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 ...

PACCAR Inc (NASDAQ:PCAR) Q1 2022 Earnings Conference Call April 26, 2022 11:00 AM ET Company Participants Ken Hastings - Director of Investor Relations Preston Feight - Chief Executive Officer Harrie Schippers - President & Chief Financial Officer Michael Barkley - Senior Vice President & Controller Conference Call Participants Tami Zakaria - JPMorgan Steven Fisher - UBS Tim Thein - Citigroup Jamie Cook - Credit Suisse Steven Volkmann - Jefferies David Raso - Evercore ISI John Joyner - BMO Nicole DeBlase - ...

Employment and Workforce - As of December 31, 2021, the company had approximately 28,500 employees, with about 37% based in the U.S.[50] Environmental Responsibility - The company achieved an A score from CDP in 2021, placing in the top 1.5% of over 13,000 companies reporting greenhouse gas emissions[53] - PACCAR's factories are ISO 14001 certified, and more than 80% are zero waste-to-landfill[52] - The company is launching its SuperTruck 3 program to develop state-of-the-art zero emissions medium- and heavy-duty trucks[58] - The company has established new emissions reduction targets in partnership with the Science Based Targets Initiative (SBTi)[54] - The company’s commitment to environmental responsibility includes significant investments in research and development for technologies that reduce greenhouse gas emissions[55] Financial Performance and Risks - The company reported a potential loss of $210.8 million related to foreign currency exchange contracts from a 10% unfavorable change in exchange rates as of December 31, 2021[196] - The company’s fixed rate loans had a fair value loss of $110.5 million in 2021 due to interest rate fluctuations[196] - The potential loss in fair value for commodity forward contracts from a 10% unfavorable change in prices was $18.4 million as of December 31, 2021[197] Sales and Market Performance - Biofuel capable unit sales represented 49% of the company's total global truck sales[57]

PACCAR Inc (NASDAQ:PCAR) Q4 2021 Earnings Conference Call January 25, 2022 12:00 PM ET Company Participants Ken Hastings - Director of IR Preston Feight - CEO Harrie Schippers - President and CFO Michael Barkley - SVP and Controller Conference Call Participants Chad Dillard - Bernstein Jamie Cook - Credit Suisse Stephen Volkmann - Jefferies Tami Zakaria - JPMorgan David Raso - Evercore Steve Fisher - UBS Robert Wertheimer - Melius Research Jerry Revich - Goldman Sachs Ross Gilardi - Bank of America Nicole D ...

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 September 30, 2021 OR ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation ...

PACCAR Inc. (NASDAQ:PCAR) Q3 2021 Earnings Conference Call October 26, 2021 12:00 PM ET Company Participants Ken Hastings - Director of Investor Relations Preston Feight - Chief Executive Officer Harrie Schippers - President and Chief Financial Officer Michael Barkley - Senior Vice President and Controller Conference Call Participants Stephen Volkmann - Jefferies Ann Duignan - JPMorgan David Raso - Evercore ISI Steven Fisher - UBS Joel Tiss - BMO Capital Markets Robert Wertheimer - Melius Research Cha ...

[Report Information](index=1&type=section&id=Report%20Information) [Filing Details](index=1&type=section&id=Filing%20Details) This report is PACCAR Inc's quarterly report (Form 10-Q) for the period ended June 30, 2021, with the company incorporated in Delaware, trading on Nasdaq under PCAR, having filed all required reports, and designated as a large accelerated filer - This report is PACCAR Inc's quarterly report (Form 10-Q) for the period ended June 30, 2021[2](index=2&type=chunk) - The company has filed all required reports in the past 12 months and has been subject to such filing requirements for the past 90 days[3](index=3&type=chunk) Registrant Details | Metric | Detail | | :--- | :--- | | Registrant Name | PACCAR Inc | | State of Incorporation | Delaware | | Securities Code | PCAR | | Registered Exchange | Nasdaq Stock Market | | Filer Type | Large Accelerated Filer | | Common Stock (par value $1.00) | 347,173,392 shares outstanding as of July 29, 2021 | [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) PACCAR Inc's financial statements show significant growth in net sales and revenues, net income, and diluted EPS for the three and six months ended June 30, 2021, with increased total assets and stockholders' equity; operating cash flow decreased, investing cash flow increased, and financing cash flow significantly decreased due to lower dividend payments [Consolidated Statements of Comprehensive Income](index=3&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) PACCAR Inc reported substantial growth in net sales and revenues, net income, and diluted earnings per share for the three and six months ended June 30, 2021, driven by strong performance in its truck, parts, and financial services segments Key Financial Data for Three Months Ended June 30 (Millions of USD, except per share amounts) | Metric | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Net Sales and Revenues | $5,843.9 | $3,062.2 | 91% | | Net Income | $492.9 | $147.7 | 234% | | Diluted Earnings Per Share | $1.41 | $0.43 | 228% | | Comprehensive Income | $579.7 | $241.7 | 140% | Key Financial Data for Six Months Ended June 30 (Millions of USD, except per share amounts) | Metric | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Net Sales and Revenues | $11,689.4 | $8,223.9 | 42% | | Net Income | $963.0 | $507.1 | 90% | | Diluted Earnings Per Share | $2.76 | $1.46 | 89% | | Comprehensive Income | $983.7 | $317.3 | 210% | [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2021, PACCAR Inc's total assets increased by **3% to $29.0122 billion** from December 31, 2020, primarily driven by increased assets in the truck, parts, and other businesses, with significant growth in stockholders' equity and a slight decrease in financial services liabilities Total Assets (Millions of USD) | Category | June 30, 2021 | December 31, 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Truck, Parts and Other | $13,446.4 | $12,460.2 | 8% | | Financial Services | $15,565.8 | $15,799.8 | -1% | | **Total Assets** | **$29,012.2** | **$28,260.0** | **3%** | Total Liabilities (Millions of USD) | Category | June 30, 2021 | December 31, 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Truck, Parts and Other | $5,881.4 | $5,601.1 | 5% | | Financial Services | $11,947.0 | $12,268.9 | -3% | - As of June 30, 2021, total stockholders' equity was **$11.1838 billion**, a **7.6% increase** from $10.3900 billion as of December 31, 2020[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2021, PACCAR Inc experienced a significant decrease in cash flow from operating activities, an increase in cash outflow from investing activities, and a substantial decrease in cash outflow from financing activities due to reduced dividend payments and changes in borrowing activities Cash Flow Summary (Six Months Ended June 30, Millions of USD) | Activity Category | 2021 | 2020 | Change Amount | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $867.7 | $1,360.8 | $(493.1) | | Net Cash Used in Investing Activities | $(666.7) | $(594.1) | $(72.6) | | Net Cash Used in Financing Activities | $(651.5) | $(1,778.4) | $1,126.9 | | Net Decrease in Cash and Cash Equivalents | $(469.8) | $(1,047.1) | $577.3 | | Cash and Cash Equivalents at End of Period | $3,069.8 | $3,128.0 | $(58.2) | - The decrease in operating cash flow was primarily due to an **$823.5 million increase** in cash used for inventory purchases, a **$531.3 million decrease** in cash received from financial services wholesale receivables, and a **$191.0 million increase** in cash outflow for income tax payments[199](index=199&type=chunk) - The decrease in financing cash outflow was mainly due to **reduced dividend payments** ($471.8 million in 2021 vs. $1.018 billion in 2020) and lower cash used for borrowing activities[201](index=201&type=chunk) [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) As of June 30, 2021, PACCAR Inc's stockholders' equity grew for both the three and six-month periods, primarily due to net income contributions and improved accumulated other comprehensive income (loss), despite cash dividend payments Total Stockholders' Equity (Millions of USD) | Period | June 30, 2021 | June 30, 2020 | Change Amount | | :--- | :--- | :--- | :--- | | Three Months Ended | $11,183.8 | $9,776.8 | $1,407.0 | | Six Months Ended | $11,183.8 | $9,776.8 | $1,407.0 | - For the three and six months ended June 30, 2021, net income was **$492.9 million and $963.0 million**, respectively, serving as the primary driver for stockholders' equity growth[19](index=19&type=chunk) - Cash dividends on common stock were **$0.34 per share** for the three months and **$0.66 per share** for the six months ended June 30, 2021[19](index=19&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes to consolidated financial statements provide detailed disclosures on accounting policies, revenue recognition, investments, receivables, liabilities, stockholders' equity, income taxes, segment information, derivatives, fair value measurements, employee benefit plans, and commitments and contingencies, explaining key items and changes [NOTE A - Basis of Presentation](index=8&type=section&id=NOTE%20A%20-%20Basis%20of%20Presentation) These unaudited consolidated financial statements are prepared in accordance with GAAP and Form 10-Q instructions, including necessary management adjustments; a new retirement benefit disclosure standard had no material impact, and a new leasing standard expected in 2022 is also not anticipated to have a significant impact - The unaudited consolidated financial statements are prepared in accordance with GAAP and Form 10-Q instructions, and include adjustments deemed necessary by management[21](index=21&type=chunk) - The company adopted ASU 2018-14 (Retirement Benefits—Defined Benefit Plans—General) on January 1, 2021, with no material impact on the consolidated financial statements[24](index=24&type=chunk) - FASB-issued ASU 2021-05 (Leases—Lessor—Certain Leases with Variable Lease Payments), effective January 1, 2022, is not expected to have a material impact on the consolidated financial statements[25](index=25&type=chunk) [NOTE B – Sales and Revenues](index=8&type=section&id=NOTE%20B%20%E2%80%93%20Sales%20and%20Revenues) PACCAR recognizes truck, parts, and other business revenue when control transfers, with special accounting for extended warranties, operating leases, and residual value guarantees; financial services revenue primarily from loans and leases, with interest and rental income suspended when receivables are over 90 days past due or collection is uncertain Truck, Parts and Other Sales and Revenues (Three Months Ended June 30, Millions of USD) | Revenue Source | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Truck Sales | $3,950.4 | $1,708.1 | 131% | | Parts Sales | $1,176.1 | $799.4 | 47% | | **Total** | **$5,387.6** | **$2,701.9** | **99%** | - Truck sales revenue is recognized when control of the product transfers to the customer, but for truck sales with residual value guarantees (RVG), it may be accounted for as a sale or an operating lease depending on the customer's economic incentive to return the truck[29](index=29&type=chunk) - Interest income and rental income from financial services operations are suspended when receivables are **90 days or more past due**, or earlier if collectibility is uncertain[35](index=35&type=chunk) Financial Services Lease Revenue (Three Months Ended June 30, Millions of USD) | Lease Type | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Finance Lease Revenue | $48.4 | $45.2 | 7% | | Operating Lease Revenue | $212.1 | $191.7 | 11% | | **Total Lease Revenue** | **$260.5** | **$236.9** | **10%** | [NOTE C - Investments in Marketable Securities](index=11&type=section&id=NOTE%20C%20-%20Investments%20in%20Marketable%20Securities) PACCAR's marketable debt securities are classified as available-for-sale, reported at fair value with credit losses in earnings and unrealized gains/losses in OCI; marketable equity securities are measured at fair value with gains/losses in investment income; total marketable securities were **$1.4346 billion** as of June 30, 2021, with no recognized credit loss allowance - Marketable debt securities are classified as available-for-sale and reported at fair value; marketable equity securities are measured at fair value, with realized and unrealized gains and losses included in investment income[40](index=40&type=chunk)[43](index=43&type=chunk) - As of June 30, 2021, and December 31, 2020, the company did not recognize an allowance for credit losses, as unrealized losses were due to increases in yields for certain securities, and the company expects to receive contractual principal and interest[46](index=46&type=chunk) Marketable Securities Fair Value (Millions of USD) | Category | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Marketable Debt Securities | $1,429.3 | $1,429.0 | | Marketable Equity Securities | $5.3 | $0.0 | | **Total Marketable Securities** | **$1,434.6** | **$1,429.0** | [NOTE D - Inventories](index=12&type=section&id=NOTE%20D%20-%20Inventories) PACCAR's inventories are valued at the lower of cost or market, with US inventories primarily using LIFO and other inventories primarily using FIFO; as of June 30, 2021, net inventories significantly increased to **$2.0546 billion** from December 31, 2020, driven by growth in work-in-process and raw materials - Inventories are valued at the lower of cost or market, with U.S. inventories primarily using the LIFO method and other inventories primarily using the FIFO method[48](index=48&type=chunk) Inventory Composition (Millions of USD) | Category | June 30, 2021 | December 31, 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Finished Products | $646.4 | $610.0 | 6% | | Work-in-Process and Raw Materials | $1,602.6 | $801.9 | 100% | | Less: LIFO Reserve | $(194.4) | $(190.0) | 2% | | **Net Inventories** | **$2,054.6** | **$1,221.9** | **68%** | [NOTE E - Finance and Other Receivables](index=13&type=section&id=NOTE%20E%20-%20Finance%20and%20Other%20Receivables) PACCAR's finance and other receivables include loans, finance leases, and dealer wholesale financing; the company assesses credit risk through continuous monitoring, credit ratings, and internal metrics, categorizing accounts as performing, watch, or at-risk; as of June 30, 2021, net receivables were **$11.8993 billion**, with a slight decrease in allowance for losses and declining balances for nonperforming loans and restructured debt Net Finance and Other Receivables (Millions of USD) | Category | June 30, 2021 | December 31, 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Loans | $6,248.4 | $5,839.1 | 7% | | Finance Leases | $3,806.0 | $3,944.7 | -4% | | Dealer Wholesale Financing | $1,818.3 | $2,012.4 | -10% | | Operating Lease Receivables and Other | $151.9 | $151.5 | 0% | | Less: Allowance for Losses | $(125.3) | $(127.0) | -1% | | **Total** | **$11,899.3** | **$11,820.7** | **1%** | - The company categorizes credit quality indicators into "Performing," "Watch" (31-90 days past due or high-risk performing accounts), and "At-risk" (impaired, over 90 days past due, or non-accrual accounts)[74](index=74&type=chunk) - As of June 30, 2021, the balance of troubled debt restructurings (TDRs) was **$51.8 million**, down from $63.1 million as of December 31, 2020[79](index=79&type=chunk) - As of June 30, 2021, the balance of repossessed vehicles was **$6.8 million**, down from $18.1 million as of December 31, 2020[81](index=81&type=chunk) [NOTE F - Product Support Liabilities](index=19&type=section&id=NOTE%20F%20-%20Product%20Support%20Liabilities) PACCAR's product support liabilities include product warranty reserves and deferred revenue from extended warranty and repair and maintenance (R&M) contracts; warranty expenses are estimated and recorded at the time of product sale based on historical data, while deferred revenue is recognized straight-line over the contract term; as of June 30, 2021, warranty reserves were **$368.7 million** and deferred revenue was **$783.3 million** Warranty Reserves (Millions of USD) | Metric | 2021 (Six Months) | 2020 (Six Months) | | :--- | :--- | :--- | | Balance January 1 | $389.7 | $440.0 | | Costs Accrued | $157.1 | $147.7 | | Payments | $(206.4) | $(224.7) | | Change in Estimate | $29.7 | $47.6 | | **Balance June 30** | **$368.7** | **$406.0** | Extended Warranty and R&M Contract Deferred Revenue (Millions of USD) | Metric | 2021 (Six Months) | 2020 (Six Months) | | :--- | :--- | :--- | | Balance January 1 | $795.8 | $801.4 | | Deferred Revenue | $232.5 | $187.4 | | Revenue Recognized | $(238.7) | $(209.5) | | **Balance June 30** | **$783.3** | **$770.8** | - The company expects to recognize approximately **$140.0 million** of the remaining deferred revenue in 2021, **$260.1 million** in 2022, and **$207.7 million** in 2023[83](index=83&type=chunk) [NOTE G - Stockholders' Equity](index=20&type=section&id=NOTE%20G%20-%20Stockholders'%20Equity) PACCAR's comprehensive income significantly increased in Q2 and H1 2021, driven by net income and positive other comprehensive income (OCI) contributions, particularly foreign currency translation gains; accumulated other comprehensive loss (AOCI) improved, stock-based compensation expense increased, and treasury stock repurchases decreased Comprehensive Income (Three Months Ended June 30, Millions of USD) | Component | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Net Income | $492.9 | $147.7 | 234% | | Net Other Comprehensive Income (Loss) | $86.8 | $94.0 | -7.7% | | **Comprehensive Income** | **$579.7** | **$241.7** | **140%** | Comprehensive Income (Six Months Ended June 30, Millions of USD) | Component | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Net Income | $963.0 | $507.1 | 90% | | Net Other Comprehensive Income (Loss) | $20.7 | $(189.8) | Not Applicable | | **Comprehensive Income** | **$983.7** | **$317.3** | **210%** | - As of June 30, 2021, accumulated other comprehensive loss (AOCI) improved from **$(1.0503 billion)** as of January 1, 2021, to **$(1.0296 billion)**[85](index=85&type=chunk) - Stock-based compensation expense for the six months ended June 30, 2021, was **$9.4 million**, higher than $8.2 million for the same period in 2020[88](index=88&type=chunk) - For the six months ended June 30, 2021, the company repurchased **$1.4 million** of treasury stock, with **$390 million** remaining authorized under the existing $500 million repurchase program[90](index=90&type=chunk) [NOTE H - Income Taxes](index=22&type=section&id=NOTE%20H%20-%20Income%20Taxes) PACCAR's effective tax rates for Q2 and H1 2021 were higher than the corresponding periods in 2020, primarily due to higher research and development tax credits in 2020 Effective Tax Rates | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended June 30 | 22.6% | 19.7% | | Six Months Ended June 30 | 22.6% | 21.5% | - The higher effective tax rates in Q2 and H1 2021 were primarily due to higher research and development tax credits in 2020[91](index=91&type=chunk) [NOTE I - Segment Information](index=23&type=section&id=NOTE%20I%20-%20Segment%20Information) PACCAR operates primarily in three segments: Truck, Parts, and Financial Services, with an "Other" business; Truck and Parts segments are evaluated based on operating profit, while Financial Services is evaluated based on pretax earnings; all major segments showed significant growth in net sales and pretax profit in H1 2021 Net Sales and Revenues by Segment (Six Months Ended June 30, Millions of USD) | Segment | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Truck | $8,385.2 | $5,616.0 | 49% | | Parts | $2,372.0 | $1,822.3 | 30% | | Financial Services | $888.3 | $744.0 | 19% | | **Total** | **$11,689.4** | **$8,223.9** | **42%** | Pretax Profit by Segment (Six Months Ended June 30, Millions of USD) | Segment | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Truck | $524.5 | $136.9 | 283% | | Parts | $516.9 | $366.6 | 41% | | Financial Services | $182.9 | $103.8 | 76% | | **Total** | **$1,244.3** | **$646.2** | **92%** | - The Truck and Parts segments sell products through the same independent dealer network, and the Parts segment benefits from costs generated by the Truck segment, leading to certain expenses being allocated between the two segments[93](index=93&type=chunk) [NOTE J - Derivative Financial Instruments](index=24&type=section&id=NOTE%20J%20-%20Derivative%20Financial%20Instruments) PACCAR uses derivatives like interest rate swaps, cross-currency interest rate swaps, and foreign exchange contracts to hedge interest rate and foreign currency risks, prohibiting speculation or trading; these derivatives are designated as fair value, cash flow, or net investment hedges, or not designated, with their fair value and gains/losses recorded according to accounting standards - The company utilizes derivative instruments to hedge interest rate and foreign currency risks, not for speculation or trading[99](index=99&type=chunk) - As of June 30, 2021, the notional amount of the company's interest rate contracts was **$3.924 billion**, and foreign exchange contracts had a notional amount of **$1.6561 billion**[103](index=103&type=chunk)[104](index=104&type=chunk) - For the six months ended June 30, 2021, interest rate contracts in cash flow hedges recognized a **$23.7 million pretax gain**, while foreign exchange contracts recognized an **$(11.9) million pretax loss**[109](index=109&type=chunk) Total Derivative Financial Instrument Assets and Liabilities (Millions of USD) | Category | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Derivative Assets | $19.7 | $20.5 | | Total Derivative Liabilities | $115.9 | $159.9 | [NOTE K - Fair Value Measurements](index=28&type=section&id=NOTE%20K%20-%20Fair%20Value%20Measurements) PACCAR categorizes assets and liabilities subject to recurring fair value measurements into Level 1 (active market quotes) or Level 2 (observable inputs); other financial instruments, such as fixed-rate loans and debt, also disclose fair values, with fixed-rate loans classified as Level 3 - Fair value hierarchy is categorized into: Level 1 (active market quotes), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs requiring significant management judgment)[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - Marketable debt securities are primarily classified as Level 2, while U.S. government and agency securities and marketable equity securities are classified as Level 1[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[124](index=124&type=chunk) - The fair value of derivative financial instruments is determined using industry-standard valuation models based on observable inputs and is classified as Level 2[123](index=123&type=chunk) Fair Value Disclosure for Financial Services Fixed-Rate Loans and Debt (Millions of USD) | Instrument | June 30, 2021 Carrying Value | June 30, 2021 Fair Value | December 31, 2020 Carrying Value | December 31, 2020 Fair Value | | :--- | :--- | :--- | :--- | :--- | | Fixed-Rate Loans | $5,760.6 | $5,845.2 | $5,319.2 | $5,429.5 | | Fixed-Rate Debt | $6,904.2 | $7,013.9 | $6,482.0 | $6,648.6 | [NOTE L - Employee Benefit Plans](index=30&type=section&id=NOTE%20L%20-%20Employee%20Benefit%20Plans) PACCAR offers several defined benefit pension plans to most employees; for the six months ended June 30, 2021, net pension expense was **$36.3 million**, lower than **$42.5 million** in the prior year, with the company contributing **$12.9 million** to pension plans during this period Net Pension Expense (Six Months Ended June 30, Millions of USD) | Component | 2021 | 2020 | | :--- | :--- | :--- | | Service Cost | $75.4 | $65.2 | | Interest Cost on PBO | $33.3 | $41.3 | | Expected Return on Assets | $(102.3) | $(94.7) | | Recognized Actuarial Loss | $29.5 | $22.0 | | Settlement Loss | $0.0 | $8.0 | | **Net Pension Expense** | **$36.3** | **$42.5** | - For the six months ended June 30, 2021, the company contributed **$12.9 million** to its pension plans, compared to $28.5 million for the same period in 2020[129](index=129&type=chunk) [NOTE M – Commitments and Contingencies](index=31&type=section&id=NOTE%20M%20%E2%80%93%20Commitments%20and%20Contingencies) PACCAR faces various legal proceedings and contingent liabilities, including claims related to an EC investigation; while the company believes it has strong defenses, potential losses cannot be reasonably estimated due to the early stage of these claims - The company faces claims and lawsuits, including class actions, seeking damages related to an European Commission (EC) investigation[131](index=131&type=chunk) - The company believes it has strong defenses, but due to the early stage of the claims, potential losses cannot be reasonably estimated[131](index=131&type=chunk) - Management expects other various litigation and contingent liabilities will not have a material adverse effect on the consolidated financial statements[132](index=132&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=32&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) PACCAR achieved significant financial growth in Q2 and H1 2021, with record net sales and revenues and net income, driven by strong demand in truck and parts businesses and improved financial services performance; the company is optimistic about future markets but expects semiconductor shortages to impact truck deliveries and plans continued investment in R&D and capital expenditures [OVERVIEW](index=32&type=section&id=OVERVIEW) PACCAR, a global technology company in truck design, manufacturing, parts distribution, and financial services, achieved record sales and net income in Q2 and H1 2021, launching new DAF truck models; the company anticipates growth in truck, parts, and financial services markets for 2021, with increased capital and R&D spending, despite expected semiconductor shortages impacting deliveries - PACCAR's businesses include Trucks (design and manufacture of light, medium, and heavy-duty commercial trucks), Parts (distribution of aftermarket parts for trucks and related commercial vehicles), and Financial Services (financing or leasing of PACCAR products)[134](index=134&type=chunk) - The company launched new DAF XF, XG, and XG+ truck models, featuring enhanced fuel efficiency, safety, comfort, and compliance with new European vehicle dimension regulations[137](index=137&type=chunk) - Retail sales for the truck industry in North America, Europe, and South America are expected to grow in 2021, but semiconductor shortages will impact deliveries in the second half of the year[139](index=139&type=chunk)[140](index=140&type=chunk) - PACCAR Parts sales are projected to grow by **20-22%** in 2021, and Financial Services average earning assets are expected to grow by **3-5%**[141](index=141&type=chunk)[142](index=142&type=chunk) - Capital investments for 2021 are estimated at **$550-600 million**, and R&D expenditures at **$340-360 million**, allocated for new models, zero-emission technologies, and advanced systems[143](index=143&type=chunk) 2021 Q2 Financial Highlights (Millions of USD, except per share amounts) | Metric | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Global Net Sales and Revenues | $5,840 | $3,060 | 91% | | Truck Revenues | $4,150 | $1,860 | 123% | | Parts Sales | $1,210 | $823.7 | 47% | | Financial Services Revenues | $456.3 | $360.3 | 27% | | Net Income | $492.9 | $147.7 | 234% | | Diluted Earnings Per Share | $1.41 | $0.43 | 228% | 2021 H1 Financial Highlights (Millions of USD, except per share amounts) | Metric | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Global Net