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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
OR
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File No.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
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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.
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).
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.
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☒ |
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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 |
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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
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 —
PACCAR Inc – Form 10-Q
INDEX
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Page |
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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 |
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ITEM 2. |
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
34 |
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ITEM 3. |
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49 |
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ITEM 4. |
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49 |
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PART II. |
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ITEM 1. |
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50 |
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ITEM 1A. |
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50 |
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ITEM 2. |
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50 |
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ITEM 6. |
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51 |
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51 |
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54 |
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- 2 -
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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Six Months Ended |
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June 30 |
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June 30 |
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2022 |
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2021 |
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2022 |
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2021 |
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TRUCK, PARTS AND OTHER: |
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Net sales and revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of sales and revenues |
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Research and development |
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Selling, general and administrative |
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Interest and other (income), net |
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( |
) |
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( |
) |
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( |
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( |
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Truck, Parts and Other Income Before Income Taxes |
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FINANCIAL SERVICES: |
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Interest and fees |
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Operating lease, rental and other revenues |
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Revenues |
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Interest and other borrowing expenses |
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Depreciation and other expenses |
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Selling, general and administrative |
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Provision for losses on receivables |
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( |
) |
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Financial Services Income Before Income Taxes |
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Investment income |
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Total Income Before Income Taxes |
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Income taxes |
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Net Income |
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$ |
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$ |
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$ |
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$ |
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Net Income Per Share |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted Average Number of Common Shares Outstanding |
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Basic |
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Diluted |
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Comprehensive Income |
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$ |
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$ |
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$ |
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$ |
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See Notes to Consolidated Financial Statements.
- 3 -
Consolidated Balance Sheets (Millions) (Unaudited)
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June 30 |
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December 31 |
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2022 |
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2021 |
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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 |
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$ |
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$ |
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Trade and other receivables, net (allowance for losses: 2022 - $. |
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Marketable securities |
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Inventories, net |
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Other current assets |
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Total Truck, Parts and Other Current Assets |
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Equipment on operating leases, net |
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Property, plant and equipment, net |
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Other noncurrent assets, net |
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Total Truck, Parts and Other Assets |
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FINANCIAL SERVICES: |
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Cash and cash equivalents |
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Finance and other receivables, net (allowance for losses: 2022 - $ |
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Equipment on operating leases, net |
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Other assets |
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Total Financial Services Assets |
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$ |
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$ |
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|
See Notes to Consolidated Financial Statements.
- 4 -
Consolidated Balance Sheets (Millions) (Unaudited)
|
|
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June 30 |
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|
December 31 |
|
||
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2022 |
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2021 |
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||
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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 |
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$ |
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$ |
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Dividend payable |
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Total Truck, Parts and Other Current Liabilities |
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Residual value guarantees and deferred revenues |
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Other liabilities |
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Total Truck, Parts and Other Liabilities |
|
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FINANCIAL SERVICES: |
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Accounts payable, accrued expenses and other |
|
|
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Commercial paper and bank loans |
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Term notes |
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Deferred taxes and other liabilities |
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Total Financial Services Liabilities |
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STOCKHOLDERS' EQUITY: |
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Preferred stock, no par value - authorized |
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Common stock, $ issued |
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Additional paid-in capital |
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Treasury stock, at cost - |
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( |
) |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
) |
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( |
) |
|
Total Stockholders' Equity |
|
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$ |
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$ |
|
|
See Notes to Consolidated Financial Statements.
- 5 -
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Millions)
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Six Months Ended |
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June 30 |
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2022 |
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2021 |
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OPERATING ACTIVITIES: |
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Net Income |
|
$ |
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|
$ |
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|
Adjustments to reconcile net income to cash provided by operations: |
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Depreciation and amortization: |
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Property, plant and equipment |
|
|
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Equipment on operating leases and other |
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Provision for losses on financial services receivables |
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Other, net |
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( |
) |
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( |
) |
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Pension contributions |
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( |
) |
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( |
) |
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Change in operating assets and liabilities: |
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Trade and other receivables |
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( |
) |
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( |
) |
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Wholesale receivables on new trucks |
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( |
) |
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Inventories |
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( |
) |
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( |
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Accounts payable and accrued expenses |
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Income taxes, warranty and other |
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( |
) |
|
Net Cash Provided by Operating Activities |
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INVESTING ACTIVITIES: |
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Originations of retail loans and finance leases |
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( |
) |
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( |
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Collections on retail loans and finance leases |
|
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Net (increase) decrease in wholesale receivables on used equipment |
|
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( |
) |
|
|
|
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Purchases of marketable debt securities |
|
|
( |
) |
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|
( |
) |
|
Proceeds from sales and maturities of marketable debt securities |
|
|
|
|
|
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|
Payments for property, plant and equipment |
|
|
( |
) |
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|
( |
) |
|
Acquisitions of equipment for operating leases |
|
|
( |
) |
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( |
) |
|
Proceeds from asset disposals |
|
|
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Other, net |
|
|
|
|
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|
( |
) |
|
Net Cash Used in Investing Activities |
|
|
( |
) |
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|
( |
) |
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FINANCING ACTIVITIES: |
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Payments of cash dividends |
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( |
) |
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|
( |
) |
|
Purchases of treasury stock |
|
|
( |
) |
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|
( |
) |
|
Proceeds from stock compensation transactions |
|
|
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|
|
|
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|
Net increase in commercial paper, short-term bank loans and other |
|
|
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|
|
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Proceeds from term debt |
|
|
|
|
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Payments on term debt |
|
|
( |
) |
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|
( |
) |
|
Net Cash Used in Financing Activities |
|
|
( |
) |
|
|
( |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
Net Decrease in Cash and Cash Equivalents |
|
|
( |
) |
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
See Notes to Consolidated Financial Statements.
- 6 -
Consolidated Statements of Stockholders’ Equity (Unaudited)
(Millions, Except Per Share Amounts)
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
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June 30 |
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June 30 |
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||||||||||
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|
2022 |
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|
2021 |
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|
2022 |
|
|
2021 |
|
||||
|
COMMON STOCK, $1 PAR VALUE: |
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|
Balance at beginning of period |
|
$ |
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|
|
$ |
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$ |
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$ |
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|
|
Stock compensation |
|
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|
|
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|
Balance at end of period |
|
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ADDITIONAL PAID-IN CAPITAL: |
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|
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|
Balance at beginning of period |
|
|
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|
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|
|
Stock compensation |
|
|
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|
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|
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|
Balance at end of period |
|
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|
TREASURY STOCK, AT COST: |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Purchases |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at end of period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared on common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE LOSS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Balance at end of period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total Stockholders’ Equity |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared on common stock, per share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See Notes to Consolidated Financial Statements.
- 7 -
|
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 six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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, 2021.
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.
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Additional shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Accounting: In the first quarter of 2022, the Company changed the method of accounting for its U.S. inventories from last-in-first-out (LIFO) to first-in-first-out (FIFO). Inventories valued using the LIFO method comprised
The effect of the changes made to the Company’s Consolidated Statements of Comprehensive Income was as follows:
|
Three Months Ended June 30, 2021 |
|
AS ORIGINALLY REPORTED |
|
|
EFFECT OF CHANGE |
|
|
AS ADJUSTED |
|
|||
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and revenues |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021 |
|
AS ORIGINALLY REPORTED |
|
|
EFFECT OF CHANGE |
|
|
AS ADJUSTED |
|
|||
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and revenues |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
The cumulative effect of the changes made to the Company’s Consolidated Balance Sheet was as follows:
|
December 31, 2021 |
|
AS ORIGINALLY REPORTED |
|
|
EFFECT OF CHANGE |
|
|
AS ADJUSTED |
|
|||
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
The change in accounting policy did not materially affect basic or diluted net income per share or income before income taxes within the Truck, Parts and Other segments for the three and six months ended June 30, 2021. There was no impact on total net cash provided by operating activities.
- 8 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
The following table compares the amounts currently reported to amounts that would have been reported under LIFO in the Consolidated Statements of Comprehensive Income.
|
Three Months Ended June 30, 2022 |
|
AS REPORTED |
|
|
PRO FORMA UNDER LIFO |
|
|
EFFECT OF CHANGE |
|
|||
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Six Months Ended June 30, 2022 |
|
AS REPORTED |
|
|
PRO FORMA UNDER LIFO |
|
|
EFFECT OF CHANGE |
|
|||
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The effect of the change to income before income taxes within the Truck, Parts and Other segments for the three and six months ended June 30, 2022 would not be material. In addition, there would be no material effect on the Consolidated Statements of Cash Flows.
The following table compares the amounts currently reported to amounts that would have been reported under LIFO in the Consolidated Balance Sheet.
|
June 30, 2022 |
|
AS REPORTED |
|
|
PRO FORMA UNDER LIFO |
|
|
EFFECT OF CHANGE |
|
|||
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Accounts payable, accrued expenses and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
New Accounting Pronouncements: The Company adopted the following standards on
|
STANDARD |
DESCRIPTION |
|
2021-05 |
Leases (Topic 842) - Lessors—Certain Leases with Variable Lease Payments |
|
2021-10 |
Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance |
The Financial Accounting Standards Board (FASB) also issued the following standards, which are not expected to have a material impact on the Company’s consolidated financial statements.
|
STANDARD |
DESCRIPTION |
EFFECTIVE DATE |
|
2022-02* |
Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures |
|
|
2022-03* |
Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
|
|
* The Company will adopt on the effective date.
- 9 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
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 services 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 |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Truck |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Revenues from extended warranties, operating leases and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parts sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from dealer services and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winch sales and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other sales and revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The Company recognizes truck and parts sales as revenues 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 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 revenue when the most likely amount of consideration the Company expects to receive changes or becomes fixed. Truck and parts 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 an period.
Aftermarket parts sales allow for returns which are estimated at the time of sale based on historical data. Parts dealer services and other revenues are recognized as services are performed.
The following table presents the balance sheet classification of the estimated value of the truck assets to be returned goods assets and the related return liabilities:
- 10 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
|
ASSETS |
|
|
LIABILITIES |
|
|
ASSETS |
|
|
LIABILITIES |
|
||||
|
Trucks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Other noncurrent assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Parts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
For contracts accounted for as a sale, the Company’s total commitment to acquire trucks at a guaranteed value was $
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
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 for 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 finance 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,
Finance leases are secured by the trucks and related equipment being leased and the lease terms generally range from
- 11 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
Operating lease terms generally range from
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 following table summarizes Financial Services lease revenues by lease type:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, 2022 |
|
|
June 30, 2022 |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Finance lease revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating lease revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE C - Investments in Marketable Securities
Debt Securities
The Company's investments in marketable debt securities are classified as available-for-sale. These investments are stated at fair value and 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 the result of credit losses or unrealized losses. In assessing 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. The Company considers its intent for selling the security and whether it is more likely than not the Company will be able to hold the 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.
Equity Securities
Marketable equity securities are traded on active exchanges and are measured at fair value. The realized and unrealized gains (losses) are recognized in investment income.
- 12 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
Marketable securities at June 30, 2022 and December 31, 2021 consisted of the following:
|
|
|
|
|
|
|
UNREALIZED |
|
|
UNREALIZED |
|
|
FAIR |
|
|||
|
At June 30, 2022 |
|
COST |
|
|
GAINS |
|
|
LOSSES |
|
|
VALUE |
|
||||
|
Marketable debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. tax-exempt securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
U.S. taxable municipal/ provincial bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
UNREALIZED |
|
|
UNREALIZED |
|
|
FAIR |
|
|||
|
At December 31, 2021 |
|
COST |
|
|
GAINS |
|
|
LOSSES |
|
|
VALUE |
|
||||
|
Marketable debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. tax-exempt securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
U.S. taxable municipal/ provincial bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 $
Marketable debt securities with continuous unrealized losses and their related fair values were as follows:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
|
LESS THAN |
|
|
TWELVE MONTHS |
|
|
LESS THAN |
|
|
TWELVE MONTHS |
|
||||
|
|
|
TWELVE MONTHS |
|
|
OR GREATER |
|
|
TWELVE MONTHS |
|
|
OR GREATER |
|
||||
|
Fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Unrealized losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses on marketable debt securities above were due to higher yields on certain securities. The Company did not identify any indicators of a credit loss in its assessments. Accordingly,
Contractual maturities of marketable debt securities at June 30, 2022 were as follows:
|
|
|
AMORTIZED |
|
|
FAIR |
|
||
|
|
|
COST |
|
|
VALUE |
|
||
|
Within one year |
|
$ |
|
|
|
$ |
|
|
|
One to five years |
|
|
|
|
|
|
|
|
|
Six to ten years |
|
|
|
|
|
|
|
|
|
More than ten years |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
- 13 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
NOTE D - Inventories
Inventories are stated at the lower of cost or market. Cost of inventories is determined principally by the first-in, first-out (FIFO) method.
Inventories include the following:
|
|
|
June 30 |
|
|
December 31 |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Finished products |
|
$ |
|
|
|
$ |
|
|
|
Work in process and raw materials |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
In the first quarter of 2022, the Company changed the method of accounting for its U.S. inventories from last-in-first-out (LIFO) to first-in-first-out (FIFO) and all prior periods have been retrospectively applied. See Note A - Basis of Presentation of this Quarterly Report on Form 10-Q.
NOTE E - Finance and Other Receivables
Finance and other receivables include the following:
|
|
|
June 30 |
|
|
December 31 |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Loans |
|
$ |
|
|
|
$ |
|
|
|
Finance leases |
|
|
|
|
|
|
|
|
|
Dealer wholesale financing |
|
|
|
|
|
|
|
|
|
Operating lease receivables and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less allowance for losses: |
|
|
|
|
|
|
|
|
|
Loans and leases |
|
|
( |
) |
|
|
( |
) |
|
Dealer wholesale financing |
|
|
( |
) |
|
|
( |
) |
|
Operating lease receivables and other |
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
|
|
|
$ |
|
|
Included in Finance and other receivables, net on the Consolidated Balance Sheets is accrued interest receivable (net of allowance for credit losses) of $
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 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
On average, modifications extended contractual terms by approximately
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 sales-type 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
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 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 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, current market conditions, and expected changes in future macroeconomic conditions that affect collectability. Historical credit loss data 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 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 sources and 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 expected 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 cost to sell, to the amortized cost basis.
- 15 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
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 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:
|
|
|
2022 |
|
|||||||||||||||||
|
|
|
DEALER |
|
|
CUSTOMER |
|
|
|
|
|
|
|
|
|
||||||
|
|
|
WHOLESALE |
|
|
RETAIL |
|
|
RETAIL |
|
|
OTHER* |
|
|
TOTAL |
|
|||||
|
Balance at January 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Provision for losses |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation and other |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance at June 30 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
2021 |
|
|||||||||||||||||
|
|
|
DEALER |
|
|
CUSTOMER |
|
|
|
|
|
|
|
|
|
||||||
|
|
|
WHOLESALE |
|
|
RETAIL |
|
|
RETAIL |
|
|
OTHER* |
|
|
TOTAL |
|
|||||
|
Balance at January 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Provision for losses |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation and other |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance at June 30 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
* |
|
Credit Quality
The Company's customers are principally concentrated in the transportation industry in North America, Europe, Australia and Brasil. The Company’s portfolio assets are diversified over a large number of customers and dealers with no single customer or dealer balances representing over
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.
- 16 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
The tables below summarize the amortized cost basis of the Company’s finance receivables within each credit quality indicator by year of origination and portfolio class.
|
|
REVOLVING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2022 |
LOANS |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
PRIOR |
|
|
TOTAL |
|
||||||||
|
Dealer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Watch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
At-risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total dealer |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Watch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At-risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Owner/operator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Watch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At-risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total customer retail |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
- 17 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
|
|
REVOLVING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2021 |
LOANS |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
PRIOR |
|
|
TOTAL |
|
||||||||
|
Dealer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Watch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Watch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At-risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total dealer |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Watch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At-risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Owner/operator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Watch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At-risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total customer retail |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The tables below summarize 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 |
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OWNER/ |
|
|
|
|
|
|
|
At June 30, 2022 |
|
WHOLESALE |
|
|
RETAIL |
|
|
FLEET |
|
|
OPERATOR |
|
|
TOTAL |
|
|||||
|
Current and up to 30 days past due |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
31 – 60 days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 60 days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
DEALER |
|
|
CUSTOMER RETAIL |
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OWNER/ |
|
|
|
|
|
|
|
At December 31, 2021 |
|
WHOLESALE |
|
|
RETAIL |
|
|
FLEET |
|
|
OPERATOR |
|
|
TOTAL |
|
|||||
|
Current and up to 30 days past due |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
31 – 60 days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 60 days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The amortized cost basis of finance receivables that are on non-accrual status was as follows:
|
|
|
DEALER |
|
|
CUSTOMER RETAIL |
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
OWNER/ |
|
|
|
|
|
|
|
At June 30, 2022 |
|
WHOLESALE |
|
RETAIL |
|
|
FLEET |
|
|
OPERATOR |
|
|
TOTAL |
|
||||
|
Amortized cost basis with a specific reserve |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Amortized cost basis with no specific reserve |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
- 18 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
|
|
|
DEALER |
|
|
CUSTOMER RETAIL |
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
OWNER/ |
|
|
|
|
|
|
|
At December 31, 2021 |
|
WHOLESALE |
|
RETAIL |
|
|
FLEET |
|
|
OPERATOR |
|
|
TOTAL |
|
||||
|
Amortized cost basis with a specific reserve |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Amortized cost basis with no specific reserve |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest income recognized on a cash basis for finance receivables that are on non-accrual status was as follows:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Dealer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Customer retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Owner/operator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Troubled Debt Restructurings
The balance of TDRs was $
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, 2022 |
|
|
June 30, 2022 |
|
||||||||||
|
|
|
AMORTIZED COST BASIS |
|
|
AMORTIZED COST BASIS |
|
||||||||||
|
|
|
PRE- MODIFICATION |
|
|
POST- MODIFICATION |
|
|
PRE- MODIFICATION |
|
|
POST- MODIFICATION |
|
||||
|
Fleet |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, 2021 |
|
|
June 30, 2021 |
|
||||||||||
|
|
|
AMORTIZED COST BASIS |
|
|
AMORTIZED COST BASIS |
|
||||||||||
|
|
|
PRE- MODIFICATION |
|
|
POST- MODIFICATION |
|
|
PRE- MODIFICATION |
|
|
POST- MODIFICATION |
|
||||
|
Fleet |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Owner/operator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The effect on the allowance for credit losses from such modifications was not significant at June 30, 2022 and 2021.
TDRs modified during the previous twelve months that subsequently defaulted (i.e., became more than 30 days past due) in the six months ended June 30, 2022 and 2021 were $
There were
- 19 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
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 June 30, 2022 and December 31, 2021 was $
NOTE F - Product Support Liabilities
Product support liabilities include estimated future payments related to product warranties and deferred revenues on optional extended warranties and R&M.
Changes in product support liabilities are summarized as follows:
|
WARRANTY RESERVES |
2022 |
|
|
2021 |
|
||
|
Balance at January 1 |
$ |
|
|
|
$ |
|
|
|
Cost accruals |
|
|
|
|
|
|
|
|
Payments |
|
( |
) |
|
|
( |
) |
|
Change in estimates for pre-existing warranties |
|
|
|
|
|
|
|
|
Currency translation and other |
|
( |
) |
|
|
( |
) |
|
Balance at June 30 |
$ |
|
|
|
$ |
|
|
|
DEFERRED REVENUES ON EXTENDED WARRANTIES AND R&M CONTRACTS |
|
2022 |
|
|
|
2021 |
|
|
Balance at January 1 |
$ |
|
|
|
$ |
|
|
|
Deferred revenues |
|
|
|
|
|
|
|
|
Revenues recognized |
|
( |
) |
|
|
( |
) |
|
Currency translation |
|
( |
) |
|
|
( |
) |
|
Balance at June 30 |
$ |
|
|
|
$ |
|
|
The Company expects to recognize approximately $
- 20 -
|
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 |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive income (loss) (OCI): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative contracts |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Tax effect |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Unrealized losses on marketable debt securities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Pension plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (losses) gains |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Comprehensive income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 June 30, 2022 |
|
DERIVATIVE CONTRACTS |
|
|
MARKETABLE DEBT SECURITIES |
|
|
PENSION PLANS |
|
|
FOREIGN CURRENCY TRANSLATION |
|
|
TOTAL |
|
|||||
|
Balance at April 1, 2022 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Recorded into AOCI |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Reclassified out of AOCI |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Net other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at June 30, 2022 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Three Months Ended June 30, 2021 |
|
DERIVATIVE CONTRACTS |
|
|
MARKETABLE DEBT SECURITIES |
|
|
PENSION PLANS |
|
|
FOREIGN CURRENCY TRANSLATION |
|
|
TOTAL |
|
|||||
|
Balance at April 1, 2021 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Recorded into AOCI |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Reclassified out of AOCI |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Six Months Ended June 30, 2022 |
|
DERIVATIVE CONTRACTS |
|
|
MARKETABLE DEBT SECURITIES |
|
|
PENSION PLANS |
|
|
FOREIGN CURRENCY TRANSLATION |
|
|
TOTAL |
|
|||||
|
Balance at January 1, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Recorded into AOCI |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Reclassified out of AOCI |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at June 30, 2022 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
- 21 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
|
Six Months Ended June 30, 2021 |
|
DERIVATIVE CONTRACTS |
|
|
MARKETABLE DEBT SECURITIES |
|
|
PENSION PLANS |
|
|
FOREIGN CURRENCY TRANSLATION |
|
|
TOTAL |
|
|||||
|
Balance at January 1, 2021 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Recorded into AOCI |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Reclassified out of AOCI |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Balance at June 30, 2021 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Reclassifications out of AOCI were as follows:
|
|
|
|
|
Three Months Ended |
|
|||||
|
|
|
LINE ITEM IN THE CONSOLIDATED STATEMENTS OF |
|
June 30 |
|
|||||
|
AOCI COMPONENTS |
|
COMPREHENSIVE INCOME |
|
|
2022 |
|
|
|
2021 |
|
|
Unrealized losses (gains) on derivative contracts: |
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
|
Net sales and revenues |
|
$ |
|
|
|
$ |
|
|
|
|
|
Cost of sales and revenues |
|
|
( |
) |
|
|
|
|
|
|
|
Interest and other (income), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Cost of sales and revenues |
|
|
|
|
|
|
|
|
|
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
Interest-rate contracts |
|
Interest and other borrowing expenses |
|
|
( |
) |
|
|
|
|
|
|
|
Pre-tax expense (reduction) increase |
|
|
( |
) |
|
|
|
|
|
|
|
Tax expense (benefit) |
|
|
|
|
|
|
( |
) |
|
|
|
After-tax expense (reduction) increase |
|
|
( |
) |
|
|
|
|
|
Unrealized gains on marketable debt securities: |
|
|
|
|
|
|
|
|
|
|
|
Marketable debt securities |
|
Investment income |
|
|
( |
) |
|
|
( |
) |
|
|
|
Tax expense |
|
|
|
|
|
|
|
|
|
|
|
After-tax income increase |
|
|
( |
) |
|
|
( |
) |
|
Pension plans: |
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
Interest and other (income), net |
|
|
|
|
|
|
|
|
|
Prior service costs |
|
Interest and other (income), net |
|
|
|
|
|
|
|
|
|
|
|
Pre-tax expense increase |
|
|
|
|
|
|
|
|
|
|
|
Tax benefit |
|
|
( |
) |
|
|
( |
) |
|
|
|
After-tax expense increase |
|
|
|
|
|
|
|
|
|
Total reclassifications out of AOCI |
|
|
|
$ |
( |
) |
|
$ |
|
|
- 22 -
|
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 |
|
|
2022 |
|
|
|
2021 |
|
|
Unrealized losses (gains) on derivative contracts: |
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
|
Net sales and revenues |
|
$ |
|
|
|
$ |
|
|
|
|
|
Cost of sales and revenues |
|
|
|
|
|
|
|
|
|
|
|
Interest and other (income), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Cost of sales and revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
Interest-rate contracts |
|
Interest and other borrowing expenses |
|
|
( |
) |
|
|
( |
) |
|
|
|
Pre-tax expense (reduction) increase |
|
|
( |
) |
|
|
|
|
|
|
|
Tax expense (benefit) |
|
|
|
|
|
|
( |
) |
|
|
|
After-tax expense (reduction) increase |
|
|
( |
) |
|
|
|
|
|
Unrealized gains on marketable debt securities: |
|
|
|
|
|
|
|
|
|
|
|
Marketable debt securities |
|
Investment income |
|
|
( |
) |
|
|
( |
) |
|
|
|
Tax expense |
|
|
|
|
|
|
|
|
|
|
|
After-tax income increase |
|
|
( |
) |
|
|
( |
) |
|
Pension plans: |
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
Interest and other (income), net |
|
|
|
|
|
|
|
|
|
Prior service costs |
|
Interest and other (income), net |
|
|
|
|
|
|
|
|
|
|
|
Pre-tax expense increase |
|
|
|
|
|
|
|
|
|
|
|
Tax benefit |
|
|
( |
) |
|
|
( |
) |
|
|
|
After-tax expense increase |
|
|
|
|
|
|
|
|
|
Total reclassifications out of AOCI |
|
|
|
$ |
|
|
|
$ |
|
|
Stock Compensation Plans
Stock-based compensation expense was $
During the first six months of 2022, the Company issued
Other Capital Stock Changes
During the first six months of 2022, the Company acquired
NOTE H - Income Taxes
The effective tax rate for the second quarter of 2022 was
- 23 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
NOTE I - Segment Information
PACCAR operates in
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. 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.
