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PAOMR 1976
Financial Higiiiights
1976
1975
„
1974
1973
1972
Dollar Amounts in Thousands Except for Per Share Data
Net Sales
Cost of Products Sold
Interest Expense
Income Taxes
Net Earnings
Working Capital
Long-term Debt
Stockholders' Equity*
Net Earnings per Share
Cash Dividends Declared per Share
Average Number of
Shares Outstanding
..
$1,001,410
845,359
2940
42,953
50,637
175,895
23,037
271,942
6.14
1.50
; 689,872
606,658
4,650
13,963
$ 20,643
147,264
28,441
233,673
2.50
.70
$ 907,987
818,190
7,491
17,783
23,340
138,806
24,398
218,801
2.83
1.00
$ 766,159
662,916
1,988
34,695
42,933
128,602
18,380
203,867
5.20
1.20
$ 594,699
517,623
2,259
23,018
29,820
112,552
20,534
170,834
3.61
.68
8,244,985
8,244,985
8,247,902
8,249,985
8,249,985
* Years 1974 and prior restated, resulting from the elimination of the reserve for foreign operations.
PACCAR Inc's primary business is the manufacture
and marketing of large transportation vehicles.
Rubber-tired vehicles include heavy-duty trucks for a
wide variety of highway and off-highway hauling
applications, surface mining trucks and loaders, log
stackers, airport refuelers and low-profile load, haul,
dump and supporting vehicles for underground
mining. The Company operates 14 production
facilities in seven states, Australia and Canada, plus
an affiliate in Mexico.
IVIanagement Analysis
1976 Compared to 1975
PACCAR sales and profits rebounded from
depressed levels in 1975 to record levels in 1976.
Sales increased 45% in 1976, primarily a result of a
92% increase in truck unit sales over 1975. The
increase in truck sales was partially offset by
decreased sales of railroad cars, mining equipment
and winches. The outlook for 1977 is for another
good year for the truck divisions, but the railroad car
market remains depressed.
The cost of products sold increased 39%, not
in proportion to sales. In 1975, the Company's truck
factories had excess capacity since they were
operating at low levels. So, at higher production
levels in 1976, the fixed plant overhead was spread
over more unit sales.
Selling and administrative expenses increased
22% over 1975, attributable primarily to inflation and
the rehiring of additional support staff at our
manufacturing locations.
Bank borrowings and long-term debt continue
at low levels which is reflected in the low interest
expense. A substantial amount of excess cash was
advanced to PACCAR's unconsolidated finance
subsidiaries during the year ($39.8 million short-term
at year-end).
Net earnings for 1976 more than doubled those
in 1975, a result of (1) increased sales and (2) greater
absorption of overhead, partially offset by (1) higher
selling and administrative expense and (2) foreign
currency translation losses for Kenworth Mexicana
and Kenworth Trucks Pty. Ltd. of $3.1 million. The
Mexican economy is still adjusting to the
devaluations. In the opinion of management, these
unsettled business conditions will continue for some
time and adversely affect earnings of Kenworth
Mexicana and Truck Acceptance Corporation during
1977.
1975 Compared to 1974
PACCAR sales in 1975 decreased 25%,
primarily a result of a 60% decrease in truck unit
sales from 1974. The decrease in truck sales was
partially offset by an increase in railroad car
production and a strong sales performance by the
mining equipment divisions.
Cost of sales was 88% of sales in 1975 versus
90% in 1974, a decrease of 2%, primarily attributable
to lower inflation in 1975. Certain expenses of our
consolidated foreign subsidiaries were classified as
selling expenses during 1975, whereas they were
previously charged to cost of sales. This change
accounted for approximately 10% of the increase in
selling and administrative expenses and conforms to
accounting treatment for U.S. divisions.
PACCAR's interest expense decreased 38%.
Cash flow from operations and reduction of working
capital needs allowed PACCAR to decrease its short
term bank borrowing from $73.3 million at December
31, 1974, to $3.0 million at December 31, 1975.
Interest income increased as a result of increased
PACCAR loans to unconsolidated finance
subsidiaries and invested surplus funds.
1975 earnings were significantly impacted by
the favorable results of the unconsolidated
companies. The three finance companies increased
net earnings moderately while Kenworth Mexicana, a
49%-owned affiliate, had a substantial increase in net
earnings.
P/IOCQR 1976
Message to the Shareholders
In 1976, PACCAR earned five cents per sales dollar
and new profit and sales records of fifty million and
one billion dollars, respectively. The Company made
these outstanding accomplishments despite a rather
lackluster economy in North America. All profit
centers made a positive contribution with the leaders
being the Kenworth and Peterbilt truck divisions
which showed unexpected vigor. Higher truck
market share attests to ever-increasing recognition
that these products embody excellent engineering,
careful manufacturing, and have well-placed
marketing and service outlets.
International sales spurred by congressionally
approved DISC corporations have risen at an
excellent rate. The majority of these sales has been
trucks, but mining vehicles represent an increasing
portion, too. PACCAR products prove their worth
again and again on tough assignments on virtually
all continents. Regional offices assure customers of
better sales, technical, and parts support. PACCAR
AG of Switzerland, a subsidiary created in 1976, acts
as employer for the foreign staff which represents us
in a multitude of countries.
Railroad car sales decreased somewhat from
both Pacific Car and Foundry Company and
International Car Co. These two divisions are ready,
however, to meet increasing needs for rolling stock.
They have designed and built new railcars which will
serve shippers' requirements for other than the
traditionally limited lines of insulated or plain
boxcars and cabooses. Specifically, ore and coal
cars are now also included in the Company's
offerings.
Moreover, sales of underground mining
vehicles manufactured by Wagner Mining Equipment
and surface vehicles by Dart Truck Company
decreased, reflecting lesser mining activity. Products
built by these two divisions incorporate high
PACCAR standards and, hence, will continue to be
purchased by many customers. With gradually
improving metal prices and hopefully with a national
energy policy that will accelerate the development of
coal, Dart and Wagner face brighter prospects.
Expanded facilities now allow us to meet anticipated
business in a timely manner.
Winch production at Carco's Renton facility
and Gearmatic's British Columbia factory also
slowed reflecting market dullness. Engineering of
new models, additional production equipment, and
strengthening of dealer representation enables us to
respond aggressively to any increased demand for
winches that have construction, logging, mining, and
utility applications.
To complement Carco and Gearmatic offerings,
PACCAR acquired Braden Winch Co. of Broken
Arrow, Oklahoma, on January 28, 1977. Braden has
emphasized worm-gear-drive winches while we
traditionally have specialized in bevel gear and
hydraulic winches. We are now in a better position
to serve the entire market.
Two PACCAR finance companies — PACCAR
Financial Services Ltd. in Canada and Paccar
Financial Corp. in the U.S. — continue to grow in
size and produce an increasingly important source
of income. In Canada, we have reorganized and
opened additional offices for greater coverage. In the
U.S. more offices and staff have garnered new and
profitable accounts, too. Finance company revenues
tend to be less cyclical than capital goods revenues
and therefore provide greater earnings stability.
In Mexico, Truck Acceptance Corporation
provides financial services for Kenworth Mexicana,
S.A. de C.V. in which we are a 49% owner. On
August 31, the Mexican government allowed the
peso to float for the first time in 22 years, and it
quickly devalued to five cents from eight cents.
Later, the peso's value slipped to nearly four cents
and then returned to around five cents. The result of
devaluation has been an unsettled Mexican economy
and slower collections for TAC and lower profits for
Kenworth Mexicana. As we have financed truck sales
in U.S. dollars, confusion arose as to what amounts
customers should pay on their contracts. It took
several months of government refereeing during a
change of administration and certain legal actions
before we prevailed in our view that dollar debts
must be paid in dollars regardless of the current
exchange rate. Receipts of monies have increased
recently, and we are confident of the ultimate
collection of debts owed to TAC.
PACCAR's experienced management team,
which has been in place some time now, faces the
future with great confidence despite many domestic
and international challenges that undoubtedly will
come our way. Domestically, we join others who
work for lessening unnecessary government
regulation of company affairs. The public — the
consumer — must know and appreciate that
unnecessary regulation (as distinguished from
acceptable regulation) adds at least 5% of cost or
more to some products we produce. Similar sums
are added to goods others manufacture. Further, we
will campaign for the elimination of double taxation
on shareholder dividends. The public must recognize
that corporations pay nearly a 50% tax on
shareholder profits prior to distribution and then, of
course, shareholders pay additional taxes after
receipt of dividends. These taxes should become
more apparent to you with the increased dividends
declared in 1976 amounting to $1.50 per share. The
Board of Directors raised the March, 1977, quarterly
dividend to 25 cents per share. Again, each of you is
urged to write your Congressman asking for a
change in the law which taxes shareholder profits
twice.
The record year just closed came about for
many reasons, but I rank the outstanding efforts
contributed by all employees very high.
Approximately 10,000 individuals in over a dozen
factories and numerous offices in many countries
designed, produced, sold, and serviced PACCAR
products that continue in high demand by many fine
customers. To all of these employees and
customers, we shareholders are indebted.
February 12, 1977
' ^
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—
President
PACmR 1976
From its beginnings in 1905 as a manufacturer of
horse- and ox-drawn vehicles and railroad cars for
the Pacific Northwest logging industry with some 20
employees, PACCAR and its predecessor companies
have evolved into a multinational, multidivisional
corporation employing more than 10,000 in 14 major
production facilities in seven states, Australia and
Canada, plus an affiliate in Mexico. Building on the
foundations of Pacific Car and Foundry Company
and its railroad car production, present day PACCAR
is the result of acquisitions and divestitures
. \
beginning in 1945 with the Kenworth Motor Truck
Corporation and continuing to the present (1977)
with the most recent member of the PACCAR family,
Braden Winch Co. Manufacturing and market
expansion has generally pursued product lines in
which the company has developed the expertise of
high quality and leadership — heavy transportation
vehicles.
To aid our investors, customers and suppliers
in understanding the scope of PACCAR, product
lines and services can be grouped into three major
categories: mining and special purpose vehicles,
railcars and industrial products, and heavy-duty,
diesel trucks.
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Mining and Special Purpose Vehicles
The mining and mineral extractive industries,
particularly coal and uranium producers, are major
markets for Dart Truck Company and Wagner Mining
Equipment Co. Divisions. Dart, with production
facilities at Kansas City, Missouri, meets the unique
requirements of surface mining for efficient, massive
capacity vehicles with front loaders capable of lifting
45,000 pounds and trucks up to 150 tons. This
division also produces airport refuelers and some of
the largest log stackers in the industry.
Designed for unusually rugged operating
environments (Dart coal haulers, for example, are
built to individual customer specifications), these
vehicles have a long life and a significant portion of
the division's business is in later servicing and
supplying parts.
Wagner, with production facilities at Portland,
Oregon, specializes in the needs of underground
mines and tunneling operations where narrow ore
seams restrict overhead clearances and turning radii.
This division produces and markets diesel-powered,
rubber-tired vehicles, some of them barely three feet
high.
With more than 30 models available, Wagner
markets one of the most extensive lines of this
equipment in the world. Vehicles include loaders,
such as the Scooptram, haulers like the Teletram,
personnel and equipment carriers and others.
With the increasing demand for expanded
sources of energy, particularly coal, both of these
PACCAR divisions anticipate a bright future.
PAOMR 1976
Railcars and Industrial Products
PACCAR grew up with the railroad industry and
continues to serve its changing needs with a variety
of efficient high-capacity products. Pacific Car and
Foundry Company Division's plant at Renton,
Washington, produces both standard and insulated
boxcars as well as special purpose designs such as
the "all-door" boxcar for lumber loading. Hoppers
for transporting grain, coal and bulk commodities,
gondolas for log and pipe loading, mechanical
refrigerator cars and cabooses are also
manufactured by this division. The Renton foundry
produces castings and forgings for industrial
customers and other divisions as well. International
Car Co. Division, located at Kenton, Ohio, is a
specialty manufacturer of railroad cabooses.
Energy efficiencies inherent in shipping bulk
cargoes long distances by rail, as well as the
increasing haulage of coal during the coming
decade, promise continuing demand for the
products of these divisions.
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Winches, employed in a wide variety of
industrial environments, are the other products of
this segment of the company. Carco winches,
manufactured at Renton, are used on crawler and
rubber-tired tractors, logging skidders and cranes.
Gearmatic Co. Division is noted for its
hydraulically-driven, planetary-geared winches
produced at Surrey, British Columbia, for use on
fishing vessels, drilling platforms and similar
applications. The acquisition of Braden Winch Co.
Division of Broken Arrow, Oklahoma, will permit us
to serve new winch markets.
Finance Companies
Though not manufacturing arms of PACCAR,
the finance subsidiaries contribute significantly to
profits both through their own revenues and by
facilitating the purchase of the company's various
products, chiefly trucks.
Paccar Financial Corp. finances domestic sales
of trucks produced in this country. Truck
Acceptance Corporation services foreign sales from
domestic divisions and Kenworth Mexicana S.A. de
C.V. PACCAR Financial Services Ltd. finances sales
of Canadian subsidiaries.
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PAOWR 1976
Trucks
The truck divisions account for more than 80%
of PACCAR's business. Peterbilt and Kenworth
together comprise the third largest heavy-duty diesel
truck manufacturers in the country and account for
just over 16% of the market.
Kenworth produces highway, off-highway heavy
construction and intracity models from facilities in
Seattle, Kansas City and Chillicothe, Ohio. Canadian
Kenworth serves north-of-the-border markets from
Burnaby. British Columbia, and Ste. Therese,
Quebec. Kenworth Trucks Pty. Ltd., near Melbourne,
Australia, and our affiliate, Kenworth Mexicana S.A.
de C.V., in Mexicali, manufacture and market to
those countries. In addition, the Kenworth divisions
produce a number of special-purpose, off-highway
designs for use in the arctic, desert and other
rigorous environments.
Peterbilt with plants at Newark, California, and
Madison, Tennessee, manufactures highway,
off-highway and intracity models as well as special
purpose variations. Peterbilt of Canada is the
division's marketing arm in that country.
PACCAR's increasingly important truck sales
abroad are conducted chiefly through PACCAR
International Inc (PACCINT) with offices in
Colombia, France, Greece, Singapore, South Africa
and the United States. During the past four years,
PACCINT's truck sales, including parts, have
increased dramatically — from $17 million in 1973 to
$64 million in 1976. PACCINT also sells many of
PACCAR's other products abroad.
PACCAR's total foreign sales, including sales to
foreign government agencies (exclusive of sales to
and within Canada and Australia, and to or by the
Company's Mexican affiliate), were approximately
$100 million in 1976, and were made in 90 countries
through more than 100 foreign distributors/
representatives. Amounts paid or accrued to
all foreign distributors/representatives for sales and
service activities totaled approximately $14.34 million.
PACCAR has always enjoyed an outstanding
reputation for product engineering, assembly and
after-sale customer service. A significant share of
this success is attributable to our strong and
experienced dealer network and the services they
perform. Peterbilt and Kenworth dealers numbered
over 280 in 1976, spread over 50 states and Canada.
Backing up our truck dealers, the Parts Division,
with headquarters in Renton and major facilities in
Georgia, Illinois, and California, is able to offer
overnight or same-day supplies to many dealers
through its sophisticated computerized inventory
and distribution system.
The company's research and development
functions continue to play a vital role in our success
as new designs evolve to meet the changing
requirements of our customers as well as increasing
government regulations such as noise and emission
standards.
