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| PCAR > SEC Filings for PCAR > Form 10-Q on 27-Oct-2008 | All Recent SEC Filings |
27-Oct-2008
Quarterly Report
Third quarter 2008 total net sales and revenues increased to $4.0 billion compared to $3.76 billion in the third quarter of 2007. Third quarter 2008 net income was $299.0 million ($.82 per diluted share) compared to $302.3 million ($.81 per diluted share) in the third quarter of 2007. Net sales and revenues for the first nine months of 2008 were $12.06 billion compared to $11.46 billion in the first nine months of 2007. PACCAR's net income for the first nine months of 2008 was $904.8 million ($2.47 per diluted share) compared to $966.2 million ($2.58 per diluted share) in the year-earlier period.
For the third quarter and first nine months of 2008, total net sales and revenues as well as income before income taxes were favorably affected by stronger average foreign currency values. The currency translation effect increased third quarter 2008 sales and revenues by $146.6 million and income before income taxes by $4.5 million compared to the third quarter of 2007. For the first nine months, the currency translation effect increased net sales and revenues by $667.8 million and income before income taxes by $79.6 million compared to 2007.
Truck segment net sales and revenues increased to $3.64 billion in the third quarter of 2008 compared to $3.40 billion in the third quarter of 2007. For the first nine months of 2008, Truck segment net sales and revenues increased to $10.97 billion from $10.46 billion in 2007. Compared to 2007, the third quarter and year-to-date periods for 2008 reflect higher truck production in Europe, and higher worldwide parts sales which partially offset lower truck production in North America.
Truck segment income before income taxes was $362.5 million in the third quarter of 2008 compared to $317.2 million in the third quarter of 2007. In the third quarter higher truck sales and margins in Europe were partially offset by higher research and development (R&D) spending and lower truck sales in all other markets. Gross margins for the third quarter of 2008 improved to 15.4% from 15.0% in the third quarter of 2007 primarily due to higher margins in Europe. During the first nine months of 2008, truck segment income before income taxes was $1,063.6 million compared to $1,081.1 million in 2007. In the nine month period, higher sales and margins in Europe were offset by lower truck sales in North America and higher R&D spending. Gross margin for the first nine months of 2008 and 2007 was 15.3%.
R&D spending increased to $88.1 million in the third quarter of 2008 from $67.8 million in the third quarter of 2007 and to $261.7 million for the first nine months of 2008 compared to $163.4 million in the first nine months of 2007. The higher spending reflects investments in engine development and new vehicle programs.
Truck retail sales in the U.S. and Canada during the three- and nine-month periods ended September 30, 2008 were impacted by high diesel prices, declining housing starts and lower auto production. Retail sales are expected to be approximately 150,000 trucks in 2008. Industry retail sales are projected to improve slightly in the second half of 2009 and are expected to be in the range of 170,000 - 210,000 as fleets replace vehicles after several years of lower purchases.
Industry truck sales in Europe above 15 tonnes are expected to be comparable to the 340,000 units in 2007. As a result of a recent slowdown in customer demand in Europe, PACCAR has lowered its European truck production in the fourth quarter. European industry truck sales in 2009 are difficult to predict due to economic uncertainty, but could be at a level of 260,000 - 300,000 units. As a result the Company expects financial results to be lower in the fourth quarter of 2008 and into 2009.
Selling, general and administrative expense (SG&A) for the third quarter of 2008 of $119.3 million was lower than the $122.6 million reported in the third quarter of 2007 primarily due to lower operating expenses in North America. SG&A increased $9.9 million to $372.9 million for the first nine months of 2008, primarily due to the effects of a stronger euro. As a percentage of sales, SG&A decreased to 3.2% in 2008 from 3.6% in 2007 for the third quarter and was 3.4% in the first nine months of 2008 and 2007.
