帕卡 (PCAR) 2005 Q4 法說會逐字稿

Good afternoon and welcome to PACCAR's fiscal 2005 fourth-quarter conference call. My name is Thia and will the conference operator. All lines have been placed on listen-only mode until the question-and-answer session. This conference is being recorded. If anyone has any objections, you may disconnect at this time. I would like to introduce Mr. Andy Wold, PACCAR's Treasurer.

Thank you. Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Andy Wold, Treasurer of PACCAR, and joining me this morning are Mark Pigott, Chairman and Chief Executive Officer; Mike Tembreull, Vice Chairman and Ron Armstrong, Vice President and Controller. As with prior conference calls, if there are members of the media participating, we request that you participate in a listen-only mode.

Certain information presented today will be forward-looking and involve risks and uncertainties, including general, economic and competitive conditions that may significantly affect expected results. At this time, I'd like to introduce Mark Pigott.

Good morning. PACCAR celebrated its centennial in 2005 and we are very, very pleased to announce today the best revenue and profit performance in the Company's history both for a single quarter and the full year. For the fourth quarter, net income was a record $312.9 million compared to $241.4 million in 2004. On a per share basis, earnings surged 33% to $1.83 compared to a $1.38 last year on a 14% increase in revenue of $3.64 billion for the quarter.

Even better, for the full year, revenues were $14.1 billion and net income was $1.13 billion, both records for the Company. Now as you know, we do not issue guidance but we did exceed our own internal forecast. This result is particularly impressive considering PACCAR's full-year profits include an income tax charge of $64 million for repatriation to the U.S. of accumulated foreign earnings.

We are very pleased to earn record profits on record revenues, record financial services results, achieving record truck production. But what is really gratifying to our 22,000 employees, 1800 dealers, thousands of customers, our suppliers and our shareholders is the recognition that PACCAR continues to build on the pillars of our business foundation. Those pillars are quality, innovation and technology.

In terms of quality, PACCAR earned five more JD Power Customer Satisfaction awards in 2005 for medium and heavy-duty vehicles. PACCAR has now won 14 JD Power awards in the last five years while the closest competitor has only four. Our employees focus on quality everyday and coupled with our capital investments in our products, our factories and processes have catapulted PACCAR into the highest echelon of the capital goods market worldwide.

Technology. In two weeks time, PACCAR will receive the very prestigious Medal of Technology from the President of the United States. Only 21 companies have earned this recognition in the last 20 years. PACCAR is being honored for its contribution over the last 40 years to the development of fuel efficient and aerodynamic commercial vehicles and contributing to the growth and strength of the GDP in the United States. Quite an honor and our employees love it.

And finally, innovation, especially in the exciting world of information technology. PACCAR's ITD group was highlighted as the top technology integrator by InformationWeek magazine. In addition, Assembly Magazine named PACCAR as one of the top 50 global manufacturers and Business Week magazine named PACCAR as one of the 50 best performing companies in the S&P 500. Through innovative technology and leading Six Sigma capabilities, PACCAR is achieving productivity gains of 5% to 7% per annum.

What does it all mean? Well 2005 was definitely an exciting year for PACCAR and as we begin our second hundred years, we have a balanced geographic business platform, the most new products in the pipeline in our history at even higher quality levels and numerous opportunities to grow and expand into market segments complementing our current businesses.

Now as many of you know who have tracked PACCAR over the last decade or two, PACCAR has evolved into a global technology company delivering premium products and services in over 100 countries. Financial results for 2005 were outstanding as PACCAR reached higher plateaus for revenue, earnings and return on capital. PACCAR's balanced approach to gross margin attainment at 14.7% for the year is one of the key reasons the Company's net profit has nearly doubled since 1999. Profitable growth is our key focus.

Now speaking of margins, we are very pleased that our operating margin at 11.5% is an all-time record. Return on equity of 30.1% during 2005 was the Company's second best result over the past decade. That's considering that our equity has more than doubled since 1999. Very proud of the team.

Record after-tax return on revenues of 8.1% is at or near the top of the industrial sector worldwide and SG&A costs to revenues reached a record low 3.2% for the year. PACCAR produced over 148,000 commercial vehicles worldwide, including 25,000 medium duty. And PACCAR financial had another great year as did aftermarket parts.