PAOMR 1976
Consoiidated
Financial Position
PACCAR Inc and Consolidated Subsidiaries
December 31
1976
1975
Thousands of Dollars
ASSETS
Current Assets
Cash
Trade receivables:
Accounts
Notes and contracts
Advances to unconsolidated finance
subsidiaries
Inventories — Note B:
Finished products
Work in process and raw materials
Deferred income taxes and prepaid
expenses
TOTAL CURRENT ASSETS
Property, plant,
and equipment
— on the basis of cost
Investments in unconsolidated
subsidiaries and affiliate, and
noncurrent advances (1976 — $9,500,000
and 1975 — $7,000,000) — Note C
Other
Land
Buildings
Machinery and equipment
Less allowances for depreciation
10
December 31
1976
1975
Thousands of Dollars
LIABILITIES AND STOCKHOLDERS' EQUITY
Less allowance for losses
Investments and
other assets
i
$
7,234
$
7,212
91,353
2,932
94,285
1,584
92,701
61,628
4,820
66,448
1,281
65,167
39,841
24,760
53,635
145,841
199,476
33,504
112,791
146,295
6,862
346,114
3,947
247,381
46,099
4,918
51,017
40,794
4,734
45,528
6,749
56,029
65,069
127,847
51,771
76,076
$473,207
6,499
51,682
62,056
120,237
44,673
75,564
$368,473
Current liabilities
Bank loans
Current installments of long-term debt
Accounts payable
Salaries and wages
Other accrued expenses
Dividend payable
Taxes on income
TOTAL CURRENT LIABILITIES
Long-term debt
Less current installments — Note E
Deferred income
taxes
Stockholders'
equity
Preferred Stock, no par value:
Authorized — 500,000 shares, none issued
Common Stock, $12 par value:
Authorized shares — 15,000,000
Issued shares — 8,249,985 (including
shares in treasury)
Retained earnings — Note E
Less 5,000 common shares in treasury —
at cost
$
7,274
1,604
94,777
11,106
17,507
6,184
31,767
170,219
$
2,987
2,487
68,966
7,803
12,081
824
4,969
100,117
23,037
28,441
8,009
6,242
99,000
173,099
272,099
99,000
134,830
233,830
157
271,942
157
233,673
$473,207
$368,473
Commitments and
contingencies
— Note F
See nofes to consolidated financial statements
11
PACCAR 1976
Consolidated Operations
and Retained Earnings
PACCAR Inc and Consolidated Subsidiaries
Year ended
December 31
1976
1975
Thousands of Dollars
Net Sales
Costs and
Expenses
$1,001,410
Cost of products sold
Selling and administrative expenses
Interest expense
Interest income
Other (credit)
EARNINGS BEFORE INCOME TAXES AND
EQUITY IN NET EARNINGS OF
UNCONSOLIDATED COMPANIES
Taxes on income — Note G
Equity in net earnings of unconsolidated
affiliate and wholly-owned finance
companies
Net Earnings
Retained earnings at beginning of year
Less cash dividends declared (per share:
1976—$1.50; 1975 —$.70)
Retained Earnings
at end of year
Net earnings per share based on
average shares outstanding
12
See notes to consolidated financial statements
$689,872
845,359
66,789
2,940
(3,222)
(916)
910,950
606,658
54,425
4,650
(1,127)
(2,347)
662,259
90,460
42,953
47,507
27,613
13,963
13,650
3,130
6,993
50,637
20,643
134,830
185,467
119,958
140,601
12,368
5,771
$ 173,099
$134,830
$6.14
$2.50
Changes in
Consolidated Financial Position
PACCAR Inc and Consolidated Subsidiaries
Year ended
December 31
1976
1975
Thousands of Dollars
Source of funds
Application of
funds
Working capital
changes
Net earnings
Items included in net earnings not
affecting working capital:
Depreciation
Equity in net earnings of unconsolidated companies, less dividends
received
Other
Total from operations
Long-term borrowings
Other
TOTAL SOURCE OF FUNDS
$50,637
$ 20,643
7,458
7,429
(2,805)
2,292
57,582
57,582
(6,826)
3,377
24,623
6,398
1,204
32,225
Additions to property, plant, and equipment
Cash dividends
Reduction of long-term debt
Noncurrent advances to unconsolidated
finance subsidiary
Other
TOTAL APPLICATION OF FUNDS
INCREASE IN WORKING CAPITAL
7,970
12,368
5,404
14,962
5,771
2,355
2,500
709
28,951
$28,631
679
23,767
$ 8,458
$
$
Increases (decreases) in current assets:
Cash
Trade receivables
Refundable income taxes
Advances to unconsolidated finance
subsidiaries
Inventories
Deferred income taxes and prepaid
expenses
NET CHANGE IN CURRENT ASSETS
Increases (decreases) in current liabilities:
Bank loans
Current installments on longterm debt
Accounts payable
Salaries and wages
Other accrued expenses
Dividend payable
Taxes on income
NET CHANGE IN CURRENT LIABILITIES
INCREASE IN WORKING CAPITAL
See nofes to consolidated financial statements
22
27,534
2,021
(16,664)
(5,793)
15,081
53,181
21,260
(52,110)
2,915
98,733
(258)
(51,544)
4,287
(70,252)
(883)
25,811
3,303
5,426
5,360
26,798
70,102
$28,631
65
13,655
(1,117)
(2,299)
(2,474)
2,420
(60,002)
$ 8,458
13
P/ICOIR 1976
Notes to Consolidated
Financial Statements
PACCAR Inc and Consolidated Subsidiaries
Note A — Summary of Accounting Policies
Principles of Consolidation: The consolidated
financial statements include the accounts of all
subsidiaries other than finance company
subsidiaries. All significant intercompany accounts
and transactions are eliminated in consolidation.
Investments in unconsolidated finance
subsidiaries, Paccar Financial Corp., Truck
Acceptance Corporation, and PACCAR Financial
Services Ltd., (formerly Overland Acceptance Ltd.) all
wholly-owned, and in Kenworth Mexicana, S.A. de
C.V. (a 49%-owned foreign affiliate) are stated at cost
plus equity in their undistributed net earnings, which
represents the Company's equity in their net assets.
Payments to Distributors and Sales
Representatives: Sales allowances and
commissions paid or accrued for foreign and
domestic distributors and sales representatives are
deducted from net sales.
Inventories: Inventories are stated at the lower
of cost or market. Cost of inventories in the United
States is determined principally by the "last-in, firstout" method; cost of inventories in foreign countries
is determined by the "first-in, first-out" method.
Depreciation: Provision is made for
depreciation over the estimated useful lives of the
various classes of assets, computed principally by
the straight-line method.
Pension and Profit Sharing Plans: The
Company and its subsidiaries maintain various
pension and profit sharing plans for their salaried
employees and for certain hourly-paid employees.
The costs of the pension plans are principally based
upon actuarial assumptions, and past service costs
are amortized. The costs of contributions to the profit sharing plans are based on amounts determined
by the Board of Directors within certain percentage
limitations. The policy is to fund the costs accrued.
Payments to plans established by unions are
made currently and charged to income.
Investment Tax Credits: Investment tax credits
are recognized as a reduction of the provision for
taxes on income in the year in which the credits are
utilized. Credits in 1976 and 1975 were $741,000 and
$311,000, respectively.
14
Note B — Inventories
Inventories are summarized as follows:
At December 31
Cost Determined By
Last-in,
First-in,
First-out
First-out
Method
Method
Total
(Thousands of Dollars)
1976
1975
$133,726
$101,995
$65,750
$44,300
$199,476
$146,295
If the first-in, first-out method of inventory
accounting had been used entirely, inventories
would have been $75,289,000 and $64,829,000
greater than reported at December 31, 1976 and
December 31, 1975, respectively.
Note C — Investments in and advances to
unconsolidated finance subsidiaries and
affiliate
Combined financial statements of
unconsolidated finance subsidiaries (Paccar
Financial Corp., Truck Acceptance Corporation, and
PACCAR Financial Services Ltd.) are summarized as
follows:
December 31
1976
1975
Thousands of Dollars
Assets:
Cash
Notes, contracts, and other
receivables —net (1)
Other assets
$
875 $
2,641
162,446 129,930
6,539
5,754
$169,860 $138,325
Liabilities and Equity:
Bank Loans
$51,585 $35,469
Other liabilities
11,007
8,277
Advances by PACCAR Inc:
Current
39,841
24,760
Noncurrent
9,500
7,000
Long-term debt
(noncurrent portion) — (2)
30,000
37,900
Equity of PACCAR Inc (2) . . .
27,927
24,919
$169,860 $138,325
Ken-Mex are delinquent on their installment
payments to Ken-Mex. On August 31, 1976, the
Mexican government allowed the peso to float
for the first time in 22 years. As a result, the
peso was valued at approximately 5 cents at
December 31, 1976, compared to its
pre-devaluatlon worth of 8 cents. Because of
the uncertainties in the Mexican economy and
questions as to whether their notes and
contracts were iegaliy payable in U.S. dollars,
certain Mexican customers were not making
timely payments. Both TAC and Ken-Mex
management are currently offering contract
extensions to customers. While management is
confident that receivables of TAC and Ken-Mex
ultimately will be collected, there are still
uncertainties. Because of these uncertainties,
TAC provided $1,400,000 of reserves for possible losses associated with notes receivable.
In 1976 PACCAR Inc signed an agreement
with the aforementioned group of banks to
guarantee certain past due payments on notes
sold to them by TAC. Such guaranty amounted
to $3,883,000 at December 31, 1976, and is in
addition to previous guaranty arrangements.
The amount guaranteed will reduce as contract
extensions are made.
The reports of auditors on the financial
statements of both TAC and Ken-Mex are
qualified with respect to the collectibility of the
receivables descrilxd herein.
Year ended December 31
1976
1975
Thousands of Dollars
Interest and Other Income
Expenses:
Interest
Operating
Income taxes
Net Earnings
(1)
$16,846
$17,107
7,322
3,791
2,725
13,838
$ 3,008
7,847
2,188
3,369
13,404
$ 3,703
Notes, contracts, and other receivables Include
$14,822,000 owed to Truck Acceptance
Corporation (TAC) by Kenworth Mexicana, S.A.
de C.V. (Ken-Mex). TAC earns substantially all
of its income from loans to Ken-Mex to finance
its product sales. PACCAR Inc's equity in TAC's
net earnings amounted to $566,000 in 1976 and
$1,544,000 in 1975.
An agreement between TAC and a group
of banks which provided for a maximum line of
credit of $70,000,000 at December 31, 1975,
expired on June 30, 1976. Under this
agreement, installment notes from Ken-Mex
have been sold to the banks and are
collateralized by instaliment notes and
contracts receivable from customers of
Ken-Mex for the sale of trucks and trailers in
Mexico. The unpaid balances of notes sold to
the banks, less unearned finance charges
included therein, at December 31, 1976, was
$44,927,000 (1975 - $34,999,000). Among other
provisions of the agreement is a commitment
by TAC to repurchase notes having past due
installments, and a requirement to maintain
reserves with the banks equal to 10% of the
banks' investment in notes. At December 31,
1976, such resen/es amounted to $4,493,000
(1975 - $3,500,000). The notes and contracts
receivable by Ken-Mex from its customers are
payable in U.S. dollars, as are the notes from
Ken-Mex to TAC and the group of banks.