Sales and Revenues | $11,690 | $8,220 | 42% | | Truck Revenues | $8,390 | $5,620 | 49% | | Parts Sales | $2,370 | $1,820 | 30% | | Financial Services Revenues | $888.3 | $744.0 | 19% | | Net Income | $963.0 | $507.1 | 90% | | Diluted Earnings Per Share | $2.76 | $1.46 | 89% | [RESULTS OF OPERATIONS](index=33&type=section&id=RESULTS%20OF%20OPERATIONS) PACCAR delivered strong operating results in Q2 and H1 2021, with substantial growth in net sales and pretax profit across all segments, driven by increased truck deliveries, robust parts demand, and improved financial services performance, leading to enhanced overall pretax profit margins and after-tax return on revenues Consolidated Net Sales and Revenues (Millions of USD) | Period | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $5,843.9 | $3,062.2 | 91% | | Six Months Ended June 30 | $11,689.4 | $8,223.9 | 42% | Consolidated Net Income (Millions of USD) | Period | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $492.9 | $147.7 | 234% | | Six Months Ended June 30 | $963.0 | $507.1 | 90% | - After-tax return on revenues increased from **4.8% to 8.4%** in Q2 2021, and from **6.2% to 8.2%** in H1 2021[146](index=146&type=chunk) [Truck Segment](index=34&type=section&id=Truck%20Segment) The Truck segment achieved significant growth in deliveries, net sales, and pretax profit for Q2 and H1 2021, recovering from 2020's COVID-19 impact due to increased demand across all markets and improved productivity; gross margins substantially improved, but selling, general, and administrative (SG&A) expenses rose due to increased compensation and legal fees Global New Truck Deliveries (Units) | Region | 2021 Q2 | 2020 Q2 | Change Rate | 2021 H1 | 2020 H1 | Change Rate | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. and Canada | 22,600 | 9,300 | 143% | 45,600 | 31,500 | 45% | | Europe | 11,800 | 6,400 | 84% | 25,500 | 18,000 | 42% | | Mexico, South America, Australia and Other | 5,700 | 2,400 | 138% | 11,200 | 7,000 | 60% | | **Total Units** | **40,100** | **18,100** | **122%** | **82,300** | **56,500** | **46%** | Global Truck Net Sales and Revenues (Millions of USD) | Period | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $4,152.2 | $1,858.4 | 123% | | Six Months Ended June 30 | $8,385.2 | $5,616.0 | 49% | - Truck segment pretax profit in Q2 2021 turned from a **$46.2 million loss** in the prior year to a **$255.0 million profit**, and for H1, it increased from **$136.9 million to $524.5 million**[151](index=151&type=chunk) - Truck gross margin increased from **2.6% to 9.1%** in Q2 2021 and from **6.2% to 9.2%** in H1, primarily due to higher volumes, improved average sales prices, and lower product support costs[155](index=155&type=chunk)[156](index=156&type=chunk) [Parts Segment](index=36&type=section&id=Parts%20Segment) The Parts segment achieved record net sales and revenues in Q2 and H1 2021, driven by increased demand across all markets and favorable exchange rates, leading to significant pretax profit growth and improved gross margins, despite higher selling, general, and administrative (SG&A) expenses due to increased compensation and related costs Global Parts Net Sales and Revenues (Millions of USD) | Period | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $1,211.3 | $823.7 | 47% | | Six Months Ended June 30 | $2,372.0 | $1,822.3 | 30% | - Parts segment pretax profit increased from **$151.9 million to $265.6 million** in Q2 2021, and from **$366.6 million to $516.9 million** in H1[160](index=160&type=chunk) - Parts gross margin increased from **25.3% to 28.2%** in Q2 2021 and from **27.0% to 28.2%** in H1, primarily due to higher aftermarket parts volumes and improved average sales prices[165](index=165&type=chunk)[166](index=166&type=chunk) - Parts SG&A expenses increased to **$53.0 million** in Q2 2021 (from $44.7 million in 2020) and to **$104.7 million** in H1 (from $94.0 million in 2020), mainly due to higher compensation and related expenses[163](index=163&type=chunk) [Financial Services Segment](index=38&type=section&id=Financial%20Services%20Segment) The Financial Services segment achieved record revenues and pretax profit in Q2 and H1 2021, driven by increased new loan and lease volumes, improved used truck performance, and reduced credit loss provisions; average earning assets grew, and the percentage of past due accounts decreased, reflecting strong portfolio performance New Loan and Lease Volumes (Millions of USD) | Period | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $1,560.4 | $897.9 | 74% | | Six Months Ended June 30 | $2,831.9 | $2,023.9 | 40% | Financial Services Revenue (Millions of USD) | Period | 2021 | 2020 | Change Rate | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $456.3 | $360.3 | 27% | | Six Months Ended June 30 | $888.3 | $744.0 | 19% | - Financial Services pretax profit increased from **$55.5 million to $106.5 million** in Q2 2021, and from **$103.8 million to $182.9 million** in H1[171](index=171&type=chunk) - In Q2 2021, the company realized a **$3.3 million gain** on used trucks (excluding repossessed vehicles), compared to a $24.9 million loss in the prior year, reflecting an improved used truck market[173](index=173&type=chunk) - The allowance for receivables losses decreased from **$7.5 million to $(0.5) million** in Q2 2021, and from **$24.5 million to $3.2 million** in H1, primarily due to strong portfolio performance and higher COVID-19 related provisions in 2020[185](index=185&type=chunk) - As of June 30, 2021, the percentage of global retail loan and lease accounts over 30 days past due decreased from **0.5% to 0.3%** compared to December 31, 2020[189](index=189&type=chunk) [Other](index=43&type=section&id=Other) The "Other" segment, comprising industrial winch operations and unallocated sales, revenues, and expenses, including pension non-service costs and corporate expenses, saw a decrease in pretax profit for both Q2 and H1 2021, primarily due to increased compensation costs - The "Other" segment includes the industrial winch manufacturing business and sales, revenues, and expenses not attributable to the reportable segments, as well as pension non-service costs and certain corporate expenses[192](index=192&type=chunk) - "Other" segment pretax profit decreased from **$13.8 million to $4.9 million** in Q2 2021, and from **$15.1 million to $10.1 million** in H1[193](index=193&type=chunk) - The profit decrease was primarily due to increased compensation and related expenses, partially offset by higher benefits from pension non-service costs[193](index=193&type=chunk) [Investment Income](index=43&type=section&id=Investment%20Income) PACCAR's investment income decreased in both Q2 and H1 2021, primarily due to lower US investment yields resulting from declining market interest rates - Investment income decreased from **$9.0 million to $5.0 million** in Q2 2021, and from **$23.8 million to $9.9 million** in H1[194](index=194&type=chunk) - The decline in investment income was primarily due to lower U.S. investment yields resulting from declining market interest rates[194](index=194&type=chunk) [Income Taxes](index=43&type=section&id=Income%20Taxes) PACCAR's effective tax rates for Q2 and H1 2021 were higher than the corresponding periods in 2020, primarily due to higher research and development tax credits in 2020, with both domestic and international pretax profits improving Effective Tax Rates | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended June 30 | 22.6% | 19.7% | | Six Months Ended June 30 | 22.6% | 21.5% | - The increase in effective tax rates was primarily due to higher research and development tax credits in 2020[196](index=196&type=chunk) - Both domestic and international pretax profits increased in Q2 and H1 2021, mainly driven by improvements in the truck and parts businesses[198](index=198&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=45&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) PACCAR's total cash and marketable securities decreased in H1 2021, with reduced operating cash flow, increased investing cash outflow, and significantly lower financing cash outflow due to decreased dividend payments and changes in borrowing activities; the company maintains ample credit lines and capital market access to ensure liquidity and financial stability, continuously investing in truck, parts, and financial services growth - As of June 30, 2021, the company's total cash and marketable securities were **$4.5044 billion**, a **$464.2 million decrease** from $4.9686 billion as of December 31, 2020[199](index=199&type=chunk) - Net cash provided by operating activities for H1 2021 was **$867.7 million**, a **$493.1 million decrease** from the prior year, primarily due to increased cash used for inventory purchases and reduced cash received from wholesale receivables[199](index=199&type=chunk) - Net cash used in investing activities for H1 2021 was **$666.7 million**, a **$72.6 million increase** from the prior year, mainly due to increased net originations of retail loans and finance leases[200](index=200&type=chunk) - Net cash used in financing activities for H1 2021 was **$651.5 million**, a **$1.1269 billion decrease** from the prior year, primarily due to reduced dividend payments and lower cash used for borrowing activities[201](index=201&type=chunk) [Credit Lines and Other](index=46&type=section&id=Credit%20Lines%20and%20Other) PACCAR has **$3.61 billion** in credit line arrangements, with **$3.29 billion** unused as of June 30, 2021, primarily for commercial paper and medium-term note backup liquidity; the company also has a **$500 million** common stock repurchase program, with **$390 million** remaining authorized - The company has **$3.61 billion** in credit line arrangements, with **$3.29 billion** unused as of June 30, 2021[202](index=202&type=chunk) - These credit lines are primarily used to provide backup liquidity for commercial paper borrowings and maturing medium-term notes[202](index=202&type=chunk) - As of June 30, 2021, the company had repurchased **$110 million** in shares, with **$390 million** remaining authorized under the $500 million common stock repurchase program[203](index=203&type=chunk) [Truck, Parts and Other](index=46&type=section&id=Truck%20Parts%20and%20Other) Working capital for the Truck, Parts, and Other businesses is primarily funded by cash generated from operations; the company plans **$550-600 million** in capital investments and **$340-360 million** in R&D for 2021 to support new product development and enhance manufacturing and distribution capabilities - Working capital, capital expenditures, research and development, dividends, and stock repurchases for the Truck, Parts, and Other businesses are primarily funded by cash provided by operating activities[204](index=204&type=chunk) - For 2021, PACCAR's total capital investments are projected to be **$550-600 million**, and research and development expenditures are estimated at **$340-360 million**[206](index=206&type=chunk) - The company is investing in the development of new aerodynamic truck models, diesel and zero-emission powertrain technologies, advanced driver assistance systems, connected vehicle services, and next-generation manufacturing and distribution capabilities[206](index=206&type=chunk) [Financial Services](index=46&type=section&id=Financial%20Services) Financial Services operations are primarily funded by collections from existing finance receivables and capital market borrowings, including commercial paper and medium-term notes; the company maintains medium-term note programs in the US, Europe, Mexico, Australia, and Canada to ensure sufficient funding and competitive access to capital markets - Financial services activities are primarily funded by collections from existing finance receivables and capital market borrowings, including commercial paper and medium-term notes[207](index=207&type=chunk) - As of June 30, 2021, PACCAR Financial Corp. (U.S.) had **$5.5 billion** in medium-term notes outstanding, and PACCAR Financial Europe had **1.6 billion euros** available for issuance[208](index=208&type=chunk)[209](index=209&type=chunk) - The company believes its cash balances, investments, committed bank credit facilities, and investment-grade credit ratings will continue to provide ample resources and access to capital markets at competitive rates, thereby maintaining its liquidity and financial stability[213](index=213&type=chunk) [FORWARD-LOOKING STATEMENTS](index=47&type=section&id=FORWARD-LOOKING%20STATEMENTS) This report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations, including industry sales declines, competitive pressures, regulatory changes, exchange rate fluctuations, supplier disruptions (like semiconductor shortages), and litigation - This report contains "forward-looking statements" which are subject to risks and uncertainties that could cause actual results to differ materially from expectations[214](index=214&type=chunk) - Key risks and uncertainties include: significant declines in industry sales, competitive pressures, reduced fuel supply or increased prices, increased regulation or tariffs, currency or commodity price fluctuations, lower used truck prices, supplier disruptions (including semiconductors), labor disruptions, pandemics, and litigation[214](index=214&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=48&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) For the six months ended June 30, 2021, there were no material changes in the company's market risk - For the six months ended June 30, 2021, there were no material changes in the company's market risk[216](index=216&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=48&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Company management, with CEO and CFO involvement, assessed the effectiveness of disclosure controls and procedures as of the end of this reporting period and concluded they were effective; no significant changes occurred in internal control over financial reporting during the quarter - As of the end of this reporting period, the company's disclosure controls and procedures were deemed effective[217](index=217&type=chunk) - No significant changes occurred in internal control over financial reporting during the quarter[218](index=218&type=chunk) [PART II. OTHER INFORMATION](index=49&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=49&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The discussion of legal proceedings is disclosed by reference to Note M of the consolidated financial statements - The discussion of legal proceedings is disclosed by reference to Note M of the consolidated financial statements[222](index=222&type=chunk) [ITEM 1A. RISK FACTORS](index=49&type=section&id=ITEM%201A.%20RISK%20FACTORS) Risk factors primarily refer to the 2020 Form 10-K annual report, with an update on industry-wide semiconductor supply shortages expected to continue impacting truck deliveries in the second half of the year - Risk factors primarily refer to the 2020 Form 10-K annual report[223](index=223&type=chunk) - The updated risk factors note that industry-wide semiconductor supply shortages are expected to continue impacting truck deliveries in the second half of the year[223](index=223&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=49&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) For the six months ended June 30, 2021, there was no reportable information regarding unregistered sales of equity securities; the company did not repurchase common stock in Q2 2021, with **$390 million** remaining authorized under the existing **$500 million** repurchase program - For the six months ended June 30, 2021, there was no reportable information regarding unregistered sales of equity securities[224](index=224&type=chunk) - The company did not repurchase common stock in Q2 2021, with **$390 million** remaining authorized under the existing **$500 million** repurchase program[225](index=225&type=chunk) [ITEM 6. EXHIBITS](index=49&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with Form 10-Q, including articles of incorporation, bylaws, instruments defining security holder rights, and material contracts - Exhibits include articles of incorporation, bylaws, instruments defining security holder rights, and material contracts[228](index=228&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) [SIGNATURE](index=52&type=section&id=SIGNATURE) This report is signed by M. T. Barkley, Senior Vice President and Controller of PACCAR Inc, on behalf of the company - This report is signed by M. T. Barkley, Senior Vice President and Controller of PACCAR Inc[232](index=232&type=chunk)