Coupled with the highest capital spending in our history, PACCAR is entering 2006 with accelerating momentum. PACCAR's highly efficient operating model produces excellent cash flow and we have included a cash flow document for the first time, which I hope you're able to use. During 2005, the Company invested $300 million in products, technology and facilities. Some of the items include DAF introduced its new flagship model, the XF105 and Peterbilt launched their new fuel efficient model 386.

We invested $100 million in a new engine manufacturing facility in the Netherlands and we also are concluding the construction of a new and expanded $70 million Kenworth assembly plant in Mexico. The multimillion dollar PACCAR transportation system was installed here at the corporate headquarters to accelerate logistical flow material into the Company's assembly plants and aftermarket parts centers.

In addition, PACCAR has a consistent record of returning cash to shareholders through regular dividends, special dividends and stock repurchases. During the fourth quarter, the Company repurchased an additional 500,000 shares bringing the total for the year to 5.5 million shares. Total investment in stock repurchases for 2005 was $378 million. All of these positive actions reinforce the Company's belief that PACCAR continues to be one of the great long-term investments.

For the full year, PACCAR returned over $850 million to shareholders through cash dividends and share repurchases. I want to take a moment and just thank the financial analysts who have recognized PACCAR's steady growth in a variety of markets and are now including PACCAR in their comparisons to those companies in our benchmark group, which we highlighted in our press release. We appreciate that. I look forward to your questions. Thank you very much.

(OPERATOR INSTRUCTIONS). Andrew Casey, Prudential Equity.

Hi and congratulations on your records and accolades. I have two questions. The first one on the gross margin performance, which was good but down sequentially and slightly down from fourth quarter of last year. Can you highlight any headwinds other than potentially material costs that occurred during the fourth quarter that should go away sometime during '06?

Well we are really focusing on the operating margin as I indicated. Obviously gross margins play a factor but so do the expenses overall for the Company. And I think yes there were costs but I think that is just part of any business and I think we continue to just move forward. I don't really have anything specific to add on that.

And then lastly in financial services, it looks like the provisions for losses on receivables as a percent of net income went down a little bit from the third quarter and I'm trying to understand the trend there. Could you elaborate on that please?

This is Mike Tembreull. We keep our reserves at a percentage of the outstandings and losses were lower in the fourth quarter than they were in the third quarter. Reserve is up a little bit because the portfolio increased. The portfolio is in excellent shape going into 2006.

Thanks a lot, Mike. Thanks, everybody.

Peter Nesvold, Bear Stearns.

Can I get a little more color though on the rising costs? I mean was there anything in particular where there was enginewise or can you talk to us componentwise or in terms of the type of materials where you saw the most pressure because it is unusual for operating margins to be flat year-over-year with revenue up 13%.

Well the revenue went up because we sold more product.

Right. Exactly. But you're not really getting any scale advantage out of that. So can you just talk -- I know you can't mention specific customers or suppliers but what types of components did you the greatest pressure in terms of pricing on?

I don't think we really saw any overall pressure other than normal business that we have seen for 100 years. Obviously I understand the model you guys are working through but we are -- we have got a very professional team. We're one of the few companies that actually invest in our suppliers as you are aware and the emphasis that we put into the marketplace is for the highest quality products coming from our suppliers. We want our suppliers to make a good return and as you can see in numerous industries where suppliers don't make returns, they tend to not be around very long and that causes different issues for companies. So would we like everybody to reduce all their prices? Sure. But that's not going to happen. So I think it was pretty much -- a pretty good year --.

Does this mean that -- at this point in the cycle, does the operating leverage start to fade away? Is that really what we're looking at here so that we should expect this throughout 2006? Are we going to start getting scale again as '06 progresses or what color can you provide around that?

We keep looking to grow the Company, produce more product, reduce the cost of the product but we also want to make sure it is the highest quality and I think -- there's really not much else I can add in terms of that. I wish I could.

Let me ask on the financial services side, it looks like the leverage ratios might have gone up in this quarter. Historically, you have been tracking at a 4.5 assets to equity ratio and it looks like that went to about 5.5 times this quarter. Was there any kind of change in the capital structure there? Was there anything that might have been driving that?

