帕卡 (PCAR) 2008 Q3 法說會逐字稿

Good morning and welcome to PACCAR's third quarter 2008 earnings conference call. All lines have been in a listen-only mode until the question-and-answer session. Today's call is being recorded and if anyone has been objection, they should disconnect at this time.

I would now like to introduce Mr. Robin Easton, PACCAR's Treasurer. Mr. Easton, please go ahead.

Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Robin Easton, Treasurer of PACCAR and joining me this morning are Mark Pigott, Chairman and Chief Executive Officer, Mike Tembreull, Vice Chairman, Ron Armstrong, Senior Vice President and Michael Barkley, Vice President and Controller. As with prior conference calls, if there are members of the media participating, we request that they 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 affect expected results. I would now like to introduce Mark Pigott.

Good morning. First of all, I would like to start off by saying I am very proud of PACCAR's 20,000 employees who have delivered excellent financial results. In fact, it is our tenth best quarter in company history. A number of PACCAR divisions are performing very well, specifically PACCAR parts, PacLease, PACCAR Financial Europe and our winch group and Doff. The recession in North America and Europe has impacted the truck markets, and we are responding accordingly. As in previous cycles, the company is rigorously aligning operating costs, expenses and capital budgets with current market conditions. When we compare the third quarter 2008 to the fourth quarter, we expect industry bill rate reductions of 20% to 30% in Europe, Mexico and Australia. This action, coupled with continued softness in the US and Canadian truck market and the effect of a strengthening US dollar will have an impact on fourth quarter financial results. I think that has been outlined quite clearly in the press release. PACCAR is in excellent position because of its dedicated employees, the most experienced management team in the industry, high quality products, world-class technology, modern factories and the ongoing benefit of capital investments in every facet of the business.

Looking at the third quarter, PACCAR's sales and service revenues were $4 billion. Net income was $299 million, which is comparable to a year ago and earnings per share at $0.82 per share is actually a penny better than a year ago. For the nine months, net sales and service revenues were $12.1 billion with net income of $905 million and earnings per share of $2.47. PACCAR's after tax return on sales was 7.5% for the quarter and its year-to-date after tax return on beginning equity is 24.1%. Diving a little bit deeper, gross margins are up. Operating margins are up and SG&A is down. All good indicators. PACCAR financial services revenues of $323 million increased in the third quarter compared to $313 million a year ago. Pre-tax income was $45.5 million in the third quarter compared to $73.4 million earned a year ago. Most of the lower profit is due to provisions for loan losses in the US and Canada.

Now as we know, loan losses normally increase at this point in the economic cycle, which our industry typically experiences every five years. Our finance team is proactively engaged with our dealers and customers to manage through the market. PACCAR financial opened a truck center in South Carolina and is making an excellent contribution to our used truck distribution program. PACCAR's strong balance sheet and conservative approach to business has enabled it to navigate the financial turbulence caused by the global credit crisis. PACCAR's AA-minus credit rating promotes good access to the capital markets. Like other highly rated US companies, PACCAR plans to utilize the Feds' commercial paper funding facility to compliment our current commercial paper programs. In addition, PACCAR is utilizing a portion of its excess manufacturing cash to supplement short-term financial services funding requirements in our foreign markets.

Moving to operations, the reduction in many commodity prices, with the exception of steel, should be a benefit to PACCAR and other manufacturers in 2009. However, commodity prices still need to decline another 20% to 40% to equal the cost levels of 2006. There is other good news. The dollar per gallon decline and the price of diesel fuel since July is benefiting our customers as fuel is about 25% of their operating cost. Freight is up in each of the last ten months year-on-year in North America. In fact, a number of our customers are reporting increased earnings in the third quarter. And finally, there may be some small impact from a prebuy due to 2010 engine emission regulations. When you wrap all that up, we estimate that truck orders in the US and Canada could be up next year at 170 to 210,000 units. If achieved, this would be the best year for orders since 2006. I think what we all need to recognize is for the trucking industry, we've been in a down market since really, the middle of 2007. Trucks do wear out, and with strong freight and about 4% less trucks operating in the US and Canada, our good customers are making money with good freight and are looking to purchase next year for the first time in about three years.

Moving on to our capital, we continue to actively review our capital budgets to determine which have the best short, medium and long-term benefits. We are maintaining capital investments on important projects that will deliver increased profitability and superior customer benefits such as the construction of our new engine facility in Columbus, Mississippi. And by the way, for the first time, I'd just like to report that field trials of the PACCAR engine in Kenworth and Peterbuilt fleets are achieving excellent results. Looking at other investments, Kenworth and Peterbuilt have recently completed investments in their robotic paint booths to improve quality and productivity and our technical center is increasing its testing capability by 30% which will accelerate new product development. Once again, benefiting our customers. Over the last decade, PACCAR has invested $2.6 billion, and those investments are delivering excellent financial results. As an example, Kenworth Peterbuilt and Doff now build a truck in half the hours it took to build a truck ten years ago, and the quality is 500% better. As someone mentioned to me, what was the quality like ten years ago? It was excellent. Now it's incredibly excellent. We are proud to be the highest quality, most efficient manufacturer. Our truck divisions have earned 26 JD Power Customer Satisfaction Awards compared to only nine for the next competitor. That is a bottom line advantage to our customers.

In summary, our investments have delivered new products, strengthened our dealer network and made us an industry leader in information technology. Taking a little longer historical perspective, PACCAR's outstanding growth after the last recession of 2001 and 2002 is an excellent indicator of the benefits of our quality product focus and continuous improvement philosophy. PACCAR is working hard to deliver outstanding results in all phases of the market cycle. Thank you. I look forward to your questions.

(OPERATOR INSTRUCTIONS) Your first question will come from the line of JB Groh with DA Davidson.

Good morning Mark. Can you hear me?

You bet, good morning.

How are you doing?

Fine.

Hey, just a question on your outlook US, Canada and Europe. Could you maybe discuss the swing factors that put you toward, in your opinion, the top end or the bottom end of those ranges? I'm assuming the factors are different for Europe than they would be for US and Canada?

Sure, you bet. US and Canada and of course, you've been following the industry and the company for a while. I think one point I just make is, and I mentioned it briefly in the comments, is that for the US and Canada we've been in the down part of this cycle for coming up about a year and a half and every five years, we go through some sort of cyclical adjustment. That is why we pointed out some of the reasons that there could be an improvement next year. Obviously, the macro economy is probably six to 12 months behind the leading indicator of truck production and freight. That's going to have an impact, perhaps on a negative viewpoint. On the positive, a lot of our customers have not purchased for two to three years. They are still doing 200, 250,000 miles a year. They are getting these vehicles up to 6 to 800,000 miles, and frankly, that is typically the time when they turn it in to continue to maximize their, let's call it -- or minimize their operating cost. That would be really the range is how many of the customers will be trading in and purchasing new vehicles.

In Europe, which is probably six to 12 months behind the US in terms of the truck economic cycle, I guess I keep emphasizing that because it's a little bit different than just the general economic cycle, you have the positive impact of central Europe, which has certainly cooled down, but still estimated to have GDP growth of 2% to 4% next year. If you compare that to western Europe of, let's say 0% to 1%, but with about 60,000 to 70,000 in central Europe, which we did not have even six, seven years ago, that's going to be a certain buoyant effect. So western Europe will slow down. Because of the 0% to 1% GDP growth, some of that will be offset with the newly invigorated central European market. So that's how you get your range.

Okay. And then, it looked like, obviously, the provision for loss in the financial subsidiary popped up a little bit there understandably. If you look at past cycles, I haven't looked back, but where does that peak out at? Is 10% dire circumstances, or can it get worse from here? Where do you see that going?

Let me start it off and then turn it's over to Ron Armstrong. But our losses in terms of dollars are really comparable to 2001, 2002. Of course, the good news is that our asset base, the portfolio, is at least twice as big. So on a dollars, it's comparable to the last recession, but on a much larger asset base. Ron?

I'd say our loss ratio in the last downturn was close to 180 basis points. We don't expect anywhere near that, roughly half that based on the size of our portfolio. So the portfolio is performing well. As Mark mentioned, we are proactively engaged with our dealers and customers, helping them work through whatever challenges they might encounter. We expect the portfolio to perform well as we go forward.

Okay, thanks for your time.

You bet. Thank you.

Bye-bye.

Your next question will come from the line of Joel Tiss with Buckingham Research.

Good morning, how's it going?

Good morning Joel. Good to have you back.

Thanks. I wasn't gone long. Only three weeks. I've been looking through the dictionary trying to find what incredibly excellent means, but I am still having trouble with that. You'll have to explain that to me --

Come out, we'll give you a tour of the truck factory. We'll show you up close and personal.

Okay. Can you talk a little bit about your European forecast? Is that industry or for you specifically? Because it seems a little bit more negative than what we are hearing from some of the other MAN and Volvo and some of the other guys.

Well, I'd say it's an interpretation of the industry forecast. It's a little harder to get a true industry forecast in Europe, because you have got so many countries that are trying to compile their own home truck manufacturers, not quite as easy as we do it here with the American Trucking Association. So I think it's in the range of what our competitors are saying. Everybody is being affected by the same macroeconomic slowdown, and we try to be conservative, which is the way we run the company. So if it's better, well, that's a good thing. Of course, one thing just touched on is that Doff has done a great job of continuously growing market share. A few -- two- to five-tenths a year, and we'll be looking to continue to do that next year, even with a slower market.

And then, just quick follow up. I know that historically you've tried to help your customers transition into higher prices as new emission standards come out. Can you just talk a little bit about what kind of discussions you are having with the customers and the dealers, and if there's a chance to get a little bit of pricing in 2009, or is it just going to be difficult?

Well, I think it's a great question. It's certainly one that everyone in the industry is working very hard on. It's still a little bit early. Here we are October 2008, and the emissions will go in January 1, 2010. But we are talking with some of our leading major customers about it, and I think the realization has sort of dawned on most of the customers that every three, four years we are going through an emission change, which typically means higher cost and higher price because of the add on equipment to meet the emission regulations. There's always a little bit of a fear of what will that do to fuel economy and just operating efficiency, and what we found literally over the last 10 to 15 years, and I think we've had four emissions changes over the last 15 years, is that the fuel economy usually is about the same. The dire forecast never come true. Yes, there are increased costs which ultimately get passed to to the end customer, but I think people have wised up after 2002, 2004, that there will be some prebuy and yes, there will be some higher prices, but it's a little disruptive to the customer, because if they buy 30% more than they typically buy, then they need to get the drivers, they need to get the service contracts, they need to get additional business. And so, it's more of a challenge for them. So I think we'll see perhaps some prebuy, but it will be more on the smaller scale.

Okay. Thank you very much.

You bet. Thank you.

Your next question will come from the line of Ann Duignan with JP Morgan.

Good morning, Ann.

Hi, good morning, everybody. Can we step back and look at Europe again, and can you give us your best thoughts on decremental profits, just given how quickly that market slowed over the last quarter and is slowing as we go forward, coupled with the fact that in Europe, we don't tend to see too much cyclicality, plus or minus 5% is the way we usually forecast, but it certainly looks like this downturn could be worse for Europe. Could you just talk about how you would expect decremental profits to roll out over the next several quarters?

I'm not sure if I can talk about the profits, we can talk about the market. Of course you know, with such an experienced team, we've been around for 30 years, so we've seen the ups and downs of these markets. And if you look at western Europe, let's call it in the 260, 280 range this year, that is '08, and central, eastern Europe, 60 to 80, what is different, and I mentioned this earlier, is that even in the year 2000, central, eastern Europe really wasn't much of a factor. So you have got that as a positive. Western Europe is certainly running into the same economic issues that the rest of the world is now, certainly in North America, Australia. So we see that there would be more of a slowdown in western Europe than central Europe, just in terms of truck demand. But the quantity, you are talking about a market that is four, almost five times larger in western Europe than central Europe. So it's still going to be a good market. I think if you go back, it might be in a market size in western Europe that you are seeing sort of 2003, five years ago, which I was there in 2003, it was a good market. And you put the advantage or the benefit of the central European and it's still a good market. Just -- it's not a record market like we're experiencing this year. Been around a long time. It's hard to have a record year every year.

But should we also expect though with volume slowing somewhat,that you would deliver somewhat normal decremental profits of somewhere between 20% to 30% just on lower volume in western Europe? Or is there something fundamentally different?

Yes, probably. Yes, yes. I think most of our competitors would probably agree with that.

And then you expect --

-- that's for Europe. That's just Europe. Europe is only a portion of our overall business, as you know.

Right. But you also have the flexibility of taking costs out faster than maybe some of your competitors.

That is a very good point which really has not been brought up in that I think PACCAR for 100 years has been a real leader on being able to take cost out throughout the company, and of course the Kenworth and Peterbuilt teams have done that over the last year and a half and the Doff teams, we are all working together and learned from that.

Okay. My follow-up question is on the financial services side. Are you seeing any increase in loan losses or delinquencies in Europe yet? We just were on the Caterpillar call and they mentioned that they are beginning to see delinquencies rise a little in Europe. Are you guys seeing any of that yet? And would you expect to see going forward, just again, given how quickly and how aggressively the market has hung up?

We have seen a rise -- a little bit, but the portfolio past dues and losses are still at historically low averages and performing well.

Would you expect Europe -- delinquencies to go up from here?

It's tough to tell how things will progress. Our team is proactively engaged with our dealers and customers and working through it. So we've seen a little bit of uptick so far, but the guys will manage that very prudently.

Okay. Thank you.

Thank you very much.

Your next question will come from the line of Jamie Cook with Credit Suisse.

Good morning, Jamie.

Hi, good morning. My first question. Can you guys just talk about the order book in Europe? I think on the last conference call you mentioned it was out -- overseas, it was out a year and I'm just wondering whether you saw any cancellations in that market? And I have a follow-up question after that.

Yes. Looking at Europe, the order book has declined, and --

Do you care to comment about how much?

I think it's down to probably more historical normal levels.

Which would be -- ?

I'd say it's probably down -- we said it was out a year. I think we look at sort of backlog in total probably about half a year, but that has different frequency. So I think we are looking four to eight weeks of billed, which is typically what we look for around the world, and then some people have orders slotted in the first and second quarter.

Okay. And then, I guess my second question, because you did answer Ann's question on decrementals, which -- thank you, for Europe. On the flip side of that, when we are thinking about North America, because you are less vertically integrated there, should we think about the incremental uptick being more in the teens range? And then a follow. I am surprised on your US retail sales forecast, how aggressive or positive it is. I guess, when do you anticipate us starting to see the orders improve, at what point in '09?

Well, if we were at 150-ish this year to even get to 170, we won't take too much in terms of some of these good customers that will need to replenish their stock as their vehicles are achieving good mileage. So it would probably be the second half of the year.

And then do you care to answer the question on incrementals in North America, because the concern is western Europe being down will have more hit to your earnings just because you're more vertically integrated there. Or is the gap between North America and Europe narrowed because of any internal things that PACCAR is doing? Anyway that you can provide color would be appreciated.

Yes. I think there will be some impact from the lower billed rates in Europe which will be more than any offsetting improvement in North America.

Is the teens -- is that a fair way to think about increments?

Let me get back to you on that one and make sure that we give you a right answer. I'm not sure that we can say that right now.

All right. I appreciate it. Thank you.

Thank you.

Your next question will come from the line of Andy Casey with Wachovia Securities.

Good morning, Andy. Good morning Mark, everybody. In North America, you mentioned the fields test for the new engines, for the 2010 engines. Can you comment on incremental fuel economy benefits versus your currently installed 13-liter? Well, Andy, I think it's probably a little too early to issue that specific information. I would just say we have got about 30 million miles of engine operation, and they are performing very well, and it's still over a year away before we'll get our factory up and running. It's going well. I just want to give you a little bit of color, because we haven't mentioned it before.

Okay. Thanks for that. On the two different technologies that are still being pursued, your side kind of family SER --

I think that is the whole industry, is SER now.

With the exception of one.

Well, I can't comment on that, except let's call it the vast majority are SER, around the world.

Okay. I'm just wondering if you would care to give your view on the differences and your competitors.

We are 100% SER so is pretty much everybody in Europe and pretty much everybody here with maybe one exception. SER is -- if it was a presidential vote, we would call it a landslide.

(laughter) Okay. Thank you. On both the North American and Europe markets, it's a little bit different than the question that Joel asked. Are you seeing any short-term change in new equipment pricing dynamics against the weakening market demand conditions?

I think it's pretty normal in the cycles. That's as you know, are every three, four, five years that it's been going on for the last hundred years and typically when the market slows down, manufacturers like to keep their production facilities operating at an optimum level, and customers are a very smart group. That's why we like working with them, and they'll try to take advantage of the changing market dynamics. So it swings around about. So, yes. I think you can say that everybody and every down cycle will typically see some impact on the margin side and then in the up cycle you see the flip side.

Okay. Is there -- on a qualitative basis, is there any difference between North America and Europe? Is it more pervasive in North America at this point than Europe?

It's like when I talk with our 1,800 dealers around the world, everyone is unique and we love everyone, but they are very similar around the world, and I would say that the truck markets follow the same dynamics, whether it's Asia, North America, Europe, in terms of the customer, dealer, manufacturer relationships. They are all the same.

Okay. And then on Europe specifically, you are seeing some consolidation of competitors. The last time that happened, it seemed beneficial for your market share and dealer density increase. How are you looking at the longer term potential for PACCAR with the marriage of the two Germans and the one Scania?

Outstanding. Great news. Two elements we talked about. One is the -- in Europe with the German consolidation, we are already having many dealers contact us about, can they represent our product. Typically, our dealers make more margin and have higher profitability. So that's positive. And something that wasn't brought up, and we can mention it briefly is of course, the announcement that Sterling is exiting the market. The phones have been ringing off the hook with their dealers saying, like to work with a company that allows a dealer to make a good margin, and we'll see how that plays out. So, lots of opportunities as a result of that.

Okay. Thanks a lot.

Thank you.

Your next question comes from the line of Henry Kirn with UBS.

Hi guys.

Good morning, Henry.

I was wondering if you can talk a little bit about the funding strategy for financial services and how you match maturities of the liabilities with the asset profile and maybe a little bit -- how much duration risk is there if the credit markets were to shut down to you for some period of time?

Okay. Well, we are very fortunate that we have a very strong balance sheet. We have an excellent AA-minus credit rating that allows PACCAR to continue to support the sale of new and used PACCAR products. We have followed our approach of funding our portfolio with a mix of medium term notes and commercial paper. We've issued medium term notes in the US and Europe in the second quarter, Mexico in the third quarter, and we just completed some medium term funding in Australia earlier this month. Commercial papers -- commercial paper markets continues to provide good liquidity, mostly in the US and around the world, and so we are 100% matched funded. We match the interest rate characteristics of our debt with the interest rate characteristics of our portfolio to not expose us to interest rate risk in our P&L.

Okay.

We've been doing it for 30 years, I guess, and it's definitely a unique market as you've heard from about every other company, but we have a great team and in good position.

Okay. And the residual value guarantee liability that you reported in the 10-Qs, is it possible to give the number as of the end of the third quarter and then maybe a little color around how we should look at that in this market of potential challenges in the used market?

We'll be having our third quarter 10-Q out in the next week or two, just normal filing, and I think probably it would be a little bit premature to sort of say what's in the 10-Q.

Okay. Is there a way to discuss how we should think about that liability if used prices are starting to decline because of the challenging market?

I think -- you are talking about used truck prices?

Right.

Yes. Well, I'll make a comment and then Ron might have something else to add, but for US and Canada, used truck prices seem to be stabilizing, which is good. Obviously, they are down from say a year ago, but as we say, we've been in the down cycle since the middle of '07, so they are stabilizing, and we have an active program selling used vehicles as they come off lease or repossessed. That seems to be generating some very good results, and our residual value versus what we are selling in the marketplace seem to be matching up very, very well. Ron, do you have any other --

I just would add that we do follow a conservative approach to setting our residual values, and that has served us very well, and we don't see any particular issues as we go forward.

How conservative is it as you set the residual values? Is there a way to give a metric on that?

Probably not, although we do have monthly used truck sales. We would love to have you come by. I think it's -- we have a very experienced team, and the good news is the used truck values for the Kenworth, Peterbuilt and Doff products continue to command a 15% to 25% premium over the competitors, which is, of course, a very important part of our low cost of operation strategy.

Okay. Thanks a lot.

Good. Thank you.

Your next question will come from the line of Peter Jacobs with Ragan MacKenzie.

Morning, Peter.

Gentlemen. First question either for Mark or Ron. Can you give us the loan loss ratio, the loan ratio, the loan losses that were incurred in percentage of asset this quarter on an annualized basis and how to compare that with the provision that you are taking relative to the assets?

Well, I would say that the provision for losses is primarily driven by our actual credit losses. We have the reserve percentages roughly up just a bit from where it has been. Our loss ratio year-to-date is roughly just over 1%, and as I mentioned before, the loss ratio in the last cycle in 2001 was 1.8%, and we don't see that getting close to those levels.

Okay. And then, your reserves as a percentage of assets then, that would be comparable with that 1% level then right now?

No, no, no. As a percentage of assets we are over 2%.

Reserved?

Yes.

Okay.

And we keep that -- that's been that way for decades.

