PACCAR(PCAR) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents PACCAR Inc.'s interim financial statements, management's analysis, market risk disclosures, and internal controls ITEM 1. FINANCIAL STATEMENTS This section presents PACCAR Inc.'s unaudited consolidated financial statements for the three and six months ended June 30, 2025 and 2024, including comprehensive income, balance sheets, cash flows, stockholders' equity, and detailed notes on accounting policies and segment information Consolidated Statements of Comprehensive Income This statement details PACCAR Inc.'s net sales, revenues, income before taxes, net income, diluted EPS, and comprehensive income for the three and six months ended June 30, 2025 and 2024 Consolidated Statements of Comprehensive Income (Unaudited) (Millions, Except Per Share Amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales and revenues: | | | | | | Truck, Parts and Other | $6,962.8 | $8,262.3 | $13,876.5 | $16,497.3 | | Financial Services | $547.7 | $509.8 | $1,075.7 | $1,019.1 | | Total Income Before Income Taxes: | $931.9 | $1,460.8 | $1,575.0 | $2,995.3 | | Net Income: | $723.8 | $1,122.6 | $1,228.9 | $2,317.9 | | Net Income Per Share (Diluted): | $1.37 | $2.13 | $2.33 | $4.40 | | Comprehensive Income: | $1,117.2 | $977.6 | $1,772.5 | $2,066.6 | Consolidated Balance Sheets This statement provides a snapshot of PACCAR Inc.'s assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024 Consolidated Balance Sheets (Millions) | Category | June 30, 2025 (Unaudited) | December 31, 2024 (Audited) | | :--------------------------------- | :-------------------------- | :-------------------------- | | ASSETS: | | | | Total Truck, Parts and Other Assets | $20,781.9 | $21,007.4 | | Total Financial Services Assets | $23,312.9 | $22,411.5 | | Total Assets: | $44,094.8 | $43,418.9 | | LIABILITIES AND STOCKHOLDERS' EQUITY: | | | | Total Truck, Parts and Other Liabilities | $7,485.0 | $8,333.2 | | Total Financial Services Liabilities | $17,667.2 | $17,578.8 | | Total Stockholders' Equity | $18,942.6 | $17,506.9 | | Total Liabilities and Stockholders' Equity: | $44,094.8 | $43,418.9 | Condensed Consolidated Statements of Cash Flows This statement summarizes PACCAR Inc.'s cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Cash Flows (Unaudited) (Millions) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $1,743.7 | $1,909.0 | | Net Cash Used in Investing Activities | $(1,010.1) | $(1,569.8) | | Net Cash Used in Financing Activities | $(2,425.8) | $(1,579.3) | | Effect of exchange rate changes on cash and cash equivalents | $181.3 | $(70.1) | | Net Decrease in Cash and Cash Equivalents | $(1,510.9) | $(1,310.2) | | Cash and cash equivalents at end of period | $5,549.9 | $5,871.5 | Consolidated Statements of Stockholders' Equity This statement outlines changes in PACCAR Inc.'s common stock, additional paid-in capital, treasury stock, retained earnings, and accumulated other comprehensive loss Consolidated Statements of Stockholders' Equity (Unaudited) (Millions, Except Per Share Amounts) | Equity Component | June 30, 2025 | June 30, 2024 | | :--------------------------------- | :------------ | :------------ | | Common Stock, $1 par value | $525.5 | $524.3 | | Additional Paid-In Capital | $389.0 | $329.2 | | Treasury Stock, at cost | $(35.0) | $(4.0) | | Retained Earnings | $18,632.8 | $17,798.6 | | Accumulated Other Comprehensive Loss | $(569.7) | $(945.2) | | Total Stockholders' Equity: | $18,942.6 | $17,702.9 | | Cash dividends declared on common stock, per share (Six Months) | $0.66 | $0.57 | NOTE A - Basis of Presentation This note describes the accounting principles, significant investments, and new accounting pronouncements affecting the interim financial statements - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, including normal recurring accruals[22] - PACCAR holds a 30% equity method investment in Amplify Cell Technologies, a U.S. battery manufacturing joint venture, contributing $44.7 million in H1 2025 with a maximum required contribution of $830.0 million[23] - New accounting pronouncements include ASU 2023-09 (Income Taxes) effective after December 15, 2024, requiring additional