- 24 -
|
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 expenses not attributable to a reportable segment. Other also includes non-service cost components of pension expense and a portion of corporate expenses.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30 |
|
|
June 30 |
|
||||||||||
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
Net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less intersegment |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
External customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less intersegment |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
External customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Parts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Parts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE J - Derivative Financial Instruments
As part of its risk management strategy, the Company enters into derivative contracts to hedge against the risks of interest rates, foreign currency rates and commodity prices. 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, commodity as well as 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 was $
The Company assesses hedges at inception and on an ongoing basis to determine that the designated derivatives are highly effective in offsetting changes in fair values or cash flow of the hedged items. 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.
- 25 -
|
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 June 30, 2022, the notional amount of the Company’s interest-rate contracts was $
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 June 30, 2022, the notional amount of the outstanding foreign-exchange contracts was $
Commodity Contracts: The Company enters into commodity forward contracts to hedge the prices of certain commodities used in the production of trucks. The objective is to reduce the fluctuation in earnings and cash flows associated with movement in commodity prices. At June 30, 2022, the notional amount of the outstanding commodity contracts was $
- 26 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
The following table presents the balance sheet classification, fair value, gross and pro forma net amounts of derivative financial instruments:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
|
ASSETS |
|
|
LIABILITIES |
|
|
ASSETS |
|
|
LIABILITIES |
|
||||
|
Derivatives designated under hedge accounting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
Deferred taxes and other liabilities |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Foreign-exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes and other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes and other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Gross amounts recognized in Balance Sheets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less amounts not offset in financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Interest-rate contracts |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Pro forma net amount |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
- 27 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
The following table presents the amount of loss (gain) from derivative financial instruments recorded in the Consolidated Statements of Comprehensive Income:
|
|
|
Three Months Ended |
Six Months Ended |
|
||||||||||||
|
|
|
June 30, 2022 |
June 30, 2022 |
|
||||||||||||
|
|
|
INTEREST- |
|
|
FOREIGN- |
|
|
INTEREST- |
|
|
FOREIGN- |
|
||||
|
|
|
RATE |
|
|
EXCHANGE |
|
|
RATE |
|
|
EXCHANGE |
|
||||
|
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Cost of sales and revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Interest and other (income), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other borrowing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
|
|
|
|
Fair value hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Total |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
Three Months Ended |
Six Months Ended |
|
||||||||||||
|
|
|
June 30, 2021 |
June 30, 2021 |
|
||||||||||||
|
|
|
INTEREST- |
|
|
FOREIGN- |
|
|
INTEREST- |
|
|
FOREIGN- |
|
||||
|
|
|
RATE |
|
|
EXCHANGE |
|
|
RATE |
|
|
EXCHANGE |
|
||||
|
Truck, Parts and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Cost of sales and revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Interest and other (income), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other borrowing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
|
|
|
|
Fair value hedges |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Utilization of commodity hedging was initiated in Q3 2021. The loss from commodity contracts recorded in Cost of sales and revenue was $
- 28 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
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.
|
|
|
|
|
|
|
June 30 |
|
|
December 31 |
|
||
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
||
|
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
Term notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of the hedged liabilities |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Cumulative basis adjustment included in the carrying amount |
|
|
|
|
|
|
|
|
|
|
|
|
The above table excludes the cumulative basis adjustments on discontinued hedge relationships of $
Cash Flow Hedges
Substantially all of the Company’s interest-rate contracts and some foreign-exchange contracts and all commodity 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
The following tables presents the pre-tax effects of gain (loss) on cash flow hedges recognized in other comprehensive income (loss) (OCI):
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
|
June 30, 2022 |
|
|
June 30, 2022 |
|
||||||||||||||||||
|
|
|
INTEREST- |
|
|
FOREIGN- |
|
|
|
|
|
|
INTEREST- |
|
|
FOREIGN- |
|
|
|
|
|
||||
|
|
|
RATE |
|
|
EXCHANGE |
|
|
COMMODITY |
|
|
RATE |
|
|
EXCHANGE |
|
|
COMMODITY |
|
||||||
|
Gain (loss) recognized in OCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
Financial Services |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
|
June 30, 2021 |
|
|
June 30, 2021 |
|
||||||||||||||||||
|
|
|
INTEREST- |
|
|
FOREIGN- |
|
|
|
|
|
|
INTEREST- |
|
|
FOREIGN- |
|
|
|
|
|
||||
|
|
|
RATE |
|
|
EXCHANGE |
|
|
COMMODITY |
|
|
RATE |
|
|
EXCHANGE |
|
|
COMMODITY |
|
||||||
|
(Loss) gain recognized in OCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck, Parts and Other |
|
|
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
|
|
|
|
Financial Services |
|
$ |
( |
) |
|
|
( |
) |
|
|
|
|
|
$ |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of loss recorded in AOCI at June 30, 2022 that is estimated to be reclassified into earnings in the following 12 months if interest rates and exchange rates remain unchanged is approximately $
The amount of gains (losses) reclassified out of AOCI into net income based on the probability that the original forecasted transactions would not occur was and $
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 June 30, 2022, the notional amount of the outstanding net investment hedges was $
- 29 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
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.
NOTE K - 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.
The Company uses the following methods and assumptions to measure fair value for assets and liabilities subject to recurring fair value measurements.
Marketable Debt 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.
Marketable Equity Securities: The Company’s equity securities are traded on active exchanges and are classified as Level 1.
Derivative Financial Instruments: The Company’s derivative contracts consist of interest-rate swaps, cross currency swaps, foreign currency exchange and commodity 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, forward rates and commodity prices and are categorized as Level 2.
- 30 -
|
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 June 30, 2022 |
|
LEVEL 1 |
|
|
LEVEL 2 |
|
|
TOTAL |
|
|||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. tax-exempt securities |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
U.S. taxable municipal/ provincial bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable debt securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketable equity securities |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Total marketable securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest-rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest-rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
- 31 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
|
At December 31, 2021 |
|
LEVEL 1 |
|
|
LEVEL 2 |
|
|
TOTAL |
|
|||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. tax-exempt securities |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
U.S. taxable municipal/ provincial bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable debt securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketable equity securities |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Total marketable securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest-rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest-rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
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.
Cash and Cash Equivalents: Carrying amounts approximate fair value.
Financial Services Net Receivables: For floating 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:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
|
CARRYING |
|
|
FAIR |
|
|
CARRYING |
|
|
FAIR |
|
||||
|
|
|
AMOUNT |
|
|
VALUE |
|
|
AMOUNT |
|
|
VALUE |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services fixed rate loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services fixed rate debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 32 -
|
Notes to Consolidated Financial Statements (Unaudited) |
(Millions, Except Share Amounts) |
NOTE L - Employee Benefit Plans
The Company has several defined benefit pension plans, which cover a majority of its employees.
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest on projected benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amortization of prior service costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 months and six months ended June 30, 2022, the Company contributed $
NOTE M – 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 Trucks N.V., DAF Trucks Deutschland GmbH and PACCAR Inc (collectively “the Company”). Following the settlement, certain EC-related claims and lawsuits have been filed in various European jurisdictions against all major European truck manufacturers including the Company and certain subsidiaries. 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. In certain jurisdictions, the limitations period has not yet expired and additional claimants may bring EC-related claims and lawsuits against the Company or its subsidiaries.
The legal proceedings are continuing to move through the court systems in the various jurisdictions with some larger cases scheduled for trial in 2022. While the Company believes it has meritorious defenses to all EC-related claims and lawsuits, the final disposition of all such claims and lawsuits will likely take a significant period of time to resolve and the final outcomes are highly uncertain. The Company cannot at this time reasonably estimate a range of loss, if any, that may result. An adverse final decision involving significant numbers of DAF truck sales could have a material impact on the Company’s results of operations and cash flows.
PACCAR is also a defendant in various other legal proceedings and, in addition, there are various other contingent liabilities arising in the normal course of business. After consultation with legal counsel, management does not anticipate that disposition of these various other proceedings and contingent liabilities will have a material effect on the consolidated financial statements.
- 33 -
|
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 South America. The Company’s Other business includes the manufacturing and marketing of industrial winches.
Second Quarter Financial Highlights:
|
• |
Worldwide net sales and revenues were $7.16 billion in 2022 compared to $5.84 billion in 2021, primarily due to higher truck and parts revenues. |
|
• |
Truck revenues were $5.34 billion in 2022 compared to $4.15 billion in 2021, primarily due to higher truck deliveries and price realization in all markets. |
|
• |
Parts sales were $1.43 billion in 2022 compared to $1.21 billion in 2021 reflecting higher demand and price realization in all markets. |
|
• |
Financial Services revenues were $372.5 million in 2022 compared to $456.3 million in 2021, primarily due to lower used truck sales. |
|
• |
Net income was $720.4 million ($2.07 per diluted share) in 2022 compared to $495.5 million ($1.42 per diluted share) in 2021 due to higher Truck, Parts and Financial Services operating results. |
|
• |
Capital investments were $121.0 million in 2022 compared to $120.2 million in 2021. |
|
• |
Research and development (R&D) expenses were $80.4 million in 2022 compared to $84.4 million in 2021. |
First Six Months Financial Highlights:
|
• |
Worldwide net sales and revenues were $13.63 billion in 2022 compared to $11.69 billion in 2021, primarily due to higher truck and parts revenues. |
|
• |
Truck revenues were $10.03 billion in 2022 compared to $8.39 billion in 2021, primarily due to higher truck deliveries in Europe and higher price realization in all markets. |
|
• |
Parts sales were $2.82 billion in 2022 compared to $2.37 billion in 2021 reflecting higher demand and price realization in all markets. |
|
• |
Financial Services revenues were $738.7 million in 2022 compared to $888.3 million in 2021, primarily due to lower used truck sales. |
|
• |
Net income was $1.32 billion ($3.79 per diluted share) in 2022 compared to $966.3 million ($2.77 per diluted share) in 2021 due to higher Truck, Parts and Financial Services operating results. |
|
• |
Capital investments were $234.5 million in 2022 compared to $214.4 million in 2021. |
|
• |
Research and development (R&D) expenses were $158.4 million in 2022 compared to $164.5 million in 2021. |
A DAF CF Electric truck became the first battery electric heavy truck to summit Austria’s highest mountain pass on the Grossglockner High Alpine Road. The vehicle exhibited superb power and maneuverability through 30 miles, 36 hairpin bends and a grade of 12%. The DAF CF Electric is used by customers in applications such as regional distribution, refuse collection and port drayage.
The PACCAR Financial Services (PFS) group of companies has operations covering four continents and 26 countries. The global breadth of PFS and its rigorous credit application process support a portfolio of loans and leases with total assets of $16.04 billion. PFS issued $1.63 billion in medium-term notes during the first six months of 2022 to support new business volume and repay maturing debt.
- 34 -
Conflict in Ukraine
In accordance with international sanctions, the Company has suspended truck and parts sales to Russia and Belarus. The Company has no factories in Russia and has managed export sales to Russia through independent dealers. In 2021, 2,500 trucks were sold into Russia and Belarus. The Company also sold parts in these markets through a third-party owned warehouse. The trucks were sold on a fully paid-up basis; accordingly, the Company does not have significant receivables exposure. Inventory balances are not significant. The Company is monitoring the situation closely. At this time, the conflict has not had a significant impact on the results of operations or cash flows of the Company.
Truck Outlook
Truck industry heavy-duty retail sales in the U.S. and Canada in 2022 are expected to be 260,000 to 290,000 units compared to 250,000 in 2021. In Europe, 2022 truck industry registrations for over 16-tonne vehicles are expected to be 270,000 to 300,000 units compared to 278,000 in 2021. In South America, heavy-duty truck industry registrations in 2022 are projected to be 125,000 to 135,000 as compared to 127,000 in 2021.
The Company has been affected by an industry-wide undersupply of semiconductor chips and component parts, and anticipates the shortages will continue to affect deliveries in 2022.
Parts Outlook
In 2022, PACCAR Parts sales are expected to increase 13-16% compared to 2021 levels reflecting strong freight demand.
Financial Services Outlook
Based on the truck market outlook, average earning assets in 2022 are expected to increase 3-5% compared to 2021. Current high levels of freight tonnage, freight rates and fleet utilization are contributing to customers’ profitability and cash flow.
Capital Investments and R&D Outlook
Capital investments in 2022 are expected to be $425 to $475 million and R&D is expected to be $330 to $350 million. The Company
is increasing its investment in clean diesel and electric powertrain technologies, autonomous systems, connected vehicle services, next-generation manufacturing and parts distribution capabilities.
See the Forward-Looking Statements section of Management’s Discussion and Analysis for factors that may affect these outlooks.
RESULTS OF OPERATIONS:
The Company’s results of operations for the three months ended June 30, 2022 and 2021 are presented below.
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||
|
($ in millions, except per share amounts) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck |
|
$ |
5,336.4 |
|
|
$ |
4,152.2 |
|
|
$ |
10,033.5 |
|
|
$ |
8,385.2 |
|
|
Parts |
|
|
1,434.7 |
|
|
|
1,211.3 |
|
|
|
2,823.6 |
|
|
|
2,372.0 |
|
|
Other |
|
|
15.1 |
|
|
|
24.1 |
|
|
|
35.5 |
|
|
|
43.9 |
|
|
Truck, Parts and Other |
|
|
6,786.2 |
|
|
|
5,387.6 |
|
|
|
12,892.6 |
|
|
|
10,801.1 |
|
|
Financial Services |
|
|
372.5 |
|
|
|
456.3 |
|
|
|
738.7 |
|
|
|
888.3 |
|
|
|
|
$ |
7,158.7 |
|
|
$ |
5,843.9 |
|
|
$ |
13,631.3 |
|
|
$ |
11,689.4 |
|
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck |
|
$ |
422.1 |
|
|
$ |
256.5 |
|
|
$ |
698.8 |
|
|
$ |
526.5 |
|
|
Parts |
|
|
353.3 |
|
|
|
266.8 |
|
|
|
693.5 |
|
|
|
518.4 |
|
|
Other |
|
|
(3.1 |
) |
|
|
5.5 |
|
|
|
6.9 |
|
|
|
10.9 |
|
|
Truck, Parts and Other |
|
|
772.3 |
|
|
|
528.8 |
|
|
|
1,399.2 |
|
|
|
1,055.8 |
|
|
Financial Services |
|
|
144.4 |
|
|
|
106.5 |
|
|
|
291.4 |
|
|
|
182.9 |
|
|
Investment income |
|
|
5.4 |
|
|
|
5.0 |
|
|
|
2.9 |
|
|
|
9.9 |
|
|
Income taxes |
|
|
(201.7 |
) |
|
|
(144.8 |
) |
|
|
(372.6 |
) |
|
|
(282.3 |
) |
|
Net income |
|
$ |
720.4 |
|
|
$ |
495.5 |
|
|
$ |
1,320.9 |
|
|
$ |
966.3 |
|
|
Diluted earnings per share |
|
$ |
2.07 |
|
|
$ |
1.42 |
|
|
$ |
3.79 |
|
|
$ |
2.77 |
|
|
After-tax return on revenues |
|
|
10.1 |
% |
|
|
8.5 |
% |
|
|
9.7 |
% |
|
|
8.3 |
% |
- 35 -
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 market demand, fuel prices, freight tonnage, economic conditions and COVID-19 related factors affecting the Company’s results of operations.
2022 Compared to 2021:
Truck
The Company’s Truck segment accounted for 75% and 74% of revenues in the second quarter and first six months of 2022, respectively, compared to 71% and 72% in the second quarter and first six months of 2021, respectively.
The Company’s new truck deliveries are summarized below:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||||||||||
|
|
|
|
2022 |
|
|
|
2021 |
|
|
% CHANGE |
|
|
|
2022 |
|
|
|
2021 |
|
|
% CHANGE |
|
||
|
U.S. and Canada |
|
|
24,400 |
|
|
|
22,600 |
|
|
|
8 |
|
|
|
45,100 |
|
|
|
45,600 |
|
|
|
(1 |
) |
|
Europe |
|
|
15,400 |
|
|
|
11,800 |
|
|
|
31 |
|
|
|
31,500 |
|
|
|
25,500 |
|
|
|
24 |
|
|
Mexico, South America, Australia and other |
|
|
7,100 |
|
|
|
5,700 |
|
|
|
25 |
|
|
|
13,300 |
|
|
|
11,200 |
|
|
|
19 |
|
|
Total units |
|
|
46,900 |
|
|
|
40,100 |
|
|
|
17 |
|
|
|
89,900 |
|
|
|
82,300 |
|
|
|
9 |
|
The increase in new truck deliveries worldwide in the second quarter compared to the same period of 2021 was driven by higher deliveries in all markets. The increase in deliveries for the first six months primarily relates to higher deliveries in Europe. The industry-wide undersupply of semiconductor chips and component products continues to impact deliveries.
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 six months of 2022, industry retail sales in the heavy-duty market in the U.S. and Canada were 126,300 units comparable to 126,200 units in the same period of 2021. The Company’s heavy-duty truck retail market share was 29.4% in the first six months of 2022 compared to 29.4% in the first six months of 2021. The medium-duty market was 42,800 units in the first six months of 2022 compared to 44,400 units in the same period of 2021. The Company’s medium-duty market share was 9.7% in the first six months of 2022 compared to 20.1% in the first six months of 2021.
The over 16‑tonne truck market in Europe in the first six months of 2022 was 148,600 units compared to 147,900 units in the first six months of 2021. DAF over 16‑tonne market share was a 17.5% in the first six months of 2022 compared to 15.7% in the same period of 2021. The 6 to 16‑tonne market in the first six months of 2022 was 19,200 units compared to 22,500 units in the same period of 2021. DAF market share in the 6 to 16-tonne market in the first six months of 2022 was 10.1% compared to 10.7% in the same period of 2021.
The Company’s worldwide truck net sales and revenues are summarized below:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||||||||||
|
($ in millions) |
|
|
2022 |
|
|
|
2021 |
|
|
% CHANGE |
|
|
|
2022 |
|
|
|
2021 |
|
|
% CHANGE |
|
||
|
Truck net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
$ |
3,157.0 |
|
|
$ |
2,543.2 |
|
|
|
24 |
|
|
$ |
5,747.6 |
|
|
$ |
5,098.2 |
|
|
|
13 |
|
|
Europe |
|
|
1,390.1 |
|
|
|
994.9 |
|
|
|
40 |
|
|
|
2,841.0 |
|
|
|
2,119.1 |
|
|
|
34 |
|
|
Mexico, South America, Australia and other |
|
|
789.3 |
|
|
|
614.1 |
|
|
|
29 |
|
|
|
1,444.9 |
|
|
|
1,167.9 |
|
|
|
24 |
|
|
|
|
$ |
5,336.4 |
|
|
$ |
4,152.2 |
|
|
|
29 |
|
|
$ |
10,033.5 |
|
|
$ |
8,385.2 |
|
|
|
20 |
|
|
Truck income before income taxes |
|
$ |
422.1 |
|
|
$ |
256.5 |
|
|
|
65 |
|
|
$ |
698.8 |
|
|
$ |
526.5 |
|
|
|
33 |
|
|
Pre-tax return on revenues |
|
|
7.9 |
% |
|
|
6.2 |
% |
|
|
|
|
|
|
7.0 |
% |
|
|
6.3 |
% |
|
|
|
|
The Company’s worldwide truck net sales and revenues in the second quarter increased to $5.34 billion in 2022 from $4.15 billion in 2021 due to improved price realization and higher truck deliveries in all markets. Revenues for the first six months increased to $10.03 billion in 2022 from $8.39 billion in 2021 primarily due to higher truck unit deliveries in Europe and improved price realization in all markets. Favorable second quarter and first six months results were partially offset by unfavorable currency translation effects.
- 36 -
For the second quarter and first six months of 2022, Truck segment income before income taxes and pretax return on revenues reflect the tempering of truck unit deliveries due to the global semiconductor and component supply shortages. In the second quarter and first six months of 2022, Truck segment income before taxes and pretax return on revenues increased to reflect the impact of higher truck unit deliveries.
The major factors for the Truck segment changes in net sales and revenues, cost of sales and revenues and gross margin between the three months ended June 30, 2022 and 2021 are as follows:
|
|
|
NET |
|
|
COST OF |
|
|
|
|
|
||
|
|
|
SALES AND |
|
|
SALES AND |
|
|
GROSS |
|
|||
|
($ in millions) |
|
REVENUES |
|
|
REVENUES |
|
|
MARGIN |
|
|||
|
Three Months Ended June 30, 2021 |
|
$ |
4,152.2 |
|
|
$ |
3,771.3 |
|
|
$ |
380.9 |
|
|
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck sales volume |
|
|
745.6 |
|
|
|
650.1 |
|
|
|
95.5 |
|
|
Average truck sales prices |
|
|
630.9 |
|
|
|
|
|
|
|
630.9 |
|
|
Average per truck material, labor and other direct costs |
|
|
|
|
|
|
512.8 |
|
|
|
(512.8 |
) |
|
Factory overhead and other indirect costs |
|
|
|
|
|
|
36.7 |
|
|
|
(36.7 |
) |
|
Extended warranties, operating leases and other |
|
|
23.0 |
|
|
|
19.0 |
|
|
|
4.0 |
|
|
Currency translation |
|
|
(215.3 |
) |
|
|
(201.5 |
) |
|
|
(13.8 |
) |
|
Total increase |
|
|
1,184.2 |
|
|
|
1,017.1 |
|
|
|
167.1 |
|
|
Three Months Ended June 30, 2022 |
|
$ |
5,336.4 |
|
|
$ |
4,788.4 |
|
|
$ |
548.0 |
|
|
• |
Truck sales volume reflects higher unit deliveries in all major markets due to increased demand. |
|
• |
Average truck sales prices increased sales by $630.9 million, primarily due to higher price realization worldwide. |
|
• |
Average cost per truck increased cost of sales by $512.8 million, primarily reflecting higher raw material, labor and freight costs. |
|
• |
Factory overhead and other indirect costs increased $36.7 million, primarily due to higher labor costs, utilities and depreciation. |
|
• |
Extended warranties, operating leases and other increased revenues by $23.0 million and cost of sales by $19.0 million primarily due to higher revenues and associated costs from repair and maintenance and service contracts. |
|
• |
The currency translation effect on sales and cost of sales primarily reflects a decline in the value of the euro relative to the U.S. dollar. |
|
• |
Truck gross margin was 10.3% in the second quarter of 2022 compared to 9.2% in the same period of 2021 due to the factors noted above. |
The major factors for the Truck segment changes in net sales and revenues, cost of sales and revenues and gross margin between the six months ended June 30, 2022 and 2021 are as follows:
|
|
|
NET |
|
|
COST OF |
|
|
|
|
|
||
|
|
|
SALES AND |
|
|
SALES AND |
|
|
GROSS |
|
|||
|
($ in millions) |
|
REVENUES |
|
|
REVENUES |
|
|
MARGIN |
|
|||
|
Six Months Ended June 30, 2021 |
|
$ |
8,385.2 |
|
|
$ |
7,612.2 |
|
|
$ |
773.0 |
|
|
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck sales volume |
|
|
878.0 |
|
|
|
763.7 |
|
|
|
114.3 |
|
|
Average truck sales prices |
|
|
1,031.4 |
|
|
|
|
|
|
|
1,031.4 |
|
|
Average per truck material, labor and other direct costs |
|
|
|
|
|
|
902.9 |
|
|
|
(902.9 |
) |
|
Factory overhead and other indirect costs |
|
|
|
|
|
|
83.4 |
|
|
|
(83.4 |
) |
|
Extended warranties, operating leases and other |
|
|
61.6 |
|
|
|
22.8 |
|
|
|
38.8 |
|
|
Currency translation |
|
|
(322.7 |
) |
|
|
(300.5 |
) |
|
|
(22.2 |
) |
|
Total increase |
|
|
1,648.3 |
|
|
|
1,472.3 |
|
|
|
176.0 |
|
|
Six Months Ended June 30, 2022 |
|
$ |
10,033.5 |
|
|
$ |
9,084.5 |
|
|
$ |
949.0 |
|
|
• |
Truck sales volume reflects higher heavy-duty truck deliveries in all major markets partially offset by lower medium-duty truck deliveries in the U.S. and Canada. |
|
• |
Average truck sales prices increased sales by $1.03 billion, primarily due to higher price realization worldwide. |
|
• |
Average cost per truck increased cost of sales by $902.9 million, primarily reflecting higher raw material, labor and freight costs. |
|
• |
Factory overhead and other indirect costs increased $83.4 million, primarily due to higher labor costs, utilities and depreciation. |
- 37 -
|
• |
Extended warranties, operating leases and other increased revenues by $61.6 million and cost of sales by $22.8 million primarily due to higher revenues and associated costs from repair and maintenance, service contracts and operating leases. In addition, cost of sales and revenues was partially offset by gains on sales of used trucks and lower impairments in Europe due to an improved used truck market. |
|
• |
The currency translation effect on sales and cost of sales primarily reflects a decline in the value of the euro relative to the U.S. dollar. |
|
• |
Truck gross margin was 9.5% in the first six months of 2022 compared to 9.2% in the same period of 2021 due to the factors noted above. |
Truck SG&A expense increased in the second quarter of 2022 to $67.5 million from $63.9 million in 2021, and for the first six months of 2022, Truck SG&A increased to $140.9 million from $125.0 million in 2021. The increase in both periods was primarily due to higher professional expenses, higher salaries and related expenses and higher sales and marketing costs, partially offset by currency translation effects.
As a percentage of sales, Truck SG&A decreased to 1.3% and 1.4% in the second quarter and first six months of 2022, respectively, compared to 1.5% in the second quarter and first six months of 2021.
Parts
The Company’s Parts segment accounted for 20% and 21% of revenues in the second quarter and first six months of 2022, respectively, compared to 21% and 20% in the second quarter and first six months of 2021, respectively.
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||||||||||
|
($ in millions) |
|
|
2022 |
|
|
|
2021 |
|
|
% CHANGE |
|
|
|
2022 |
|
|
|
2021 |
|
|
% CHANGE |
|
||
|
Parts net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
$ |
1,030.6 |
|
|
$ |
809.3 |
|
|
|
27 |
|
|
$ |
2,006.3 |
|
|
$ |
1,576.5 |
|
|
|
27 |
|
|
Europe |
|
|
273.1 |
|
|
|
288.1 |
|
|
|
(5 |
) |
|
|
569.2 |
|
|
|
574.2 |
|
|
|
(1 |
) |
|
Mexico, South America, Australia and other |
|
|
131.0 |
|
|
|
113.9 |
|
|
|
15 |
|
|
|
248.1 |
|
|
|
221.3 |
|
|
|
12 |
|
|
|
|
$ |
1,434.7 |
|
|
$ |
1,211.3 |
|
|
|
18 |
|
|
$ |
2,823.6 |
|
|
$ |
2,372.0 |
|
|
|
19 |
|
|
Parts income before income taxes |
|
$ |
353.3 |
|
|
$ |
266.8 |
|
|
|
32 |
|
|
$ |
693.5 |
|
|
$ |
518.4 |
|
|
|
34 |
|
|
Pre-tax return on revenues |
|
|
24.6 |
% |
|
|
22.0 |
% |
|
|
|
|
|
|
24.6 |
% |
|
|
21.9 |
% |
|
|
|
|
The Company’s worldwide parts net sales and revenues for the second quarter increased to $1.43 billion in 2022 from $1.21 billion in 2021. For the first six months, worldwide parts net sales and revenues increased to $2.82 billion in 2022 from $2.37 billion in 2021. The increase in both periods was primarily due to higher demand in all markets, partially offset by unfavorable currency translation effects.
For the second quarter and first six months of 2022, the increase in Parts segment income before income taxes and pre-tax return on revenues was primarily due to higher sales volume and higher margins, partially offset by unfavorable currency translation effects.
The major factors for the changes in Parts segment net sales and revenues, cost of sales and revenues and gross margin between the three months ended June 30, 2022 and 2021 are as follows:
|
|
|
NET |
|
|
COST OF |
|
|
|
|
|
||
|
|
|
SALES AND |
|
|
SALES AND |
|
|
GROSS |
|
|||
|
($ in millions) |
|
REVENUES |
|
|
REVENUES |
|
|
MARGIN |
|
|||
|
Three Months Ended June 30, 2021 |
|
$ |
1,211.3 |
|
|
$ |
868.6 |
|
|
$ |
342.7 |
|
|
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Aftermarket parts volume |
|
|
136.8 |
|
|
|
85.7 |
|
|
|
51.1 |
|
|
Average aftermarket parts sales prices |
|
|
128.3 |
|
|
|
|
|
|
|
128.3 |
|
|
Average aftermarket parts direct costs |
|
|
|
|
|
|
60.9 |
|
|
|
(60.9 |
) |
|
Warehouse and other indirect costs |
|
|
|
|
|
|
13.7 |
|
|
|
(13.7 |
) |
|
Currency translation |
|
|
(41.7 |
) |
|
|
(25.2 |
) |
|
|
(16.5 |
) |
|
Total increase |
|
|
223.4 |
|
|
|
135.1 |
|
|
|
88.3 |
|
|
Three Months Ended June 30, 2022 |
|
$ |
1,434.7 |
|
|
$ |
1,003.7 |
|
|
$ |
431.0 |
|
|
• |
Aftermarket parts sales volume increased by $136.8 million and related cost of sales increased by $85.7 million due to higher demand in all markets. |
- 38 -
|
• |
Average aftermarket parts sales prices increased sales by $128.3 million primarily due to higher price realization in North America and Europe. |
|
• |
Average aftermarket parts direct costs increased $60.9 million due to higher material and freight costs. |
|
• |
Warehouse and other indirect costs increased $13.7 million primarily due to higher salaries and related expenses. |
|
• |
The currency translation effect on sales and cost of sales primarily reflects a decline in the value of the euro relative to the U.S. dollar. |
|
• |
Parts gross margins in the second quarter of 2022 increased to 30.0% from 28.3% in the second quarter of 2021 due to the factors noted above. |
The major factors for the changes in Parts segment net sales and revenues, cost of sales and revenues and gross margin between the six months ended June 30, 2021 and 2020 are as follows:
|
|
|
NET |
|
|
COST OF |
|
|
|
|
|
||
|
|
|
SALES AND |
|
|
SALES AND |
|
|
GROSS |
|
|||
|
($ in millions) |
|
REVENUES |
|
|
REVENUES |
|
|
MARGIN |
|
|||
|
Six Months Ended June 30, 2021 |
|
$ |
2,372.0 |
|
|
$ |
1,701.4 |
|
|
$ |
670.6 |
|
|
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Aftermarket parts volume |
|
|
255.1 |
|
|
|
162.8 |
|
|
|
92.3 |
|
|
Average aftermarket parts sales prices |
|
|
259.7 |
|
|
|
|
|
|
|
259.7 |
|
|
Average aftermarket parts direct costs |
|
|
|
|
|
|
122.3 |
|
|
|
(122.3 |
) |
|
Warehouse and other indirect costs |
|
|
|
|
|
|
26.4 |
|
|
|
(26.4 |
) |
|
Currency translation |
|
|
(63.2 |
) |
|
|
(38.9 |
) |
|
|
(24.3 |
) |
|
Total increase |
|
|
451.6 |
|
|
|
272.6 |
|
|
|
179.0 |
|
|
Six Months Ended June 30, 2022 |
|
$ |
2,823.6 |
|
|
$ |
1,974.0 |
|
|
$ |
849.6 |
|
|
• |
Aftermarket parts sales volume increased by $255.1 million and related cost of sales increased by $162.8 million due to higher demand in all markets. |
|
• |
Average aftermarket parts sales prices increased sales by $259.7 million primarily due to higher price realization in North America and Europe. |
|
• |
Average aftermarket parts direct costs increased $122.3 million due to higher material and freight costs. |
|
• |
Warehouse and other indirect costs increased $26.4 million primarily due to higher salaries and related expenses. |
|
• |
The currency translation effect on sales and cost of sales primarily reflects a decline in the value of the euro relative to the U.S. dollar. |
|
• |
Parts gross margins in the first six months of 2022 increased to 30.1% from 28.3% in the first six months of 2021 due to the factors noted above. |
Parts SG&A expense increased in the second quarter of 2022 to $54.6 million from $53.0 million in 2021, and for the first six months, Parts SG&A increased to $109.5 million in 2022 from $104.7 million in 2021. The increase in both periods was primarily due to higher salaries and related expenses, partially offset by lower sales and marketing costs and currency translation effects.
As a percentage of sales, Parts SG&A was 3.8% and 3.9% in the second quarter and first six months of 2022, respectively, compared to 4.4% in the second quarter and first six months of 2021.
- 39 -
Financial Services
The Company’s Financial Services segment accounted for 5% of revenues in the second quarter and first six months of 2022, compared to 8% in the second quarter and first six months of 2021, respectively.