Okay, great. And two other questions. Mark, I don't think you talked about this, and if you did, I apologize, but outlook for R&D spending in 2009. Can you give any color around that? Has there been any changes since you wrote the letter to shareholders back in, I guess it was March or April?

Let me have Michael talk about that.

This is Michael Barkley. The R&D spending is going to continue at higher levels than maybe what you saw three or four or five years ago, but it's going to be a level, I would say with what we are seeing in 2008.

So if I basically continue through on the rate that you've been spending on R&D, that gets me to about $350 million in 2008, and you think that it could be about that level then in 2009?

It would be probably somewhat about that level, maybe a little lower.

And then is it fair to think that R&D then could come down in 2010? I am trying to think about how you would be spending money with some of the new facilities and the engine plant coming on. Can you help me out on how you are thinking about that and how we should be thinking about that?

I think that is a fair observation. Some major development programs will be coming to a conclusion including engine development and others that will probably result in some tail off to that number.

And then a similar question then on capital spending. How should we be thinking about that? Is there any changes there that have -- that has come about based on -- with the current economic outlook?

Well, as Mark mentioned, we are continuing to invest in our factory and other key programs, but we've completed a lot of very important projects, and those projects will benefit the company going forward, but they are done, and so spending again for those things should tail off.

In 2000 -- so we should start to see that tail off in 2009 then?

Yes.

Okay, terrific. Thank you very much, and that's all I have.

Good questions. Thank you.

Your next question will comes from the line of Kristine Kubacki with Avondale Partners.

Good morning, Kristine.

Good morning, gentlemen. Just a couple of quick questions as most of my questions have been answered. But on on the higher repossessions, you also mentioned this in the second quarter, I was wondering how that has trended in terms of North America. Did you see it really accelerate in September, or did things drop off later in the quarter?

I think repossessions, I think are actually slowing down. Does that answer your question?

Did it come down from the second quarter rates?

No.

Okay.

But --

Okay. And then just a housekeeping question. Looking at the cash flow, I see that wholesale credit receivables took a big swing in the quarter, kind of $400 million plus. Can you provide some color there, and does this concern you in any way on looking forward on credit losses?

No. The increase -- that's a year-to-date increase since the end of last year. So there's really three elements to that. One, we have had increase build rates during the course of the year in Europe, Mexico and Australia, and as you know, at year end the factories are shut down for the December holiday period, and so that provides a lower level of wholesale flooring at the end of the year, and that's been -- then the third thing is there has been some delays in customers taking trucks, but our dealers are working closely with our customers, and we'll see some reductions as we go forward.

Okay. And just a follow-up and making sure I understand. Did you mention that you -- you talked a little bit about western Europe, you are seeing that down. But as for central Europe, is your forecast for it to increase next year or be slightly down?

I think central Europe will probably slow down also, and there's been a lot of infrastructure building. Some of that is still ongoing. I'm sure you see the press about the different countries in certain Europe and some are in better position than others, but they are still trying to catch up highways, factories, center of town, distribution centers, there's a lot being built there. We just opened up a new facility outside of Budapest, and it's going well and it serves Slovenia and Slovakia and Poland and others. So, I think that will slow down. They are having their own credit issues at the national country level, but I think they are committed to continue to grow, which is driving freight. And a lot of the -- not a lot, but some of the freight companies in western Europe have moved to central Europe, whether it's for better access to more drivers or lower cost to doing business. So that's also stimulating a demand for trucks. But I think it probably -- no part of the world is immune to the slower economy. I think you'll see some slowdown, but still, compared to eight years ago, there was no market there.

Okay. Well, thank you very much.

(OPERATOR INSTRUCTIONS) Your next question is a follow-up question from the line of Ann Duignan with JP Morgan.

Hello again Ann.

Hi guys. I wonder if you can give us a little bit more color on the comment you made about using manufacturing cash for commercial paper for the financial services business. How should we think about that and how should we think about capital allocation going forward? Does it change any of your capital allocation decisions?

No. I think it's a temporary situation that we exercise from time to time. We had roughly $150 million of manufacturing cash that we utilized at September 30, and we don't see any significant change as we go forward in how we fund our finance company.

So you see that as more of a temporary --

Yes.

-- item, not a long term. Okay, that was just what I needed to know.

Good question. Thank you.

Thank you.

And there are no other questions in queue at this time. Are there any additional remarks from the company?

I would like to thank everyone for the excellent questions and thank you, operator.

Thank you. Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect.