PACCAR 2009 Annual Report Download

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2009 ANNUAL REPORT

Table of contents

  • Page 1
    2 0 0 9 A N N U A L R E P O R T

  • Page 2
    ...I N E S S PACCAR is a global technology company that manufactures Class 8 commercial vehicles sold around the world under the Kenworth, Peterbilt and DAF nameplates. The company competes in the North American Class 5-7 market with its medium duty models assembled in North America and sold under the...

  • Page 3
    ... PACCAR facilities have achieved ISO 14001 environmental certification. Kenworth was the first commercial vehicle manufacturer to earn the prestigious Clean Air Excellence Award from the Environmental Protection Agency (EPA). T E C H N O L O G Y AWA R D S PACCAR Information Technology Division (ITD...

  • Page 4
    ... S 2009 2008  (millions except per share data) Truck and Other Net Sales and Revenues Financial Services Revenues Total Revenues Net Income Total Assets: Truck and Other Financial Services Truck and Other Long-Term Debt Financial Services Debt Stockholders' Equity Per Common Share: Net Income...

  • Page 5
    ... good results from aftermarket parts and financial services. PACCAR's $327 million of capital investments and research and development in 2009 enhanced its manufacturing capability and new product introductions, such as PACCAR's MX engine for the North America market. PACCAR delivered 61,000 trucks...

  • Page 6
    ...in new engine manufacturing software and infrastructure capacity upgrades. Over 20,000 dealers, customers, suppliers and employees have experienced the company's Technology Centers highlighting surface computing, tablet PCs, an electronic leasing and finance office, and an electronic service analyst...

  • Page 7
    ... global recession. The introduction of new Kenworth models and expansion of the DAF product range in Australia combined for a 20.9% heavy duty market share in 2009. PACCAR International (PACCINT) exports trucks and parts to over 100 countries and had a good year due to sales buoyed by global natural...

  • Page 8
    ...facilities in Europe and North America. PACCAR introduced medium duty diesel-electric hybrid vehicles, which can achieve up to a 30% fuel economy improvement. Many of the company's manufacturing facilities achieved "Zero Waste to Landfill" status during the year. PACCAR employees are environmentally...

  • Page 9

  • Page 10
    ...tour DAF's modern production facilities and new engine test center. Visitors experienced the PACCAR Technology Center, which is an interactive showplace highlighting modern production technologies and DAF's range of premium trucks and services, including PACCAR Financial and PACCAR Parts. The PACCAR...

  • Page 11

  • Page 12
    ...natural gas. Peterbilt's natural gas powered vehicles reduce emissions by 12% and have established the standard for industry quality, durability, productivity and environmental responsibility. Peterbilt opened its state-of-the-art PACCAR Technology Center in its Denton, Texas, manufacturing facility...

  • Page 13

  • Page 14
    ... record medium duty retail market share in 2009 of 8.0% due to the superior quality, ease of handling and reliability of the Class 6 KW T270 and Class 7 KW T370 models. Kenworth manufacturing facilities in Chillicothe, Ohio, and Renton, Washington, unveiled new PACCAR Technology Centers, which...

  • Page 15
    ... on the road in Australia and meet truck demand from the growing natural resource industry. Kenworth vehicles define heavy duty trucking in Australia, delivering custom-built quality and superior reliability. PACCAR Australia's T608 offers class-leading aerodynamics and enhanced fuel efficiency...

  • Page 16
    ... commercial vehicles in Mexico. The Kenworth medium duty hybrid models T270 and T370 achieve fuel efficiency gains of up to 30% in metropolitan markets. KENMEX has 121 dealer locations that offer the most extensive parts and service network in the country. Kenworth earned every customer service...

  • Page 17
    ... fuel economy, enhanced braking systems and advanced software diagnostics. The plant expanded its body building program to offer more customer-specific options, resulting in higher market share and improved profitability. Unveiled in 2009, Leyland's Product and Technology Center showcases PACCAR...

  • Page 18
    ... in 2009 with 15 new service locations in Russia, the Middle East and Southeast Asia. PACCAR International utilizes its extensive knowledge of overseas markets and PACCAR's unrivaled engineering and manufacturing resources to deliver superior quality transportation solutions globally. The award...

  • Page 19
    ... monthly parts and service programs by using loyalty cards in North America, Europe and Australia. The Peterbilt Preferred, Kenworth Privileges and DAF "MAX" loyalty cards celebrated their one millionth customer redemption in 2009. Loyalty card retail sales tripled in 2009 versus 2008. PACCAR Parts...

  • Page 20
    ... globally, increased sales into new overseas markets and enhanced its innovative customer support. 7 PACCAR Braden recovery winches, hoists and drives, Gearmatic planetary winches, and Carco tractor winches are recognized for superior engineering and dependable performance in rugged applications...

  • Page 21
    ... truck sales facilities in Europe and North America - including its recently opened used truck center in South Carolina - to remarket a record 12,000 pre-owned PACCAR trucks. PACCAR Financial offers an industry-leading spectrum of creative, flexible products, services and information technologies...

  • Page 22
    ... lease locations and increased market share in 2009 - delivering more than 3,800 new Kenworth, Peterbilt and DAF trucks to its network. The PacLease fleet totals over 30,000 vehicles. 9 PacLease offers only premium-quality PACCAR vehicles, which are valued for their reliability, superior fuel...

  • Page 23
    ... facilities and advanced 0 simulation technologies to accelerate product development and ensure that PACCAR continues to deliver the highest-quality products in the industry. PACCAR's world-class Technical Centers in Europe and North America are equipped with state-of-the-art product test...

  • Page 24
    ... and dealer business systems to double the speed of electronic transactions for sales and production. ITD's 639 employees collaborate with PACCAR divisions to use technology to enhance manufacturing, financial services and engineering design. This year ITD partnered with the PACCAR Engine Company to...

  • Page 25
    ... Class 8 Units PACCAR Market Share (percent) T O TA L A S S E T S GEOGRAPHIC REVENUE billions of dollars 17.5 billions of dollars 17.5 14.0 14.0 10.5 10.5 7.0 7.0 3.5 3.5 0.0 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09 0.0 â- Truck and Other â- Financial Services...

  • Page 26
    ...., Illinois Tool Works Inc., Ingersoll-Rand Company Ltd. and United Technologies Corporation. The comparison assumes that $100 was invested on December 31, 2004 in the Company's common stock and in the stated indices and assumes reinvestment of dividends. 3 200 200 PACCAR Inc Peer Group Index...

  • Page 27
    ...of high-quality, light, medium and heavy duty commercial trucks and related aftermarket parts and the financing and leasing of its trucks and related equipment. The Company also manufactures and markets industrial winches. 2009 Compared to 2008: Consolidated net sales and revenues were $8.09 billion...

  • Page 28
    ... but slowing demand for the Company's high quality trucks in Europe. The U.S. and Canada truck markets were lower but there was continued solid aftermarket parts and financial services revenues. PACCAR achieved net income of $1.02 billion ($2.78 per diluted share) in 2008 compared to $1.23 billion...

  • Page 29
    .... In North America, trucks are sold under the Kenworth and Peterbilt nameplates and, in Europe, under the DAF nameplate. 2009 Compared to 2008: 2009 2008 % change Truck net sales and revenues: U.S. and Canada Europe Mexico, Australia and other Truck income before taxes The Company's new truck...

  • Page 30
    ...U.S. and Canada, Peterbilt and Kenworth delivered 44,900 heavy and medium duty trucks during 2008, a decrease of 8,100 units or 15% from 2007 primarily due to a lower truck market size. The Class 8 market decreased 13% to 153,000 units in 2008 from 176,000 units in 2007. PACCAR's market share was 26...

  • Page 31
    ...-$250 million, focusing on new product development and manufacturing efficiency improvements. The Company will begin assembling PACCAR MX engines at the Columbus, Mississippi engine production facility in mid 2010. See the Forward Looking Statement section of Management's Discussion and Analysis for...

  • Page 32
    Financial Services The PACCAR Financial Services (PFS) segment, which includes wholly owned subsidiaries in the U.S., Canada, Mexico, Europe and Australia, derives its earnings primarily from financing or leasing PACCAR products. 2009 Compared to 2008: 2009 2008 % change 9 New loan and lease ...