The notes receivable by TAC and the
group of banks are substantially past due at
December 31, 1976, because the customers of
(2)
f^:
V
Long-term debt at December 31, 1976
amounting to $5,000,000 bears interest at Vs of
1% above a specified 180-day commercial
paper rate, and is due in 1979 (or on demand
with fifteen months notice). Debt of $25,000,000
is due in 1980 and bears interest at VA of 1%
above a bank's "base" rate, but not to exceed
an average rate of 7V4% over the term of the
loan. Under the most restrictive provisions of
loan agreements, retained earnings of
$13,528,000 (included in equity of PACCAR Inc)
were available for cash dividends at December
31, 1976.
15
PAOMR 1976
(3)
Paccar Financial Corp. has entered into an
operating agreement with PACCAR inc which
requires, among other provisions, that PACCAR
Inc assure the ratio of earnings to fixed
charges of Paccar Financiai Corp. will not fail
below 1.5 to 1. The ratio was met without
assistance from PACCAR tnc in 1976 and 1975.
Advances made by PACCAR Inc to
wholly-owned finance companies are partially
subordinated in connection with agreements
between the companies, their respective banks, and
an insurance company. Amounts so subordinated
amounted to $10,000,000 at December 31, 1976 and
$7,500,000 at December 31, 1975.
Summarized financial information for Kenworth
Mexicana, S.A. de C.V., a 49%-owned affiliate is as
follows:
December 31
1976
1975
Thousands of Dollars
Current assets
Noncurrent assets
Current liabilities:
Trade payables and
accrued expense
Due to affiliates
Equity
Net sales
Costs and expenses
Net earnings
$76,024
6,022
$76,614
5,864
5,294
59,551
17,201
11,594
53,183
17,701
63,555
52,825
164
74,791
63,166
6,630
Included in costs and expenses are royalties
and administrative charges paid to PACCAR Inc.
Such royalties and charges amounted to $1,746,000
in 1976 and $2,178,000 in 1975.
Current assets of Kenworth Mexicana at
December 31, 1976 include $60,239,000 of trade
notes and truck accounts receivable. Financing of
these receivables is done through Truck Acceptance
Corporation and a group of banks as earlier described in Note (1) regarding the collection problems aris
ing from the devaluation of the Mexican peso in 1976.
16
Note D — Foreign Subsidiaries and Affiliate
At December 31, 1976, current assets of
consolidated foreign subsidiaries (Canadian and
Australian) were $63,411,000, other assets were
$13,338,000, and other liabilities, excluding those to
PACCAR Inc were $31,517,000. In 1976, net earnings
of Canadian and Australian subsidiaries combined
were $6,806,000; in 1975, the net loss was $579,000.
United States income taxes are not provided on
undistributed earnings of the Company's foreign
subsidiaries because of the intent to continue to
partially finance foreign expansion and operating
requirements by reinvestment of the undistributed
earnings. The amount of undistributed earnings
which are considered to be indefinitely reinvested is
approximately $33,400,000 and $26,500,000 at
December 31, 1976 and 1975, respectively.
Results of operations in 1976 include foreign
currency translation losses of $3,131,000. Of this
amount, $362,000 is the effect of foreign currency
translation related to consolidated companies. There
was a translation gain of $149,000 in 1975.
The Company's 1976 equity in net earnings of
its unconsolidated Mexican affiliate include exchange
gai ns of $739,000 and a loss on translation of $2,769,000.
Note E — Long-term Debt
Long-term debt includes the following:
December 31
1976
1975
Thousands of Dollars
8.10% Sinking Fund
Debentures Due 1996
Notes payable to bank
by a Canadian subsidiary . . .
Mortgage notes payable
Note payable to
insurance company
Debentures of consolidated
Canadian subsidiary
Other
Less installments classified as
current liability
$14,250
$15,000
5,897
3,384
7,061
6,536
200
1,200
310
600
350
781
(1,604)
$23,037
(2,487)
$28,441
The indenture for the 8.10% Sinking Fund
Debentures requires that the Company shall provide
for the retirement of $750,000 principal amount of
debentures on March 1 in each of the years 1977 to
1995, inclusive, through a sinking fund. The 1977
retirement has already been made. Among other
covenants, the indenture limits payments for cash
dividends and redemption of capital stock to the
sum of (a) consolidated net earnings (as defined) of
the Company after December 31, 1970, (b) proceeds
from sale of shares of the Company's capital stock,
plus (c) $10,000,000.
Notes payable to bank are principally
comprised of notes which bear interest at 120% of
the iDank's prime rate. The principal note is due in
semiannual installments of $507,000.
The mortgage notes are principally comprised
of a 6.875% note in the remaining amount of
$3,339,000 which is payable in installments totaling
$331,000 annually, including interest. The Company's
headquarters building is mortgaged as collateral for
this note.
The note payable to insurance company bears
interest at 5%% and is due in 1977. The loan
agreement, among other matters, contains certain
restrictions relating to the maintenance of working
capital, investments in and advances to
unconsolidated subsidiaries, payment of cash
dividends, and redemption of capital stock.
Debentures at December 31, 1976 issued by a
consolidated Canadian subsidiary bear interest at
8V2% and are due in annual installments of $40,000
through 1983. The debentures are collateralized by a
first mortgage on substantially all of the subsidiary's
real property.
Under the most restrictive provisions of the
loan agreements, $47,729,000 of retained earnings
were available for cash dividends at December 31,
1976.
Note F — Commitments and Contingencies
The Company presently estimates that
expenditures for new plant facilities, machinery, and
equipment will approximate $15,000,000 in 1977.
Lease commitments are not material; total rental
expense for 1976 and 1975 was substantially less
than one percent of revenues.
In January 1977, the Company acquired the net
assets of the Winch Division of Braden Industries,
Inc. for approximately $9,000,000.
The Company has guaranteed portions of its
unconsolidated finance subsidiaries' indebtedness
under various maximum guarantee arrangements.
Amounts so guaranteed totaled $20,339,000 at
December 31, 1976.
The Company and its consolidated subsidiaries
are parties to various lawsuits. In the opinion of
management, the disposition of such lawsuits will
not materially affect the Company's consolidated
financial position.
Note G — Taxes on Income
The provision for taxes on income is
summarized as follows:
Year ended December 31
1976
1975
Thousands of Dollars
Current
Deferred
$42,456
$10,761
497
3,202
$42,953
$13,963
Deferred income taxes have been provided in
recognition of timing differences between income
reported for tax and financial purposes. These
differences relate principally to income of a
consolidated Domestic International Sales Company,
accelerated depreciation, and provisions for accrued
warranty costs and other accrued expenses.
Note H — Retirement Plans of the Company
and its Subsidiaries
The costs of pension and profit sharing plans
for salaried employees amounted to $3,757,000 in
1976 and $2,486,000 in 1975. The costs of pension
plans for certain hourly paid employees amounted to
$609,000 in 1976 and $319,000 in 1975.
The actuarially computed value of vested
benefits for two of these plans exceed plan assets
and accrued pension costs by $2,662,000 at the
latest valuation date.
17
RAOMR 1976
Report of Ernst & Ernst
Independent Auditors
In accordance with the requirements of the
1974 Pension Reform Act, the Company has made,
subject to favorable determination of continued tax
exempt status by the Internal Revenue Service,
certain amendments to its pension and profit sharing
plans. These amendments and others have created
unfunded liabilities totalling $5,690,000 for prior
service cost which increases annual costs by
$773,000.
Note I — Summary of Quarterly Results of
Operations (Unaudited)
The following is a summary of unaudited
quarterly results of operations for the year ended
December 31, 1976:
Quarterty summary for 1976
Mar 31 June 30 Sep. 30 Dec. 31
Thousands of Dollars, except per share data
Net sales
Gross Profit
Net Income .
Net income
per common
share
$210,790 $241,078 $253,444 $296,098
17,918
21,944
24,324
26,274
11,907
14,820
12,351
11,559
$1.44
$1.80
$1.50
$1.40
Note J — Asset Replacement Costs
(Unaudited)
The impact of inflation on the Company's
production costs was generally the same as the
corresponding change in the general price level. The
Company has historically been able to compensate
for cost increases by increasing sales prices in an
amount sufficient to maintain an approximately
constant gross profit percentage on sales.
Replacing items of plant and equipment with
assets having equivalent productive capacity has
usually required a substantially greater capital
investment than was required to purchase the assets
which are being replaced. The additional capital
investment principally reflects the cumulative impact
of inflation on the long-lived nature (approximately
12 years for machinery and from 10 to 40 years for
buildings) of these assets.
The Company's annual report on Form 10-K (a
copy of which is available upon request) contains
information with respect to year-end 1976
replacement cost of inventories and productive
capacity (buildings, machinery and equipment), and
the approximate effect which replacement cost
would have had on the computation of cost of sales
and depreciation expense for the year.
Board of Directors and Stockholders
PACCAR Inc
Bellevue, Washington
We have examined the statements of
consolidated financial position of PACCAR Inc and
consolidated subsidiaries as of December 31, 1976
and December 31, 1975, and the related statements
of consolidated operations and retained earnings
and changes in consolidated financial position for
the years then ended. Our examinations were made
in accordance with generally accepted auditing
standards and, accordingly, included such tests of
the accounting records and such other auditing
procedures as we considered necessary in the
circumstances.
In our opinion, the financial statements referred
to above present fairly the consolidated financial
position of PACCAR Inc and consolidated
subsidiaries at December 31, 1976 and December 31,
1975, and the consolidated results of their
operations and changes in their financial position for
the years then ended, in conformity with generally
accepted accounting principles applied on a
consistent basis.
Seattle, Washington
February 11,1977
f^^i^/i^-t^utir
^f-c^y^Ltt^dt:
Sales and Profit:
Major Product Lines
1976
1975
1974
1973 1972
88%
76%
85%
84%
82%
19
5
11
4
11
5
12
6
46%
87%
86%
83%
32
16
6
12
1
5
5
4
8
6
3
Sales
Rubber-tired vehicles and parts
Railroad freight cars, parts, repairs
and related equipment
All other
9
3
Profit Contribution Before Income Taxes*
Rubber-tired vehicles and parts
Railroad freight cars, parts, repairs
and related equipment
Finance Co. Subsidiaries
All other
89%
3
6
2
—
*lncludes unconsolidated finance subsidiaries and Mexican affiliate.
Competition
Industry statistics for registrations for Class 8
vehicles (gross vehicle weight of 33,000 pounds and
above) indicate that Peterbilt and Kenworth trucks
together in 1976 had approximately 16% of the U.S.
market. In 1976, the Company produced
approximately 5% of the total freight cars
manufactured in the country.
Company products are sold in price and
performance competitive markets. Some competitors
are substantially larger and more diversified.
Stock Prices and Dividends
1976
High
Low
Quarter
First
Second
Third
Fourth
Bid
Ask
Bid
Ask
$241/4
311/2
391/2
393/4
$251/4
321/2
401/2
403/4
$341/2
393/4
491/2
$351/2
403/4
501/2
47
48
Dividends
Paid
$.25*
.20
.20
.20
Securities
PACCAR Inc common stock is traded
Over-the-Counter and quoted daily in leading
financial publications. Following is the high
and low price range of bid and ask quotations
and dividends paid.
1975
High
Low
Quarter
First
Second
Third
Fourth
Bid
Ask
Bid
Ask
$151/2
I81/2
213/4
231/4
$161/2
191/2
223/4
241/4
$213/4
$223/4
241/2
273/4
231/2
263/4
25
26
Dividends
Paid
$.55*
.15
.15
.15
^Includes 40 cents year-end extra paid January 10,
1975 and 10 cents year-end extra paid January 9,
1976.
19
RAOOIR 1976
Directors and Officers
Directors
Robert D. O'Brien
Chairman, PACCAR Inc
W. J. Pennington
President, The Seattle Times
Chartes M. Pigott
President, PACCAR Inc
James C. Pigott
President, Stetson-Ross Machine Co. Inc.
John W. Pitts
Chairman, Okanagan Helicopters, Ltd.
Gordon H. Sweany
Chairman, Safeco Corporation
James H. Wiborg
President, Univar Corporation
T. A. Wilson
Chairman, The Boeing Company
Officers
Charles M. Pigott
President
Robert D. O'Brien
Chairman
J. M. Bodden
Senior Vice President
20
J. A. Chantrey
Senior Vice President
R. A. Holmstrom
Senior Vice President
B. C. Jameson
Senior Vice President
J. M. Dunn
Vice President
J. W. Grant
Vice President and General Counsel
L. A. Haba
Wee President and Controller
D. M. Irwin
Vice President-Employee Relations
J. J. Jolley
Vice President and Treasurer
G. M. Lhamon
Vice President - Employee Retirement Benefits
E. A. Carpenter
Secretary
^ ' " ' " B ™ 0H3b0Mb7
Divisions and Subsidiaries
Pacific Car and Foundry Company Division
1400 North 4th Street, Renton, Washington 98055
J. Salathe, Jr., General Manager
Kenworth Truck Company Division
8807 East Marginal Way South,
Seattle, Washington 98108
5300 Kenworth Road, Kansas City, Missouri
Route 159 North, Chillicothe, Ohio 45601
W. N. Gross, General Manager
64120
Peterbilt Motors Company Division
38801 Cherry Street, Newark, California 94560
430 Myatt Drive, Madison, Tennessee 37115
I. R. Rohr, General Manager
Dart Truck Company Division
7307 Chouteau Trafficway, Kansas City, Missouri 64120
J. W. Buckstead, General Manager
PACCAR Parts Division
502 Houser Way North, Renton, Washington 98055
6853 Nolan Road, Morrow, Georgia 30260
4401 West 44th Place, Chicago, iiiinois 60632
38801 Cherry Street, Newark, California 94560
L. B. Johnston, General Manager
Kenworth Trucks Pty. Ltd.
20/64 Canterbury Road, Bayswater,
Victoria, Australia 3153
M. E. O'Byrne, Managing
Director
PACCAR AG
Poststr 14, 6300 Zug, Switzerland
C. M. Pigott, Chairman
Paccar Financial Corp.
Business Center Building, Bellevue, Washington 98004
W. P. McArdel, President
Truck Acceptance Corporation
Business Center Building, Bellevue, Washington 98004
R. E. Nielsen, President
PACCAR Financial Services Ltd.
3750 Kitchener Street, Burnaby,
British Columbia V5C 3L7
R. A. Jackson, President
International Car Co. Division
37 Bales Road, Kenton, Ohio 43326
R. S. Roland, General Manager
Wagner Mining Equipment Co. Division
4424 N. E. 158th Avenue, Portland, Oregon 97232
G. R. Robbins, General Manager
Braden Winch Co. Division
800 E. Dallas, Broken Arrow, Oklahoma
H. R. Keele, General Manager
Corporate Offices
74012
Canadian Kenworth Company Division
70 Sicard Street, Ste-Therese, Ouebec J7E 4K9
3750 Kitchener Street, Burnaby,
British Columbia V5C 3L7
R. A. Buckner, President
Gearmatic Co. Division
7400 132nd Street, Surrey, British Columbia
M. Hucul, President
VST 4X4
Peterbilt of Canada Division
307 Viking Way, Richmond, British Columbia V6V1W1
R. J. Sill, Vice President and General Manager
PACCAR of Canada Ltd.
P. O. Box 600, Ste-Therese, Quebec J7E 4K9
C. M. Pigott, Chairman
PACCAR International Inc
Business Center Building, Bellevue, Washington 98004
H. B. Firminger, Executive Vice President and
General Manager
Business Center Building
Bellevue, Washington 98004
Mailing Address; P.O. Box 1518
Bellevue, Washington 98009
Telephone: (206) 455-7400
Stock Transfer a n d Dividend Disbursing A g e n t
Rainier National Bank
P.O. Box 3966, Seattle, Washington 98124
S E C Form 10-K
A copy of the Company's Annual Report for 1976 to
the Securities and Exchange Commission, Form
10-K, will be furnished to stockholders on written
request to the Secretary, PACCAR Inc, P.O. Box
1518, Bellevue, Washington 98009.
A n n u a l Stocl<holders M e e t i n g
April 27, 1977, 9:30 a.m.
Pacific Car and Foundry Company Division
1400 North 4th Street, Renton, Washington
7
mi^^^^r
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^ ^ ^