UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2023 OR ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Delaware 91-0351110 (State or other jurisdiction of incorporation or organization) 777 - 106th Ave. N.E., Bellevue, WA 98004 (Address of principal executive offices) ...

PACCAR Inc (NASDAQ:PCAR) Q1 2023 Earnings Conference Call April 25, 2023 11:00 AM ET Company Participants Ken Hastings - Director of IR Preston Feight - CEO Harrie Schippers - President and CFO Michael Barkley - SVP and Controller Brice Poplawski - New Vice President and Controller Conference Call Participants Tami Zakaria - JPMorgan Dillon Cumming - Morgan Stanley Chad Dillard - Bernstein Rob Wertheimer - Melius Research Steve Volkmann - Jefferies David Raso - Evercore ISI Jamie Cook - Credit Suisse Steven ...

Financial Performance - PACCAR achieved an adjusted net income of $1180 million in the first quarter of 2023[90, 101], compared to $601 million in the first quarter of 2022[90]. - PACCAR Parts achieved record revenues of $1.6 billion in the first quarter of 2023[101, 233], a 17% increase[233], and a record pretax profit of $439 million[101, 233], a 29% increase[233]. - PACCAR Financial Services' total assets reached $17.2 billion as of December 31, 2022[82, 140]. - PACCAR's average return on invested capital (ROIC) over the last five years was 22%[4]. - PACCAR's net income per truck was $16,200 in 2022[158]. Market and Production - PACCAR produced 185,900 trucks in 2022[150]. - PACCAR's sales totaled $6.4 billion in the first quarter of 2023, up 37% compared to the previous year[229]. - PACCAR delivered 51,100 trucks in the first quarter of 2023[90, 101, 221], compared to 43,000 units in the same period last year[90, 221]. Strategy and Investments - PACCAR has invested $7.3 billion in capital projects, new products, and technologies in the last decade ended 2022[25]. - PACCAR Parts has achieved a sales CAGR of 9% and a profit CAGR of 13% over the last 20 years[64]. - PACCAR is targeting 10% market share for Kenworth and DAF products in South America[93].

PART I [ITEM 1. BUSINESS](index=3&type=section&id=ITEM%201.%20BUSINESS) PACCAR Inc is a multinational company operating in three principal industry segments: Trucks, Parts, and Financial Services, with the Truck segment being the largest [Description of Business and Segments](index=3&type=section&id=Description%20of%20Business%20and%20Segments) PACCAR operates in three main segments: Trucks (75%), Parts (20%), and Financial Services (5%) of 2022 net sales and revenues - PACCAR operates in three principal industry segments: Trucks, Parts, and Financial Services[15](index=15&type=chunk) Segment % of Total 2022 Net Sales and Revenues | Segment | % of Total 2022 Net Sales and Revenues | | :--- | :--- | | Truck | 75% | | Parts | 20% | | Financial Services | 5% | [Truck Segment Operations](index=3&type=section&id=TRUCKS) The Truck segment manufactures Kenworth, Peterbilt, and DAF trucks, holding significant market shares in North America and Europe, with a 2022 production backlog of $18.1 billion - PACCAR's trucks are marketed under the Kenworth, Peterbilt, and DAF nameplates, built in plants across the United States, Europe, Australia, Brasil, Canada, and Mexico[16](index=16&type=chunk) - In 2022, PACCAR engines were installed in approximately **42%** of the Company's Kenworth and Peterbilt heavy-duty trucks in the U.S. and Canada, and substantially all DAF heavy-duty trucks worldwide[20](index=20&type=chunk) 2022 Market Share | Market | 2022 Market Share | | :--- | :--- | | U.S. and Canadian Class 8 | 29.8% | | U.S. and Canadian Medium-Duty | 10.9% | | European Heavy-Duty (DAF) | 17.3% | | European Light/Medium-Duty (DAF) | 9.7% | 2022 Backlog Metrics | Metric | 2022 Value | | :--- | :--- | | Total Production Backlog (end of 2022) | $18.1 billion | | 90-day Firm Backlog (December 31, 2022) | $8.0 billion | | 90-day Firm Backlog (December 31, 2021) | $5.2 billion | | 90-day Firm Backlog (December 31, 2020) | $4.6 billion | [Parts Segment Operations](index=6&type=section&id=PARTS) The Parts segment distributes aftermarket parts globally through 18 distribution centers, enhancing availability with a new Louisville PDC in 2022 - The Parts segment distributes aftermarket parts to over 2,300 Kenworth, Peterbilt, and DAF dealers in 95 countries through 18 strategically located parts distribution centers (PDCs)[28](index=28&type=chunk) - PACCAR Parts opened a new 260,000 square foot PDC in Louisville, Kentucky in 2022 to enhance parts availability[112](index=112&type=chunk) [Financial Services Segment Operations](index=6&type=section&id=FINANCIAL%20SERVICES) PACCAR Financial Services provides financing and leasing in 26 countries, managing $17.18 billion in assets and used truck sales, funded primarily through capital markets - PACCAR Financial Services (PFS) operates in 26 countries, providing finance and leasing products primarily for PACCAR products, with total assets of **$17.18 billion** in 2022[30](index=30&type=chunk)[113](index=113&type=chunk) - PFS is responsible for managing the sales of the Company's used trucks, including those returned from matured operating leases and repossessions[31](index=31&type=chunk) - PFS funds its activities primarily from collections on existing finance receivables and borrowings in the capital markets, including commercial paper and medium-term notes[34](index=34&type=chunk) [Other Businesses](index=7&type=section&id=OTHER%20BUSINESSES) The 'Other' segment includes industrial winch manufacturing under Braden, Carco, and Gearmatic nameplates, representing less than 1% of total net sales - The 'Other' business segment includes the manufacturing and marketing of industrial winches under the Braden, Carco, and Gearmatic nameplates[40](index=40&type=chunk) - Sales of industrial winches were less than **1%** of total net sales and revenues in 2022, 2021, and 2020[40](index=40&type=chunk) [Patents](index=7&type=section&id=PATENTS) The company holds numerous patents across its product lines, none of which are individually considered material to its overall business - The Company owns numerous patents across all product lines, but no single patent or group of patents is considered essential to a material part of the Company's business[42](index=42&type=chunk) [Regulation](index=7&type=section&id=REGULATION) PACCAR's operations and products are subject to extensive global regulations concerning noise, emissions, and safety, with a commitment to science-based greenhouse gas reduction targets - PACCAR's products and operations are subject to extensive statutory and regulatory requirements governing noise, emissions (greenhouse gas and non-greenhouse gas), and safety in all countries of operation[43](index=43&type=chunk)[44](index=44&type=chunk) - PACCAR has established science-based greenhouse gas emission reduction targets to meet the goals of the Paris Agreement[44](index=44&type=chunk) [Human Capital Management](index=8&type=section&id=HUMAN%20CAPITAL%20MANAGEMENT) PACCAR fosters a diverse and inclusive culture, offering comprehensive benefits and training to its approximately 31,100 employees as of December 31, 2022 - PACCAR is committed to a strong, diverse, and inclusive culture, providing robust benefit packages, comprehensive training, and a safe work environment[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) - As of December 31, 2022, the Company had approximately **31,100 employees**, with about **38%** in the U.S[50](index=50&type=chunk) [Environmental and Sustainability Leadership](index=8&type=section&id=ENVIRONMENTAL%20AND%20SUSTAINABILITY%20LEADERSHIP) PACCAR demonstrates environmental leadership with an 'A' CDP score for GHG emissions and investments in advanced clean diesel and electric powertrain technologies - PACCAR achieved an **'A' score from CDP in 2022** for greenhouse gas emissions, placing in the top **1.5%** of reporting companies, and has earned an 'A' or 'A-' rating for eight consecutive years[52](index=52&type=chunk) - The company has established emissions reduction targets with the Science Based Targets Initiative (SBTi) and invests in technologies like fuel-efficient diesel engines, natural gas/biofuel engines, and next-generation electric, hybrid, and hydrogen fuel cell powertrains[53](index=53&type=chunk)[55](index=55&type=chunk) - PACCAR is currently producing battery-electric Kenworth, Peterbilt, and DAF trucks and is launching its SuperTruck 3 program for advanced zero-emissions vehicles[56](index=56&type=chunk)[58](index=58&type=chunk) [Other Disclosures](index=9&type=section&id=OTHER%20DISCLOSURES) Company filings, including Forms 10-K, 10-Q, and 8-K, are publicly accessible on www.paccar.com and www.sec.gov - Company filings on Forms 10-K, 10-Q, and 8-K are available free of charge on www.paccar.com and www.sec.gov[61](index=61&type=chunk) [Information About the Company's Executive Officers](index=10&type=section&id=INFORMATION%20ABOUT%20THE%20COMPANY'S%20EXECUTIVE%20OFFICERS) The report provides a list of the Company's executive officers as of February 22, 2023, including key leadership roles - The report lists the Company's executive officers as of February 22, 2023, including Mark C. Pigott (Executive Chairman), R. Preston Feight (CEO), and Harrie C.A.M. Schippers (President and CFO)[63](index=63&type=chunk) [ITEM 1A. RISK FACTORS](index=11&type=section&id=ITEM%201A.%20RISK%20FACTORS) PACCAR faces significant risks including the variability of commercial truck market demand, intense competition, and production cost fluctuations due to material prices and component shortages like semiconductors [Business and Industry Risks](index=11&type=section&id=Business%20and%20Industry%20Risks) PACCAR faces risks from fluctuating commercial truck market demand, material cost volatility, component shortages, and uncertainties in the transition to alternative powertrain vehicles - Commercial truck market demand is highly sensitive to global and national economic conditions, which can materially weaken demand for PACCAR's equipment and services[65](index=65&type=chunk) - The Company is exposed to variability in material and commodity costs, cost pressures due to inflation, significant shortages of component products (e.g., semiconductors), and labor availability[67](index=67&type=chunk) - The pace of transition from diesel combustion to alternative powertrain commercial vehicles (e.g., battery-electric, hybrid, hydrogen fuel cell) is highly uncertain and influenced by R&D success, customer demand, technology, costs, regulations, and infrastructure[69](index=69&type=chunk)[70](index=70&type=chunk) [Liquidity Risks, Credit Ratings and Costs of Funds](index=12&type=section&id=Liquidity%20Risks,%20Credit%20Ratings%20and%20Costs%20of%20Funds) The Financial Services segment is exposed to liquidity risks from market disruptions, credit rating changes, intense competition, credit defaults, and interest rate fluctuations - Disruptions in global financial markets or a lowering of the Company's credit ratings could limit liquidity, increase borrowing costs, and adversely affect access to capital markets for the Financial Services segment[71](index=71&type=chunk) - The Financial Services segment faces intense competition from banks and other finance companies, which may lead to decreased margins or market share[72](index=72&type=chunk) - The Financial Services segment is exposed to credit risk from customer, dealer, or counterparty failures, with a risk that collateral value may be insufficient to cover owed amounts[73](index=73&type=chunk) - The Financial Services segment is subject to interest-rate risks, which are mitigated through derivative contracts[74](index=74&type=chunk) [Political, Regulatory and Economic Risks](index=13&type=section&id=Political,%20Regulatory%20and%20Economic%20Risks) Global operations expose PACCAR to political, economic, and regulatory risks, including trade policy changes, supply chain disruptions, environmental compliance costs, and cybersecurity threats - The Company's global operations are exposed to political, economic, and other risks, including changes in government policies, international trade policies, and global conflicts (e.g., suspension of sales to Russia and Belarus in February 2022)[79](index=79&type=chunk)[80](index=80&type=chunk) - The COVID-19 pandemic continued to cause disruptions to the global supply chain in 2022, particularly for component parts and semiconductor chips[81](index=81&type=chunk) - PACCAR's operations and products are subject to extensive environmental laws and regulations governing emissions, which could increase compliance costs or alter product development strategy[82](index=82&type=chunk)[83](index=83&type=chunk)[85](index=85&type=chunk) - The Company relies on information technology systems and networks, which are subject to risks of disruptions, unauthorized access, and data loss, potentially impacting operations and reputation[77](index=77&type=chunk)[78](index=78&type=chunk) [Accounting Estimates](index=14&type=section&id=Accounting%20Estimates) Financial statement preparation involves significant accounting estimates for operating lease residual values, credit losses, and product warranty, where actual results may differ - The preparation of financial statements involves significant estimates and judgments, particularly for residual values on operating leases, the allowance for credit losses, and product warranty, where actual results could materially differ from estimates[88](index=88&type=chunk) [Taxes](index=14&type=section&id=Taxes) Changes in statutory income tax rates or new tax legislation in operating countries could impact the Company's effective tax rate and related tax assets and liabilities - Changes in statutory income tax rates or new tax legislation in operating countries could affect the Company's effective tax rate and related tax assets and liabilities[89](index=89&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=14&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments to report for the Company - None[90](index=90&type=chunk) [ITEM 2. PROPERTIES](index=14&type=section&id=ITEM%202.%20PROPERTIES) PACCAR owns and operates manufacturing plants and parts distribution centers across the U.S., Europe, Australia, Brasil, Canada, and Mexico, along with R&D and innovation centers - The Company owns and operates manufacturing plants in five U.S. states, three European countries, Australia, Brasil, Canada, and Mexico[92](index=92&type=chunk) - PACCAR has 18 parts distribution centers and facilities for product testing and research and development in Washington and the Netherlands, plus an innovation center in Sunnyvale, California[92](index=92&type=chunk) Geographical Location of PACCAR Properties | Geographical Location | Truck Plants | Parts Distribution Centers | Other Plants | | :--- | :--- | :--- | :--- | | U.S. | 4 | 7 | 2 | | Canada | 1 | 2 | — | | Australia | 1 | 2 | — | | Mexico | 1 | 1 | — | | Europe | 3 | 4 | — | | Central and South America | 1 | 2 | — | [ITEM 3. LEGAL PROCEEDINGS](index=14&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) Information regarding legal proceedings is incorporated by reference from Note L – 'Commitments and Contingencies' in the Notes to Consolidated Financial Statements - Refer to Note L – 'Commitments and Contingencies' in the Notes to Consolidated Financial Statements (Part II, Item 8) for discussion on litigation matters[94](index=94&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=14&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Company - Not applicable[95](index=95&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=15&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY,%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) PACCAR's common stock trades on Nasdaq under PCAR, with 1,495 record holders as of December 31, 2022, and the company expects to continue paying regular cash dividends [Market Information and Holders](index=15&type=section&id=Market%20Information%20and%20Holders) PACCAR's common stock trades on Nasdaq under PCAR, with 1,495 record holders and 522.5 million shares outstanding as of December 31, 2022 - Common stock of the Company is traded on the Nasdaq Stock Market under the symbol **PCAR**[99](index=99&type=chunk) - There were **1,495 record holders** of the common stock at December 31, 2022[99](index=99&type=chunk) - As of February 10, 2023, there were **522,513,846 shares** of common stock, $1 par value, of the registrant outstanding[7](index=7&type=chunk) [Securities Authorized for Issuance Under Equity Compensation Plans](index=16&type=section&id=Securities%20Authorized%20for%20Issuance%20Under%20Equity%20Compensation%20Plans) This section details the number of securities granted and available for future issuance under the Company's equity compensation plans Equity Compensation Plan Metrics | Metric | Value | | :--- | :--- | | Number of Securities Granted and to be Issued Related to Outstanding Options and Restricted Stock Units | 5,244,614 | | Weighted-average Exercise Price of Outstanding Options | $51.10 | | Securities Available for Future Grant | 15,999,952 | [Stockholder Return Performance Graph](index=17&type=section&id=Stockholder%20Return%20Performance%20Graph) The performance graph illustrates PACCAR's cumulative total stockholder return compared to the S&P 500 and a Peer Group Index over a five-year period Cumulative Total Stockholder Return | Year | PACCAR Inc | S&P 500 Index | Peer Group Index | | :--- | :--- | :--- | :--- | | 2017 | 100 | 100 | 100 | | 2018 | 84.68 | 95.62 | 82.72 | | 2019 | 122.83 | 125.72 | 106.15 | | 2020 | 137.25 | 148.85 | 140.73 | | 2021 | 144.97 | 191.58 | 173.49 | | 2022 | 169.61 | 156.88 | 190.49 | [Purchases of Equity Securities by the Issuer and Affiliated Purchasers](index=17&type=section&id=Purchases%20of%20Equity%20Securities%20by%20the%20Issuer%20and%20Affiliated%20Purchasers) PACCAR's Board approved a $500 million stock repurchase plan in 2018, under which $110 million of shares have been repurchased as of December 31, 2022 - PACCAR's Board of Directors approved the repurchase of up to **$500.0 million** of the Company's outstanding common stock on December 4, 2018[106](index=106&type=chunk) - As of December 31, 2022, the Company has repurchased **$110.0 million** of shares under this plan, with no repurchases made during the fourth quarter of 2022[106](index=106&type=chunk) [ITEM 6. [RESERVED]](index=17&type=section&id=ITEM%206.%20%5BRESERVED%5D) This item is reserved and contains no information - Not applicable[107](index=107&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=18&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) PACCAR achieved record financial results in 2022, with worldwide net sales and revenues increasing to $28.82 billion and net income rising to $3.01 billion, marking its 84th consecutive profitable year [Overview](index=18&type=section&id=OVERVIEW) PACCAR achieved record financial results in 2022 with $28.82 billion in net sales and $3.01 billion net income, and anticipates continued growth and significant investments in 2023 2022 Financial Highlights (vs. 2021) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Worldwide net sales and revenues | $28.82 billion | $23.52 billion | +22.5% | | Truck sales | $21.49 billion | $16.80 billion | +28.0% | | Parts sales | $5.76 billion | $4.94 billion | +16.6% | | Financial Services revenues | $1.51 billion | $1.69 billion | -10.7% | | Net income | $3.01 billion | $1.87 billion | +61.0% | | Diluted EPS | $5.75 | $3.57 | +61.1% | | Capital investments | $505.0 million | $511.8 million | -1.3% | | After-tax return on beginning equity (ROE) | 26.0% | 17.7% | +8.3 pp | | Research and development (R&D) expenses | $341.2 million | $324.1 million | +5.3% | - PACCAR earned net income for the **84th consecutive year** in 2022[115](index=115&type=chunk) - The new DAF XD truck was named International Truck of the Year 2023[111](index=111&type=chunk) - PACCAR Parts opened a new 260,000 square foot PDC in Louisville, Kentucky in 2022[112](index=112&type=chunk) 2023 Truck Industry Retail Sales Outlook (Heavy-Duty) | Region | 2023 Outlook (Units) | 2022 Actual (Units) | | :--- | :--- | :--- | | U.S. and Canada | 270,000 to 310,000 | 283,500 | | Europe (over 16-tonne) | 270,000 to 310,000 | 297,500 | | South America | 125,000 to 135,000 | 138,300 | - PACCAR Parts sales are expected to increase **8-11%** in 2023 compared to 2022 levels[116](index=116&type=chunk) - Capital investments in 2023 are expected to be **$525 to $575 million**, and R&D is expected to be **$360 to $410 million**[118](index=118&type=chunk) [Results of Operations: 2022 Compared to 2021](index=19&type=section&id=RESULTS%20OF%20OPERATIONS:) This section provides a detailed comparison of PACCAR's financial performance across its Truck, Parts, Financial Services, and Other segments for 2022 versus 2021 Consolidated Statements of Income (2022 vs. 2021) | Metric ($ in millions, except per share amounts) | 2022 | 2021 | % CHANGE | | :--- | :--- | :--- | :--- | | **Net sales and revenues:** | | | | | Truck | $21,486.2 | $16,799.7 | 28% | | Parts | $5,764.3 | $4,944.3 | 17% | | Other | $63.8 | $90.5 | (30)% | | **Truck, Parts and Other** | **$27,314.3** | **$21,834.5** | **25%** | | Financial Services | $1,505.4 | $1,687.8 | (11)% | | **Total Net Sales and Revenues** | **$28,819.7** | **$23,522.3** | **22%** | | **Income before income taxes:** | | | | | Truck | $1,753.3 | $804.9 | 118% | | Parts | $1,446.6 | $1,110.0 | 30% | | Other | $(1.1) | $28.3 | (104)% | | **Truck, Parts and Other** | **$3,198.8** | **$1,943.2** | **65%** | | Financial Services | $588.9 | $437.6 | 35% | | Investment income | $61.0 | $15.5 | 294% | | Income taxes | $(837.1) | $(530.8) | 58% | | **Net Income** | **$3,011.6** | **$1,865.5** | **61%** | | Diluted earnings per share | $5.75 | $3.57 | 61% | | After-tax return on revenues | 10.4% | 7.9% | +2.5 pp | [Truck Segment Performance](index=20&type=section&id=2022%20Compared%20to%202021:%20Truck) The Truck segment's revenues increased by 28% to $21.49 billion, with income before taxes rising 118% and gross margin improving to 10.6% in 2022 - The Truck segment accounted for **75%** of revenues in 2022, up from **71%** in 2021[122](index=122&type=chunk) New Truck Deliveries Worldwide (2022 vs. 2021) | Year Ended December 31, | 2022 | 2021 | % CHANGE | | :--- | :--- | :--- | :--- | | U.S. and Canada | 95,600 | 86,300 | 11 | | Europe | 62,400 | 53,200 | 17 | | Mexico, South America, Australia and other | 27,900 | 23,200 | 20 | | **Total units** | **185,900** | **162,700** | **14** | Truck Net Sales and Revenues by Region (2022 vs. 2021) | Year Ended December 31, ($ in millions) | 2022 | 2021 | % CHANGE | | :--- | :--- | :--- | :--- | | U.S. and Canada | $12,521.8 | $9,877.6 | 27 | | Europe | $5,866.5 | $4,489.8 | 31 | | Mexico, South America, Australia and other | $3,097.9 | $2,432.3 | 27 | | **Truck net sales and revenues** | **$21,486.2** | **$16,799.7** | **28** | | Truck income before income taxes | $1,753.3 | $804.9 | 118 | | Pre-tax return on revenues | 8.2% | 4.8% | +3.4 pp | - Truck gross margin increased to **10.6%** in 2022 from **7.8%** in 2021, driven by higher truck unit deliveries and improved price realization[129](index=129&type=chunk)[127](index=127&type=chunk) [Parts Segment Performance](index=21&type=section&id=2022%20Compared%20to%202021:%20Parts) The Parts segment's net sales and revenues grew by 17% to $5.76 billion, with income before taxes increasing 30% and gross margin reaching 30.4% in 2022 - The Parts segment accounted for **20%** of revenues in 2022, compared to **21%** in 2021[131](index=131&type=chunk) Parts Net Sales and Revenues by Region (2022 vs. 2021) | Year Ended December 31, ($ in millions) | 2022 | 2021 | % CHANGE | | :--- | :--- | :--- | :--- | | U.S. and Canada | $4,087.5 | $3,312.4 | 23 | | Europe | $1,141.1 | $1,164.6 | (2) | | Mexico, South America, Australia and other | $535.7 | $467.3 | 15 | | **Parts net sales and revenues** | **$5,764.3** | **$4,944.3** | **17** | | Parts income before income taxes | $1,446.6 | $1,110.0 | 30 | | Pre-tax return on revenues | 25.1% | 22.5% | +2.6 pp | - Parts gross margin increased to **30.4%** in 2022 from **28.6%** in 2021, primarily due to higher sales volume and higher margins[135](index=135&type=chunk)[132](index=132&type=chunk) [Financial Services Segment Performance](index=23&type=section&id=2022%20Compared%20to%202021:%20Financial%20Services) Financial Services saw a 10% increase in new loan and lease volume, a 35% rise in income before taxes, and improved finance and lease margins despite an 11% revenue decrease in 2022 - The Financial Services segment accounted for **5%** of revenues in 2022, compared to **7%** in 2021[136](index=136&type=chunk) New Loan and Lease Volume (2022 vs. 2021) | Metric ($ in millions) | 2022 | 2021 | % CHANGE | | :--- | :--- | :--- | :--- | | New loan and lease volume | $6,215.7 | $5,671.7 | 10 | | New loan and lease unit volume | 53,700 | 50,100 | 7 | Financial Services Revenues and Income (2022 vs. 2021) | Metric ($ in millions) | 2022 | 2021 | % CHANGE | | :--- | :--- | :--- | :--- | | Revenues | $1,505.4 | $1,687.8 | (11) | | Income before income taxes | $588.9 | $437.6 | 35 | - PFS finance market share of new PACCAR truck sales was **25.6%** in 2022, compared to **26.6%** in 2021[137](index=137&type=chunk) - Gains on used trucks (excluding repossessions) were **$140.1 million** in 2022, compared to **$30.3 million** in 2021[141](index=141&type=chunk) - Finance margin increased to **$412.4 million** in 2022 from **$373.5 million** in 2021, driven by higher portfolio yields (**5.1%** in 2022 vs. **4.6%** in 2021)[141](index=141&type=chunk)[143](index=143&type=chunk) - Lease margin increased to **$315.9 million** in 2022 from **$194.0 million** in 2021, primarily due to higher gains on sales of returned lease units[144](index=144&type=chunk) - The provision for losses on receivables increased to **$5.5 million** in 2022 from **$0.5 million** in 2021[146](index=146&type=chunk) - Accounts 30+ days past due increased to **0.4%** at December 31, 2022, from **0.3%** at December 31, 2021[150](index=150&type=chunk) - Annualized pre-tax return on average total assets for Financial Services increased to **3.7%** in 2022 from **2.8%** in 2021[152](index=152&type=chunk) [Other Segment Performance](index=27&type=section&id=2022%20Compared%20to%202021:%20Other) The Other segment reported a pre-tax loss of $(1.1) million in 2022, while investment income significantly increased to $61.0 million - Other (loss) income before tax was **$(1.1) million** in 2022, compared to **$28.3 million** in 2021, primarily due to higher salaries and related expenses[155](index=155&type=chunk) - Investment income increased to **$61.0 million** in 2022 from **$15.5 million** in 2021, driven by higher yields on investments and higher investment balances[155](index=155&type=chunk) [Income Taxes](index=27&type=section&id=2022%20Compared%20to%202021:%20Income%20Taxes) The effective tax rate was 21.8% in 2022, a slight decrease from 2021, primarily due to a favorable shift in the mix of income generated in lower tax jurisdictions - The effective tax rate was **21.8%** in 2022, compared to **22.2%** in 2021, primarily due to a change in the mix of income generated in jurisdictions with lower tax rates[156](index=156&type=chunk) Income Before Income Taxes by Region (2022 vs. 2021) | Year Ended December 31, ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Domestic income before taxes | $2,322.9 | $1,391.4 | | Foreign income before taxes | $1,525.8 | $1,004.9 | | **Total income before taxes** | **$3,848.7** | **$2,396.3** | [Liquidity and Capital Resources](index=27&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES:) This section details PACCAR's cash flow activities, credit arrangements, capital investments, and funding strategies, highlighting strong liquidity and access to capital markets - The Company's total cash and marketable securities increased by **$1.32 billion** to **$6.31 billion** at December 31, 2022, from **$4.99 billion** at December 31, 2021[158](index=158&type=chunk) Net Cash Flow Summary (2022 vs. 2021) | Metric ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,027.0 | $2,186.7 | | Net cash used in investing activities | $(2,033.0) | $(1,362.7) | | Net cash provided by (used in) financing activities | $304.9 | $(882.9) | | Net increase (decrease) in cash and cash equivalents | $1,262.6 | $(111.3) | [Operating Activities](index=28&type=section&id=Operating%20activities) Cash provided by operating activities increased by $840.3 million to $3.03 billion in 2022, driven by higher net income and efficient inventory management - Cash provided by operations increased by **$840.3 million** to **$3.03 billion** in 2022, driven by higher net income, lower cash usage for inventories, and higher deferrals of revenues[160](index=160&type=chunk) [Investing Activities](index=28&type=section&id=Investing%20activities) Cash used in investing activities increased by $670.3 million to $2.03 billion in 2022, primarily due to higher net originations of retail loans and financing leases - Cash used in investing activities increased by **$670.3 million** to **$2.03 billion** in 2022, primarily due to higher net originations for retail loans and financing leases and lower proceeds from asset disposals[161](index=161&type=chunk) [Financing Activities](index=28&type=section&id=Financing%20activities) Financing activities shifted from a cash usage of $882.9 million in 2021 to a cash provision of $304.9 million in 2022, mainly due to increased net borrowing - Cash provided by financing activities was **$304.9 million** in 2022, a significant shift from cash used of **$882.9 million** in 2021, primarily due to higher net borrowing activities[162](index=162&type=chunk) Cash Dividends Declared Per Share (2022 vs. 2021) | QUARTER | 2022 | 2021 | | :--- | :--- | :--- | | First | $0.23 | $0.21 | | Second | $0.23 | $0.23 | | Third | $0.23 | $0.23 | | Fourth | $0.25 | $0.23 | | Year-End Extra (paid in January of the following year) | $1.87 | $1.00 | | **Total dividends declared per share** | **$2.80** | **$1.89** | [Credit Lines and Other](index=28&type=section&id=Credit%20Lines%20and%20Other) PACCAR maintains $3.70 billion in credit line arrangements, with $3.36 billion remaining unused as of December 31, 2022 - The Company has line of credit arrangements of **$3.70 billion**, of which **$3.36 billion** were unused at December 31, 2022[164](index=164&type=chunk) - No borrowings were made under the committed bank facilities for the year ended December 31, 2022[164](index=164&type=chunk) [Truck, Parts and Other Capital](index=28&type=section&id=Truck,%20Parts%20and%20Other) Capital investments for Truck, Parts, and Other were $491.2 million in 2022, with projected 2023 investments of $525-575 million focused on advanced technologies - Investments for manufacturing property, plant and equipment in 2022 were **$491.2 million**[167](index=167&type=chunk) - Capital investments in 2023 are expected to be **$525 to $575 million**, and R&D is expected to be **$360 to $410 million**[168](index=168&type=chunk) - The Company is increasing its investment in next generation clean diesel and electric powertrain technologies, autonomous driving systems, connected vehicle services, advanced manufacturing and enhanced distribution capabilities[168](index=168&type=chunk) [Financial Services Funding](index=29&type=section&id=Financial%20Services) Financial Services funds operations through collections and capital market borrowings, maintaining strong liquidity and investment-grade credit ratings - The Company funds its financial services activities primarily from collections on existing finance receivables and borrowings in the capital markets (commercial paper and medium-term notes)[169](index=169&type=chunk) - PACCAR Financial Corp. had **$5.85 billion** of medium-term notes outstanding at December 31, 2022[170](index=170&type=chunk) - PACCAR Financial Europe had **€1.12 billion** available for issuance under a **€2.50 billion** medium-term note program at December 31, 2022[171](index=171&type=chunk) - The Company believes its cash balances, investments, collections, committed bank facilities, and investment-grade credit ratings (**A+/A1**) provide sufficient liquidity and access to capital markets[175](index=175&type=chunk) [Commitments](index=29&type=section&id=Commitments) This section outlines PACCAR's contractual cash commitments, including borrowings, purchase obligations, and lease liabilities, as well as other commitments like loan and lease guarantees Contractual Cash Commitments (as of December 31, 2022) | Metric ($ in millions) | WITHIN 1 YEAR | 1-3 YEARS | 3-5 YEARS | MORE THAN 5 YEARS | TOTAL | | :--- | :--- | :--- | :--- | :--- | :--- | | Borrowings | $5,539.9 | $5,001.9 | $985.6 | $0.0 | $11,527.4 | | Purchase obligations | $14.7 | $22.3 | $2.3 | $0.5 | $39.8 | | Interest on debt | $152.0 | $186.8 | $14.3 | $0.0 | $353.1 | | Lease liabilities | $13.8 | $18.5 | $9.9 | $4.7 | $46.9 | | Other obligations | $69.2 | $1.0 | $0.7 | $0.0 | $70.9 | | **Total** | **$5,789.6** | **$5,230.5** | **$1,012.8** | **$5.2** | **$12,038.1** | Other Commitments (as of December 31, 2022) | Metric ($ in millions) | WITHIN 1 YEAR | 1-3 YEARS | 3-5 YEARS | MORE THAN 5 YEARS | TOTAL | | :--- | :--- | :--- | :--- | :--- | :--- | | Loan and lease commitments | $1,363.3 | $0.0 | $0.0 | $0.0 | $1,363.3 | | Residual value guarantees | $674.6 | $384.6 | $63.5 | $11.6 | $1,134.3 | | Letters of credit | $22.1 | $0.2 | $0.0 | $0.9 | $23.2 | [Impact of Environmental Matters](index=30&type=section&id=IMPACT%20OF%20ENVIRONMENTAL%20MATTERS:) Environmental expenditures were $4.6 million in 2022, and management anticipates no significant impact on the Company's financial condition or liquidity - Expenditures related to environmental activities were **$4.6 million** in 2022, compared to **$4.0 million** in 2021[181](index=181&type=chunk) - Management expects that environmental matters will not have a significant effect on the Company's consolidated cash flow, liquidity, or financial condition[181](index=181&type=chunk) [Critical Accounting Policies](index=31&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES:) This section highlights PACCAR's critical accounting policies, focusing on areas requiring significant management judgment and estimates, such as operating leases, credit losses, and product warranty - The Company's financial statements rely on particularly sensitive accounting estimates, including residual values on operating leases, the allowance for credit losses, and product warranty[183](index=183&type=chunk) [Operating Leases](index=31&type=section&id=Operating%20Leases) Operating lease residual values, ranging from 30% to 70% of original cost, represent an aggregate of $1.74 billion, with sensitivity to used truck market fluctuations - Residual values on operating leases generally range between **30% and 70%** of the original equipment cost[184](index=184&type=chunk) - At December 31, 2022, the aggregate residual value of equipment on operating leases and residual value guarantees was **$1.74 billion**[187](index=187&type=chunk) - A **10% decrease** in used truck values worldwide could result in additional depreciation expense of approximately **$69.1 million** in 2023[187](index=187&type=chunk) [Allowance for Credit Losses](index=31&type=section&id=Allowance%20for%20Credit%20Losses) The allowance for credit losses is determined using a systematic methodology incorporating historical data, current market conditions, and future macroeconomic forecasts - The allowance for credit losses is determined using a systematic methodology for retail and wholesale portfolio segments, based on historical loss information, current market conditions, and future macroeconomic forecasts[188](index=188&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk) - Historically, a **100 basis point increase** in the 30+ days past due percentage has resulted in an increase in credit losses of **2 to 40 basis points** of receivables[193](index=193&type=chunk) [Product Warranty](index=32&type=section&id=Product%20Warranty) Product warranty expenses are estimated at the time of sale based on historical and current data, typically ranging between 1.6% and 1.9% of Truck, Parts, and Other net sales - Product warranty expenses are estimated and recorded at the time of sale based on historical and current data, and reasonable expectations for future claim frequency and cost[194](index=194&type=chunk) - Over the past two years, warranty expense as a percentage of Truck, Parts and Other net sales and revenues has ranged between **1.6% and 1.9%**[194](index=194&type=chunk) [Forward-Looking Statements](index=32&type=section&id=FORWARD-LOOKING%20STATEMENTS:) The report contains forward-looking statements that are inherently subject to various risks and uncertainties, including market declines, competition, and regulatory changes - The report contains forward-looking statements subject to risks and uncertainties, including declines in industry sales, competitive pressures, increased regulations, currency/commodity price fluctuations, supply interruptions, and global conflicts[195](index=195&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=33&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) PACCAR manages its exposure to interest-rate, foreign currency, and commodity price risks through hedging programs using derivative financial instruments - The Company uses derivative financial instruments to hedge its exposure to interest rate fluctuations, foreign currency exchange rates, and commodity prices[197](index=197&type=chunk)[198](index=198&type=chunk) [Interest-Rate Risks](index=33&type=section&id=Interest-Rate%20Risks) A hypothetical 100 basis point increase in interest rates would result in a $1.1 million fair value loss for the Company in 2022 Fair Value (Losses) Gains from 100 Basis Point Interest Rate Increase (2022 vs. 2021) | Metric ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | CONSOLIDATED: Assets (Cash equivalents and marketable debt securities) | $(26.7) | $(26.7) | | FINANCIAL SERVICES: Assets (Fixed rate loans) | $(117.4) | $(110.5) | | FINANCIAL SERVICES: Liabilities (Fixed rate term debt) | $136.6 | $127.6 | | FINANCIAL SERVICES: Interest-rate swaps | $6.4 | $4.5 | | **Total** | **$(1.1)** | **$(5.1)** | [Currency Risks](index=33&type=section&id=Currency%20Risks) A 10% unfavorable change in foreign currency exchange rates could lead to a $216.6 million fair value loss, largely mitigated by underlying hedged exposures - A **10% unfavorable change** in quoted foreign currency exchange rates would result in a potential loss in fair value of **$216.6 million** for contracts outstanding at December 31, 2022, largely offset by changes in the underlying hedged exposures[197](index=197&type=chunk) [Commodity Price Risks](index=33&type=section&id=Commodity%20Price%20Risks) A 10% unfavorable change in commodity prices could result in a $2.5 million fair value loss, substantially offset by changes in the underlying hedged exposures - A **10% unfavorable change** in quoted commodity prices would result in a potential loss in fair value of **$2.5 million** for contracts outstanding at December 31, 2022, largely offset by changes in the underlying hedged exposures[198](index=198&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=34&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents PACCAR's consolidated financial statements, including the Statements of Income, Comprehensive Income, Balance Sheets, Cash Flows, and Stockholders' Equity for the years ended December 31, 2022, 2021, and 2020 [Consolidated Statements of Income](index=34&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20INCOME) This table presents PACCAR's consolidated statements of income for the years ended December 31, 2022, 2021, and 2020, detailing revenues, expenses, and net income Consolidated Statements of Income (2022 vs. 2021 vs. 2020) | Year Ended December 31, ($ in millions, except per share data) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | TRUCK, PARTS AND OTHER: Net sales and revenues | $27,314.3 | $21,834.5 | $17,154.3 | | TRUCK, PARTS AND OTHER: Income Before Income Taxes | $3,198.8 | $1,943.2 | $1,402.6 | | FINANCIAL SERVICES: Revenues | $1,505.4 | $1,687.8 | $1,574.2 | | FINANCIAL SERVICES: Income Before Income Taxes | $588.9 | $437.6 | $223.1 | | Investment income | $61.0 | $15.5 | $35.9 | | Total Income Before Income Taxes | $3,848.7 | $2,396.3 | $1,661.6 | | Income taxes | $837.1 | $530.8 | $360.4 | | **Net Income** | **$3,011.6** | **$1,865.5** | **$1,301.2** | | Diluted earnings per share | $5.75 | $3.57 | $2.50 | [Consolidated Statements of Comprehensive Income](index=35&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) This table provides PACCAR's consolidated statements of comprehensive income, including net income and other comprehensive income components for 2022, 2021, and 2020 Consolidated Statements of Comprehensive Income (2022 vs. 2021 vs. 2020) | Year Ended December 31, ($ in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net income | $3,011.6 | $1,865.5 | $1,301.2 | | Other comprehensive income: Unrealized gains (losses) on derivative contracts | $48.6 | $15.7 | $(13.9) | | Other comprehensive income: Unrealized (losses) gains on marketable debt securities | $(42.5) | $(15.7) | $8.5 | | Other comprehensive income: Pension plans | $158.9 | $308.3 | $(60.4) | | Other comprehensive income: Foreign currency translation (loss) gain | $(197.3) | $(179.1) | $115.6 | | **Net other comprehensive (loss) income** | **$(32.3)** | **$129.2** | **$49.8** | | **Comprehensive Income** | **$2,979.3** | **$1,994.7** | **$1,351.0** | [Consolidated Balance Sheets](index=36&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) This table presents PACCAR's consolidated balance sheets as of December 31, 2022, and 2021, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheets (as of December 31, 2022 vs. 2021) | Metric ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | **ASSETS:** | | | | Cash and cash equivalents | $4,690.9 | $3,428.3 | | Trade and other receivables, net | $1,919.8 | $1,575.1 | | Marketable securities | $1,614.2 | $1,559.4 | | Inventories, net | $2,198.8 | $1,976.0 | | Finance and other receivables, net | $13,791.9 | $11,920.8 | | Equipment on operating leases, net | $2,803.3 | $3,188.9 | | Property, plant and equipment, net | $3,468.4 | $3,398.1 | | **Total Assets** | **$33,275.5** | **$29,509.4** | | **LIABILITIES AND STOCKHOLDERS' EQUITY:** | | | | Accounts payable, accrued expenses and other | $5,338.5 | $4,555.4 | | Commercial paper and bank loans | $3,604.9 | $3,303.0 | | Term notes | $7,866.7 | $7,128.8 | | **Total Liabilities** | **$20,108.4** | **$17,915.4** | | **Total Stockholders' Equity** | **$13,167.1** | **$11,594.0** | [Consolidated Statements of Cash Flows](index=38&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This table outlines PACCAR's consolidated statements of cash flows for the years ended December 31, 2022, 2021, and 2020, categorizing cash flows from operating, investing, and financing activities Consolidated Statements of Cash Flows (2022 vs. 2021 vs. 2020) | Year Ended December 31, ($ in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $3,027.0 | $2,186.7 | $2,987.2 | | Net Cash Used in Investing Activities | $(2,033.0) | $(1,362.7) | $(1,875.8) | | Net Cash Provided by (Used in) Financing Activities | $304.9 | $(882.9) | $(1,808.5) | | Effect of exchange rate changes on cash | $(36.3) | $(52.4) | $61.6 | | **Net Increase (Decrease) in Cash and Cash Equivalents** | **$1,262.6** | **$(111.3)** | **$(635.5)** | | Cash and cash equivalents at end of year | $4,690.9 | $3,428.3 | $3,539.6 | [Consolidated Statements of Stockholders' Equity](index=39&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS'%20EQUITY) This table details PACCAR's consolidated statements of stockholders' equity for the years ended December 31, 2022, 2021, and 2020, showing changes in common stock, retained earnings, and other comprehensive loss Consolidated Statements of Stockholders' Equity (2022 vs. 2021 vs. 2020) | Year Ended December 31, ($ in millions, except per share data) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Common stock, $1 par value (end of year) | $522.0 | $347.3 | $346.6 | | Additional paid-in capital (end of year) | $196.1 | $142.0 | $88.5 | | Retained earnings (end of year) | $13,402.4 | $12,025.8 | $11,148.5 | | Accumulated other comprehensive loss (end of year) | $(953.4) | $(921.1) | $(1,050.3) | | **Total Stockholders' Equity** | **$13,167.1** | **$11,594.0** | **$10,533.3** | | Net income | $3,011.6 | $1,865.5 | $1,301.2 | | Cash dividends declared on common stock | $(1,461.0) | $(988.2) | $(687.1) | | 50% stock dividend | $(174.0) | $0.0 | $0.0 | [Notes to Consolidated Financial Statements](index=40&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) These notes provide detailed disclosures on PACCAR's significant accounting policies, financial instrument details, segment information, and other critical financial data supporting the consolidated financial statements [A. Significant Accounting Policies](index=40&type=section&id=A.%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines PACCAR's significant accounting policies, including its three operating segments and the retrospective change from LIFO to FIFO inventory accounting in 2022 - PACCAR operates in three principal segments: Truck, Parts, and Financial Services[216](index=216&type=chunk) - In the first quarter of 2022, the Company changed the method of accounting for its U.S. inventories from last-in-first-out (LIFO) to first-in-first-out (FIFO), retrospectively applied to all periods presented[269](index=269&type=chunk) - The FIFO change increased Retained Earnings by **$140.5 million** at January 1, 2020[269](index=269&type=chunk) - New accounting standards adopted in 2022 (Leases and Government Assistance) had no material impact on the consolidated financial statements[274](index=274&type=chunk) [B. Sales and Revenues](index=48&type=section&id=B.%20SALES%20AND%20REVENUES) This note provides a breakdown of PACCAR's Truck, Parts, and Other revenues by major sources, as well as Financial Services lease revenues by type for 2022, 2021, and 2020 Truck, Parts and Other Revenues by Major Sources (2022 vs. 2021 vs. 2020) | Year Ended December 31, ($ in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Truck sales | $20,644.8 | $15,989.7 | $12,466.9 | | Revenues from extended warranties, operating leases and other (Truck) | $841.4 | $810.0 | $697.9 | | Parts sales | $5,596.8 | $4,809.7 | $3,803.3 | | Revenues from dealer services and other (Parts) | $167.5 | $134.6 | $109.6 | | Winch sales and other | $63.8 | $90.5 | $76.6 | | **Total Truck, Parts and Other sales and revenues** | **$27,314.3** | **$21,834.5** | **$17,154.3** | Financial Services Lease Revenues by Lease Type (2022 vs. 2021 vs. 2020) | Year Ended December 31, ($ in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Finance lease revenues | $184.1 | $187.0 | $189.2 | | Operating lease revenues | $788.8 | $831.6 | $802.3 | | **Total lease revenues** | **$972.9** | **$1,018.6** | **$991.5** | [C. Investments in Marketable Securities](index=49&type=section&id=C.%20INVESTMENTS%20IN%20MARKETABLE%20SECURITIES) This note details PACCAR's marketable securities portfolio, including fair values by type, and discusses net realized losses and unrealized losses on debt securities Marketable Securities (as of December 31, 2022 vs. 2021) | Metric ($ in millions) | 2022 Fair Value | 2021 Fair Value | | :--- | :--- | :--- | | U.S. tax-exempt securities | $445.1 | $432.5 | | U.S. taxable municipal / non-U.S. provincial bonds | $180.8 | $191.6 | | U.S. corporate securities | $251.0 | $207.4 | | U.S. government and agency securities | $115.0 | $96.4 | | Non-U.S. corporate securities | $450.0 | $442.8 | | Non-U.S. government securities | $76.4 | $75.0 | | Other debt securities | $94.7 | $100.0 | | Marketable equity securities | $1.2 | $13.7 | | **Total marketable securities** | **$1,614.2** | **$1,559.4** | - Net realized losses on marketable equity securities were **$5.2 million** for the year ended December 31, 2022[279](index=279&type=chunk) - Unrealized losses on marketable debt securities were due to higher yields, but no credit losses were identified, and the Company expects to receive contractual principal and interest[280](index=280&type=chunk) [D. Inventories](index=50&type=section&id=D.%20INVENTORIES) This note presents PACCAR's inventories, net, by category and reiterates the retrospective change in U.S. inventory accounting from LIFO to FIFO in 2022 Inventories, Net (as of December 31, 2022 vs. 2021) | At December 31, ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Finished products | $871.8 | $676.0 | | Work in process and raw materials | $1,327.0 | $1,300.0 | | **Total Inventories, net** | **$2,198.8** | **$1,976.0** | - The Company changed its U.S. inventories accounting method from LIFO to FIFO in the first quarter of 2022, with all prior periods restated[282](index=282&type=chunk) [E. Finance and Other Receivables](index=50&type=section&id=E.%20FINANCE%20AND%20OTHER%20RECEIVABLES) This note provides a detailed breakdown of PACCAR's finance and other receivables, net, by type, including loans, finance leases, and dealer wholesale financing Finance and Other Receivables, Net (as of December 31, 2022 vs. 2021) | At December 31, ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Loans | $7,229.1 | $6,424.7 | | Finance leases | $3,786.4 | $3,620.6 | | Dealer wholesale financing | $2,772.1 | $1,865.8 | | Operating lease receivables and other | $125.4 | $126.6 | | **Total** | **$13,913.0** | **$12,037.7** | | Less allowance for losses | $(121.1) | $(116.9) | | **Net Finance and other receivables** | **$13,791.9** | **$11,920.8** | [Allowance for Credit Losses](index=51&type=section&id=Allowance%20for%20Credit%20Losses) This table details the changes in PACCAR's allowance for credit losses for the years ended December 31, 2022, 2021, and 2020 Allowance for Credit Losses (2022 vs. 2021 vs. 2020) | Metric ($ in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Balance at January 1 | $116.9 | $127.0 | $118.6 | | Provision for losses | $5.5 | $0.5 | $28.8 | | Charge-offs | $(9.0) | $(14.8) | $(28.0) | | Recoveries | $9.7 | $6.5 | $5.7 | | Currency translation and other | $(2.0) | $(2.3) | $1.9 | | **Balance at December 31** | **$121.1** | **$116.9** | **$127.0** | [Credit Quality](index=52&type=section&id=Credit%20Quality) PACCAR monitors credit quality based on past due status, classifying accounts into performing, watch, and at-risk categories, with 0.4% of retail accounts 30+ days past due in 2022 - The Company monitors credit quality based on past due status and classifies accounts into performing, watch, and at-risk categories[291](index=291&type=chunk) Finance Receivables by Aging Category (as of December 31, 2022 vs. 2021) | At December 31, ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Current and up to 30 days past due | $13,741.6 | $11,882.5 | | 31 – 60 days past due | $17.8 | $11.5 | | Greater than 60 days past due | $28.2 | $17.1 | | **Total** | **$13,787.6** | **$11,911.1** | - Worldwide, **0.4%** of retail loan and lease accounts were 30+ days past due at December 31, 2022, compared to **0.3%** at December 31, 2021[150](index=150&type=chunk) [Troubled Debt Restructurings (TDRs)](index=55&type=section&id=Troubled%20Debt%20Restructurings) The balance of Troubled Debt Restructurings (TDRs) decreased to $31.1 million in 2022, with no subsequent defaults on modified receivables - The balance of Troubled Debt Restructurings (TDRs) was **$31.1 million** at December 31, 2022, down from **$41.6 million** at December 31, 2021[297](index=297&type=chunk) - No finance receivables modified as TDRs during the previous twelve months subsequently defaulted in 2022 or 2021[298](index=298&type=chunk) [Repossessions](index=55&type=section&id=Repossessions) Repossessed inventory increased to $9.2 million in 2022, with proceeds from sales totaling $20.8 million - The balance of repossessed inventory was **$9.2 million** at December 31, 2022, compared to **$4.7 million** at December 31, 2021[299](index=299&type=chunk) - Proceeds from the sales of repossessed assets were **$20.8 million** in 2022, compared to **$45.3 million** in 2021[299](index=299&type=chunk) [F. Equipment on Operating Leases](index=56&type=section&id=F.%20EQUIPMENT%20ON%20OPERATING%20LEASES) This note details PACCAR's equipment on operating leases, net, by segment, and provides information on residual value guarantees Equipment on Operating Leases, Net (as of December 31, 2022 vs. 2021) | At December 31, ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Truck, Parts and Other | $190.8 | $302.4 | | Financial Services | $2,612.5 | $2,886.5 | | **Total** | **$2,803.3** | **$3,188.9** | - Residual value guarantees for Truck, Parts and Other were **$162.3 million** at December 31, 2022, compared to **$247.0 million** at December 31, 2021[302](index=302&type=chunk) [G. Property, Plant and Equipment](index=56&type=section&id=G.