Financial Services segment revenues for the third quarter of 2008 increased to $322.8 million from $313.2 million in the third quarter of 2007. Revenues were $970.7 million in the first nine months of 2008, compared to $864.0 million in the first nine months of 2007. Third quarter Financial Services income before income taxes was $45.5 million compared to $73.4 in 2007 primarily due to a higher provision for credit losses. The provision for credit losses rose to $34.2 million in the third quarter of 2008 from $9.4 million in the third quarter of 2007, primarily due to increased credit losses in the U.S. and Canada. For the first nine months of 2008, Financial Services income before income taxes was $171.5 million compared to $207.9 million in the year-earlier period. For the first nine months of 2008, the provision for credit losses was $76.0 million compared to $26.1 million in the same period in the prior year. Higher credit losses in the U.S. and Canada in the first nine months of 2008 more than offset the higher finance margins from portfolio growth outside the U.S. and Canada.
The slowing worldwide economy and high fuel prices also negatively affected truck operators and resulted in higher credit losses in the third quarter of 2008. Worldwide, Financial Services accounts 30+ days past due were 2.7% of portfolio balances as of September 30, 2008 and June 30, 2008 compared to 1.5% at September 30, 2007.
The effective tax rate was 30.2% for the third quarter of 2008 and 30.3% for the first nine months of 2008 compared to 28.9% and 30.6% for the same time periods in 2007. The effective tax rates in the third quarter and first nine months of 2007 reflect the benefit of $8.3 million from expected utilization of net operating loss carry forwards in the United Kingdom. Excluding this item the effective tax rate was 30.8% in the third quarter and 31.2% for the first nine months of 2007. The lower effective tax rate in 2008 reflects a higher proportion of income from foreign operations.
During the first nine months of 2008, Truck and Other cash and marketable securities decreased by $617.5 million to $1.90 billion. Payments for dividends, capital investments and stock repurchases were partially offset by cash provided by operations.
Cash provided by operations was $959.5 million in the first nine months of 2008 compared to $1,459.2 million in the same period of 2007, due to lower net income and higher working capital investments in 2008.
As of September 30, 2008, the Company had repurchased 6.33 million shares of its common shares for $292.3 million under its October 2007 $300 million repurchase authorization. In July 2008, the Board of Directors approved the repurchase of an additional $300 million of PACCAR's outstanding common stock.
At September 30, 2008, PACCAR's European finance subsidiary, PACCAR Financial Europe (PFE), had €405.2 million available for issuance under a €1.5 billion medium term note program registered with the London Stock Exchange. The program is renewable annually.
On October 20, 2008, the Company's U.S. finance subsidiary, PACCAR Financial Corp. (PFC), was approved to participate in the Commercial Paper Funding Facility offered by the Federal Reserve Bank of New York. Under this funding facility, PFC may issue 90-day commercial paper during the period from October 27, 2008 through April 30, 2009. The total amount of commercial paper that PFC may have outstanding under this program is $1.456 billion.
The Company had line of credit arrangements of $3.36 billion, of which $3.34 billion was unused at the end of September 2008. Included in these arrangements are $3.0 billion of syndicated bank facilities. Of the $3.0 billion bank facilities, $2.0 billion matures in June 2009 and $1.0 billion matures in June 2012. The Company intends to replace these credit facilities as they expire with 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 of the financial services companies.
During the first nine months of 2008, PACCAR maintained its Standard & Poor's short-and long-term debt ratings of A-1+ and AA-, respectively. The current disruption in world wide credit markets has negatively affected the ability of many financial institutions and other companies to access liquidity. The Company cannot predict with any certainty the impact that further disruptions in the credit market will have on its liquidity. The Company believes its cash position and investment-grade credit ratings will continue to provide financial stability and access to credit markets.
Other information on liquidity and capital resources as presented in the 2007 Annual Report to Stockholders continues to be relevant.
Certain information presented in this report contains forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties that may affect actual results. Risks and uncertainties include, but are not limited to: a significant decline in industry sales; competitive pressures; reduced market share; reduced availability of or higher prices for fuel; increased safety, emissions, or other regulations resulting in higher costs and/or sales restrictions; currency or commodity price fluctuations; lower used truck prices; insufficient or under-utilization of manufacturing capacity; supplier interruptions; insufficient liquidity in the capital markets; insufficient supplier capacity or access to raw materials; labor disruptions; shortages of commercial truck drivers; increased warranty costs or litigation; or legislative and governmental regulations.
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