in Cash and Cash Equivalents		(593.3	)		139.4
Cash and cash equivalents at beginning of period		3,435.9			2,364.7
Cash and cash equivalents at end of period	$	2,842.6		$	2,504.1

See Notes to Consolidated Financial Statements.

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PACCAR Inc – Form 10-Q

Consolidated Statements of Stockholders’ Equity (Unaudited)

(Millions Except Per Share Amounts)

	Three Months Ended
	March 31
	2019			2018
COMMON STOCK, $1 PAR VALUE:
Balance at beginning of quarter	$	346.6		$	351.8
Stock compensation		.4			.3
Balance at end of quarter		347.0			352.1

ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of quarter		69.4			123.2
Stock compensation		24.9			16.9
Balance at end of quarter		94.3			140.1

TREASURY STOCK, AT COST:
Balance at beginning of quarter
Purchases, shares: 2019 - .50; 2018 - .26		(33.4	)		(16.7	)
Balance at end of quarter		(33.4	)		(16.7	)

RETAINED EARNINGS:
Balance at beginning of quarter		9,275.4			8,369.1
Net income		629.0			512.1
Cash dividends declared on common stock, per share: 2019 - $.32, 2018 - $.25		(111.3	)		(88.2	)
Cumulative effect of change in accounting principles					17.1
Balance at end of quarter		9,793.1			8,810.1

ACCUMULATED OTHER COMPREHENSIVE LOSS:
Balance at beginning of quarter		(1,098.5	)		(793.6	)
Other comprehensive income		3.0			75.3
Balance at end of quarter		(1,095.5	)		(718.3	)
Total Stockholders’ Equity	$	9,105.5		$	8,567.3

See Notes to Consolidated Financial Statements.

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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 months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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.

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 March 31,	2019		2018
Additional shares		592,400		1,007,800
Antidilutive options		2,037,400		1,173,100

Reclassifications: 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 three months ended March 31, 2018 were reclassified to Income taxes, warranty and other ($30.0 million) and Trade and other receivables ($1.7 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 Lease Standard

In February 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 three months ended March 31, 2019, total cash originations and cash receipts from sales-type leases were $30.5 million and $50.3 million, respectively.

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PACCAR Inc – Form 10-Q

Notes to Consolidated Financial Statements (Unaudited)

(Millions, Except Share Amounts)

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: