PACCAR Inc (PCAR) Q2 2009 Earnings Report, Transcript and Summary

Joel Tiss – Buckingham Research JB Groh – D.A. Davidson & Co. Henry Kirn – UBS Stephen Volkmann – Jefferies & Co. Jamie Cook – Credit Suisse Adam Uhlman – Cleveland Research Company Meredith Taylor – Barclays Capital Kristine Kubacki – Avondale Partners, LLC Jerry Revich – Goldman Sachs Ann Duignan – JP Morgan Andrew Obin – Bank of America Merrill Lynch Andrew Casey – Wells Fargo Securities David Leiker – Robert W. Baird & Company Patrick Nolan – Deutsche Bank Basili Alukos – Morningstar David Raso – ISI Group Mike Roarke – McAdams Wright Ragen

Welcome to PACCAR’s second quarter 2009 earnings conference call. All lines will be in a listen only mode until the question and answer session. Today’s call is being recorded and if anyone has an objection they should disconnect at this time. I would now like to introduce Mr. Robin Easton PACCAR’s Treasurer.

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; Ron Armstrong, Senior Vice President and Michael Barkley, Vice President and Controller. As with prior conference calls if there are member 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.

I’m pleased to report PACCAR’s results for the second quarter 2009, revenues of $1.85 billion and net income of $26 million reflect the very challenging recession affecting all industries worldwide. As we exam the economic landscape for the third and fourth quarters it appears to be equally as challenging as the first half of the year. PACCAR’s third quarter truck build and financial results are expected to be comparable to the second quarter excluding the onetime pre-tax gain of $47.7 million from our healthcare plan revision. Looking ahead to 2010, our preliminary estimates for Class 8 truck retail sales for the US and Canadian market is 110,000 to 140,000 units which would be a slight improvement to this year primarily driven by the requirement to replace the aging vehicle fleet. In Europe, our initial estimate for 2010 truck registrations above 15 tons is 150,000 to 180,000 units comparable to 1992. The European market is projected to be lower next year due to the continued economic uncertainty and the relatively young average vehicle fleet age in Europe. The good news is that PACCAR continues to be one of the leaders in the industrial and automotive segment. Obviously, profits are not where we would like them to be but net income is positive and we achieved excellent operating cash flow supported by the strength of our balance sheet. Our liquidity continues to be in excellent shape with a healthy cash position and $3 billion of syndicated bank lines. The commercial vehicle markets around the world in terms of industry orders are low. PACCAR has proactively addressed the cyclical nature of the business by continuing to reduce spending including trimming combined spending on R&D and capital by 60% year-to-date compared to last year as well as lowering our dividend. In the US and Canada used truck pricing for Kenworth and Peterbilt trucks is stabilizing. PACCAR Financial pretax income was $15.6 million compared to $58.7 million a year ago. A smaller portfolio, higher borrowing costs and credit losses impacted the profit results. In Europe, which is about a year behind in the US and Canada in terms of the economic cycle, PACCAR Financial is experiencing increased credit losses particularly in the southern European countries due to the dramatic slowdown in their housing markets. As a result, the global provision for credit losses increased from $25 million in the first quarter to $29.1 million in the second quarter. On a positive note, 30 day past due figures improved from 4.9% at the end of the first quarter to 4.7% at the end of quarter two. As we all know, new products are the life blood of all companies and PACCAR continues to invest in our vehicles and services. We’re updating our product ranges in different markets including the medium duty markets in the US and Canada. The decision by General Motors and Sterling to exit the medium duty market has provided some opportunities, the result being Kenworth and Peterbilt has increased retail market share to 14% in the medium duty market. More good news, our Kenworth, Peterbilt and DAF dealers are achieving good absorption for their parts and service business and many are in excellent shapes in terms of low new vehicle inventory and increased used truck sales. In fact, as I shared with you after the first quarter the DAF dealer new truck inventory continues to improve declining another 15% in the last three months. By September, just a short two months from now, the US and Canadian transport market will be in its third year of recession. It’s a challenging time for the industry. PACCAR is in excellent shape due to its dedicate 16,000 employees and a very experienced management team. We have an excellent balance sheet, market leading products and services and quality leadership throughout our operations. Our balanced approach in all phases of the business cycle position us to generate great results when the economy improves. I’m very proud of our employee’s exceptional performance and thank them for their support as we continue to work through this difficult recession. We are making positive progress on our industry leading productivity, efficiency and quality which are the defining characteristics of PACCAR and the products and services that we deliver to our customers. Thank you and I look forward to your questions.

(Operator Instructions) Your first question comes from Joel Tiss – Buckingham Research. Joel Tiss – Buckingham Research: Just a quick one, it sounds like you’re under producing the retail demand in the near term to clean out the inventories so is it fair for us to think that in 2010 your profitability could snap back a little further than what you’re expecting the industry unit volume to improve?

Great question; Joel you’ve been covering us for a long time and we produce to what our customers demand. We’ve indicated that we’re thinking there might be a slight improvement in the North American market because we’re three years in to this recession now and certainly the age of the fleet is getting older so we’re looking to have some improvement in North America. Europe on the other hand continues to lag North America just because they went in to the recession later. As you picked up quite pointedly, the dealers are in good shape so they need to start ordering stock units at the appropriate times so that could be a benefit so that is how it will all play out.

Your next question comes from JB Groh – D.A. Davidson & Co. JB Groh – D.A. Davidson & Co.: You’ve been pretty proactive in terms of cutting costs and that sort of thing, if this continues as it looks like it will, what do you see in terms of other things that you can do and how would you characterize sort of in a baseball analogy where you are in terms of the ability to cut costs?

Are you talking about the homerun derby or all star game? JB Groh – D.A. Davidson & Co.: I’m just talking about which inning do you think you’re in, in terms of the menu of things that you could do, how much more do you think there is out there that you could do?

I think PACCAR is always proactive on reducing costs. We continue to review and have reviewed ongoing, I mean we do it every day, every year. I think if you’re alluding to the healthcare plan revision, that doesn’t happen very often so I think it’s just day-to-day. We’ve got great employees, we’re always looking to be more efficient but I don’t think there’s any big home run cost reductions if that’s what you’re driving at. I think it’s just steady day-to-day review of all of our operations on how we can continue to do it a little better.

Your next question comes from Henry Kirn – UBS. Henry Kirn – UBS: I was wondering if you could chat a little bit about pricing in the market from a competitive standpoint and how much used pricing is impacting your ability to get pricing in both North America and Europe?

Okay, there’s sort of four different segments, we’ve got North America, Europe sort of new pricing and used pricing. In North America as I’ve indicated we’re coming in to the third year of this recession. I think pricing for new vehicles is stabilizing obviously at much lower levels than it was a few years ago. Used truck pricing is stabilizing also in North America and for several of our models might actually increase a little bit. Of course, the good news for us is that we continue to deliver premium quality and get a premium price on new and used around the world so that’s certainly a benefit to us. In Europe used pricing is probably continuing to slightly trend down and new truck pricing is I’d say probably sort of flattish right now.

Your next question comes from Stephen Volkmann – Jefferies & Co. Stephen Volkmann – Jefferies & Co.: I just wanted to sort of go a little further with Joel’s question, some of your competitors I guess in Europe have talked about inventory reduction kind of nearing the end and potentially being able to increase production a little bit in the third quarter over the second. Is that something that you guys could be doing as well either in North America or Europe?

We respond to what our customers and our dealers order. We’re build to order, always have been. A number of our competitors own most of their dealer networks so I’m not sure how they manage their inventory, it’s a little longer pipeline but they own the whole pipeline so I’m not sure how that actually works for them. If we’re getting more orders in we’ll be building more but I think to project that the third quarter will be better than the second quarter, I certainly haven’t seen any of our competitors talk about that, I’ve seen the reverse. As far as the European market DAF PACCAR is in the best shape in terms of profitability and going forward quality products.

Your next question comes from Jamie Cook – Credit Suisse. Jamie Cook – Credit Suisse: I guess my first question one, obviously it’s doom and gloom right now but when things sort of turn we tend to underestimate the earnings leverage of a company so can you sort of help me think about how we think about, especially given a lot of the cost reductions you guys had, you’re a much leaner organization. You tend to improve peak-to-peak margins each cycle, talk about that and how you sort of think about incremental margins coming out of this. Then Mark, just my last question about the dividend cut that you announced this quarter, with $2 billion or so in cash can you talk to me about your rational behind it and does this just speak to the length of the recession or is it more of a function of you wanted to maintain your credit rating? Just how you thought about that?

Let’s address the dividend, obviously we’re very proud of the strong dividend growth that PACCAR’s had over the decades and even with the reduction in dividend we’ve had a 200% increase over the last 10 years which I think the shareholders appreciate and we’re very proud of. Reducing the dividend for any company is a difficult decision but I think we made a very prudent business decision obviously reflecting our profits which you have in front of you and we know what the dividend costs so I think it’s just a prudent business decision. As the markets improve, as our profitability improves we certainly will be talking with the board about increasing the dividend as it makes business sense. So, I think your analyst that it reflects a longer recession is very accurate. I think that’s really the main one. On margins, I think margins for the second half of the year will be comparable to what we’re seeing in the first half. The recession is still ongoing, I mean obviously newspaper pundits and the economists and politicians have an agenda but those of us in the business world have been around a long time, you can’t find very many industries that are saying, “Geeze, this recession is ending.” It’s still ongoing, there are some bright spots but it’s going to be challenging certainly through the end of this year.

Your next question comes from Adam Uhlman – Cleveland Research Company. Adam Uhlman – Cleveland Research Company: Just a clarification on the new truck pricing trends in North American and Europe, what would be the percent change from last year that you’re experiencing right now? Then secondly, could you talk about inventories picked up a bit since the first quarter although sales are down a bit, what is unfolding there?

Let’s talk about the inventory first. The inventories picked up a bit primarily due to the translation effects of the US dollar weakened a fair amount during the quarter.

And on the margin it’s probably a couple of percent down across all the industry versus all of our competitors but once again we generally realize a premium in all market cycles and we’re continuing to recognize a premium in this market cycle.

Your next question comes from the line of Meredith Taylor – Barclays Capital. Meredith Taylor – Barclays Capital: I’m hoping you can give us a little more color on the delinquency rate in the quarter. I know you said it went from 4.9% to 4.7%. Can we get a little color on a geography by geography basis? I’m particularly interested in Europe. Then, could you talk about the experience of these delinquencies seasoning to losses, how the loss rates may be trending on a quarter-over-quarter basis? Then, any color you have on repossession rates?

First, on the past dues, as we look at it on the geography, it’s really comparable in all the geographies if you look at Europe, North America and our other markets that the past due rates at the end of the first quarter were comparable across the board in all the markets. From a credit loss standpoint the trend has been relatively stable unfortunately at a higher rate than we’d like but we see that that pace of credit loss as being comparable in the third quarter as we progress. Then on repossessions, repossessions obviously drive our level of credit losses so again we expect repossessions to be at a level comparable to what we’ve seen the last couple of quarters.

Your next question comes from Kristine Kubacki – Avondale Partners, LLC. Kristine Kubacki – Avondale Partners, LLC: I was just wondering, I’m trying to reconcile some comments that you made in mid June that you highlighted some of the larger fleet buying some trucks later this year. Given your outlook that things are kind of flat through the second half of this year, I was wondering, has anything changed with those orders? Are we seeing cancellations pick up or are those orders being pushed off in to 2010? Then, I was also wondering if you could talk about the trend in parts and services in North America.

In terms of the comments we made in June, I think what we actually said is if we kind of look at that press release is that many, actually everybody in the industry who has been in the recession for three plus years has essentially worked through any excess vehicles that they had. The national fleets are recognizing that their maintenance costs are going up but they have to reconcile that with the amount of freight that they’re getting so it comes to a inflection point at some time, I don’t think we’re there yet, that these companies will say, “Geeze I need to replace these vehicles but I need to have a little firmer line of site in terms of the amount of freight that I’m going to be able to carry.” So, I said that’s the encouraging news. I don’t think major fleets are actually replacing a lot of orders. In terms of parts and service, I think we’re seeing that probably slightly dampened in line with the recession but our dealers are doing a very good job out there working with our customers trying to maintain the vehicles and we have a lot of exciting programs under way. But, it’s probably slightly dampened reflective of the recession.

Your next question comes from Jerry Revich – Goldman Sachs. Jerry Revich – Goldman Sachs: Do you expect pricing discipline to improve in Europe as your competitors get closer to clearing out their inventories? And, Mark I’m wondering can you give us an update on how you are thinking about potential acquisition opportunities? Obviously, you want to be defensive with your cash but presumably there’s some opportunities out there that are probably worth looking at?

Pricing discipline, that we could take several days to talk about that. PACCAR is probably the pricing discipline leader and has been for decades. I think in our industry as I’m sure many other industries there’s always a number of competitors who are looking to sell at any price because that’s maybe what their vehicles are worth. So, I don’t really see that changing, I think companies have a pricing approach that they think works for them. Our pricing approach is that we deliver the best and we charge for it accordingly so I don’t see any change in that good times, not so good times. In terms of M&A opportunities, absolutely, PACCAR is in a strong position. We continue to review what’s out there but as I’ve indicated for a long time, it doesn’t have to be just confined to the commercial vehicle space. We’re leaders in logistics, we’ve got great engineering, we understand retailing, obviously manufacturing, we’re in 100 countries so that opens up many other sectors that might make some sense. But, nothing on the horizon at this time.

Your next question comes from Ann Duignan – JP Morgan. Ann Duignan – JP Morgan: Two quick questions, one a clarification, I just want to make sure that I’m interpreting what you said in your opening comments Mark and that is that you expect to generate an operating loss in each of the two quarters in the back half of the year. A point of clarification, what tax rate should we apply, I know you don’t give us earnings guidance but given the volatility in your tax rate, what tax rate should we apply? Then, since we’re going to get cutoff if I don’t ask my second question, completely different could you give us an update on your 2010 9.2 liters and 12.9 liter engines and how those programs are evolving and where are you with shipping those engines over from DAF? Just a little bit more color on what we should anticipate going in to 2010.

Operating loss, I didn’t say that, I didn’t say that we were going to have an operating loss, I just said things are going to continue to be challenging. We get up every day here and say, “Hey, how can we do the best for our shareholders?” And, that’s what we’re working on. I don’t want you to jump to any conclusions, we’ll see what happens in the third and fourth quarter.

The tax rate in the second quarter was obviously at lower pretax earnings levels, the impact of permanent items such as R&D credits become more significant and so the tax rate, like many other industrial companies, is at a pretty low level. Going forward we expect a more normalized rate of around 25% but that will be volatile depending on results.

Then finally on the engine, we’re having good success as we continue to test and evaluate the PACCAR engine throughout the US and Canada and many of our good customers are finding that the engines are performing very, very well. So, I think we’re right on target and right on line to having those be introduced next year. We will also be offering the Cummins product line and we’re proud to be Cummins’ largest customer in the world and it’s a great partnership and has been since the early 30s, so that’s 70 plus years so I think everything is in line. Ann Duignan – JP Morgan: Will you be offering Cummins’ engines other than the 15 liter next year?

Absolutely, you bet. We pretty much offer the full Cummins product line around the world. It works very well.

Your next question comes from Andrew Obin – Bank of America Merrill Lynch. Andrew Obin – Bank of America Merrill Lynch: Just a question on cost structure, the balance sheet gives you the ability to invest when almost no one else can in the industry but at the same time the ability to invest in the downturn sort of brings the choice not to cut the costs to sort of preserve the company for the next upturn. So, in that respect as I think about margins in this environment, can I assume that you’re ability to cut costs from now on is somewhat limited by your desire to sort of get ready for the next upturn.

I think it’s a great question, I think obviously it’s a balance as anybody running a company looks at it every day. We do have a very strong balance sheet as you pointed out and that our cost structure is in excellent position. We want to continue to enhance our margins and develop new products because that’s, as I said, the life blood of any company. We continue to invest, we’re investing in many new products and many new services which I think are going to be very exciting as they get launched. I think coming back to the earlier question, can we continue to reduce costs, that’s what we do every day. We try to figure out creative ways to do it that will allow us to invest, become more efficient, have new products but lower our total cost base. It’s a balance.

Your next question comes from Andrew Casey – Wells Fargo Securities. Andrew Casey – Wells Fargo Securities: First, on the aftermarket with volume induced new truck price compression per your statements kind of stabilizing at low levels, how should we think about the future price increases related to the emission changes coming next year? Is it incremental from current levels or would it be incremental from levels two years ago?

Well right now it’s going to be additional or incremental from current levels because whatever the prices were two years ago that’s not what the market is working with currently. I think as most competitors have said and we’ve certainly been one of the leaders on it, it’s going to be an $8,000 to $10,000 up charge. It’s a very expensive emission change. Technically, I’d say not as technical in complexity as some of the other ones but there’s just a lot of equipment, particularly on the exhaust side that have to be put on to the engine and put on to the chassis. So, that’s $8,000 to $10,000 and that will be something that every customer in the market place is aware of and just has to incorporate in to their business planning as to how they want to best move forward.

Your next question comes from David Leiker – Robert W. Baird & Company. David Leiker – Robert W. Baird & Company: Two questions here, just first here in the US if you looked regionally are there any differences in end market demand, some areas doing better than the other? Then secondly, as we look at margins and you made a comment that you expect second half profitability to be comparable to the first half, I’m guessing – I don’t know you’ll [inaudible] operating margin or gross margin but there’s obviously a very different margin performance in Q2 versus Q1 and I was wondering if you could give us some insight as to whether you’re closer to the Q2 performance or the Q1 performance?

Regional, we really don’t see much difference of course two big drivers for freight are housing construction and I would also put in as an adjunct commercial building construction and both of those are still down even with a little bit of the good news about some regions starting to increase some home building but that’s from a pretty low level. So, regionally it’s all about the same. Margins, probably closer to the second quarter than the first quarter.

Your next question comes from Patrick Nolan – Deutsche Bank. Patrick Nolan – Deutsche Bank: Just one follow up question, it looks like you took out 1,000 people in the second quarter versus the first quarter if I’m looking at your release. Can you just talk about when we eventually do see a recovery in demand, what’s the tipping point that you have to really start adding people back in to the production side?

Well, I’d love to get all of our great employees back I mean that’s what makes this company so incredible. But, we have to see a pretty good increase in our daily, weekly and monthly order input to start increasing build rate. Of course, we continue to improve efficiency as we talked about 5% to 7% every year and we’re doing that again this year which is a wonderful testament to a very creative group of employees. So, I don’t have an exact number that this is the build rate that we’ll start adding people but our intention is we’d love to get our great employees back and we want to increase our build rate. So, I’d say right now it’s probably unlikely that will happen in the second half of this year.

Your next question comes from Basili Alukos – Morningstar. Basili Alukos – Morningstar: A two part question, one deals with more kind of the cash flows as I look on the cash flow statement I’m trying to figure out the increase in operating cash flows, it appears that your wholesale receivables was kind of added to cash and I’m wondering if there’s something other than just the decline in revenues that’s kind of affecting that so since revenues are down obviously then you know you won’t have as much receivables. At the same time, you had mentioned in your prepared remarks that capital expenditures were down 60%, does that decline include kind of the tailing off of the Mississippi plant or how should we look at the Mississippi plant and the increase in capital spending and that decline?

The improvement in cash flows from the wholesale receivables is primarily from Europe as the DAF truck inventory is coming down at a really rapid rate

In Mississippi, really not too much of an impact, the plant looks fantastic, it’s complete, we still need to add some machining and assembly lines but that’s really not a major contributor. I think the primary one is the reduction in DAF new truck inventory at the dealerships.

Your next question comes from David Raso – ISI Group. David Raso – ISI Group: Two quick questions, the engine plant in Mississippi, at which industry volumes would you expect to be starting that up? I assume it’s a combination of your thoughts on Europe, North America industry volumes and your share within that? Then second, do you expect to have all of your caterpillar engine trucks or lose engines out of inventory by the end of this year and are you increasingly helping your dealers move some of the CAT power trucks out of their own inventory?

Well, on the Mississippi plant, as I indicated earlier, the plant building itself and the office building is complete. We’ve got employees working their every day. I’d love to get you down there some time in the future. That plant is ready in terms of doing some assembly of engines whether it’s in semi knockdown or complete knockdown format as we ship engines from Europe to North America. I think that will be the logical first step in terms of activating the plant. Then, as volumes do build up and some markets recover we will be able to increase the amount of machining and assembling that goes on in that plant so it’s a step process. In terms of Caterpillar inventory, we continue to work through that. We still have a lot of great customers that like Caterpillar so that’s an ongoing process right now.

Your next question comes from Joel Tiss – Buckingham Research. Joel Tiss – Buckingham Research: Everything has been answered but I just wondered if you could share with us your sense of how many overall trucks are parked or idled in North America?

That’s a good question, something that we obviously look at on a daily basis. I’d say the easy answer is a lot less than a year ago but I’d say it’s a very small number now. Now, as a company goes out of business that will be a momentary surge that they’ll have 50 or 100 but the operators that are running obviously they like more freight but they’re actually reporting good results. You’ve seen many of them, the publically traded transport companies, they’re making good money in a tough time. So, there’s some but it’s not a factor that weighs in to whether I should buy a new truck now. It’s something that they’re aware of it but it’s not the factor it was a year ago.

Your next question comes from Stephen Volkmann – Jefferies & Co. Stephen Volkmann – Jefferies & Co.: Just a couple of other ones, I’m curious about your forecast for 2010 and how you arrived at that. Do you have some data that might be interesting to share with us that would give you a sense of where you think 2010, and I’m talking about your US and Canada forecast, sort of how you put that together. Secondarily, I wonder if you can comment as to whether you’re seeing orders starting to build in the fourth quarter potentially for a few customers who want to get ahead of the price increase that you mentioned.

In terms of the fourth quarter with a probably over used term in this industry of pre-buy, I don’t think anybody is really seeing that at this time and certainly everybody in the industry continues to work through shutdown days or shutdown weeks and in Europe you’ve got the summer vacation schedules which are pretty normal. So, if I’m a customer I may be thinking about doing something in the fourth quarter, I don’t think it’s going to be a significant push towards a pre-buy. But, even if I’m thinking about it, here we are the end of July, we still have time. Nobody’s order board is too long so you can easily come in probably September, October time and still get a vehicle delivered in the fourth quarter. So, I don’t think we really have seen much of a ripple in terms of a pre-buy at this time. I think three months from now we’ll be that much smarter. In terms of the US and Canadian forecast, I think we’re probably at very close to the bottom in terms of US and Canadian. They were in the third year, will be in the third year recession. It’s been a long tough one but in many ways it’s been also very exciting. Everyone continues to get more creative on managing the business. The average age of the vehicles in some reports is now bumping eight years and that’s getting to be old for a vehicle. Not for our vehicles of course, but for many of our competitors. People are postponing, or reducing, or limiting the amount of maintenance they do on vehicles and these vehicles average 150,000 miles a year. Recognize that anybody driving a car averages 12,000, so that’s 10 years worth of driving if you’re driving a truck and things do wear out. Things need to get replaced and after a while to replace an axle, a transmission, an engine or work on the cab it’s probably better to get a new vehicle and you can take advantage of the warranty. Many, many of our great customers are beyond their normal trade cycle and they have a very good business model so they’re thinking. I think next year a 10%, 15%, 20% increase coming off a very low number it would make some sense. But, if the recession worsens then we’ll have to deal with that.

Your next question comes from Mike Roarke – McAdams Wright Ragen. Mike Roarke – McAdams Wright Ragen: I just have a quick question on the financing portfolio, in terms of asset split, what percentage of the assets are European related and what are North America and rest of the world?

That split has typically been about 30% Europe, 40% to 45% US and Canada and then the rest of the world the rest.

Your next question comes from Andrew Casey – Wells Fargo Securities. Andrew Casey – Wells Fargo Securities: The SG&A, I’m just looking back at history, if I look at 2006, SG&A increased by less than $65 million on a doubling of sales. Is that a rough order of magnitude of performance that you could replicate whenever we see a potentially upturn?

So, you’re saying that’s good? Andrew Casey – Wells Fargo Securities: That’s good yes.

I’m an engineer, I just wanted to make sure we were talking on the same page here. I thought it was good, I think our team thinks it is good. So, when things improve you’re asking can we keep our cost down, is that sort of the thrust here? Andrew Casey – Wells Fargo Securities: Exactly, yes.

Yes, I think PACCAR has got a great history of doing that. In our meetings and our discussions, as I say with 16,000 wonderful employees that’s certainly a topic. Things will improve, we’ve been through cycles before. Yes, this is a tough recession, we recognize that but things will improve and when they do let’s keep getting more efficient and let’s remember these challenging times and see how much of that we can maintain as we get in to a really strong market. So, I think the answer is I can’t say it’s going to be that percent or this percent but we’ll certainly remember these years for quite a while. It’s been a real lesson. As I said, this is my fourth recession but as any industry CEO will tell you, this has been the most challenging.

Your next question comes from JB Groh – D.A. Davidson & Co. JB Groh – D.A. Davidson & Co.: Could you guys give the currency impacts for the quarter?

The currency impact for all currencies on pre-tax income was a reduction compared against last year’s quarter of about $8 million.

Your final question comes from Ann Duignan – JP Morgan Ann Duignan – JP Morgan: I just wanted to follow up on we don’t touch base very often on the outlook for urea and the infrastructure for urea. Can you just give us some updates on how that infrastructure build out is developing? Have there been any slowdowns because of the general economy or are you hearing any kind of challenges out there in terms of getting urea in the market place?

I think the urea SCR roll out is right on schedule. All of the major truck stops and third party suppliers are installing capacity whether it’s in bulk format or in truck size level format, that can be anywhere from five gallons to 50 gallons. Certainly the vast majority of the industry has designed their vehicles for SCR. In fact, I think the whole world has adopted SCR, I think there might be one company, I’m not sure but everybody in the world has adopted SCR, it is the standard worldwide. In fact, we’d love to have more global harmonization of engine standards and SCR is probably the first step that way. So, I think the customers are aware of it, they’re use to it, the dealerships are ready for it, the third party and truck stops are ready for it so it should be a pretty normal transition, pretty seamless I would think.

We have reached the allotted time for questions. Are there any additional remarks from the company?

I’d just like to thank everyone for their excellent questions and thank you operator.

Ladies and gentlemen this concludes PACCAR’s earning call. Thank you for participating. You may now disconnect.