Well there were some dividends that were paid to the parent company and also there was a repayment of some advances. So we will be operating at a little bit higher leverage in the financial services business than we have been the last couple years.

What about on a tax rate? It looks like -- I guess you came in around 30% or so, which was I guess about 300 basis points lighter than we expected. Was there anything one time that might have occurred in fourth quarter? Was it just a catch-up quarter? How should we think about that going forward?

We had some favorable determinations in some foreign countries but they aren't really significant. We expect the 32% to 33% rate that we have been operating at probably to be indicative of where we're going to be.

One other question and then I'll get back in queue. There has been some commentary out of some of the engine guys in the last couple of weeks or so that some of your OEMs are starting to build rolling inventories of class 8 engines. What has been your experience there?

You know we tend to operate with six to eight weeks leadtime. We have been doing that for decades. It's really pretty similar. Obviously we work with Cummins and Caterpillar very closely and they have seen some good industrial sector growth, gen sets and things like that, construction equipment. So I think they have had some increase in their total sales. But for us, pretty much normal.

What do you think happens on January 1, '07? Will you have extra engines on hand? Will you be able to assemble some "noncompliant" trucks after January 1, '07 or do you expect that your engine inventory will essentially be just a couple of weeks worth at that time?

I think it is going to be very similar to what we have seen at every one of these emission regulated junctures that we have seen five of them over the last fifteen years. I think it's going to be very similar to that. You kind of work through it. It is just part of the normal economic cycle and the economy is good in North America and in Europe, it is a little more mixed but the demand for our product continues to be high and it should be good this year, should be good next year and keep going forward. That is where we're investing our money. As they say, more new products in the pipeline than we've ever had and the products we have got are the world's best. So it will just be pretty much exactly what we have seen over the last fifteen years.

Gary McManus, JPMorgan.

Can you talk a little bit about what kind of currency impact there was in the fourth quarter both on the revenue line and let's say earnings per share?

On the revenue side, we had some, comparing to the fourth quarter of last year, had an unfavorable effect on revenues of approximately $90 million and an unfavorable effect on net income of $7 million.

And that $7 million, do I like tax adjusted to get like a pretax number? Would that they like a normal -- the 30% tax rate you showed in the fourth quarter?

Apply the overall effective rate for the year probably.

For the year. If we hold the currencies constant, you are going to continued to get that negative impact at least for the next few quarters, is that correct?

If the currency stays where it is at now, the rate was higher than it is currently in the first two quarters of '05.

Right. Mark, I guess I know you don't want to provide probably a forecast for 2007 but do you have any kind of strong disagreement with the consensus view that most people expect North American heavy truck to be down on the order of 30% to 40% in '07 and that the engine pricing -- some of your competitors have thrown out pretty high prices for engine 7 to $10,000 additional. Do you generally have a -- would agree with that view?

Well, it all depends on the economy and you know when you go out and talk with people buying trucks, which we do everyday around the world, first of all, they love our product, which is something that puts us in a unique position compared to our competitors. They recognize that our product brings more value operating and resale. So they are going to pay more for our product. And if the general economy is good, people are going to need capital goods and trucks to move the product; construction, homebuilding whatever. If that continues to be good, it should be a reasonable market.

I mean it sounds like you're perhaps a little less pessimistic than the consensus view or is that taken out of context? I mean I'll let you have a good economy both this year and next year. We'll beg off calling where the economy is going to go. If the economy stays reasonably strong, you don't necessarily would agree of a substantial decline in '07?

I think if you kind of read the commercial vehicle press, the industry pundits if you will, I don't think anybody is really kind of wringing the towel too much. It could be a reasonable year.

But reasonable could still be down. I don't know how you define reasonable year, where it peaked or really strong conditions now.

We are looking to continue to perform well as you know and you have followed us for quite a while and I can't really add much more than that.

Another question is on the share repurchase, I mean I think 2005 was the first time PACCAR really stepped up in a meaningful way and bought back stock of this magnitude. As we look forward in the future, what are the factors we should consider on whether PACCAR will continue to be this active in buying back stock or maybe actually accelerate the share repurchase? How much depends on where the stock price is? I mean you certainly have enough cash with $2.2 billion of cash to even accelerate. What do you think -- what are some of the things we should consider on trying to predict where the share repurchase program will go?

Good question. First of all, we have had several repurchase programs through the last 10 or 15 years. We repurchased a number of millions of shares. So I think that's important to understand that. This is an ongoing program and it is part of a balanced investment strategy. We look at shares, we look at CapEx requirements, we look at possible acquisitions, we look at other investments. PACCAR is doing incredibly well by any measure and as I indicated in my opening comments, we are very pleased, very proud of -- everybody's working so hard in the Company and they are achieving tremendous results. In terms of the shares, PACCAR should be at that 20 PE area. So unless we are there, I think I've been pretty consistent for quite a long time, we are probably undervalued. I think you've heard that message before repeatedly.

If I look -- you bought 5.5 million in the year. I can't remember exactly when you started it. I don't think it was at the beginning of the year necessarily. But you only bought 500,000 in the fourth quarter. So the pace slowed in the fourth quarter relative to the earlier quarters of 2005.

But we also have a lot of capital projects that kind of come up towards the end of the year that we are investing more in.

Okay. So I shouldn't read anything into the slower pace in the fourth quarter.

Don't read anything into it. Just, as you know, recognize that we need to get PACCAR into the category that recognizes what a wonderful company it is.

Right. Do we have an ending share count at the end of 2005?

We do.

Can you provide that?

It is on the press release.

I'll look for it then. Thanks.

Jamie Cook, Credit Suisse.

My first question -- you know your competition has provided the analyst community some color regarding what they expect in terms of an earnings impact for 2007 and why they may or may not be better positioned this cycle versus the last one. While I am assuming you will not provide specific items, I guess if you could just sort of help me out and talk through some of the differences in PACCAR this cycle versus last that we should keep in mind.

Depends which cycle you're talking about.

Let's start with 2002.

If you go back 10 years, the Company is almost four times the size it was, half the business is outside of the U.S., the aftermarkets information technology financial services now comprise a large portion of our total revenues and profits, medium duty, light-duty and heavy-duty are more evenly split and we have, through hard work and tremendous investment, really taken the Company and reinforced that we are the top-quality in all products in all markets and it is even gratifying to hear that all of our competitors acknowledge that. So the Company say has had a wonderful 100 year run. In the last 10 years, we just have done a lot to solidify that and make it geographically and product diverse, which puts us in an even stronger position than previous cycles.

Anything materially different versus the most recent one in '02?

I think I just --.

I thought you said 10 years ago when you said that. I'm sorry/

5 years is even more than that.

And then next -- I guess when you look out to 2006 or so, should we expect any shift in preference for suppliers or any shift in share between suppliers that you're currently using?

I'm not sure what you mean by that.

If you were to take -- for example, you could say on the engine side of the business you generally use two suppliers. Is there any reason for us -- is there anything going on that you would prefer one supplier versus the other, that the share between the two would shift?

We really have three main suppliers. Of course outside of North America, we produce our own engines, our own power train. Once again, that is a material difference 10 years ago and a little bit less five years ago. In North America, we have got two great supplier partners with CAT and Cummins that we have worked with for 40 plus years I guess. Forty or 50 years. So that's very exciting.

Joel Tiss, Lehman Brothers.

It's actually Henry [Curran] in for Joel.

Hi, Henry. Where's Joel?

Joel is on the road today.

Good to have you here, Henry.

A quick question for you. As far as the build ramps up in 2006, you gave a view toward where retail sales could be. Are you looking at more of a ramp up through the year or is it pretty evenly spaced as we go across '06?

I think in the press release we gave a range of possible retail sales for Europe and North America and it was pretty much in the same corridor as what was achieved last year. So there is going to be a lot of similarities.

So realistically, we are basically where we're going to be and it sort of flat lines out from here in where your modeling seems right now.

It is pretty consistent I would say. I mean there is always month to month variations depending on kind of what is going on, but pretty consistent, sure.

One other question. Are you hearing anything from the customer base to indicate any kind of reaction so far to the 2007 engines?