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||||||||||
|
($ in millions) |
|
|
2022 |
|
|
|
2021 |
|
|
% CHANGE |
|
|
|
2022 |
|
|
|
2021 |
|
|
% CHANGE |
|
||
|
New loan and lease volume: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
$ |
817.2 |
|
|
$ |
964.5 |
|
|
|
(15 |
) |
|
$ |
1,654.0 |
|
|
$ |
1,699.0 |
|
|
|
(3 |
) |
|
Europe |
|
|
347.8 |
|
|
|
338.6 |
|
|
|
3 |
|
|
|
698.0 |
|
|
|
667.5 |
|
|
|
5 |
|
|
Mexico, Australia and other |
|
|
333.8 |
|
|
|
257.3 |
|
|
|
30 |
|
|
|
631.0 |
|
|
|
465.4 |
|
|
|
36 |
|
|
|
|
$ |
1,498.8 |
|
|
$ |
1,560.4 |
|
|
|
(4 |
) |
|
$ |
2,983.0 |
|
|
$ |
2,831.9 |
|
|
|
5 |
|
|
New loan and lease volume by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance leases |
|
$ |
1,204.7 |
|
|
$ |
1,300.7 |
|
|
|
(7 |
) |
|
$ |
2,448.6 |
|
|
$ |
2,332.8 |
|
|
|
5 |
|
|
Equipment on operating lease |
|
|
294.1 |
|
|
|
259.7 |
|
|
|
13 |
|
|
|
534.4 |
|
|
|
499.1 |
|
|
|
7 |
|
|
|
|
$ |
1,498.8 |
|
|
$ |
1,560.4 |
|
|
|
(4 |
) |
|
$ |
2,983.0 |
|
|
$ |
2,831.9 |
|
|
|
5 |
|
|
New loan and lease unit volume: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance leases |
|
|
10,130 |
|
|
|
10,690 |
|
|
|
(5 |
) |
|
|
19,730 |
|
|
|
19,850 |
|
|
|
(1 |
) |
|
Equipment on operating lease |
|
|
3,080 |
|
|
|
2,910 |
|
|
|
6 |
|
|
|
5,960 |
|
|
|
5,360 |
|
|
|
11 |
|
|
|
|
|
13,210 |
|
|
|
13,600 |
|
|
|
(3 |
) |
|
|
25,690 |
|
|
|
25,210 |
|
|
|
2 |
|
|
Average earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
$ |
8,747.5 |
|
|
$ |
8,795.4 |
|
|
|
(1 |
) |
|
$ |
8,630.0 |
|
|
$ |
8,774.0 |
|
|
|
(2 |
) |
|
Europe |
|
|
3,853.6 |
|
|
|
3,841.6 |
|
|
|
|
|
|
|
3,843.2 |
|
|
|
3,880.4 |
|
|
|
(1 |
) |
|
Mexico, Australia and other |
|
|
2,520.6 |
|
|
|
2,080.9 |
|
|
|
21 |
|
|
|
2,421.4 |
|
|
|
2,056.0 |
|
|
|
18 |
|
|
|
|
$ |
15,121.7 |
|
|
$ |
14,717.9 |
|
|
|
3 |
|
|
$ |
14,894.6 |
|
|
$ |
14,710.4 |
|
|
|
1 |
|
|
Average earning assets by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance leases |
|
$ |
10,273.5 |
|
|
$ |
10,018.9 |
|
|
|
3 |
|
|
$ |
10,174.1 |
|
|
$ |
9,903.9 |
|
|
|
3 |
|
|
Dealer wholesale financing |
|
|
2,023.0 |
|
|
|
1,506.4 |
|
|
|
34 |
|
|
|
1,848.3 |
|
|
|
1,612.8 |
|
|
|
15 |
|
|
Equipment on lease and other |
|
|
2,825.2 |
|
|
|
3,192.6 |
|
|
|
(12 |
) |
|
|
2,872.2 |
|
|
|
3,193.7 |
|
|
|
(10 |
) |
|
|
|
$ |
15,121.7 |
|
|
$ |
14,717.9 |
|
|
|
3 |
|
|
$ |
14,894.6 |
|
|
$ |
14,710.4 |
|
|
|
1 |
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
$ |
168.3 |
|
|
$ |
218.0 |
|
|
|
(23 |
) |
|
$ |
336.9 |
|
|
$ |
407.5 |
|
|
|
(17 |
) |
|
Europe |
|
|
124.9 |
|
|
|
176.0 |
|
|
|
(29 |
) |
|
|
254.4 |
|
|
|
358.1 |
|
|
|
(29 |
) |
|
Mexico, Australia and other |
|
|
79.3 |
|
|
|
62.3 |
|
|
|
27 |
|
|
|
147.4 |
|
|
|
122.7 |
|
|
|
20 |
|
|
|
|
$ |
372.5 |
|
|
$ |
456.3 |
|
|
|
(18 |
) |
|
$ |
738.7 |
|
|
$ |
888.3 |
|
|
|
(17 |
) |
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance leases |
|
$ |
128.8 |
|
|
$ |
122.1 |
|
|
|
5 |
|
|
$ |
247.2 |
|
|
$ |
240.2 |
|
|
|
3 |
|
|
Dealer wholesale financing |
|
|
22.1 |
|
|
|
10.3 |
|
|
|
115 |
|
|
|
36.0 |
|
|
|
22.1 |
|
|
|
63 |
|
|
Equipment on lease and other |
|
|
221.6 |
|
|
|
323.9 |
|
|
|
(32 |
) |
|
|
455.5 |
|
|
|
626.0 |
|
|
|
(27 |
) |
|
|
|
$ |
372.5 |
|
|
$ |
456.3 |
|
|
|
(18 |
) |
|
$ |
738.7 |
|
|
$ |
888.3 |
|
|
|
(17 |
) |
|
Income before income taxes |
|
$ |
144.4 |
|
|
$ |
106.5 |
|
|
|
36 |
|
|
$ |
291.4 |
|
|
$ |
182.9 |
|
|
|
59 |
|
For the second quarter, new loan and lease volume was $1,498.8 million in 2022 compared to $1,560.4 million in 2021 reflecting lower new loan and lease volume in the U.S. and Canada, partially offset by higher new loan and lease volume in Brasil, Europe and Mexico. For the first half of 2022, new loan and lease unit volume was $2,983.0 million compared to $2,831.9 million in 2021, primarily reflecting higher new loan and lease volume in Brasil, Europe and Mexico, partially offset by lower new loan and lease volume in the U.S. and Canada. The effect of currency translation decreased new loan and lease volume by $50.5 million and $80.7 million in the second quarter and first half of 2022, primarily due to the lower euro and Australian dollar relative to the U.S. dollar.
In the second quarter of 2022, PFS finance market share of new PACCAR truck sales was 25.0% compared to 27.9% in the second quarter of 2021. In the first six months of 2022, PFS finance market share of new PACCAR truck sales was 26.4% compared to 26.5% in the first six months of 2021.
In the second quarter of 2022, PFS revenues decreased to $372.5 million from $456.3 million in 2021. In the first six months of 2022, PFS revenues decreased to $738.7 million from $888.3 million in 2021. The decreases for both periods were primarily due to lower used truck sales in Europe and the U.S. The effects of currency translation decreased PFS revenues by $16.7 million and $26.0 million in the second quarter and first half of 2022, respectively, primarily due to a lower euro relative to the U.S. dollar.
- 40 -
PFS income before income taxes increased to $144.4 million in the second quarter of 2022 from $106.5 million in the second quarter of 2021. In the first six months of 2022, PFS income before income taxes increased to $291.4 million from $182.9 million in 2021. The increase in both periods was primarily due to improved used truck results. The effects of translating weaker foreign currencies to the U.S. dollar decreased PFS income before income taxes by $5.7 million and $8.4 million for the second quarter and first half of 2022, respectively, primarily due to a lower euro relative to the U.S. dollar.
Included in Financial Services “Other assets” on the Company’s Consolidated Balance Sheets are used trucks held for sale, net of impairments, of $99.3 million at June 30, 2022 and $92.1 million at December 31, 2021. 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 and trucks returned from residual value guarantees (RVGs).
The Company recognized gains on used trucks, excluding repossessions, of $34.7 million in the second quarter of 2022 compared to losses of $3.3 million in the second quarter of 2021, including losses on multiple unit transactions of nil in the second quarter of 2022 compared to $6.1 million in the second quarter of 2021. 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 second quarter of 2022 or 2021.
The Company recognized gains on used trucks, excluding repossessions, of $69.9 million in the first six months of 2022 compared to $11.1 million of losses in the first six months of 2021, including losses on multiple unit transactions of $.3 million in the first six months of 2022 compared to $16.9 million in the first six months of 2021. Used truck losses related to repossessions, which are recognized as credit losses, and used truck gains, which are recognized as credit recoveries, were not significant for either the first six months of 2022 or 2021.
The major factors for the changes in interest and fees, interest and other borrowing expenses and finance margin for the three months ended June 30, 2022 and 2021 are outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
INTEREST AND FEES |
|
|
INTEREST AND OTHER BORROWING EXPENSES |
|
|
FINANCE MARGIN |
|
|||
|
Three Months Ended June 30, 2021 |
|
$ |
132.4 |
|
|
$ |
37.6 |
|
|
$ |
94.8 |
|
|
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average finance receivables |
|
|
14.0 |
|
|
|
|
|
|
|
14.0 |
|
|
Average debt balances |
|
|
|
|
|
|
1.9 |
|
|
|
(1.9 |
) |
|
Yields |
|
|
7.3 |
|
|
|
|
|
|
|
7.3 |
|
|
Borrowing rates |
|
|
|
|
|
|
6.9 |
|
|
|
(6.9 |
) |
|
Currency translation and other |
|
|
(2.8 |
) |
|
|
|
|
|
|
(2.8 |
) |
|
Total increase |
|
|
18.5 |
|
|
|
8.8 |
|
|
|
9.7 |
|
|
Three Months Ended June 30, 2022 |
|
$ |
150.9 |
|
|
$ |
46.4 |
|
|
$ |
104.5 |
|
|
• |
Average finance receivables increased $1,159.7 million (excluding foreign exchange effects) in the second quarter of 2022 primarily due to higher average loan and dealer wholesale balances. |
|
• |
Average debt balances increased $449.3 million (excluding foreign exchange effects) in the second quarter of 2022, reflecting higher funding requirements for the portfolio, which includes loans, finance leases, dealer wholesale and equipment on operating lease. |
|
• |
Higher portfolio yields (4.9% in 2022 compared to 4.5% in 2021) increased interest and fees by $7.3 million. The higher portfolio yields were primarily due to higher market rates in Europe and Brasil, partially offset lower rates in North America. |
|
• |
Higher borrowing rates (1.7% in 2022 compared to 1.4% in 2021) were primarily due to higher debt market rates in Brasil, Canada and Europe. |
|
• |
The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the euro. |
- 41 -
The major factors for the changes in interest and fees, interest and other borrowing expenses and finance margin between the six months ended June 30, 2022 and 2021 are outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
INTEREST AND FEES |
|
|
INTEREST AND OTHER BORROWING EXPENSES |
|
|
FINANCE MARGIN |
|
|||
|
Six Months Ended June 30, 2021 |
|
$ |
262.3 |
|
|
$ |
79.6 |
|
|
$ |
182.7 |
|
|
Increase (decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average finance receivables |
|
|
19.0 |
|
|
|
|
|
|
|
19.0 |
|
|
Average debt balances |
|
|
|
|
|
|
1.8 |
|
|
|
(1.8 |
) |
|
Yields |
|
|
5.9 |
|
|
|
|
|
|
|
5.9 |
|
|
Borrowing rates |
|
|
|
|
|
|
4.7 |
|
|
|
(4.7 |
) |
|
Currency translation and other |
|
|
(4.0 |
) |
|
|
.1 |
|
|
|
(4.1 |
) |
|
Total increase |
|
|
20.9 |
|
|
|
6.6 |
|
|
|
14.3 |
|
|
Six Months Ended June 30, 2022 |
|
$ |
283.2 |
|
|
$ |
86.2 |
|
|
$ |
197.0 |
|
|
• |
Average finance receivables increased $785.3 million (excluding foreign exchange effects) in the first six months of 2022 primarily due to higher average loan and dealer wholesale balances. |
|
• |
Average debt balances increased by $221.0 million (excluding foreign exchange effects) in the first six months of 2022, reflecting higher funding requirements for the portfolio, which includes loans, finance leases, dealer wholesale and equipment on operating lease. |
|
• |
Higher portfolio yields (4.8% in 2022 compared to 4.6% in 2021) increased interest and fees by $5.9 million. The higher portfolio yields were primarily due to higher market rates in Europe, Brasil and Mexico, partially offset by lower rates in the U.S. |
|
• |
Higher borrowing rates (1.6% in 2022 compared to 1.5% in 2021) were primarily due to higher debt market rates in Brasil, Canada and Mexico, partially offset by lower rates in the U.S. |
|
• |
The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the euro. |
The following table summarizes operating lease, rental and other revenues and depreciation and other expenses:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||
|
($ in millions) |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
Operating lease and rental revenues |
|
$ |
204.5 |
|
|
$ |
219.5 |
|
|
$ |
413.1 |
|
|
$ |
435.4 |
|
|
Used truck sales |
|
|
12.8 |
|
|
|
99.5 |
|
|
|
33.4 |
|
|
|
181.2 |
|
|
Insurance, franchise and other revenues |
|
|
4.3 |
|
|
|
4.9 |
|
|
|
9.0 |
|
|
|
9.4 |
|
|
Operating lease, rental and other revenues |
|
$ |
221.6 |
|
|
$ |
323.9 |
|
|
$ |
455.5 |
|
|
$ |
626.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of operating lease equipment |
|
$ |
124.0 |
|
|
$ |
153.6 |
|
|
$ |
236.5 |
|
|
$ |
318.8 |
|
|
Vehicle operating expenses |
|
|
9.0 |
|
|
|
26.3 |
|
|
|
19.4 |
|
|
|
57.2 |
|
|
Cost of used truck sales |
|
|
12.2 |
|
|
|
99.6 |
|
|
|
31.9 |
|
|
|
181.2 |
|
|
Insurance, franchise and other expenses |
|
|
.2 |
|
|
|
1.0 |
|
|
|
1.1 |
|
|
|
2.0 |
|
|
Depreciation and other expenses |
|
$ |
145.4 |
|
|
$ |
280.5 |
|
|
$ |
288.9 |
|
|
$ |
559.2 |
|
- 42 -
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 June 30, 2022 and 2021 are outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
OPERATING LEASE, RENTAL AND OTHER REVENUES |
|
|
DEPRECIATION AND OTHER EXPENSES |
|
|
LEASE MARGIN |
|
|||
|
Three Months Ended June 30, 2021 |
|
$ |
323.9 |
|
|
$ |
280.5 |
|
|
$ |
43.4 |
|
|
(Decrease) increase |
|
|
|
|
|
|
|
|
|
|
|
|
|
Used truck sales |
|
|
(85.2 |
) |
|
|
(85.9 |
) |
|
|
.7 |
|
|
Results on returned lease assets |
|
|
|
|
|
|
(33.9 |
) |
|
|
33.9 |
|
|
Average operating lease assets |
|
|
(10.3 |
) |
|
|
(8.4 |
) |
|
|
(1.9 |
) |
|
Revenue and cost per asset |
|
|
7.5 |
|
|
|
3.8 |
|
|
|
3.7 |
|
|
Currency translation and other |
|
|
(14.3 |
) |
|
|
(10.7 |
) |
|
|
(3.6 |
) |
|
Total (decrease) increase |
|
|
(102.3 |
) |
|
|
(135.1 |
) |
|
|
32.8 |
|
|
Three Months Ended June 30, 2022 |
|
$ |
221.6 |
|
|
$ |
145.4 |
|
|
$ |
76.2 |
|
|
• |
Lower sales volume of used trucks in Europe and the U.S. decreased revenues by $85.2 million and related depreciation and other expenses by $85.9 million. |
|
• |
Results on returned lease assets decreased depreciation and other expenses by $33.9 million primarily due to higher gains on sales on returned lease units as a result of higher used truck market values. |
|
• |
Average operating lease assets decreased $170.5 million (excluding foreign exchange effects), which decreased revenues by $10.3 million and related depreciation and other expenses by $8.4 million. |
|
• |
Revenue per asset increased $7.5 million primarily due to higher rental utilization in the North America. Cost per asset increased $3.8 million due to higher operating lease depreciation. |
|
• |
The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the euro. |
The major factors for the changes in operating lease, rental and other revenues, depreciation and other expenses and lease margin between the six months ended June 30, 2022 and 2021 are outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
OPERATING LEASE, RENTAL AND OTHER REVENUES |
|
|
DEPRECIATION AND OTHER EXPENSES |
|
|
LEASE MARGIN |
|
|||
|
Six Months Ended June 30, 2021 |
|
$ |
626.0 |
|
|
$ |
559.2 |
|
|
$ |
66.8 |
|
|
(Decrease) increase |
|
|
|
|
|
|
|
|
|
|
|
|
|
Used truck sales |
|
|
(145.1 |
) |
|
|
(146.6 |
) |
|
|
1.5 |
|
|
Results on returned lease assets |
|
|
|
|
|
|
(97.2 |
) |
|
|
97.2 |
|
|
Average operating lease assets |
|
|
(16.1 |
) |
|
|
(12.8 |
) |
|
|
(3.3 |
) |
|
Revenue and cost per asset |
|
|
12.8 |
|
|
|
3.1 |
|
|
|
9.7 |
|
|
Currency translation and other |
|
|
(22.1 |
) |
|
|
(16.8 |
) |
|
|
(5.3 |
) |
|
Total (decrease) increase |
|
|
(170.5 |
) |
|
|
(270.3 |
) |
|
|
99.8 |
|
|
Six Months Ended June 30, 2022 |
|
$ |
455.5 |
|
|
$ |
288.9 |
|
|
$ |
166.6 |
|
|
• |
Lower sales volume of used trucks in Europe and the U.S. decreased revenues by $145.1 million and related depreciation and other expenses by $146.6 million. |
|
• |
Results on returned lease assets decreased depreciation and other expenses by $97.2 million primarily due to higher gains on sales on returned lease units as a result of higher used truck market values. |
|
• |
Average operating lease assets decreased $166.1 million (excluding foreign exchange effects), which decreased revenues by $16.1 million and related depreciation and other expenses by $12.8 million. |
|
• |
Revenue per asset increased $12.8 million primarily due to higher rental utilization. Cost per asset increased $3.1 million due to higher operating lease depreciation. |
|
• |
The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the euro. |
- 43 -
Financial Services SG&A for the second quarter of 2022 decreased to $31.9 million from $32.2 million in the second quarter of 2021 primarily due to decreases in the value of foreign currencies relative to the U.S. dollar. For the first six months, Financial Services SG&A increased to $67.6 million in 2022 from $63.4 million in 2021 primarily due to higher salaries and related expenses, partially offset by decreases in the value of foreign currencies relative to the U.S. dollar.
As a percentage of revenues, Financial Services SG&A increased to 8.6% in the second quarter of 2022 from 7.1% in the same period of 2021, and in the first six months, increased to 9.2% in 2022 from 7.1% in 2021. The increases in both periods was primarily driven by lower revenues.
The following table summarizes the provision for losses on receivables and net charge-offs:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, 2022 |
|
|
June 30, 2022 |
|
||||||||||
|
($ in millions) |
|
PROVISION FOR LOSSES ON RECEIVABLES |
|
|
NET CHARGE- OFFS |
|
|
PROVISION FOR LOSSES ON RECEIVABLES |
|
|
NET CHARGE- OFFS |
|
||||
|
U.S. and Canada |
|
$ |
(.4 |
) |
|
$ |
(.1 |
) |
|
$ |
(2.9 |
) |
|
$ |
(.7 |
) |
|
Europe |
|
|
.3 |
|
|
|
.3 |
|
|
|
.3 |
|
|
|
.5 |
|
|
Mexico, Australia and other |
|
|
4.5 |
|
|
|
.2 |
|
|
|
7.2 |
|
|
|
1.3 |
|
|
|
|
$ |
4.4 |
|
|
$ |
.4 |
|
|
$ |
4.6 |
|
|
$ |
1.1 |
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, 2021 |
|
|
June 30, 2021 |
|
||||||||||
|
($ in millions) |
|
PROVISION FOR LOSSES ON RECEIVABLES |
|
|
NET CHARGE- OFFS |
|
|
PROVISION FOR LOSSES ON RECEIVABLES |
|
|
NET CHARGE- OFFS |
|
||||
|
U.S. and Canada |
|
|
|
|
|
$ |
.3 |
|
|
$ |
.4 |
|
|
$ |
.6 |
|
|
Europe |
|
$ |
(.8 |
) |
|
|
.5 |
|
|
|
.2 |
|
|
|
1.1 |
|
|
Mexico, Australia and other |
|
|
.3 |
|
|
|
1.2 |
|
|
|
2.6 |
|
|
|
2.8 |
|
|
|
|
$ |
(.5 |
) |
|
$ |
2.0 |
|
|
$ |
3.2 |
|
|
$ |
4.5 |
|
The provision for losses on receivables was $4.4 million in the second quarter of 2022 compared to $(.5) million in 2021, and in the first six months, the provision for losses on receivables was $4.6 million in 2022 compared to $3.2 million in 2021. The increase in provision for losses in both the second quarter and first half of 2022 compared to 2021 was mainly driven by portfolio growth and higher past due balances in Brasil, partially offset by improved portfolio performance in the U.S. and Canada.
The Company modifies loans and finance leases as a normal part of its Financial Services operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress, but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company’s modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification. When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts the Company considers likely to perform under the modified terms. When the Company modifies a loan or finance lease for credit reasons and grants a concession, the modification is classified as a troubled debt restructuring (TDR).
The post-modification balances of accounts modified during the six months ended June 30, 2022 and 2021 are summarized below:
|
|
|
2022 |
|
|
2021 |
|
||||||||||
|
($ in millions) |
|
AMORTIZED COST BASIS |
|
|
% OF TOTAL PORTFOLIO* |
|
|
AMORTIZED COST BASIS |
|
|
% OF TOTAL PORTFOLIO* |
|
||||
|
Commercial |
|
$ |
111.2 |
|
|
|
2.1 |
% |
|
$ |
122.5 |
|
|
|
2.4 |
% |
|
Insignificant delay |
|
|
41.0 |
|
|
|
.8 |
% |
|
|
34.4 |
|
|
|
.7 |
% |
|
Credit – no concession |
|
|
41.0 |
|
|
|
.8 |
% |
|
|
40.0 |
|
|
|
.8 |
% |
|
Credit – TDR |
|
|
8.1 |
|
|
|
.2 |
% |
|
|
5.7 |
|
|
|
.1 |
% |
|
|
|
$ |
201.3 |
|
|
|
3.9 |
% |
|
$ |
202.6 |
|
|
|
4.0 |
% |
|
* |
Amortized cost basis immediately after modification as a percentage of ending retail portfolio, on an annualized basis. |
- 44 -
During the first six months of 2022, total modification activity of $201.3 million was comparable to $202.6 million for the same period last year. The decrease in modifications for Commercial reasons primarily reflects a lower volume of refinancing. The increase in modifications for Insignificant delay reflects the impacts of two fleet customers in the U.S. and an increased number of extensions related to COVID-19 and flooding relief in Australia, partially offset by a reduction of customers requesting payment relief in Italy related to the COVID-19 pandemic in the first half of 2021. The slight increase in modifications for Credit – no concession is primarily due to higher volumes of refinancing and requests for payment relief in Brasil, partially offset by a reduction of requests for payment relief in Europe. The increase in modifications for Credit –TDR is primarily due to contract modifications in Brasil, partially offset by a reduction of contract modifications related to COVID-19 for customers in Italy.
The following table summarizes the Company’s 30+ days past due accounts:
|
|
|
June 30 2022 |
|
|
December 31 2021 |
|
|
June 30 2021 |
|
|||
|
Percentage of retail loan and lease accounts 30+ days past due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
|
|
|
|
|
|
|
|
|
.1 |
% |
|
Europe |
|
|
.5 |
% |
|
|
.4 |
% |
|
|
.3 |
% |
|
Mexico, Australia and other |
|
|
1.7 |
% |
|
|
1.2 |
% |
|
|
1.4 |
% |
|
Worldwide |
|
|
.4 |
% |
|
|
.3 |
% |
|
|
.3 |
% |
Accounts 30+ days past due was .4% at June 30, 2022 compared to .3% at December 31, 2021. 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 $24.7 million of accounts worldwide during the second quarter of 2022, $.4 million during the fourth quarter of 2021 and $1.0 million during the second quarter of 2021 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:
|
|
|
June 30 2022 |
|
|
December 31 2021 |
|
|
June 30 2021 |
|
|||
|
Pro forma percentage of retail loan and lease accounts 30+ days past due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
|
|
|
|
|
|
|
|
|
.1 |
% |
|
Europe |
|
|
.5 |
% |
|
|
.4 |
% |
|
|
.3 |
% |
|
Mexico, Australia and other |
|
|
2.9 |
% |
|
|
1.2 |
% |
|
|
1.4 |
% |
|
Worldwide |
|
|
.6 |
% |
|
|
.3 |
% |
|
|
.3 |
% |
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 June 30, 2022, December 31, 2021 and June 30, 2021. The effect on the allowance for credit losses from such modifications was not significant at June 30, 2022, December 31, 2021 and June 30, 2021.
The Company’s annualized pre-tax return on average assets for Financial Services increased to 3.6% in the second quarter of 2022 from 2.7% in the same period of 2021, and in the first six months, increased to 3.7% in 2022 from 2.4% in 2021. The increase in both periods was primarily driven by improved used truck results.
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 expense and a portion of corporate expense. Other sales represent less than 1% of consolidated net sales and revenues for both the second quarter and first half of 2022 and 2021. Other SG&A increased to $22.9 million for the second quarter of 2022 from $15.3 million for the second quarter of 2021 and increased to $42.6 million for the first half of 2022 from $32.4 million for the first half of 2021. The increase in both periods was primarily due to higher salaries and related expenses.
For the second quarter, Other (loss) income before income taxes was ($3.1) million compared to $5.5 million in 2021. For the first six months, Other income before tax was $6.9 million compared to $10.9 million in 2021. The decrease in both periods is primarily due to higher salaries and related expenses, partially offset by higher benefit from non-service components of pension expense.
Investment income for the second quarter increased to $5.4 million in 2022 from $5.0 million in 2021. For the first six months, investment income decreased to $2.9 million in 2022 from $9.9 million in 2021. For the second quarter and first six months of 2022 investment income from marketable debt securities was higher compared to the same periods in 2021 due to higher yields on South America and U.S. investments, partially offset by unrealized losses on marketable equity securities.
- 45 -
Income Taxes
The effective tax rate for the second quarter of 2022 was 21.9% compared to 22.6% for the second quarter of 2021. The effective tax rate for the first six months of 2022 was 22.0% compared to 22.6% for the first six months of 2021. The lower effective tax rate in the second quarter and first half of 2022 was primarily due to the change in mix of income generated in jurisdictions with lower tax rates in 2022 as compared to 2021.
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30 |
|
|
June 30 |
|
||||||||||
|
($ in millions) |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
Domestic income before taxes |
|
$ |
568.4 |
|
|
$ |
393.9 |
|
|
$ |
1,042.4 |
|
|
$ |
779.6 |
|
|
Foreign income before taxes |
|
|
353.7 |
|
|
|
246.4 |
|
|
|
651.1 |
|
|
|
469.0 |
|
|
Total income before taxes |
|
$ |
922.1 |
|
|
$ |
640.3 |
|
|
$ |
1,693.5 |
|
|
$ |
1,248.6 |
|
|
Domestic pre-tax return on revenues |
|
|
14.3 |
% |
|
|
12.3 |
% |
|
|
14.2 |
% |
|
|
12.4 |
% |
|
Foreign pre-tax return on revenues |
|
|
11.2 |
% |
|
|
9.3 |
% |
|
|
10.4 |
% |
|
|
8.7 |
% |
|
Total pre-tax return on revenues |
|
|
12.9 |
% |
|
|
11.0 |
% |
|
|
12.4 |
% |
|
|
10.7 |
% |
For the second quarter and first half of 2022, both domestic and foreign income before income taxes and pre-tax return on revenues increased primarily due to the improved results from Truck, Parts and Financial Services operations.
LIQUIDITY AND CAPITAL RESOURCES:
|
|
June 30 |
|
|
December 31 |
|
||
|
($ in millions) |
|
2022 |
|
|
|
2021 |
|
|
Cash and cash equivalents |
$ |
3,231.3 |
|
|
$ |
3,428.3 |
|
|
Marketable securities |
|
1,559.2 |
|
|
|
1,559.4 |
|
|
|
$ |
4,790.5 |
|
|
$ |
4,987.7 |
|
The Company’s total cash and marketable securities at June 30, 2022 decreased $197.2 million from the balances at December 31, 2021. Total cash and marketable securities are primarily intended to provide liquidity while preserving capital.
The change in cash and cash equivalents is summarized below:
|
($ in millions) |
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
2022 |
|
|
2021 |
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
$ |
1,320.9 |
|
|
$ |
966.3 |
|
|
Net income items not affecting cash |
|
229.2 |
|
|
|
434.9 |
|
|
Changes in operating assets and liabilities, net |
|
(452.6 |
) |
|
|
(533.5 |
) |
|
Net cash provided by operating activities |
|
1,097.5 |
|
|
|
867.7 |
|
|
Net cash used in investing activities |
|
(879.0 |
) |
|
|
(666.7 |
) |
|
Net cash used in financing activities |
|
(346.0 |
) |
|
|
(651.5 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
(69.5 |
) |
|
|
(19.3 |
) |
|
Net decrease in cash and cash equivalents |
|
(197.0 |
) |
|
|
(469.8 |
) |
|
Cash and cash equivalents at beginning of period |
|
3,428.3 |
|
|
|
3,539.6 |
|
|
Cash and cash equivalents at end of period |
$ |
3,231.3 |
|
|
$ |
3,069.8 |
|
Operating activities: Cash provided by operations increased by $229.8 million to $1,097.5 million in the first half of 2022 from $867.7 million in 2021. Higher operating cash flows reflect lower cash usage of $535.4 million for inventories, higher net income of $354.6 million and lower cash outflow for payment of income taxes of $80.9 million. Additionally, higher operating cash flows reflect lower cash outflows of $79.3 million for accounts payable and accrued expenses as purchases of goods and services exceeded payments. The higher operating cash flows were partially offset by $733.8 million in wholesale receivables in the Financial Services segment primarily due to increasing wholesale receivables, and lower cash receipts from trade and other receivables of $105.3 million.
- 46 -
Investing activities: Cash used in investing activities increased by $212.3 million to $879.0 million in the first half of 2022 from $666.7 million in 2021. Higher net cash used in investing activities reflects lower proceeds from asset disposals of $125.1 million, higher net cash used in investing activities of $73.6 million and higher net originations of loans and financing leases of $69.3 million. The higher net cash usage was partially offset by fewer acquisitions of equipment for operating leases of $78.5 million.
Financing activities: Cash used in financing activities decreased by $305.5 to $346.0 million in the first half of 2022 from $651.5 in 2021. In the first half of 2022, cash provided by net borrowing activities in 2022 was $395.1 million, $603.5 million higher than the cash used by net borrowing activities of $208.4 million in 2021. The Company paid $757.6 million in dividends in 2022 compared to $471.8 million in 2021 due to a higher year-end dividend paid in January 2022.
Credit Lines and Other
The Company has line of credit arrangements of $3.67 billion, of which $3.41 billion were unused at June 30, 2022. Included in these arrangements are $3.00 billion of committed bank facilities, of which $1.00 billion expires in June 2023, $1.00 billion expires in June 2025 and $1.00 billion expires in June 2027. 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 six months ended June 30, 2022.
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 June 30, 2022, the Company has repurchased $110.0 million of shares under this plan. There were no repurchases made under this plan during the second quarter of 2022.
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 six months of 2022 were $227.4 million compared to $207.2 million for the same period of 2021. Over the past decade, the Company’s combined investments in worldwide capital projects and R&D totaled $7.21 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 2022, total capital investments for PACCAR are expected to be $425 to $475 million and R&D is expected to be $330 to $350 million. The Company is increasing its investment in clean diesel and electric powertrain technologies, autonomous systems, connected vehicle services, next-generation manufacturing and parts distribution capabilities.
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.
In November 2021, 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 June 30, 2022 was $5.70 billion. The registration expires in November 2024 and does not limit the principal amount of debt securities that may be issued during that period.
As of June 30, 2022, the Company’s European finance subsidiary, PACCAR Financial Europe, had €1.61 billion available for issuance under a €2.50 billion medium-term note program listed on the Euro MTF Market of the Luxembourg Stock Exchange. This program has been renewed through the filing of a new listing, which expires in July 2023.
In August 2021, PACCAR Financial Mexico registered a 10.00 billion Mexican peso program with the Comision Nacional Bancaria y de Valores to issue medium-term notes and commercial paper. The registration expires in August 2026 and limits the amount of Commercial paper (up to one year) to 5.00 billion Mexican pesos. At June 30, 2022, 9.39 billion Mexican pesos were available for issuance.
In August 2018, the Company’s Australian subsidiary, PACCAR Financial Pty. Ltd. (PFPL), established 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 June 30, 2022 was 850.0 million Australian dollars.
- 47 -
In May 2021, the Company’s Canadian subsidiary, PACCAR Financial Ltd. (PFL Canada), established 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 PFL Canada as of June 30, 2022 was 150.0 million Canadian 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 and components, including semiconductors; labor disruptions; shortages of commercial truck drivers; increased warranty costs; pandemics; global conflicts; 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 I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2021 and in Part II, Item 1, “Legal Proceedings” and Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.
- 48 -
|
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There were no material changes in the Company’s market risk during the six months ended June 30, 2022. For additional information, refer to Item 7A as presented in the 2021 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.
- 49 -
PART II – OTHER INFORMATION
For Items 3, 4 and 5, there was no reportable information for the six months ended June 30, 2022.
ITEM 1.LEGAL PROCEEDINGS
Refer to Note M – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements (Part I, Item 1) for discussion on litigation matters, which is incorporated by reference herein.
ITEM 1A.RISK FACTORS
For information regarding risk factors, refer to Part I, Item 1A as presented in the 2021 Annual Report on Form 10-K. There have been no material changes in the Company’s risk factors during the three months ended June 30, 2022, except for the following:
Conflict in Ukraine
In accordance with international sanctions, the Company has suspended truck and parts sales to Russia and Belarus. The Company is monitoring the situation closely. At this time, the conflict has not had a significant impact on the results of operations or cash flows of the Company. The potential impact on the Company’s business will depend on future developments, including the severity and duration of the conflict and its effect on European and global economic conditions.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
For Items 2(a) and (b), there was no reportable information for the three months ended June 30, 2022.
|
(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 June 30, 2022, the Company has repurchased $110.0 million of shares under this plan. There were no repurchases made under this plan during the second quarter of 2022.
- 50 -
|
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of PACCAR Inc |
|
8-K |
|
April 29, 2022 |
|
3(i) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii) |
|
|
|
Bylaws: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8-K |
|
July 26, 2022 |
|
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 O (PACCAR Financial Corp.) |
|
S-3 |
|
November 5, 2015 |
|
|
333-207838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
Forms of Medium-Term Note, Series P (PACCAR Financial Corp.) |
|
S-3 |
|
November 2, 2018 |
|
|
333-228141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) |
|
Forms of Medium-Term Note, Series Q (PACCAR Financial Corp.) |
|
S-3 |
|
November 1, 2021 |
|
|
333-260663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e) |
|
|
10-Q |
|
October 30, 2019 |
|
4(i) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f) |
|
|
10-Q |
|
August 3, 2020 |
|
4(h) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(g) |
|
|
10-Q |
|
August 2, 2021 |
|
4(g) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(h) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
|
10-K |
|
February 19, 2020 |
|
4(j) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** |
|
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. |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10) |
|
|
|
Material Contracts: |
|
|
|
|
|
|
|
|
- 51 -
|
Exhibit Number |
|
Exhibit Description |
|
Form |
|
Date of First Filing |
|
Exhibit Number |
|
File Number |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
PACCAR Inc Amended and Restated Supplemental Retirement Plan |
|
10-K |
|
February 27, 2009 |
|
10(a) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f) |
|
Amendment to Compensatory Arrangement with Non-Employee Directors |
|
10-K |
|
February 26, 2015 |
|
10(g) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(g) |
|
PACCAR Inc Senior Executive Yearly Incentive Compensation Plan |
|
10-K |
|
February 19, 2020 |
|
10(g) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(h) |
|
|
10-K |
|
February 19, 2020 |
|
10(h) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
|
10-Q |
|
August 7, 2013 |
|
10(k) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(j) |
|
PACCAR Inc Long Term Incentive Plan, 2018 Form of Restricted Stock Award Agreement |
|
10-K |
|
February 21, 2019 |
|
10(m) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(k) |
|
PACCAR Inc Long Term Incentive Plan, Form of Restricted Stock Unit Agreement |
|
10-K |
|
February 21, 2019 |
|
10(n) |
|
001-14817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(l) |
|
PACCAR Inc Savings Investment Plan, Amendment and Restatement effective September 1, 2016 |
|
10-Q |
|
November 4, 2016 |
|
10(q) |
|
001-14817 |
|
|
|
|
|
|
|
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(m) |
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8-K |
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May 16, 2007 |
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10.1 |
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001-14817 |
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(n) |
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10-Q |
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October 27, 2008 |
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10(o) |
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001-14817 |
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(o) |
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10-Q |
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November 7, 2013 |
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10(u) |
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001-14817 |
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(p) |
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10-K |
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February 19, 2020 |
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10(r) |
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001-14817 |
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(q) |
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10-K |
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February 26, 2015 |
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10(t) |
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001-14817 |
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(r) |
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10-K |
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February 26, 2015 |
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10(u) |
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001-14817 |
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- 52 -
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Exhibit Number |
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Exhibit Description |
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Form |
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Date of First Filing |
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Exhibit Number |
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File Number |
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(18) |
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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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(32) |
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Section 1350 Certifications: |
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(101.INS) |
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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) |
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Inline XBRL Taxonomy Extension Schema Document* |
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(101.CAL) |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document* |
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(101.DEF) |
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Inline XBRL Taxonomy Extension Definition Linkbase Document* |
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(101.LAB) |
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Inline XBRL Taxonomy Extension Label Linkbase Document* |
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(101.PRE) |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document* |
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(104) |
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)* |
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* |
filed herewith |
- 53 -
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 |
August 2, 2022 |
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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) |
- 54 -