帕卡 (PCAR) 2003 Q3 法說會逐字稿

Good morning and welcome to PACCAR’s third quarter earnings conference call. All lines will be on listen only until the question and answer session. This conference is being recorded. If any one has any objections you may disconnect at this time. I would like to introduce Mr. Andy Wold, PACCAR’s treasurer. Sir, you may now begin.

Thank you, good morning. I’d like to welcome those listening by phone and those on the web cast; again my name is Andy Wold, Treasurer of PACCAR. Joining me this morning are Mark Pigott, Chairman and Chief Executive Officer and Mike Tembreull, Vice Chairman. As with prior conference calls we request that if there are any members of the media participating, that they participate in a listen only mode. Certain information presented today will be forward-looking and involves risks and uncertainties including general, economic and competitive conditions that may significantly affect expected results. Now at this time, I’d like to introduce Mark Pigott.

Good morning. PACCAR had another strong quarter --- good financial results in the third quarter. We had an 18.8% annualized return on beginning equity and a 6.8% return on sales. Several highlights included PACCAR Financial services segment recorded a record quarterly profit, terrific results and of course within our company and throughout the industry I think one of the real highlights was PACCAR’s quality leadership in the US and Canada as awarded by JD Power. Kenworth and Peterbilt swept the categories over the road, vocational pickup and delivery and service. It is the first time that the class 8 JD Power rewards have been given and of course it’s the first time that anybody has swept the awards.

In addition, Peterbilt and, or Kenworth has won the medium duty class 67 JD Power awards four years in a row, though I think its just a terrific result for all of the employees and dealers that work so hard at these quality products. In terms of market share PACCAR continued to hold the market share gains of 2002 with the North American retail sales share of 23.7. DAF continues to grow in Western Europe and is now 12.8% and is a very important contributor to PACCAR’s success. The strength of the Euro had a positive impact on revenue of about $80m and net income of about $5m.

PACCAR’s engines continue to set the industry standard in Europe and Australia looking across the field of course, many our competitors continue to struggle, now I think its important to bear in mind that just because PACCAR does well doesn’t necessarily translate into the competitors doing well.

Looking at the market in a little more detail, fuel prices have been relatively stable this year and new and used inventory is certainly in good shape. The truck cycle is about finished its lengthening out process which continues to help PACCAR.

Our competitors are aggressively using guaranteed buy backs as is their normal course of business over the last ten years and I would see that abating. Industry orders are steady as is industry builds. I’d like to point out that PACCAR’s SG&A expense percentage was excellent particularly in these continuing challenging times. PACCAR’s balance sheet remains very, very strong and stockholder equity is now over $3b. As you all know there are no pension or retiree health care issues and it’s worthwhile noting that shareholders appreciate the continued evolution of PACCAR during its 98 year history, The company is now recognized as one of the leading transportation technology and finance companies in the world.

With that, let’s open it up for some questions.

Thank you. At this time, if you would like to ask a question, you may press *1. You will be announced prior to asking a question. To withdraw your questions, you may press the ‘#’ key. Once again, to ask your question, please press *1 at this time. Our first question is coming from Andy Casey, please go ahead.

Good morning and congratulations on the awards. If we can look at truck and other, had a very good top-line performance and the gross margin was a little bit less than I expected. Is the gross margin really a function of things that are in third quarter? And we should expect improvement to begin to recur in fourth quarter? Or…can you help me understand what is going on there?

Are you still there?

Yes.

Hello

Yes.

Okay. I think the gross margin was actually very good. In fact it was very good. Recognizing that we’re seeing, as the rest of the industry is seeing, increased costs particularly on the engine side.

So that with the increased costs continuing into the fourth quarter, you’d expect the same sort of improvement? Or would you say that the announcement in your release, indicating some slight improvement in North American unit production, would help boost that up a little bit?

Well we don’t forecast, as you know. I don’t anticipate that costs or purchase components will go down.

Okay.

Alright

Would it go the other way?

Well you’ll have to ask our excellent suppliers that question.

Okay.

Alright.

One last one on SG&A.

Yup.

(indiscernible) a couple quarters in a row and you continue to do very well. Is there anything you can kind a flesh out for us, as to how you’re doing this?

Well, as I mentioned I think we’ve got a great 98 year history of always trying to exceed our customer’s expectations by the quality products we deliver and running a very tight ship.

Well, congratulations on that. Thanks.

Thank you very much.

Thank you. Our next question is from Gary Mcmanus. Please go ahead.

Good morning Gary.

Hey good morning Mark, and a great quarter again.

Thanks. I thought you’d be down in Florida watching the Yanks win.

Yeah well, I hate to tell you, I’m not really a big Yankees fan. But I was rooting for the Sox instead. But anyways… in the release you talk about you know, some of your capital investment programs, and you know that is kinda the first time you’ve talked about that in your press release. And I was wondering you know why you were talking about that. Do you expect capital spending to go up? And you know, look at the numbers was like $250,000,000 or so back in 1999. And it’s been under a $100,000,000 for the last several years. So, are we into a more aggressive capital spending program?

You know we’ve always had a very proactive capital program. I think if you go back to 1999, plus we had just acquired DAF and Leyland, and there were a lot of investments that we were looking at. We continued to invest. We have obviously the financial resources to invest, and I just thought that it was important for everyone to understand or to get a small peek in the window of all the, what’s called a comprehensive programs that are on going worldwide. And as you’ve tracked this industry for a long time, you’ve known that through basically every downward cycle, when it starts to recover, (whenever that is) PACCAR always comes out stronger. And we’re just continuing that fine tradition.

So you wouldn’t want to quantify? Were not going anywhere near $250,000,000 anytime soon? Are you going to continue to under spend depreciation for example, for the next…you know for the next year or so? I mean would that be your expectations?

Really, our expectations are to make sure that at anytime of any cycle PACCAR is well positioned to serve the customers. And we continue to invest. And I think as you had a chance to tour some of our facilities, not only the factories, but the parts warehouses and some of our IT laboratories, it’s a… we’re just starting to continue to pull away from the competition. So we’ll spend to make sure that we’re always the leader.

Okay, got it. On DAF could you talk a little bit about how conditions you know, first the industry conditions are looking? In your…I think in your Second Quarter Press Release you said that, you expected Europe to be down 5%. Is that still your expectation? Or are things getting a bit better or a bit worse? Put just some color on how the industry is doing over there.

I think the industry is pretty steady from what we talked about earlier in summer and don’t really see too much of a change in terms of the industry. Obviously, DAF continues to perform very, very well and not only do they continue to get well deserved product awards, but they’re making a lot of investments. And as we expand and grow into countries that typically have not been our strength, there’re just a lot of exciting opportunities out there.

Okay. Well, last thing. You know, you threw out what the currency impact was on revenue’s net income in the third quarter. Now, when I compare it in the first half it looks like it was $10,000,000 per quarter in the first and second quarter. So, is it just that you’re kinda (indiscernible) easier comps? Or you know, is there anything specific going on, that you had less of a positive impact on currency compared to the first few quarters?

Yeah. I think it’s just taking a look at quarter over quarter. Yeah, just exactly as you laid it out.

Just that …okay, I got it. Thanks.

Thank you.

Thank you. The next question is coming from Joel Tiss.

Morning Joel.

Hi, how’re doing?

Excellent, thank you.

That’s good. I see you’re increasing your production capacity in Mexico. Can you give us a sense of why? Are you closing any plants in the US? Or do you expect a higher peak in this coming cycle?

Well, it’s just really part of the on-going program we have in all our facilities and we’ve made quite a few investments in our Mexican facility as I mentioned there the new chassis paint system’s very exciting is for us and while we were doing that we just took the opportunity to continue to make it more efficient, so we’ll just continue to increase quality and decrease the cost of operations.

Okay and also on a ACERT you expect to see any impact other than in the cost of goods from the change over and is all the price increase or most of the price increase in the numbers or we have more to go?

I think most of the price is probably in the numbers. Is that what you’re asking?

Yes and also if there’s any change-over, any impact from a product change-over?

No, again, we continually work with all of our engine suppliers on putting new variations and this is just another variation.

Okay, and last question, can you give us a little help on the tax rate it’s been coming down all year. I assume that’s from DAF doing better and as the US get stronger, should we be thinking that the tax rate will come back to more of a 35% rate as we go into 2004?

I think as you look for the year, the tax rate is still a little bit above 35% for the year. So that’s typically where we are.

Okay thank you.

Thank you.

Thank you. The next question is coming from Joanna Shatney.

Hello Joanna.

Morning. Your DAF markets your numbers of 12.8%. Where were we last year at this time? Is it roughly the same, are we up are we down?

We’re up. I think it was in the lower 12’s: 12.1, 12.2 in that range.

Okay. In Europe we’ve got some registration data for the month of August that just looks off the charts up 14 %.

14% compared to what?

Year over year, it’s an August number so it’s probably small units relative to the rest of the months but we’re clearly not going down as much as we thought in Europe and you’re actually gaining a little bit of share. You been nice enough to talk about which direction your production rates are going in North America, is there a chance that maybe that flattish type of production level we’ve had at DAF for a while start to trend higher?

Well, couple of responses - first on the August data of course you recognize that almost without exception, that’s only one week of production throughout Europe because of the summer shutdown so August is a little bit different that way. In terms of DAF we anticipate that we’ll have a slight increase in production over the next quarter.

Could you just break apart the credit losses from the finance of this quarter and what it was last year please?

I’m not sure we typically do that.

I think you did in the last call. I’ve got like $8 million from last quarter.

Well we can break apart the provision for losses from the financial services total cost.

Okay.

That’s 7.4 of the 85.8 total

Okay. Can you just give us an update on some Paccar financial expansion into Europe, how that’s going, which markets are more receptive than others?

Sure, Paccar Financial continues to grow in Europe and in each of the seven Western European countries we’re seeing growth.

Is there one country that’s growing faster than others those are all just trending up?

No, we’re seeing growth in each market.

Okay. I don’t know how much you want to talk about this Mark but I feel like since we have the opportunity I’m going to ask it anyway. When we think about the special dividend and I know the inputs are kind of how things have been in the last 12 months but also your outlook for the coming 12 months, and your cash balances are high and if you adjusted the finance company to more normal leverage in the finance company, maybe even the cash balances would even go higher. Can you just talk about your thoughts on the special dividend as well as other cash uses?

Well, I really can’t but I think we work very hard to make sure we’ve got an excellent balance sheet, which Paccar does and we continue to evaluate all great opportunities.

Is having the Cap Ex stuff in the press release, should we be reading into that that the focus is really on investment versus paying out cash or is that not meant to be a ---

No, we’re pretty straight forward. I think we’re just saying, hey there’s a lot of investment going on. The company is in excellent position, continues to grow and there are really benefits to our customers in a wide range of initiatives

Okay. Fair enough, thanks.

Thank you.

Operator Thank you. The next question is from Brian Raille

Hi Brian

Hi, good afternoon. Quick question for you on heavy duty trucks in Europe. You mentioned in the press release that you have met your Euro 3 emission compliance ahead of the deadline by two years. Is there any particular financial incentive that goes into that for your customers, for you? I know that the standards are set a little differently in Europe?

Well certain markets will for a short time period try to stimulate operators to make that switch. Typically it’s driven country by country, so there is for a short time period but then that expires as essentially most of the industry catches up.

Okay so it would be real short term impact?

Correct.

One other question too on your medium duty market share, you know you’ve had some good gains here both sequentially and year over year and as you said it, it continues to win awards. Do you feel that you can continue to gain market share with the trucks that you out there now, or do you need to sort of, you know, broaden your product portfolio?

Well we have excellent coverage of Class 6 & 7, which is what we consider the primary, medium duty market. As we’ve said in previous releases, you know, with over 20% share in Class 8, wouldn’t it be wonderful to have over 20% share in 6 & 7 and as you so kindly pointed out, we continue to grow. The medium duty products we have are without a doubt the best in the industry. We continue to invest in them, we continue to invest at our St. Terres [ph], where we build those vehicles. So, you know, we want to continue to grow. We are growing and many more customers are understanding that they can get Kenworth and Perterbilt quality in a medium duty truck. I’ll just point out one thing that is kind of interesting as I read the industry data that --- though the medium duty is a very exciting market, it typically only has margins - - a fifth of what you get in Class 8. So, I’ve noted that several of our competitors are really hanging their hat on this market and I just think it is important to recognize that, though the market’s important for the survival of some of our competitors, that’s going to be a tough way to go.

Thank you very much.

Thank you.

Thank you. The next question is coming from Robert Toomey. Please go ahead.

Hello Robert.

Good morning. Congratulations again.

Thank you.

I just want to - - can we just talk about the new engine. I just want to make sure I understand that the impact from that is - - the way it affected your gross margin Mark, I am not totally sure that I understand that.

Maybe - - I am not totally sure I understand your question.

Were you flow - - are you - - I don’t understand why, there was some question about gross margin earlier on and the impact on the cost of the new engines. Why is that necessarily affecting gross margin or is it not?

Well if your costs go up it impacts your gross margin.

Okay. So, I guess you’re not passing through some of those costs.

That’s correct.

Okay, have you seen any effect of the - - the impact of the new engines on demand for Class 8 or do you think that’s really not - - not really an impact at this point?

Well, you know, throughout the industry obviously demand has been, you know, soft as you know in the last several years and there are many reasons for it, but I think people, as we indicated in the press release are getting more comfortable with the different types of technology and one is probably as good as the other and different manufacturers have different solutions. So, I think overall, all the customers recognize that as happens periodically, there is a new technology being introduced and it will affect them one way or the other and - - so they are going to have to get on with it because trucks obviously have a certain defined lifecycle and eventually, customers need to go out and buy new trucks. So, I think it’s - - I think we are working our way through that whole thing as an industry.

Okay. On some of the previous conference calls, you’ve indicated that you felt that you could get your gross margin back up to that 14% to 15% range over the long term. Do you think that’s still possible?

Sure.

Okay and the last question I had was could you break up the cost and expenses in the finance sub, that $85.8m?

Sure. Interest and other was $59.9m, SG&A $18.5m, and Provision for losses, $7.4m.

Great. Thanks very much.

Thank you.

Thank you. The next question is from Steve Haggerdy, please go ahead.

Hi Steve.

Good morning. Two quick questions, on the credit losses of the financial services, are you kind of at a level of credit losses that I could term as normalized, assuming the losses were higher opposed to double in the Class 8 truck industry at the latter part of the nineties. Are we kind of looking at a normalized level now for PACCAR?

Well I think we are getting to that level at - - if you look at the losses compared to the receivables, it’s at a level that we have historically been at during normal times.

I guess what I’m getting at is it’s helped - - I think it’s been one of the contributors to the great performances of financial services over the last couple of quarters and I am sort of wondering how much is left from a reduction in credit losses and you are saying you are getting fairly close to what would be sort of a normalized run rate?

Yeah, but the assets keep growing and the finance margin has also improved, which are also major contributors to the profitability.

Sure, and there is one other quick question. In terms of the engine mix that PACCAR is running with right now, particularly in Peterbilt. I am assuming you are still using predominantly the bridge engines, that means there probably isn’t that great availability ASERT [ph], can you give us a sense of where you are in that transition from bridge to ASERT engines for your trucks?

We continue to offer all manufacturers. We don’t really break that out.

Okay that’s fine. Thank you guys.

Thank you.

Thank you. The next question is from Yevonne Verano.

Yevonne.

Morning. I was wondering if there were any metrics you could talk about in relation to the parts business in the quarter. Is that improving, is that where it’s been? ‘cause I see you know, what we had talked about before, you’re adding this addition to the Atlanta facility.

Well, parts is a - - an important segment within PACCAR and it essentially has continued to grow over the last ten years at least and as we grow as a company throughout the world, obviously trucks are generating demand for parts but also we’ve got a very talent group that is able to come up with new programs to sell parts to a variety of customers as well as utilizing some of - - very innovative information technology for us to manage many of our dealers’ inventory and there is a lot of benefit to that for all parties combined. So, parts is an important group for us.

With all these measures that you’re putting in place, would you say that the growth of parts has accelerated?

I think it’s actually pretty steady growth. In terms of metrics, we’ve talked on previous quarterly calls about who PACCAR benchmarks against and one of the companies that we take a look at in terms of logistics and just in time and parts delivery would be a company such as Wal-Mart and I think that we are definitely a world class.

Okay. When you say steady growth, is there a rate you could throw out?

- - don’t think so.

And then just - - you talked about the lengthening in the truck cycle. Can you tell us where that is right now in terms of yearly tons?

What I was really mentioning was, you know, at one time the industry was trading - - particularly high way groups trading trucks in on, let’s say a three-year cycle, then it went onto a four-year cycle and there are certain fleets that are saying they are going to run their vehicles five and six and even seven years. So, when I said the industry cycle is extending, that’s what I meant.

Okay, in terms of your actual lead times, are those lengthening as well?

No. We always work very hard to have lead times of say six to eight weeks and that’s the way we’ve done it for ---over fifty years.

Okay. Thank you very much.

Thank you.

Thank you. The next question is from Andy Casey. Please go ahead.

Hi Andy

Hi Mark. A couple----I guess the detail ones in ---within Europe can you give us a sense of the number of outlets selling your brands at the end of 3Q ’03 and how that compares to 3Q ’02?

Well, typically what we reference is approximately a thousand service points throughout Europe and I think that’s a very good number to use. Was there another intention for your question I wasn’t quite sure I followed it?

---well there’s this block exemption grand change over there and I was wondering if you had seen any increased penetration in areas that you haven’t been in before?

Well I’d say an excellent question. We very much look forward to it, a mean, obviously the block exemption is in effect now and from several aspects, first of all we continue to invest in growing our dealer’s network in several ways. First, we can have some of our own facilities as we do in London and Berlin and that will continue to grow. Second, as DAF increases its reach and reign throughout Europe, we’ve got many, many of the DAF dealers that are making significant investments in their facilities and not only updating them but adding some additional service facility. And then third, we are seeing a excellent influx of request from competitive dealers who recognized that with DAF and PACCAR there is an opportunity to make some good margin, which they may not be able to with their own lets call it “home grown brand” and so we’re seeing quite a few dealer request we’re saying we’d like to represent the DAF brand in Europe. So, it’s a very exciting time for us.

Okay, so at this point you ---I mean--- would you care to quantify any change year-over-years. Is it more a function of?

I think--- you know--- I think it’s just ---it’s pretty ---really pretty steady. Is just it continues to get stronger with a broader reach of services as Mike Tembreull commented on. PACCAR financial is really growing and of course DAF is growing not only in its normal home markets but is seeing strong growth in market such as Germany and Italy and France and Spain and the dealer investment is going to just continue to reinforce that growth.

Thanks a lot.

Thank you.

Thank you. The next question is from Katie Freidman.

Hi Katie good morning. I can’t quite hear you. I think we lost her.

This is the coordinator Katie if your line is on mute could you un-mute for me, your line is open. Okay we’ll go ahead and just come back to Katie.

Our next question is from Charles Harris

Hi Charles.

Mark, how are you?

Fine. How you’re doing?

Good. Thanks. A couple of questions for you, the first one is if the --- you talk about $80m of FX this morning to the sales line which would therefore suggest that year-over –year sales in the aggregated adjusted for foreign currency are actually down a little bit from a year ago very strong level. Can you just aggregate that a little bit for us and tell us on a volume basis was the U.S down year-over-year, was Europe up year-over-year on a unit production basis.

No, I think really what it is --- is pretty simple, you know, obviously we take in every month what the actual exchange rate is verses what we expect it to be and the fluctuation as we get more business out of Europe as an impact.

Right.

Right.

A mean--- no all am asking is if it makes it difficult to determine. Was --- in the third quarter was Europe on a volume basis ---you know--- up, down and side ways.

Compared to a year ago? Tell me, this in terms of truck production.

Yes

It’s you know--- I think it’s about a year ago. Let’s take a peak here. It’s a mean it’s up a smidge.

So it’s effectively flat?

Right.

Okay and then when you talk about production in the fourth quarter being up from the third. Now seasonally, normally there is an increase in truck production in Q4 verses Q3. Is this a normal seasonal pattern, I don’t know if you had any vacation weeks in the third quarter and a mean how should we sort of extrapolate that comment with the day rates going up or is just no vacation normal seasonal pattern?

Well, as you’re aware you know during August Europe’s pretty shut down so fourth quarter typically does go up but what we’re mentioning here is actual slight increase in the daily production rate.

In both U.S and in Europe?

That is correct.

Okay and that has basically so you can maintain that sort of six to eight weeks of order to deliver a schedule?

That’s correct.

Okay then ---two other questions if you don’t mind. The first one was what are you seeing in used truck pricing? Is that an issue anymore?

Really, I think the industry has worked its way through that as a we track over lets say a five year cycle used truck pricing for a comparable spec vehicle is pretty much in the range it was a few years ago when the used truck pricing was lets say pretty normal. As far as our products are concerned it’s been absolutely fantastic and you know there maybe on a new truck sale of let’s call that $5,000 to $8,000 price differential. Those same vehicle three and four years out can be up to $20,000 to $25,000 and of course as I mention earlier with the JD Power awards, the clean sweep by Kenworth and Peterbilt just reaffirms our commitment to quality. And the first customer, the second customer and the third customer are all benefiting from buying a PACCAR car vehicle.

Okay and then one last question which is, and I think you alluded to this earlier. The spread in the financial services business is clearly an improve this year, even if you takeout the provision for losses on receivables, the actual spreads are better. I’ve heard recently that they’re more people making more money available into this market they’ve been a lot of people exited over the last 2 to 3 years, now some people are willingly to sort of make baby steps back into the market.

Is there a thought here that spreads are probably as good as they’re is going to get and for the most part even though we get increase in volumes as business gets better, your spread are probably going to start to see narrow again back to a more normal level?

Well, I think we have to let’s call it disengage a little but you’re saying normal level is versus what we’re seeing. PACCAR continues to work very hard and all elements of the business to continue to improve.

Right.

And.

You did take advantage of the fact that when you can’t, when there is competitive money not available to make it better for everybody involved to remain in the business?

Yes, I mean we’re always seeing people coming in and out of the business whether it’s Independent finance companies or banks or whatever it is. What we are seeing is as we have for 50 years on the truck side, more and more of our dealers and more and more of our customers recognized that good times and bad PACCAR is there for them. And that includes PACCAR financial and PAC lease which by the way is last year was 9th record year in a row and so there maybe people coming in, there maybe people exiting but overtime more of our dealers use our offerings, more customers are saying, “You know I really like the dependability, the stability and financial strength of PACCAR, that’s who I want to go with, someone maybe offering something cheaper but they’re not there when I need them.”

So the market maybe doing one thing but the growth of Paccar is something completely different.

Well would you care to comment on sort of what your market share on a retail basis is, is to your dealer (indiscernible) for what’s been over the year? I mean presumably it’s at the highest level it’s ever been and I guess does it cycle up and down relative to the overall business cycles?

It’s as so many things in Paccar are, its steady growth and we’re well over 30% and it’s just steady, steady growth.

You make it sound easy Mark.

It’s not, but that’s why we love this business.

Okay thank you very much.

Thanks a lot.

Okay thank you, the next question is from David Rauscher please go ahead.

Hi David.

Quick question here, I’m probably oversimplifying this but, if I was to figure your gross margins maybe were down just a tad on flattish sales. That being the cost the cost on the new engines the higher cost, in total would cost you about $20m.

Would that be a difference between what you report gross margins versus what normally would have occurred on a year over year basis, on that kind of sales? And again back back of the envelope kind of numbers, and if I assume your build in North America was similar to your retail sales share and roughly 23%, 24% of what the industry builds were?

So lets say you built roughly 11,000, $20m on 11,000 trucks means that cost to PACCAR are per truck --- the incremental cost were about $1,800, which is suggesting Paccar is absorbing roughly the $3,500 again averaging numbers here, but $3,500 price increase to the new engines.

And I’m oversimplifying that but if you could let me understand where that is wrong and also if ASERT is not yet that big of percentage of your production. Higher cost on the bridge engines in the second quarter and it didn’t seem to hit the gross margins. So can you help us understand what’s going on there? What maybe incremental cost that happened in the third was not in the second?

As we look at our gross margin for the year it has been pretty steady, 12.5, 12.6,12.6 and looking historically it’s one of the highest gross margin in our history.

So speaking to me now since I just gave to you year over year the gross margin also reported down about 110 basis points, you would have figured if volumes were flattish it would have been close to same kind of number, maybe the answer is something unique to the (indiscernible) last third quarter gave you just a unique margin.

There you go.

But some of the ideas, the cost in the third quarter, there wasn’t much new to it so to speak, it was more a matter of just what happen last years’ third quarter.

I think that’s certainly an important element of it, but we continue to see increased cost also, but I would just sort of reiterate that the gross margins are excellent.

Second question, with the tax law changes the accelerated depreciation, you see companies like Ryder trying to use their leasing portfolio in some innovative financing where the owner of the truck gets the ownership rights so he can take advantage of the deductions. But still more of a leasing arrangement. Can you help us understand, in your marketing to customers, how are you utilizing the tax law change. Have you seen a change to customer’s behavior at all.

I don’t really think that there is that much of an impact at this time for the industry.

Thank you very much

Thank You

The next question is from Andrew West, please go ahead

Hello Andrew.

Good Morning.

Morning

I have a couple of question. I noted the DAF market share goals for the long term. Have you established any timetable for that, for reaching that goal?

No, but when we achieve it, you are going to be one of the first to know.

Alright. And, Can you give nay indications of year to date operating cash flow and or Cap Ex?

The Cap Ex for the quarter is 2980.

Alright, thank you.

Thank you

The next question is from Joel Tiss. Mr. Tiss your line is open sir.

Joel, good morning.

Good Morning, just one last one. Can you explain to us why the receivable were up over 30% in the quarter?

Well we (indiscernible) that normally in the quarter, receivable are about the same as they were in the third quarter. They are up quite a bit form the end of last year and that’s normally with the Christmas shutdowns, we collect the money and then typically what happens between the third and fourth quarters is, receivables go down ad then they come back up in the first quarter of the next year.

So there isn’t anything unusual in there? Ok, thank you.

Thanks Joel.

The next question is from Ms. Joanna Shatney. Ms. Shatney, your line is open.

Joanna again!

Just a quick question. You’ve mentioned guaranteed buybacks in your commentary. I know while the intro prices have gotten better, I think the thought is that guaranteed buybacks have gone away and you’ve brought it back to the forefront here they have not. There is talk about whether the industry has gotten more aggressive in the last couple of months about guaranteed buybacks and have they gotten as aggressive on residual values as they were say two three years ago that ultimately led to the used truck problem?

Well it’s interesting that you ask that question because currently the American Truck Association meeting the ATA meeting is going on right now and you got many customers gathering there as to say – particularly the over the road haulers. And I would say that a number of the competitors never went away from guarantee buy backs and yes they are increasing the use of them. But good question.

Could you – I know it’s hard for you to tell cause you’re kind of just a competitor on this but can you tell – I’m guessing that in the last 3 years the residual value numbers have gotten a little bit more realistic than they were since the peak of the cycle. But is there any reverse in that trend to becoming more aggressive on residual values?

Yes.

Okay.

Very much so and of course that’s reflected in the fact that with – I think one exception. All of our competitors are losing money and certainly through the last years have lost billions of dollars. But I think if you tie a few things together one is Paccar products just swept the JD Power so, I mean every operator is aware of that if he wants the highest quality you are going to buy Paccar product. So you know every company needs to use the tools at their disposal.

Mark could you tell historically the buy backs have been just to get the market share on the truck. But can you tell if the buy backs start to get some acceptance of a particular engine over others? Is that different or is it still just a share game?

I think that’s a good question I think there is probably an element of both.

Okay thanks.

Thank you.

The next question is from Robert Toomey. Mr. Toomey your line is open sir.

Thank you.

Hello Robert.

Hi I just have a couple of follow up questions, depreciation – was it Andy did you mention what depreciation and amortization was in the quarter?

I did not it was $66.6m.

66.6 and also there was a discussion earlier in the call about fissure in the medium duty market, have you stated what that share is in both North America and Europe?

What do you mean stated?

I just – have you given out the share for the medium duty market?

Yes I don’t know if it would be given it out but it’s published by different agencies such as Wards and ATA publish something -- retail sales and post registrations. So for our share on registrations which is the RL (indiscernible) which I’m sure you’re familiar with year to date is 8.9% that’s US and Canada for Kenworrth and Peterbilt combined.

Okay and do you know where that was at last year Mark?

As a matter of fact I do.

Yes it helps.

6.1

6.1 okay. And one other question I had there has been some talk in the financial press about US manufacturing and you know manufacturing jobs being exported out to other countries and I’m wondering over the years class 8 truck have been – our demand for class 8 has been associated some what with the manufacturing cycle on – are you watching the trend in North American based manufacturing and does that affect in any way the long term – the potential for this cycle or the future at all?

Well actually that’s a very good question and that was asked to our Vice Chairman David Hovind a few weeks ago and there was a long article published which we can send to you on that. But in answering your question today I guess I’d answer it in a two part answer. First as you’ve seen for many, many years Paccar continues to invest in all elements of the business and we are the low cost manufacturer in the industry world wide. In fact probably one of the best manufacturers in many industries and we continue to invest in it as you have to. A number of our competitors are not able to invest for what ever reasons.

Second we are very diligent about keeping our cost under control and you’ve seen various actions through the decades as we address those cost and of course one of the real signals is what are SG&A percentages and about at an all time record low in terms of our percentage of cost versus revenues. A number of our competitors for what ever reasons are not able to control their cost and so they are actively looking to find some lower cost country but they never address the cost that are crippling them in their own markets. I have no idea what their plan is but that’s certainly what’s happening. So as far as we’re concerned we’ve got great facilities not only manufacturing with parts and finance and lease and information technology and we continue to invest in them to make them even more efficient than they already are.

Thank you.

Thank you.

If there are any other questions please press star one on your touch tone phone at this time. And the next question in queue is from Charles Harris. Mr. Harris you line is open sir.

Hi Mark one follow up question which is the new hours of service regulations that are going into effect in January what have you heard from your customers as to how they are going to address that for it’s clearly you’re going to see significant increases in cost within the trucking community be it from driver (indiscernible) hours services etc that just simply lengthen out the process before we see that recovery we all hope for.

Well that’s a good question obviously every company will you know abide by the new regulations and there are different ways to approach that and that’s really up to the individual company to address. But as certain cost perimeters increase for customers and certainly in the last 12, 18 months we’ve seen fuel being a big factor. And now we’ll see lets call it the driver cost being a bigger factor. I think that it make more and more of the customers take a hard look at, hey I like the business, I want to stay in the business, how can I control my cost? And increasingly Paccar pops up as an answer on vehicle that has the lowest maintenance cost, the highest residual value, not set by us but set by the market. And certainly has the most allure for retaining and attracting drivers. So your question is a good one, every company will address it as they see fit but the up shot is it makes the Paccar product even more attractive.

Why did I know it was coming back to that?

You’re just sharp.

It’s like they are (indiscernible) marbles. Thank you very much.

Yes.

If there are any other questions please press star on your touch tone phone at this time. Mr. Pigott apparently there are no other questions sir.

Great thank you, we’ll see you again next quarter.