Not really.

Andrew Obin, Merrill Lynch.

Two questions, well actually one question. In terms of the business mix between fleet business and owners/operators, how are owners/operators getting ready for '07? Talking to your dealers, are you getting a sense that a lot of their orders that you get now are driven by fleets or by owners/operators and the second part of the question, how do you make sure that going into the second half of '06 you guys have enough slots available to sort of make sure your loyal customers get their trucks and I'm talking about owners/operators?

Over the last 25 years, many of the smaller companies, whether it is a single person operator or maybe the three to five vehicle operator, have evolved into an alignment with larger fleets. Now they may run in their own colors. They may even have their own name on the door but like so many industries, financial services, high-tech, whatever, people are looking for a more stable company to work with and the larger fleets can provide healthcare services, different maintenance packages, better access to fuel and whatever it is. So I think you have seen that over the last 25 years. So the old traditional mix that we talked about say in 1980 really has kind of moved away and now we really just work with many companies, might be smaller companies, medium size and large companies. That is kind of the way the industry and the world is nowadays.

But are you going to make a specific effort to make sure that -- I understand that you have a very broad base of customers -- my understanding is that owners/operators still order a more customized product, which should be more profitable for you. So my question to you is how are these guys ordering and how do you make sure that you can provide them with slots? Do you have any visibility on that, just a little bit of color and if not, that's fine.

First of all, all of our customers are wonderful and as I tried to indicate, over the last 25 years, that has evolved so that more and more what you would consider fleets are requesting PACCAR product. One, there is a driver shortage. This is a very attractive way to retain drivers and to bring drivers into your fleet and they want the high quality. Everybody is watching costs and they recognize that the PACCAR products are the low-cost operation through the life of the vehicle. Our vehicles tend to have twice the life of any of our competitors and resale, we're getting anywhere from 15% to 30% more resale. So once again, it is volatile. You get big fleets, the Warners, the CFIs, the Swifts, the Englands. Excellent, excellent companies that are saying I want PACCAR product and they will spec them out perhaps in a way that you used to think an owner/operator would in 1980.

Got you. That helps. Thank you very much.

Carl Holmquist, Handelsbanken.

Actually good evening in Europe but thank you. Three questions and hopefully no follow-ups. First of all, could you comment -- I'll give this a shot -- were there any extraordinary launch costs related to any products in the fourth quarter? The second question --

I'll answer that one. Not really. No.

Fair enough. Secondly, looking at your revenue growth, I think I can back out that Europe was doing pretty well volumewise. Was that you guys doing an excellent job gaining marketshare or do you have a feel for the overall market really? What is the overall European market doing in the fourth quarter volumewise?

Well I mean we point out in the press release the total European market for the year, which is typically how we break it out. We also -- we are very specific that DAF continues to gain share and then in the press release, we also highlight the composition of the revenue by sort of large market areas; United States, Europe and other. And you can see that there continues to be very good growth in our European revenues, which is, as you know, three components; the DAF, the PACCAR financial Europe and our aftermarket parts operations. They all three have had very strong growth.

So I take it that you're doing very well in a market that is essentially flattish in the fourth quarter?

Well I don't know if the market was flattish but we are doing very well and as you are in Europe and I'm sure you cover a number of people that compete against us. You will hear firsthand that DAF continues to gain share, DAF continues to be recognized as the highest quality products, the best dealers and the most cost-effective solution. So I am sure you are hearing that everywhere you turn.

They say all that. Finally then, the outlook -- you talk about Europe then at 245 to 265,000. Pretty specific. Do you base that on -- could you give me a feel for what you base that on?

Well it is obviously a range and last year was 259,000 or so above 15 tons, which was a nice increase from the previous year. There continues to be demand for growth, freight transport, particularly Central Europe continues to grow at a very good pace. Obviously some of the Western European countries have had mixed economic results. Some are doing well, others not doing quite as well. But the economy is still there. There are still hundreds of millions of people there and commercial vehicles are the most efficient way of transporting goods and as the EU expands and adds countries, there continues to be steady growth. So very exciting for DAF and PACCAR.

Thanks a lot. Good luck for the future.

David Bleustien, UBS.

Two quick ones. First following up on a prior question, do you have any build slots left in December in the United States?

December of '06 or '07?

Of '06. I'm sure you have got a few '07s but how about '06?

Yes, sure. Listen, if you want to get that five color paint job, give me a call. I'll fly a week and set it up for you.

Sounds great. And then second question, any costs in the quarter related to facility startups at either DAF or at Kenworth?

Which quarter?

In the current quarter. I'm sort of trying to figure out (multiple speakers).

You mean the first quarter?

In the quarter you just reported --

Okay, fourth quarter. Okay.

Did you have any facility startup costs that ran through the figures?

No, no, no. The new factory in Mexico was a -- we basically doubled the size of it. I mean, that is an ongoing operating facility everyday. At DAF they did a wonderful job of maintaining and increasing production while putting in a new factory at the same time. So that was just literally just sort of a handover. So, no.

Terrific. Thanks very much.

Brian Rayle, FTN Midwest.

Good afternoon.

Good afternoon. You are probably excited about the Seahawks, aren't you?

Absolutely.

That's what I want to hear.

Congratulations on the quarter. A question regarding, as you guys highlighted returning your cash to shareholders, you used the comment of '07 being a reasonable year, even if it is down. Can that be translated in -- maybe not share buybacks in any way, but you call it the special dividend, but it tends to happen fairly regularly -- and that being maintained during that time frame at about these levels? Or any kind of color on that dividend policy into '07. Thank you.

I can't really add anything to that comment. I would just point out that our regular quarterly dividend continues to be increased, as we pointed out in our press release, and something that is very exciting. That we work hard to make profits so that we can keep making these good returns to shareholders. So that's all I can really say.

Fair enough. Then a follow-up question on DAF. The marketshare gains have continued to be impressive there. Any reason why they should accelerate or decelerate from the current trends in terms of year-over-year marketshare growth?

You know, they have got great, great product. Basically all brand-new product, new power train. The markets are always challenging. I don't think any competitors have left the marketplace in any of the fields, whether it is IT or parts distribution or financial services or manufacturing. So I can't really comment. We work hard every day to continue to produce a wide range of great products for our customers. I mean it is a good question but --

Fair enough. Thank you very much.

Can't really add anything to it.

[Kevin Fogarty], [Dewpoint] Capital.

Just a couple questions for you. One, I was wondering if you guys have given any thought to the possibility of secular change in freight carried on the railroads, given the fuel advantage and the kind of the -- especially on the long-haul routes. Is that something that you strategically think about over the long haul?

You know I started my career on the rail business so I think I know it pretty well. It would be wonderful if everybody in every city would go to one location and get all their food and clothing and building materials; but unfortunately that doesn't just happen. So truck transport, which is by far the most fuel efficient, particularly when you're looking at a just-in-time delivery and low cost of inventory, actually is growing and transports over 80% of all products pretty much in most of the, let's call it, North America and Europe.

So you are not worried about a secular shift in the long-term growth rate?

There are always challenges everywhere in the world. But we are working hard to make sure the products that we produce are the most efficient.

Can you just comment a little bit how about the emissions transition, how challenging you view this one versus prior ones? I guess in terms of cost and I guess technical performance of meeting the standards. If you can update us on your thoughts there that would be very helpful.

Well this is an emission program that was started several decades ago. It happens about every three to five years, as you are aware. This one is -- every one is an interesting challenge and every one requires innovative thoughts and sometimes even new technology. We are working with our own groups; we are working with the independent engine manufacturers; and we plan to be ready in supplying product to our customers that will meet whatever the particular emission requirements are. So every couple years one of these rolls along and then we get on to the next one.

I understand that. I was just wondering if you had any comments on just is this one any more challenging. (multiple speakers) I think it's a little more challenging from both a cost and a technology perspective, but (multiple speakers)?

I think it is in line with all the other ones we have had. I mean really most people in the world are already working on 2010; and in some areas 2012. It is just an ongoing part of doing business.

Okay. Then just one more follow-up if I can. Is there anything that you typically do to help transition your customers, I guess, and keep your plants running smoothly through this transition? Anything that to do to help smooth that process?

Well, one of the wonderful advantages of working for PACCAR and producing the world's best products is that over 80% of the customers desire our products. There are not many industries in the world that you have that type of wish-for factor. So our customers are typically long-standing companies in their own right. They see the cycles.

In a sense, as I indicated earlier, we have got a strong economy in North America; and Europe is a little bit more of a mixed scenario. The customers understand what the cost impacts are. I think what is interesting is of course most of the cost of transportation is passed through to the consumer, which means everybody walking around on the streets in North America and Europe will actually end up paying for it through whatever they purchase will cost more. (multiple speakers) a pass-through program.

[Dustin Brumbaugh], Wells Fargo.

A quick question. A couple areas that are, I guess, areas for longer-term marketshare gains, that being Europe. You have given us marketshare data for DAF, which has been great. But wondering if you could give us an update on medium share or medium-duty share? And if you could break it down between North America and Europe that would be great.

Okay.

Maybe how that has been trending a little bit, understanding it is still only 17% of your total deliveries, but wondering if you could give an update there.

Great opportunity. Just another one of many growth markets for PACCAR. We are basically about 9% in North America, 9% in Europe, roughly. Our goal -- and it is a stated goal; we have gone public with this for a number of years -- is to achieve the same type of marketshare in light and medium-duty as we do in 15-ton and up, heavier duty. So that is over 20%.

Keep coming out with brand-new product. Very exciting. The customers love them. Certainly we keep winning a lot of these JD Power awards, even on medium duty. We won a couple more in 2005 for the best in class, and so just steady as she goes.

I do remember hearing those longer-term goals. Could you maybe say how it has trended the last couple of years or maybe one to two years, those share numbers?

We continue to get share. It is very exciting; and that is the good thing about working for a Company with a 10 to 20-year horizon. You can take the long-term view in terms of investments and returns. Just keep those customers first and foremost in our minds.

Peter Nesvold, Bear Stearns.

Western Europe, just a market-based question. Registrations were up 47% year-over-year in December. You just -- you sort of came out of nowhere. Is there anything specific that you are aware of, other than the economy, that might have driven that strength in December in Western Europe?

No, I wouldn't really look at that too hard.

I was just trying to figure out is there some sort of tax incentive or something that drove that. So you are not aware of anything.

No, no.

Maybe a question on capacity, just switching gears for a quick moment here. We're selling a lot of trucks and a lot of guys will say there's no prebuy happening right now. Are your customers adding any capacity and if so, do you have a sense for the size of the fleet of the type of carrier where capacity is potentially coming into the market?

Well certainly fleets are growing. You have got ton miles at all-time records you know since they started keeping track 50 years ago. So I mean there is a lot of freight movement. So after the shakeout six years ago, the companies that are operating are at record profits. They are earning record returns, as I am sure you are aware, particularly the publicly traded transport companies and they are continuing to grow either through acquisition or just internal organic growth. And that is certainly one of the drivers for the good markets.

I guess just one quick follow-up question. When will you make your '07 pricing publicly -- when do you announce '07 pricing for your trucks?

It won't be until really the fall.

Is that something you publicly announce or do you just go to your dealers and tell them one by one or put out a press release like Navistar?

I don't know if they are still around or not but I can't really comment on them but we just typically go to our dealers.

Got you. Thanks for the time.

Kevin Fogarty, Dewpoint Capital.

Just one follow-up on the share buyback, just to kind of follow-up on Gary's question. Just looking at the last 15, 20 years and it looks like you guys -- you haven't done a ton of buybacks but when you do, you tend to do it during the downturn. Should we expect your behavior going forward to be similar or is the buyback activity now at kind of very strong conditions is that kind of a change in behavior from what you did last year in '05?

I really can't comment on that. As I indicated, as you know, PACCAR is doing very, very well. It has for such a long time and we believe that the stock continues to be undervalued particularly in light of the incredible results that are produced by the employees. So we just take it -- we will take it as it comes along.

At this time, there are no further questions. Mr. Wold, would you like to have any closing remarks, sir?

No. This concludes PACCAR's fourth-quarter earnings call. Thank you for participating.

This concludes the PACCAR earnings conference call. Thank you for your participation. You may disconnect at this time.