%20PROPERTY,%20PLANT%20AND%20EQUIPMENT) This table presents PACCAR's property, plant, and equipment, net, by category as of December 31, 2022, and 2021 Property, Plant and Equipment, Net (as of December 31, 2022 vs. 2021) | At December 31, ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Land | $269.9 | $277.6 | | Buildings and improvements | $1,608.6 | $1,596.8 | | Machinery, equipment and production tooling | $5,086.6 | $5,076.0 | | Construction in progress | $424.1 | $313.9 | | Less allowance for depreciation | $(3,920.8) | $(3,866.2) | | **Total Property, plant and equipment, net** | **$3,468.4** | **$3,398.1** | [H. Accounts Payable, Accrued Expenses and Other](index=56&type=section&id=H.%20ACCOUNTS%20PAYABLE,%20ACCRUED%20EXPENSES%20AND%20OTHER) This table provides a breakdown of PACCAR's Truck, Parts, and Other accounts payable, accrued expenses, and other liabilities as of December 31, 2022, and 2021 Truck, Parts and Other Accounts Payable, Accrued Expenses and Other (as of December 31, 2022 vs. 2021) | At December 31, ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Accounts payable | $1,665.1 | $1,393.5 | | Product support liabilities | $542.9 | $475.0 | | Accrued expenses | $808.4 | $611.5 | | Right-of-return liabilities | $366.4 | $436.1 | | Accrued capital expenditures | $221.2 | $242.2 | | Salaries and wages | $351.8 | $310.4 | | Other | $555.9 | $462.2 | | **Total** | **$4,511.7** | **$3,930.9** | [I. Product Support Liabilities](index=57&type=section&id=I.%20PRODUCT%20SUPPORT%20LIABILITIES) This note details PACCAR's product support liabilities, including warranty reserves and deferred revenues on extended warranties and repair and maintenance contracts Warranty Reserves (2022 vs. 2021 vs. 2020) | Metric ($ in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Balance at January 1 | $344.3 | $389.7 | $440.0 | | Cost accruals | $386.1 | $298.2 | $295.0 | | Payments | $(398.7) | $(396.3) | $(437.2) | | Change in estimates for pre-existing warranties | $111.5 | $58.3 | $84.1 | | Currency translation and other | $(5.5) | $(5.6) | $7.8 | | **Balance at December 31** | **$437.7** | **$344.3** | **$389.7** | Deferred Revenues on Extended Warranties and R&M Contracts (2022 vs. 2021 vs. 2020) | Metric ($ in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Balance at January 1 | $775.2 | $795.8 | $801.4 | | Deferred revenues | $629.1 | $487.1 | $409.9 | | Revenues recognized | $(476.1) | $(487.8) | $(438.9) | | Currency translation | $(23.3) | $(19.9) | $23.4 | | **Balance at December 31** | **$904.9** | **$775.2** | **$795.8** | [J. Borrowings and Credit Arrangements](index=57&type=section&id=J.%20BORROWINGS%20AND%20CREDIT%20ARRANGEMENTS) This note outlines PACCAR Financial Services' borrowings, including commercial paper, bank loans, and term notes, and details the Company's available credit line arrangements Financial Services Borrowings (as of December 31, 2022 vs. 2021) | At December 31, ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Commercial paper | $3,265.5 | $3,025.1 | | Bank loans | $339.4 | $277.9 | | Term notes | $7,866.7 | $7,128.8 | | **Total Borrowings** | **$11,471.6** | **$10,431.8** | | Effective rate | 2.7% | 1.2% | - The Company has line of credit arrangements totaling **$3,698.0 million**, with **$3,358.6 million** unused at December 31, 2022[316](index=316&type=chunk) - No borrowings were made under the committed bank facilities for the year ended December 31, 2022[316](index=316&type=chunk) [K. Leases](index=58&type=section&id=K.%20LEASES) This note provides a breakdown of PACCAR's lease expenses by type and presents the total right-of-use assets and lease liabilities as of December 31, 2022, and 2021 Components of Lease Expense (2022 vs. 2021 vs. 2020) | Year Ended December 31, ($ in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Finance lease cost | $0.9 | $0.6 | $0.9 | | Operating lease cost | $15.5 | $16.3 | $16.6 | | Short-term lease cost | $2.4 | $3.0 | $0.8 | | Variable lease cost | $1.2 | $1.5 | $1.7 | | **Total lease cost** | **$20.0** | **$21.4** | **$20.1** | Total Right-of-Use Assets and Lease Liabilities (as of December 31, 2022 vs. 2021) | At December 31, ($ in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Total right-of-use assets | $45.6 | $36.7 | | Total lease liabilities | $45.5 | $37.0 | [L. Commitments and Contingencies](index=60&type=section&id=L.%20COMMITMENTS%20AND%20CONTINGENCIES) This note details PACCAR's outstanding commitments for new loan and lease transactions and discusses various legal proceedings, including EC-related claims with uncertain outcomes - At December 31, 2022, PACCAR had outstanding commitments to fund new loan and lease transactions amounting to **$1,363.3 million**[321](index=321&type=chunk) - The Company is involved in various legal proceedings, including EC-related claims and lawsuits in Europe, with a recent U.K. judgment awarding monetary damages[324](index=324&type=chunk)[325](index=325&type=chunk) - While the Company believes it has meritorious defenses, the final disposition of EC-related claims is highly uncertain, and adverse decisions could have a material impact on results of operations and cash flows[325](index=325&type=chunk) [M. Employee Benefits](index=61&type=section&id=M.%20EMPLOYEE%20BENEFITS) This note provides detailed information on PACCAR's employee benefit plans, including severance costs, defined benefit pension plans, multi-employer plans, and defined contribution plans [Severance Costs](index=61&type=section&id=Severance%20Costs) PACCAR incurred severance expenses of $0.6 million in 2022, a decrease from prior years - The Company incurred severance expense of **$0.6 million** in 2022, compared to **$2.6 million** in 2021 and **$6.1 million** in 2020[327](index=327&type=chunk) [Defined Benefit Pension Plans](index=61&type=section&id=Defined%20Benefit%20Pension%20Plans) The funded status of PACCAR's defined benefit pension plans increased to $548.2 million in 2022, with net pension expense at $47.9 million - The funded status of all pension plans was **$548.2 million** at December 31, 2022, an increase from **$384.9 million** in 2021[336](index=336&type=chunk) - Net pension expense was **$47.9 million** in 2022, compared to **$69.9 million** in 2021[338](index=338&type=chunk) - The Company contributed **$39.1 million** to its pension plans in 2022 and expects to contribute **$25 to $75 million** in 2023[330](index=330&type=chunk) [Multi-employer Plans](index=63&type=section&id=Multi-employer%20Plans) PACCAR contributed $42.1 million to multi-employer plans in 2022, noting funding challenges in both Dutch and U.S. plans - Company contributions to multi-employer plans were **$42.1 million** in 2022, compared to **$43.2 million** in 2021[339](index=339&type=chunk) - The Metal and Electrical Engineering Industry Pension Fund in the Netherlands has a funding improvement plan due to a policy coverage ratio below the required threshold[340](index=340&type=chunk) - The Western Metal Industry Pension Plan in the U.S. remained in critical (red) status as of December 31, 2022, requiring additional contributions[341](index=341&type=chunk) [Defined Contribution Plans](index=64&type=section&id=Defined%20Contribution%20Plans) Expenses for PACCAR's defined contribution plans totaled $56.3 million in 2022 - Expenses for defined contribution plans were **$56.3 million** in 2022, compared to **$50.0 million** in 2021[344](index=344&type=chunk) [N. Income Taxes](index=64&type=section&id=N.%20INCOME%20TAXES) This note details PACCAR's effective income tax rate of 21.8% in 2022, provides a regional breakdown of income before taxes, and discusses net operating loss carryforwards - The effective income tax rate was **21.8%** in 2022, slightly lower than **22.2%** in 2021, primarily due to the change in mix of income generated in jurisdictions with lower tax rates[349](index=349&type=chunk) Income Before Income Taxes by Region (2022 vs. 2021 vs. 2020) | Year Ended December 31, ($ in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Domestic | $2,322.9 | $1,391.4 | $1,126.5 | | Foreign | $1,525.8 | $1,004.9 | $535.1 | | **Total** | **$3,848.7** | **$2,396.3** | **$1,661.6** | - At December 31, 2022, the Company had net operating loss carryforwards of **$404.6 million**, with a related deferred tax asset of **$119.2 million** and a **$102.3 million** valuation allowance[350](index=350&type=chunk) - The Company had **$27.8 million** of unrecognized tax benefits at December 31, 2022, of which **$27.8 million** would impact the effective tax rate if recognized[353](index=353&type=chunk) [O. Stockholders' Equity](index=66&type=section&id=O.%20STOCKHOLDERS'%20EQUITY) This note presents PACCAR's accumulated other comprehensive income (loss) and highlights the 50% common stock dividend declared in December 2022 Accumulated Other Comprehensive Income (Loss) (as of December 31, 2022 vs. 2021 vs. 2020) | Metric ($ in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Balance at January 1 | $(921.1) | $(1,050.3) | $(1,100.1) | | Net other comprehensive (loss) income | $(32.3) | $129.2 | $49.8 | | **Balance at December 31** | **$(953.4)** | **$(921.1)** | **$(1,050.3)** | - On December 6, 2022, the Board of Directors declared a **50% common stock dividend** payable on February 7, 2023[267](index=267&type=chunk) [P. Derivative Financial Instruments](index=67&type=section&id=P.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) PACCAR uses derivative financial instruments to hedge market risks, with significant notional amounts in interest-rate, foreign-exchange, and commodity contracts, resulting in a $119.4 million asset position - The Company uses derivative contracts (interest-rate, foreign-exchange, and commodity) to hedge against market risks, not for speculation[358](index=358&type=chunk) - At December 31, 2022, the notional amount of interest-rate contracts was **$3,023.1 million**, foreign-exchange contracts was **$2,250.8 million**, and commodity contracts was **$32.3 million**[360](index=360&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk) - The asset position of the Company's derivative portfolio was **$119.4 million** at December 31, 2022[262](index=262&type=chunk)[364](index=364&type=chunk) [Q. Fair Value Measurements](index=70&type=section&id=Q.%20FAIR%20VALUE%20MEASUREMENTS) This note explains PACCAR's fair value measurement hierarchy (Level 1, 2, 3) and categorizes various financial instruments, including marketable securities, derivatives, and financial services loans and debt - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[374](index=374&type=chunk)[375](index=375&type=chunk)[376](index=376&type=chunk) - Marketable debt securities are primarily Level 2, with U.S. government obligations as Level 1. Marketable equity securities are Level 1. Derivative financial instruments are Level 2[378](index=378&type=chunk)[379](index=379&type=chunk)[380](index=380&type=chunk)[381](index=381&type=chunk) - Financial Services fixed rate loans are categorized as Level 3, and fixed rate debt is categorized as Level 2 for fair value disclosure[384](index=384&type=chunk)[386](index=386&type=chunk)[387](index=387&type=chunk) [R. Stock Compensation Plans](index=73&type=section&id=R.%20STOCK%20COMPENSATION%20PLANS) This note details PACCAR's stock compensation plan activity, including stock options and nonvested restricted shares, and reports total unrecognized compensation costs Stock Options Activity (as of December 31, 2022) | Metric | Number of Shares | Weighted-average Exercise Price | | :--- | :--- | :--- | | Options outstanding at January 1 | 4,316,800 | $47.27 | | Granted | 858,000 | $62.75 | | Exercised | (846,700) | $42.31 | | Cancelled | (122,900) | $58.15 | | **Options outstanding at December 31** | **4,205,200** | **$51.10**

Financial Data and Key Metrics Changes - In 2022, PACCAR achieved record annual revenues of $28.8 billion and record net income of $3.01 billion, benefiting from strong business growth across all major truck markets [6][15] - Fourth quarter revenues were a record $8.1 billion, with quarterly net income increasing by 78% to a record $921 million [15][6] - PACCAR Parts achieved fourth quarter revenues of $1.47 billion and record pretax profits of $380 million, a 23% increase compared to the same period last year [15][17] Business Line Data and Key Metrics Changes - PACCAR delivered 51,600 trucks during the fourth quarter, which was 7,300 more than the third quarter due to higher truck production and improved supply chain conditions [7][9] - PACCAR Parts set new records for annual revenues and profits, with annual revenues increasing by 17% to $5.8 billion and annual pretax profit increasing by 30% to $1.45 billion [17] - PACCAR Financial Services' fourth quarter pretax income increased to a record $151 million, a 12% increase from last year, with annual pretax income increasing 35% to a record $589 million [21] Market Data and Key Metrics Changes - The 2023 U.S. and Canadian Class 8 truck market deliveries are forecasted to be in the range of 270,000 to 310,000 vehicles, with PACCAR's market share increasing to 29.8% in 2022 [8][16] - DAF's market share in Europe increased to a record 17.3%, reflecting the success of the new generation of DAF trucks [8][9] - In Brazil, DAF achieved a record 6.9% share in the above 16-ton market, up from 5.7% last year [9] Company Strategy and Development Direction - PACCAR plans to invest between $525 million to $575 million in capital projects and $360 million to $410 million in R&D in 2023, focusing on clean diesel, hydrogen engines, and electric powertrains [18] - The company is enhancing its distribution network and investing in technology and innovation to support long-term growth [18][20] - PACCAR aims to maintain its leadership in the market by providing high-quality trucks and transportation solutions, with a focus on customer satisfaction [20][59] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the European economy and expects strong demand for new trucks due to pent-up demand and the need to replace aging fleets [9][16] - The company anticipates strong deliveries in the first quarter of 2023, with forecasts in the range of 49,000 to 53,000 trucks [16] - Management highlighted the importance of new product introductions and strong global performance contributing to positive outlook for 2023 [34][20] Other Important Information - PACCAR has achieved 84 consecutive years of net income and has paid dividends every year since 1941 [6] - The company has a strong cash position of over $6 billion at the end of December 2022, allowing for continued investment and shareholder returns [133][128] Q&A Session Summary Question: What is the outlook for gross margins in the first quarter? - Management indicated that offline units limited by supplier constraints have largely been resolved, leading to strong margins on both parts and truck sides [28][29] Question: How is the backlog being managed? - Management noted strong pent-up demand for trucks and excellent visibility into the year, with a full backlog through the first half of the year [34][35] Question: What are the expectations for parts growth? - Management expects parts sales to grow by 10% to 13% in the first quarter, driven by high truck utilization and successful engine penetration [41][45] Question: How is PACCAR Financial performing? - PACCAR Financial continues to benefit from strong used truck prices and has opened new retail used truck centers, contributing to higher price realization [21][22] Question: What is the company's strategy regarding electric vehicles? - PACCAR is actively developing electric vehicle models and sees a growing market for zero-emission vehicles, with nine electric vehicle models currently in production [56][71]

Financial Performance - Worldwide net sales and revenues increased to $20.69 billion in 2022 from $16.84 billion in 2021, primarily due to higher truck and parts revenues [135]. - Net income for 2022 was $2.09 billion ($5.99 per diluted share), compared to $1.35 billion ($3.87 per diluted share) in 2021, marking a 55% increase [135]. - Truck segment net sales and revenues increased to $5,198.2 million in Q3 2022 from $3,452.6 million in Q3 2021, reflecting a 50.5% increase [150]. - Parts segment net sales and revenues rose to $1,471.5 million in Q3 2022 from $1,260.2 million in Q3 2021, marking a 16.8% increase [156]. - For the first nine months of 2022, Truck segment net sales reached $15,231.7 million, up from $11,837.8 million in the same period of 2021, a 28.9% increase [151]. Truck and Parts Sales - Truck revenues rose to $15.23 billion in 2022, a 29% increase from $11.84 billion in 2021, driven by higher truck deliveries and price realization [135]. - Parts sales increased to $4.30 billion in 2022, reflecting a 18% rise from $3.63 billion in 2021 due to higher demand and price realization [135]. - Average truck sales prices contributed an increase of $515.5 million to sales in Q3 2022, primarily due to higher price realization globally [150]. - Average aftermarket parts sales prices increased sales by $159.9 million in Q3 2022, driven by higher price realization in North America and Europe [158]. Market Outlook - Truck industry heavy-duty retail sales in the U.S. and Canada are projected to be between 260,000 to 300,000 units in 2023, compared to 265,000 to 285,000 units in 2022 [137]. - PACCAR Parts sales are expected to increase by 5-8% in 2023 compared to 2022 levels, following a 14-16% increase in 2022 [139]. Investments and Expenses - Capital investments are projected to be between $525 to $575 million in 2023, up from an expected $475 to $500 million in 2022 [141]. - Research and development expenses are expected to be between $350 to $400 million in 2023, compared to $330 to $340 million in 2022 [141]. - The company anticipates increasing investments in clean diesel and electric powertrain technologies, autonomous systems, and next-generation manufacturing capabilities [201]. - Over the past decade, the company has invested $7.22 billion in capital projects and R&D, enhancing operational capacity and efficiency [200]. Operational Metrics - Truck segment gross margin improved to 10.6% in Q3 2022 compared to 5.8% in Q3 2021, driven by higher sales volume and improved pricing [153]. - Parts gross margin increased to 30.4% in Q3 2022 from 28.4% in Q3 2021, attributed to higher sales volume and pricing [158]. - Truck SG&A expenses decreased to $60.7 million in Q3 2022 from $66.4 million in Q3 2021, reflecting a reduction in sales and marketing costs [152]. - Parts SG&A expenses decreased to $52.9 million in Q3 2022 from $53.4 million in Q3 2021, primarily due to lower sales and marketing costs [160]. Financial Services - New loan and lease volume increased to $1,437.1 million in Q3 2022 from $1,365.5 million in Q3 2021, reflecting a 5% increase [164]. - Average finance receivables increased by $1,204.3 million in Q3 2022, primarily due to higher average loan and dealer wholesale balances [172]. - The finance margin increased to $104.6 million in Q3 2022, up from $96.2 million in Q3 2021 [171]. - Higher portfolio yields increased interest and fees by $24.5 million, with yields at 4.9% in 2022 compared to 4.6% in 2021 [175]. Tax and Income - The effective tax rate for Q3 2022 was 21.5%, down from 21.9% in Q3 2021, reflecting a change in the mix of income generated in lower tax jurisdictions [191]. - Domestic income before taxes for Q3 2022 was $623.7 million, up from $252.7 million in Q3 2021, while total income before taxes increased to $979.7 million from $487.2 million [192]. Cash Flow and Liquidity - Total cash and marketable securities decreased by $120.0 million to $4,867.7 million as of September 30, 2022, compared to $4,987.7 million at December 31, 2021 [193]. - Net cash provided by operating activities rose by $628.0 million to $1,778.2 million in the first nine months of 2022, compared to $1,150.2 million in the same period of 2021 [194]. - Cash used in investing activities increased by $293.1 million to $1,318.5 million in the first nine months of 2022, reflecting higher net originations of loans and financing leases [195]. - Cash used in financing activities decreased by $971.0 million to $418.9 million in the first nine months of 2022, with net borrowing activities providing $437.3 million [196]. Other Notable Events - The new DAF XD truck was named International Truck of the Year 2023, showcasing advancements in vocational performance and driver comfort [134]. - The company has suspended truck and parts sales to Russia and Belarus due to international sanctions, with no significant receivables exposure [136]. - The company has $3.66 billion in line of credit arrangements, with $3.36 billion unused as of September 30, 2022 [197]. - The company has repurchased $110.0 million of its common stock under a $500.0 million repurchase plan as of September 30, 2022 [198].

PACCAR, Inc. (NASDAQ:PCAR) Q3 2022 Earnings Conference Call October 25, 2022 12:00 PM ET Company Participants Ken Hastings - Director, IR Preston Feight - CEO Harrie Schippers - President & CFO Michael Barkley - SVP & Controller Conference Call Participants Chad Dillard - Bernstein Felix Boeschen - Raymond James Tami Zakaria - JPMorgan Steven Fisher - UBS Tim Thein - Citigroup Jamie Cook - Credit Suisse Stephen Volkmann - Jefferies David Raso - Evercore John Joyner - BMO Capital Markets Nicole DeBlase - Deu ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents PACCAR Inc.'s unaudited consolidated financial statements, including a retrospective accounting change from LIFO to FIFO for U.S. inventories [Consolidated Statements of Comprehensive Income](index=3&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Net income significantly increased for both three and six months ended June 30, 2022, driven by higher net sales and revenues in the Truck, Parts and Other segment Consolidated Statements of Comprehensive Income (Unaudited) | (In Millions, Except Per Share) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net sales and revenues** | $6,786.2 | $5,387.6 | $12,892.6 | $10,801.1 | | **Total Income Before Income Taxes** | $922.1 | $640.3 | $1,693.5 | $1,248.6 | | **Net Income** | $720.4 | $495.5 | $1,320.9 | $966.3 | | **Diluted Net Income Per Share** | $2.07 | $1.42 | $3.79 | $2.77 | [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$30,588.7 million** and stockholders' equity grew to **$12,518.0 million** as of June 30, 2022, driven by asset growth in both segments Consolidated Balance Sheet Highlights (Unaudited) | (In Millions) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | $30,588.7 | $29,509.4 | | Total Truck, Parts and Other Assets | $14,547.8 | $14,090.5 | | Total Financial Services Assets | $16,040.9 | $15,418.9 | | **Total Liabilities** | $18,070.7 | $17,915.4 | | **Total Stockholders' Equity** | $12,518.0 | $11,594.0 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to **$1,097.5 million** for the six months ended June 30, 2022, primarily due to higher net income Condensed Consolidated Statements of Cash Flows (Unaudited) | (In Millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net Cash Provided by Operating Activities** | $1,097.5 | $867.7 | | **Net Cash Used in Investing Activities** | ($879.0) | ($666.7) | | **Net Cash Used in Financing Activities** | ($346.0) | ($651.5) | | **Net Decrease in Cash and Cash Equivalents** | ($197.0) | ($469.8) | | **Cash and cash equivalents at end of period** | $3,231.3 | $3,069.8 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Key notes detail the retrospective change from LIFO to FIFO for U.S. inventories, revenue disaggregation, segment performance, and legal contingencies from a European Commission investigation - In Q1 2022, the company changed its accounting method for U.S. inventories from LIFO to FIFO to better match costs with revenues and improve comparability. This change increased Retained Earnings by **$143.3 million** as of January 1, 2021, and has been retrospectively applied to all presented periods[19](index=19&type=chunk) - The company is a defendant in various European lawsuits following a 2016 European Commission (EC) settlement. The final outcome and potential range of loss from these claims are highly uncertain and cannot be reasonably estimated at this time[128](index=128&type=chunk)[129](index=129&type=chunk) Truck, Parts and Other Revenues by Source (Six Months Ended June 30) | (In Millions) | 2022 | 2021 | | :--- | :--- | :--- | | **Truck Sales** | $9,611.3 | $7,995.4 | | **Parts Sales** | $2,742.6 | $2,302.0 | | Other Revenues | $538.7 | $503.7 | | **Total** | **$12,892.6** | **$10,801.1** | Segment Income Before Taxes (Six Months Ended June 30) | (In Millions) | 2022 | 2021 | | :--- | :--- | :--- | | Truck | $698.8 | $526.5 | | Parts | $693.5 | $518.4 | | Financial Services | $291.4 | $182.9 | | Other | $6.9 | $10.9 | | Investment Income | $2.9 | $9.9 | | **Total** | **$1,693.5** | **$1,248.6** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses record Q2 and H1 2022 financial performance driven by Truck and Parts segments, addressing semiconductor shortages, Russia/Belarus sales suspension, and positive 2022 outlook [Overview and Outlook](index=39&type=section&id=Overview%20and%20Outlook) The company achieved higher net sales and income in Q2 and H1 2022, maintaining a positive 2022 outlook despite semiconductor shortages and suspended sales to Russia and Belarus Financial Highlights - Q2 2022 vs Q2 2021 | Metric (in millions, except EPS) | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Worldwide Net Sales & Revenues | $7,160 | $5,840 | | Net Income | $720.4 | $495.5 | | Diluted EPS | $2.07 | $1.42 | - The company has suspended truck and parts sales to Russia and Belarus in accordance with international sanctions. In 2021, **2,500 trucks** were sold into these markets. The conflict has not had a significant impact on operations to date[137](index=137&type=chunk) - The industry-wide undersupply of semiconductor chips and component parts has affected the company and is expected to continue impacting deliveries in 2022[139](index=139&type=chunk) 2022 Outlook | Category | Outlook | | :--- | :--- | | U.S. & Canada Truck Industry Sales | 260,000 - 290,000 units | | Europe Truck Industry Registrations | 270,000 - 300,000 units | | PACCAR Parts Sales Growth | 13% - 16% increase vs 2021 | | Capital Investments | $425 - $475 million | | R&D Expenses | $330 - $350 million | [Results of Operations](index=40&type=section&id=Results%20of%20Operations) Operational results improved in H1 2022, with Truck revenue up **20%** to **$10.03 billion** and Parts revenue up **19%** to **$2.82 billion**, while Financial Services pre-tax income surged **59%** Truck Deliveries (Units) | Region | Six Months 2022 | Six Months 2021 | % Change | | :--- | :--- | :--- | :--- | | U.S. and Canada | 45,100 | 45,600 | (1)% | | Europe | 31,500 | 25,500 | 24% | | Other | 13,300 | 11,200 | 19% | | **Total Units** | **89,900** | **82,300** | **9%** | Segment Pre-Tax Income (Six Months Ended June 30) | Segment (in millions) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Truck | $698.8 | $526.5 | 33% | | Parts | $693.5 | $518.4 | 34% | | Financial Services | $291.4 | $182.9 | 59% | [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with **$4.79 billion** in cash and marketable securities, and **$1.10 billion** net cash from operations for H1 2022 - Total cash and marketable securities stood at **$4.79 billion** at June 30, 2022, a slight decrease from **$4.99 billion** at year-end 2021[198](index=198&type=chunk) - The company has committed bank facilities of **$3.00 billion**, maintained primarily for backup liquidity for commercial paper borrowings[202](index=202&type=chunk) - As of June 30, 2022, **$390.0 million** remains authorized for repurchase under the company's **$500.0 million** stock buyback program approved in 2018[203](index=203&type=chunk)[224](index=224&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=56&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) No material changes in market risk occurred during the first six months of 2022, with further details available in the 2021 Annual Report on Form 10-K - There were no material changes in the Company's market risk during the first six months of 2022[216](index=216&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=56&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal controls over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the reporting period[217](index=217&type=chunk) - No changes in internal controls over financial reporting occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[218](index=218&type=chunk) [PART II. OTHER INFORMATION](index=57&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=57&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company faces ongoing European legal proceedings stemming from a 2016 EC settlement, with potential material impact but an unestimable range of loss - The company faces ongoing claims and lawsuits in Europe following a 2016 EC settlement. The final disposition and potential financial impact are highly uncertain and cannot be reasonably estimated at this time[128](index=128&type=chunk)[129](index=129&type=chunk)[222](index=222&type=chunk) [ITEM 1A. RISK FACTORS](index=57&type=section&id=ITEM%201A.%20RISK%20FACTORS) No material changes to risk factors except for a new one related to the Ukraine conflict, leading to suspended sales to Russia and Belarus with uncertain future impacts - A new risk factor has been identified concerning the conflict in Ukraine. The company has suspended sales to Russia and Belarus, and the potential future impact on business depends on the conflict's development and its effect on European and global economic conditions[223](index=223&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=57&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) No stock repurchases occurred in Q2 2022 under the **$500.0 million** program, with **$110.0 million** of shares repurchased to date and **$390.0 million** remaining - No stock repurchases were made during the second quarter of 2022. As of June 30, 2022, the company has repurchased **$110.0 million** of shares under its **$500.0 million** authorization, with **$390.0 million** remaining[224](index=224&type=chunk) [ITEM 6. EXHIBITS](index=58&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, material contracts, and officer certifications

Financial Data and Key Metrics Changes - PACCAR achieved record revenues of $7.16 billion, a 23% increase year-over-year, and net income rose 45% to $720 million [6] - After-tax return on invested capital improved to an industry-leading 23% in the first half of the year [17] - Capital expenditures are projected to be between $425 million and $475 million, with R&D expenses estimated at $330 million to $350 million [17] Business Line Data and Key Metrics Changes - PACCAR Parts revenues increased by 18% to a record $1.43 billion, with pre-tax profits reaching $353 million, a 32% increase from the previous year [7] - Truck deliveries totaled 47,000 units in Q2, a 9% increase over Q1, with expectations for Q3 deliveries between 44,000 and 48,000 trucks [13] - PACCAR Financial Services reported revenues of $373 million, with pre-tax income up 36% year-over-year to $144 million [15] Market Data and Key Metrics Changes - The U.S. and Canadian Class 8 market is estimated to be between 260,000 and 290,000 trucks, while the European market is expected to be between 270,000 and 300,000 trucks [10] - PACCAR's market share in Europe has grown to 17.5%, with significant gains in Germany, France, and Spain [46] Company Strategy and Development Direction - PACCAR is focusing on new generation trucks, clean diesel and electric powertrains, and autonomous trucks, positioning itself as an industry leader [8][9] - The company has invested $7.3 billion over the past decade in new facilities and technologies, aiming for excellent shareholder returns [16] - Continued strong demand for PACCAR Parts, Trucks, and Financial Services is anticipated due to high fleet age and utilization [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the operating environment, citing low unemployment and projected GDP growth in the U.S. [10] - The company expects continued strong performance in the Parts business and overall growth in truck sales due to high demand and aging fleets [11][50] - Management noted that the European business is performing well, with strong demand for new trucks that meet regulatory standards [31] Other Important Information - The impact of currency fluctuations resulted in a negative effect of approximately $270 million on sales and $25 million on net income for the quarter [60] - PACCAR is expanding its used truck retail centers, which is expected to enhance profitability [15] Q&A Session Summary Question: Gross margin trajectory and sustainability - Management indicated that margins are expected to improve due to strong performance in new trucks and Parts business, with continued strong performance anticipated throughout the year [22] Question: Year-on-year growth for Parts - Parts sales are expected to grow 12% to 14% year-over-year in Q3 [23] Question: Price versus inflation - Management reported good price realization that kept pace with cost increases [29] Question: Customer sentiment in Europe - Management noted strong demand in Europe, with new trucks performing well and contributing to market strength [31] Question: New product build rates in North America - New products have been well received, with build rates expected to increase as production ramps up [35] Question: Used truck market normalization - Management acknowledged a slight decrease in used truck prices but emphasized that prices remain significantly higher than the previous year [77] Question: R&D spending and supply chain issues - Management clarified that the decrease in R&D spending was primarily due to currency effects, with plans to maintain high levels of investment in R&D [66] Question: Impact of raw material costs - Management noted that raw material prices have softened recently, but the timing of cost impacts on P&L will vary based on inventory turnover [86] Question: Production risks due to gas shortages in Europe - Management expressed confidence in maintaining supply and production levels despite potential gas shortages [91] Question: Order rates and market dynamics - Management indicated that order intake is expected to increase as the market stabilizes and demand remains strong [72]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2022 OR ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File No. 001-14817 PACCAR Inc (Exact name of registrant as specified in its charter) Delaware 91-0351110 (State or other jurisdiction of incorporation or o ...