  • Page 33
    30 At December 31, 2009 2008 Percentage of retail loan and lease accounts 30+ days past-due: U.S. and Canada Europe Mexico and Australia Total 1.8% 4.4% 9.5% 3.8% 2.6% 2.8% 6.2% 3.3% Worldwide PFS accounts 30+ days past-due at December 31, 2009 were 3.8% of portfolio balances compared to 3.3%...

  • Page 34
    ...2008 2007 % change New loan and lease volume: U.S. and Canada Europe Mexico and Australia Average earning assets: U.S. and Canada Europe Mexico and Australia Average earning assets by product: Loans and finance leases Dealer wholesale financing Equipment on lease and other Revenues: U.S. and Canada...

  • Page 35
    ... the Forward Looking Statement section of Management's Discussion and Analysis for factors that may affect this outlook. Other Business Included in Truck and Other is the Company's winch manufacturing business. Sales from this business represent approximately 1% of net sales for 2009, 2008 and 2007...

  • Page 36
    ... was due in part to purchasing finished goods to secure inventory from a supplier exiting the business. In addition, $246.3 million of cash was used for increased funding of dealer inventory by the Company's Financial Services segment primarily in Europe due to the abrupt market slowdown in the...

  • Page 37
    ... million. PACCAR's will continue to focus on manufacturing efficiency improvements, engine development and new product programs. Financial Services The Company funds its financial services activities primarily from collections on existing finance receivables and borrowings in the capital markets. An...

  • Page 38
    ... PACCAR Financial Europe, renewed the registration of a â,¬1.5 billion medium-term note program with the London Stock Exchange. On December 31, 2009, â,¬850 million remained available for issuance. This program is renewable annually through the filing of a new prospectus. In June 2008, PACCAR Mexico...

  • Page 39
    .... The following are accounting policies which, in the opinion of management, are particularly sensitive and which, if actual results are different from estimates used by management, may have a material impact on the financial statements. Operating Leases The accounting for trucks sold pursuant to...

  • Page 40
    ...'s loans and finance leases is discussed in Note E of the consolidated financial statements. The Company determines the allowance for credit losses on financial services retail and wholesale receivables based on historical loss information, using past-due account data, current market conditions and...

  • Page 41
    ... 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...

  • Page 42
    ...: 2009 2008 2007 39 (millions except per share data) Net sales and revenues Cost of sales and revenues Research and development Selling, general and administrative Curtailment gain Interest and other expense (income), net Truck and Other Income Before Income Taxes FINANCIAL SERVICES: $ 7,076...

  • Page 43
    ... 31 TRUCK AND OTHER: 2009 (millions of dollars) 2008 Current Assets Cash and cash equivalents Trade and other receivables, net Marketable debt securities Inventories Other current assets Total Truck and Other Current Assets Equipment on operating leases, net Property, plant and equipment, net...

  • Page 44
    ... Residual value guarantees and deferred revenues Other liabilities Total Truck and Other Liabilities FINANCIAL SERVICES: $ 1,490.0 1,490.0 172.3 547.2 405.3 2,614.8 $ 1,792.3 36.3 1,828.6 19.3 470.8 636.6 2,955.3 Accounts payable, accrued expenses and other Commercial paper and bank loans Term...

  • Page 45
    ... receivables on new trucks Sales-type finance leases and dealer direct loans on new trucks Inventories Other, net (Decrease) increase in liabilities: Accounts payable and accrued expenses Residual value guarantees and deferred revenues Pension and post retirement contributions Other, net Net Cash...

  • Page 46
    ... and tax benefit Balance at end of year TREASURY STOCK, AT COST: Balance at beginning of year Purchases: (shares) 2008-5.1; 2007-5.1 Retirements Balance at end of year RETAINED EARNINGS: (17.4) 4,724.7 111.9 (196.1) Balance at beginning of year Net income Cash dividends declared on common...

  • Page 47
    ... of light, medium and heavy duty commercial trucks and related aftermarket parts and (2) finance and leasing products and services provided to customers and dealers. PACCAR's sales and revenues are derived primarily from North America and Europe. The Company also operates in Australia and sells...

  • Page 48
    ... on an annual basis. Impairment charges were insignificant during the three years ended December 31, 2009. Revenue Recognition: Substantially all sales and revenues of trucks and related aftermarket parts are recorded by the Company when products are shipped to dealers or customers, except for...

  • Page 49
    ... 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. Marketable debt securities consisted of the following at December 31: 2009...

  • Page 50
    ... contracts, reduced by unearned interest on finance leases which is shown separately. Dealer wholesale financing represents floating-rate wholesale loans to PACCAR dealers for new and used trucks. The loans are collateralized by the trucks being financed. Interest and other receivables are interest...

  • Page 51
    ....4 (121.8) 6.7 $ 167.6 The Company's customers are principally concentrated in the transportation industry in North America and Europe. There are no significant concentrations of credit risk in terms of a single customer. Generally, receivables are collateralized by the related equipment and parts.

  • Page 52
    ...R AT I N G L E A S E S The Company leases equipment under operating leases to customers in the financial services segment. In addition, in the truck segment, equipment sold to customers in Europe subject to a residual value guarantee (RVG) is accounted for as operating leases. Equipment is recorded...

  • Page 53
    ... of the various classes of assets. Certain production tooling is amortized on a unit of production basis. Property, plant and equipment include the following: At December 31, useful lives 2009 2008 Land Buildings and improvements Machinery, equipment and production tooling Less allowance for...

  • Page 54
    ... optional extended warranties and repair and maintenance (R&M) contracts. The Company generally offers one-year warranties covering most of its vehicles and related aftermarket parts. Specific terms and conditions vary depending on the product and the country of sale. Optional extended warranty and...

  • Page 55
    ...31, 2009 and 2008, respectively. The primary sources of borrowings are commercial paper and medium-term notes issued in the public markets. The medium-term notes are issued by PACCAR Inc, PACCAR Financial Corp. (PFC), PACCAR Financial Europe and PACCAR Mexico. PACCAR Inc intends to periodically file...

  • Page 56
    ... and financing activities. The Company is committed, under specific circumstances, to purchase equipment at a cost of $53.4 in 2011. At December 31, 2009, PACCAR's financial services companies, in the normal course of business, had outstanding commitments to fund new loan and lease transactions...

  • Page 57
    ... basis and considers changes based upon market conditions and other factors. The Company funds its pensions in accordance with applicable employee benefit and tax laws. The Company contributed $173.4 to its pension plans in 2009 and $63.9 in 2008. The Company expects to contribute in the range of...

  • Page 58
    ... service cost and $.1 of unrecognized net initial transition amount are expected to be amortized into net pension expense in 2010. The accumulated benefit obligation for all pension plans of the Company, except for certain multi-employer and foreign-insured plans was $1,214.0 at December 31, 2009...

  • Page 59
    .... The majority of participants in these plans are non-union employees located in the United States. Expenses for these plans were $6.8, $22.1 and $22.6 in 2009, 2008 and 2007. During the second quarter of 2009, the Company discontinued subsidizing postretirement medical costs for the majority of its...

  • Page 60
    ...in which the Company operates. Tax law requires items to be included in the Company's tax returns at different times than the items reflected in the Company's financial statements. As a result, the Company's annual tax rate reflected in its financial statements is different than that reported in its...

  • Page 61
    ... follows: At December 31, 2009 2008 Assets: Accrued expenses Net operating loss carryforwards Tax credit carryforwards Allowance for losses on receivables Postretirement benefit plans Other Valuation allowance Liabilities: Financial Services leasing depreciation Depreciation and amortization Other...

  • Page 62
    ... 31, 2009, the United States Internal Revenue Service has completed examinations of the Company's tax returns for all years through 2004. The Company's tax returns for other major jurisdictions remain potentially subject to examination for the years ranging from 2003 through 2009. O. STOCKHOLDERS...

  • Page 63
    ... balance sheet locations and fair value of derivative financial instruments: At December 31, 2009 assets liabilities Derivatives designated under hedge accounting: Interest-rate contracts: Financial Services: Other assets Deferred taxes and other liabilities Foreign-exchange contracts: Truck and...

  • Page 64
    ... December 31, 2009 interest-rate contracts (Gain) loss recognized in OCI: Truck and Other Financial Services Total (Income) expense reclassified from Accumulated OCI into income: Truck and Other: Cost of sales and revenues Interest and other expense (income), net Financial Services: Interest and...

  • Page 65
    ... bonds and corporate bonds are estimated using recent transactions, market price quotations and pricing models that consider, where applicable, interest rates and other observable market information. These bonds are categorized as Level 2. Derivative Financial Instruments: The Company's derivative...

  • Page 66
    ...fair values are estimated using discounted cash flow analysis based on current rates for comparable loans. Finance lease receivables and related loss provisions have been excluded from the accompanying table. Debt: The carrying amounts of financial services commercial paper, variable-rate bank loans...

  • Page 67
    ...million, and as of December 31, 2009, the maximum number of shares available for future grants was 17.7 million. Options outstanding under these plans were granted with exercise prices equal to the fair market value of the Company's common stock at the date of grant. Options expire no later than ten...

  • Page 68
    ... $10.10 per share. These amounts were determined using the Black-Scholes-Merton option-pricing model, which values options based on the stock price at the grant date and the following assumptions: 2009 2008 2007 Risk-free interest rate Expected volatility Expected dividend yield Expected term 2.00...

  • Page 69
    ...in North America and Europe. The Financial Services segment is composed of finance and leasing products and services provided to truck customers and dealers. Revenues are primarily generated from operations in North America and Europe. Included in All Other is PACCAR's industrial winch manufacturing...

  • Page 70
    ... N CI A L STATEM EN TS December 31, 2009, 2008 and 2007 (currencies in millions) Business Segment Data 2009 2008 2007 67 Income before income taxes: Truck All Other Financial Services Investment income $ $ Depreciation and amortization: Truck Financial Services All Other 25.9 42.2 68.1 84...

  • Page 71
    ... Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit...

  • Page 72
    ... opinion on the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance...

  • Page 73
    ...2006 2005 Truck and Other Net Sales and Revenues Financial Services Revenues Total Revenues Net Income Net Income Per Share: Basic Diluted Cash Dividends Declared Per Share Total Assets: Truck and Other Financial Services Truck and Other Long-Term Debt Financial Services Debt Stockholders' Equity...

  • Page 74
    ... 71 (millions except per share data) Truck and Other: Net sales and revenues Cost of sales and revenues Research and development Financial Services: Revenues Interest and other borrowing expenses Depreciation and other Net Income Net Income Per Share (1): Basic Diluted 2008 $1,730.4 1,561.1 52...

  • Page 75
    ... dollar, the euro, the British pound and the Mexican peso (See Note P for additional information concerning these hedges). Based on the Company's sensitivity analysis, the potential loss in fair value for such financial instruments from a 10% unfavorable change in quoted foreign currency exchange...

  • Page 76
    ... Chief Executive Officer Thomas E. Plimpton Vice Chairman James G. Cardillo President Daniel D. Sobic Executive Vice President Ronald E. Armstrong Senior Vice President Robert J. Christensen Senior Vice President David C. Anderson Vice President and General Counsel Michael T. Barkley Vice President...

  • Page 77
    ... California Mexico Factory: Mexicali, Baja California PRODUCT TESTING, RESEARCH AND DEVELOPMENT PACCAR Financial Pty. Ltd. 64 Canterbury Road Bayswater, Victoria 3153 Australia PACCAR Technical Center PACCAR Australia Pty. Ltd. Kenworth Trucks Division Headquarters: 64 Canterbury Road Bayswater...

  • Page 78
    ... of electronic delivery of annual meeting documents. AeroCab, AERODYNE, Air Leaf, Braden, Carco, ComfortClass, Connect, DAF, Dynacraft, Gearmatic, Kenmex, Kenworth, Kenworth Clean Power, Leyland, Magnum, MAXcard, PACCAR, PACCAR MX, PACCAR PX, PacLease, PacTrac, Peterbilt, PX-6, PX-8, The World...

  • Page 79