disclosures, and ASU 2024-03 (Income Statement Expenses) effective after December 15, 2026, expanding expense disclosures[25][26] NOTE B – Sales and Revenues This note details revenue recognition policies and disaggregates sales and revenues for Truck, Parts, and Financial Services segments - Truck, Parts and Other revenues are recognized when customers obtain control of products or receive service benefits, excluding sales taxes, with revenue from extended warranties and R&M contracts deferred and recognized straight-line over the contract period[27][32] Truck, Parts and Other Sales and Revenues (Millions) | Revenue Source | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Truck sales | $4,964.5 | $6,337.6 | $9,936.2 | $12,642.3 | | Revenues from extended warranties, operating leases and other | $278.6 | $240.2 | $532.7 | $476.5 | | Parts sales | $1,677.4 | $1,614.0 | $3,315.0 | $3,239.6 | | Revenues from dealer services and other | $43.5 | $50.3 | $95.8 | $100.6 | | Intersegment eliminations and other | $(1.2) | $20.2 | $(3.2) | $38.3 | | Total Truck, Parts and Other sales and revenues | $6,962.8 | $8,262.3 | $13,876.5 | $16,497.3 | - Financial Services revenues include interest income from loans and finance leases, dealer wholesale financing, and operating lease rentals, with income suspended if receivables are over 90 days past due[34][35][36] Financial Services Lease Revenues (Millions) | Lease Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Finance lease revenues | $93.9 | $84.4 | $182.1 | $167.0 | | Operating lease revenues | $156.6 | $162.6 | $307.4 | $337.5 | | Total lease revenues | $250.5 | $247.0 | $489.5 | $504.5 | NOTE C - Investments in Marketable Securities This note describes the classification, fair value measurement, and realized/unrealized gains and losses of marketable debt and equity securities - Marketable debt securities are classified as available-for-sale and stated at fair value, with unrealized gains/losses in AOCI, while marketable equity securities are measured at fair value with gains/losses recognized in investment income[41][44] Marketable Securities at June 30, 2025 (Millions) | Security Type | Cost | Unrealized Gains | Unrealized Losses | Fair Value | | :------------------------ | :-------- | :--------------- | :---------------- | :--------- | | Marketable debt securities | $2,886.0 | $25.2 | $2.7 | $2,908.5 | | Marketable equity securities | $10.0 | $0.0 | $4.8 | $5.2 | | Total marketable securities | $2,896.0 | $25.2 | $7.5 | $2,913.7 | - Gross realized gains on marketable debt securities were $1.6 million for the six months ended June 30, 2025, compared to $0.7 million in 2024, while net unrealized losses on marketable equity securities recognized in investment income were $1.1 million in H1 2025, compared to $1.6 million in H1 2024[45][46] - The Company had $2,908.5 million in marketable debt securities at fair value as of June 30, 2025, with $574.8 million maturing within one year and $2,328.6 million maturing in one to five years[49] NOTE D - Inventories This note outlines the valuation method for inventories and provides a breakdown of finished products, work in process, and raw materials - Inventories are stated at the lower of cost or net realizable value, principally using the FIFO method[50] Inventories, Net (Millions) | Category | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Finished products | $1,130.4 | $977.1 | | Work in process and raw materials | $1,326.3 | $1,390.0 | | Total Inventories, net | $2,456.7 | $2,367.1 | NOTE E - Finance and Other Receivables This note details the composition of finance and other receivables, including loans, leases, and dealer financing, along with the allowance for credit losses Finance and Other Receivables, Net (Millions) | Category | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Loans | $10,027.4 | $9,442.4 | | Finance leases | $5,337.2 | $4,906.6 | | Dealer wholesale financing | $4,799.0 | $4,944.1 | | Operating lease receivables and other | $183.6 | $166.4 | | Less allowance for losses | $(154.2) | $(145.2) | | Total Finance and Other Receivables, Net | $20,193.0 | $19,314.3 | - The allowance for credit losses increased to $154.2 million at June 30, 2025, from $145.2 million at December 31, 2024, with a provision for losses of $47.5 million in H1 2025 (vs. $27.8 million in H1 2024) and charge-offs of $50.3 million (vs. $24.8 million in H1 2024)[51][65] - Finance receivables are categorized by credit quality (performing, watch, at-risk) and aging status, with 1.2% of worldwide retail loan and lease accounts 30+ days past due at June 30, 2025, consistent with June 30, 2024[68][73][201] - The amortized cost basis of finance receivables on non-accrual status decreased to $304.0 million at June 30, 2025, from $383.6 million at December 31, 2024, primarily due to large fleet customers being charged off upon repossession[73] - The Company modified $141.6 million of finance receivables for customers experiencing financial difficulty in H1 2025, compared to $134.2 million in H1 2024, and repossessed inventory was $70.5 million at June 30, 2025[75][77] NOTE F - Product Support Liabilities This note explains product support liabilities, including warranty reserves and deferred revenues from extended warranties and R&M contracts - Product support liabilities include estimated future payments for product warranties and deferred revenues on optional extended warranties and R&M contracts[79] Changes in Product Support Liabilities (Millions) | Category | January 1, 2025 | June 30, 2025 | | :--------------------------------- | :-------------- | :------------ | | Warranty Reserves | $606.1 | $619.9 | | Deferred Revenues on Extended Warranties and R&M Contracts | $1,302.2 | $1,411.0 | - The Company expects to recognize $231.6 million of remaining deferred revenues on extended warranties and R&M contracts in 2025[80] NOTE G - Stockholders' Equity This note provides details on comprehensive income, accumulated other comprehensive income (loss), stock-based compensation, and treasury stock repurchases Comprehensive Income (Millions) | Component | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--------------------------------- | :------------------------------- | :----------------------------- | | Net income | $723.8 | $1,228.9 | | Net other comprehensive income (loss) | $393.4 | $543.6 | | Comprehensive income | $1,117.2 | $1,772.5 | Accumulated Other Comprehensive Income (Loss) (AOCI) (Millions) | AOCI Component | Balance at January 1, 2025 | Balance at June 30, 2025 | | :--------------------------------- | :------------------------- | :----------------------- | | Derivative Contracts | $32.5 | $4.9 | | Marketable Debt Securities | $(0.7) | $16.7 | | Pension Plans | $69.7 | $69.9 | | Foreign Currency Translation | $(1,214.8) | $(661.2) | | Total AOCI | $(1,113.3) | $(569.7) | - Stock-based compensation expense was $17.6 million for the six months ended June 30, 2025, and the Company issued 1,058,539 common shares under stock compensation arrangements[86] - The Company repurchased 382,552 treasury shares in H1 2025, including 205,592 shares under its $500.0 million common stock repurchase plan, with $371.6 million remaining authorized[87] NOTE H - Income Taxes This note discusses the effective tax rate and its drivers for the current and prior interim periods - The effective tax rate for Q2 2025 was 22.3% (vs. 23.2% in Q2 2024) and for H1 2025 was 22.0% (vs. 22.6% in H1 2024), primarily due to a lower mix of pre-tax income in higher tax rate jurisdictions and the EC claims charge in 2025[88] NOTE I - Segment Information This note presents financial data disaggregated by the Truck, Parts, and Financial Services segments, including sales, income, and assets - PACCAR operates in three segments: Truck, Parts, and Financial Services, with Truck and Parts performance evaluated by operating profits and Financial Services by income before income taxes[89] Segment Net Sales and Revenues (Millions) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Truck | $5,243.1 | $6,577.8 | $10,468.9 | $13,118.8 | | Parts | $1,720.9 | $1,664.3 | $3,410.8 | $3,340.2 | | Other | $(1.2) | $20.2 | $(3.2) | $38.3 | | Financial Services | $547.7 | $509.8 | $1,075.7 | $1,019.1 | Segment Income Before Income Taxes (Millions) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Truck | $308.8 | $837.3 | $673.7 | $1,718.9 | | Parts | $416.5 | $413.8 | $843.0 | $869.6 | | Other | $(0.5) | $2.7 | $(353.7) | $0.4 | | Financial Services | $123.2 | $111.2 | $244.3 | $225.1 | | Investment income | $83.9 | $95.8 | $167.7 | $181.3 | Business Segment Assets (Millions) | Segment | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Truck | $8,413.4 | $7,563.3 | | Parts | $2,293.5 | $2,097.0 | | Other | $1,795.3 | $1,697.2 | | Cash and marketable securities | $8,279.7 | $9,649.9 | | Financial services | $23,312.9 | $22,411.5 | | Total Segment Assets | $44,094.8 | $43,418.9 | NOTE J - Derivative Financial Instruments This note describes the Company's use of derivative contracts for hedging market risks and their fair value measurements - PACCAR uses derivative contracts (interest-rate, foreign-exchange, commodity) to hedge against market risks, with a maximum exposure to counterparty default of $56.4 million at June 30, 2025[98][99] - At June 30, 2025, the notional amount of interest-rate contracts was $3,759.0 million, foreign-exchange contracts was $1,889.6 million, and commodity contracts was $20.4 million[102][103][104] Derivative Financial Instruments Fair Value (Millions) | Category | June 30, 2025 Assets | June 30, 2025 Liabilities | December 31, 2024 Assets | December 31, 2024 Liabilities | | :--------------------------------- | :------------------- | :-------------------- | :----------------------- | :------------------------ | | Derivatives designated under hedge accounting | $55.9 | $233.3 | $205.6 | $44.1 | | Derivatives not designated as hedging instruments | $0.5 | $1.4 | $1.4 | $2.6 | | Gross amounts recognized in Balance Sheets | $56.4 | $234.7 | $207.0 | $46.7 | - For the six months ended June 30, 2025, the Company recognized $176.9 million in gains from interest-rate contracts and $36.9 million in gains from foreign-exchange contracts in the Consolidated Statements of Comprehensive Income[108] - The estimated pre-tax loss from cash flow hedges recorded in AOCI that is expected to be reclassified into earnings in the next 12 months is approximately $32.5 million, net of taxes[112] NOTE K - Fair Value Measurements This note outlines the fair value hierarchy and provides disclosures for assets and liabilities measured at fair value on a recurring basis - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs requiring significant judgment)[117][118][119] Assets and Liabilities Subject to Recurring Fair Value Measurement at June 30, 2025 (Millions) | Category | Level 1 | Level 2 | Total | | :--------------------------------- | :------ | :------ | :------ | | Assets: | | | | | Marketable debt securities | $210.3 | $2,698.2 | $2,908.5 | | Marketable equity securities | $5.2 | | $5.2 | | Derivatives | | $56.4 | $56.4 | | Liabilities: | | | | | Derivatives | | $234.7 | $234.7 | Fair Value Disclosure of Other Financial Instruments (Millions) | Instrument | June 30, 2025 Carrying Amount | June 30, 2025 Fair Value | December 31, 2024 Carrying Amount | December 31, 2024 Fair Value | | :--------------------------------- | :------------------------------ | :----------------------- | :-------------------------------- | :--------------------------- | | Financial Services fixed rate loans | $9,632.3 | $9,739.9 | $8,900.6 | $8,889.3 | | Financial Services fixed rate debt | $10,671.9 | $10,775.8 | $9,922.2 | $9,917.6 | NOTE L - Employee Benefit Plans This note details the components of net pension income/expense and contributions made to the Company's pension plans Net Pension (Income) Expense (Millions) | Component | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service cost | $23.2 | $27.6 | $47.4 | $55.4 | | Interest on projected benefit obligation | $36.1 | $33.4 | $71.9 | $67.0 | | Expected return on assets | $(63.1) | $(60.5) | $(125.4) | $(121.1) | | Amortization of prior service costs | $0.4 | $0.4 | $0.7 | $0.7 | | Recognized actuarial loss | $0.1 | $1.6 | $0.8 | $2.8 | | Net pension (income) expense | $(3.3) | $2.5 | $(4.6) | $4.8 | - The Company contributed $11.5 million to its pension plans during the first six months of 2025, compared to $32.2 million in the same period of 2024[132] NOTE M – Commitments and Contingencies This note addresses ongoing legal proceedings, specifically EC-related claims, and the associated financial charges and management's assessment - PACCAR faces ongoing EC-related claims and lawsuits in Europe following a 2016 settlement, recording an additional pre-tax charge of $350.0 million ($264.5 million after-tax) in Q1 2025 due to higher estimable settlement costs[133][134] - Management believes it has meritorious defenses to all pending legal claims and does not anticipate other legal proceedings or contingent liabilities will materially affect consolidated financial statements[135] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides an overview of PACCAR's business segments, financial highlights, detailed analysis of results, segment outlooks, capital investments, R&D, liquidity, and a reconciliation of GAAP to non-GAAP financial measures OVERVIEW This section introduces PACCAR's business segments, highlights key financial results for Q2 and H1 2025, and notes significant financial services activities - PACCAR is a global technology company with Truck, Parts, and Financial Services segments, having sold its industrial winch business on October 31, 2024[137] Second Quarter Financial Highlights (Millions, Except Per Share Amounts) | Metric | Q2 2025 | Q2 2024 | | :--------------------------------- | :------ | :------ | | Worldwide net sales and revenues | $7.51B | $8.77B | | Truck sales | $5.24B | $6.58B | | Parts sales | $1.72B | $1.66B | | Financial Services revenues | $547.7 | $509.8 | | Net income | $723.8 | $1.12B | | Diluted EPS | $1.37 | $2.13 | | Capital investments | $221.1 | $219.6 | | R&D expenses | $112.9 | $117.1 | First Six Months Financial Highlights (Millions, Except Per Share Amounts) | Metric | H1 2025 | H1 2024 | | :--------------------------------- | :------ | :------ | | Worldwide net sales and revenues | $14.95B | $17.52B | | Truck sales | $10.47B | $13.12B | | Parts sales | $3.41B | $3.34B | | Financial Services revenues | $1.08B | $1.02B | | Net income | $1.23B | $2.32B | | Diluted EPS | $2.33 | $4.40 | | Adjusted net income (non-GAAP) | $1.49B | | | Adjusted diluted EPS (non-GAAP) | $2.83 | | | Capital investments | $393.0 | $383.9 | | R&D expenses | $228.3 | $222.6 | - PACCAR Financial Services (PFS) has total assets of $23.31 billion and issued $1.84 billion in medium-term notes in H1 2025 to support growth and repay debt[140] Truck Outlook This section provides industry retail sales projections for heavy-duty trucks in key regions and discusses potential impacts of tariffs and economic conditions 2025 Truck Industry Retail Sales Projections (Units) | Region | 2025 Projection | 2024 Actual | | :--------------------------------- | :-------------- | :---------- | | U.S. and Canada (heavy-duty) | 230,000-260,000 | 268,100 | | Europe (over 16-tonne) | 270,000-300,000 | 316,100 | | South America (heavy-duty) | 90,000-100,000 | 119,000 | - Ongoing impact from U.S. import tariffs since March 2025 creates uncertainty for truck order intake and profit margins, potentially weakening economic conditions and declining truck industry retail sales[143] Parts Outlook This section projects PACCAR Parts sales growth for 2025, subject to economic conditions and tariff uncertainties - PACCAR Parts sales are expected to increase 2-4% in 2025 compared to 2024, subject to economic conditions and tariff uncertainty[144] Financial Services Outlook This section forecasts an increase in average earning assets for Financial Services in 2025 and discusses potential risks from declining freight conditions - Average earning assets for Financial Services are projected to increase 4-6% in 2025 compared to 2024, with an improving used truck market noted, but declining freight conditions could increase past due accounts, repossessions, and credit losses[145] Capital Investments and R&D Outlook This section outlines projected capital investments and R&D expenses for 2025, focusing on advanced powertrains, connected vehicles, and manufacturing expansion 2025 Capital Investments and R&D Outlook (Millions) | Category | 2025 Projection | | :--------------------------------- | :-------------- | | Capital investments | $750-$800 | | R&D expenses | $450-$480 | | Investment in Amplify Cell Technologies JV | $600-$900 | - Investments focus on next-generation clean diesel and alternative powertrains, connected vehicle services, expanded manufacturing, and advanced driver assistance systems[146] RESULTS OF OPERATIONS This section summarizes PACCAR's overall financial performance, including total net sales, income before taxes, net income, and diluted earnings per share Summary of Results of Operations (Millions, Except Per Share Amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Net sales and revenues | $7,510.5 | $8,772.1 | $14,952.2 | $17,516.4 | | Total Income before income taxes | $931.9 | $1,460.8 | $1,575.0 | $2,995.3 | | Net income | $723.8 | $1,122.6 | $1,228.9 | $2,317.9 | | Diluted earnings per share | $1.37 | $2.13 | $2.33 | $4.40 | | After-tax return on revenues | 9.6% | 12.8% | 8.2% | 13.2% | | After-tax adjusted return on revenues (non-GAAP) | | | 10.0% | | Truck Segment Analysis This section analyzes the Truck segment's revenue contribution, worldwide truck deliveries, market share, sales, and income before taxes, highlighting key drivers of change - The Truck segment accounted for 70% of revenues in Q2 and H1 2025, down from 75% in the same periods of 2024[153] Worldwide New Truck Deliveries (Units) | Region | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :--------------------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | U.S. and Canada | 23,000 | 28,700 | (20)% | 45,200 | 58,200 | (22)% | | Europe | 10,600 | 11,500 | (8)% | 21,000 | 23,100 | (9)% | | Mexico, South America, Australia and other | 5,700 | 8,200 | (30)% | 13,200 | 15,200 | (13)% | | Total units | 39,300 | 48,400 | (19)% | 79,400 | 96,500 | (18)% | Truck Segment Market Share | Market | H1 2025 Market Share | H1 2024 Market Share | | :--------------------------------- | :------------------- | :------------------- | | U.S. and Canada Heavy-Duty | 30.4% | 31.5% | | U.S. and Canada Medium-Duty | 15.3% | 17.3% | | Europe Over 16-Tonne | 14.2% | 13.7% | | Europe 6 to 16-Tonne | 9.9% | 8.4% | | Brasil Over 16-Tonne | 9.4% | 10.3% | Worldwide Truck Net Sales and Revenues (Millions) | Region | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :--------------------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | U.S. and Canada | $3,315.5 | $4,191.4 | (21)% | $6,511.2 | $8,466.9 | (23)% | | Europe | $1,190.1 | $1,267.5 | (6)% | $2,289.4 | $2,575.7 | (11)% | | Mexico, South America, Australia and other | $737.5 | $1,118.9 | (34)% | $1,668.3 | $2,076.2 | (20)% | | Total Truck net sales and revenues | $5,243.1 | $6,577.8 | (20)% | $10,468.9 | $13,118.8 | (20)% | | Truck income before income taxes | $308.8 | $837.3 | (63)% | $673.7 | $1,718.9 | (61)% | | Pre-tax return on revenues | 5.9% | 12.7% | | 6.4% | 13.1% | | - Decreases in truck net sales and revenues and income before taxes were primarily due to lower truck unit deliveries across all major markets, lower price realization due to increased competition, and higher tariff costs in the U.S[159][160][163][169] - Truck SG&A expenses decreased in Q2 and H1 2025 due to lower salaries, professional fees, and travel expenses, partially offset by higher sales and marketing expenses[166] Parts Segment Analysis This section examines the Parts segment's revenue contribution, worldwide sales, and income before taxes, detailing factors influencing sales and gross margins - The Parts segment's revenue contribution increased to 23% in Q2 and H1 2025, from 19% in the same periods of 2024[167] Worldwide Parts Net Sales and Revenues (Millions) | Region | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :--------------------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | U.S. and Canada | $1,191.5 | $1,138.6 | 5% | $2,374.1 | $2,289.9 | 4% | | Europe | $353.0 | $345.6 | 2% | $706.9 | $707.4 | 0% | | Mexico, South America, Australia and other | $176.4 | $180.1 | (2)% | $329.8 | $342.9 | (4)% | | Total Parts net sales and revenues | $1,720.9 | $1,664.3 | 3% | $3,410.8 | $3,340.2 | 2% | | Parts income before income taxes | $416.5 | $413.8 | 1% | $843.0 | $869.6 | (3)% | | Pre-tax return on revenues | 24.2% | 24.9% | | 24.7% | 26.0% | | - Increased parts sales were primarily driven by higher sales in the U.S. and Canada, partially offset by lower sales volume in Europe and Mexico, while parts gross margins decreased due to higher material costs and indirect costs[168][170][171][172][175] - Parts SG&A expenses increased in Q2 and H1 2025, mainly due to unfavorable currency translation effects (euro) and higher salaries, partially offset by lower travel and entertainment expenses[173] Financial Services Segment Analysis This section reviews the Financial Services segment's revenue contribution, new loan and lease volume, market share, revenues, and income before taxes, including trends in credit losses - The Financial Services segment's revenue contribution was 7% in Q2 and H1 2025, up from 6% in the same periods of 2024[176] New Loan and Lease Volume (Millions) | Metric | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :--------------------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | Total New loan and lease volume | $1,853.5 | $1,915.4 | (3)% | $3,362.7 | $3,435.3 | (2)% | | Loans and finance leases | $1,678.5 | $1,633.0 | 3% | $3,030.9 | $2,982.9 | 2% | | Equipment on operating lease | $175.0 | $282.4 | (38)% | $331.8 | $452.4 | (27)% | - PFS finance market share of new PACCAR truck sales increased to 26.2% in Q2 2025 (vs. 24.2% in Q2 2024) and 25.5% in H1 2025 (vs. 22.8% in H1 2024)[179] Financial Services Revenues and Income Before Taxes (Millions) | Metric | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :--------------------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | Revenues | $547.7 | $509.8 | 7% | $1,075.7 | $1,019.1 | 6% | | Income before income taxes | $123.2 | $111.2 | 11% | $244.3 | $225.1 | 9% | - PFS revenues and income before taxes increased primarily due to portfolio growth and higher finance margins, despite negative currency translation effects[180][181] - Used trucks held for sale increased to $410.3 million at June 30, 2025, from $396.5 million at December 31, 2024, while losses on used trucks (excluding repossessions) decreased to $7.5 million in Q2 2025 (vs. $13.6 million in Q2 2024) and $18.6 million in H1 2025 (vs. $24.5 million in H1 2024)[182][183][184] - The provision for losses on receivables increased to $29.2 million in Q2 2025 (vs. $11.7 million in Q2 2024) and $47.5 million in H1 2025 (vs. $27.8 million in H1 2024), driven by retail portfolio growth, increased past due accounts in Mexico and Brasil, and higher expected losses[196] - Worldwide 30+ days past due accounts remained stable at 1.2% at June 30, 2025, compared to June 30, 2024, with decreases in the U.S., Canada, and Europe offset by increases in Mexico, Australia, and Brasil[201] Other Segment Analysis This section covers non-attributable sales, income, expenses, non-service pension costs, corporate expenses, and investment income within the 'Other' segment - The 'Other' segment includes non-attributable sales, income, and expenses, non-service pension costs, corporate expenses, and the industrial winch business through October 2024[205] - Other (loss) income before income taxes was $(353.7) million for H1 2025, primarily due to a $350.0 million EC-related charge in Q1 2025[206] - Investment income decreased to $83.9 million in Q2 2025 (vs. $95.8 million in Q2 2024) and $167.7 million in H1 2025 (vs. $181.3 million in H1 2024), mainly due to lower investment yields from lower market interest rates[207] Income Taxes Analysis This section analyzes the effective tax rate for the interim periods, attributing changes to the mix of pre-tax income and specific charges - The effective tax rate for Q2 2025 was 22.3% (vs. 23.2% in Q2 2024) and for H1 2025 was 22.0% (vs. 22.6% in H1 2024), primarily due to a lower mix of pre-tax income in higher tax rate jurisdictions and the EC-related charge in Q1 2025[208] - Domestic income before taxes decreased in Q2 and H1 2025 due to lower Truck operations, while foreign income before taxes in H1 2025 was significantly impacted by the $350.0 million EC-related charge[209] LIQUIDITY AND CAPITAL RESOURCES This section discusses PACCAR's cash and marketable securities, cash flow activities, credit arrangements, planned capital investments, and funding strategies for Financial Services Cash and Marketable Securities (Millions) | Category | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $5,549.9 | $7,060.8 | | Marketable securities | $2,913.7 | $2,778.8 | | Total Cash and Marketable Securities | $8,463.6 | $9,839.6 | - Total cash and marketable securities decreased by $1.38 billion from December 31, 2024, primarily due to higher cash used in financing activities and lower operating cash flow[210][211][213] - Net cash provided by operating activities decreased by $165.3 million to $1,743.7 million in H1 2025, reflecting lower net income[211] - Net cash used in investing activities decreased by $559.7 million to $1,010.1 million in H1 2025, mainly due to lower purchases of marketable securities and acquisitions of operating lease equipment[212] - Net cash used in financing activities increased by $846.5 million to $2,425.8 million in H1 2025, driven by higher net borrowing activity and lower cash dividends[213] - The Company has $5.66 billion in credit line arrangements, with $5.10 billion unused at June 30, 2025, primarily for backup liquidity for commercial paper and medium-term notes[215] - PACCAR plans $750-$800 million in capital investments and $450-$480 million in R&D in 2025, including $600-$900 million for the Amplify Cell Technologies battery joint venture[219] - The One Big Beautiful Bill Act (OBBBA) is expected to defer a significant portion of current federal income taxes due to immediate expensing of domestic R&D and permanent reinstatement of bonus depreciation[220] - Financial Services funding relies on collections and capital markets, with various medium-term note programs in the U.S., Europe, Mexico, Australia, and Brazil[221][222][223][224][225][226][227] RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES This section reconciles GAAP to non-GAAP financial measures, excluding a significant after-tax charge to provide a clearer view of operating trends - Non-GAAP measures (adjusted net income, adjusted diluted EPS, adjusted return on revenues, adjusted effective tax rate) exclude a $264.5 million after-tax charge related to civil litigation in Europe to provide a clearer view of operating trends[230][231] Reconciliation of GAAP to Non-GAAP Financial Measures (Six Months Ended June 30, 2025) (Millions, Except Per Share Amounts) | Metric | GAAP | EC-related claims, net of taxes | Non-GAAP | | :--------------------------------- | :----- | :------------------------------ | :------- | | Net income | $1,228.9 | $264.5 | $1,493.4 | | Per diluted share | $2.33 | $0.50 | $2.83 | | After-tax return on revenues | 8.2% | 1.8% | 10.0% | | Effective tax rate | 22.0% | 0.4% | 22.4% | FORWARD-LOOKING STATEMENTS This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, including market declines, competition, and litigation - This report contains forward-looking statements subject to various risks and uncertainties, including declines in industry sales, competitive pressures, tariffs, currency fluctuations, lower used truck prices, supplier interruptions, and litigation[233] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes in the Company's market risk during the three months ended June 30, 2025, with further details available in the 2024 Annual Report on Form 10-K - No material changes in market risk occurred during the three months ended June 30, 2025[235] ITEM 4. CONTROLS AND PROCEDURES Management, including the Principal Executive and Financial Officers, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls over financial reporting during the quarter - The Company's disclosure controls and procedures were effective as of June 30, 2025[236] - No material changes in internal controls over financial reporting occurred during the fiscal quarter ended June 30, 2025[237] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity security transactions, defaults, mine safety, other disclosures, and exhibits ITEM 1. LEGAL PROCEEDINGS This section refers to Note M in the financial statements for details on legal proceedings, specifically the ongoing EC-related claims and lawsuits - Legal proceedings are discussed in Note M – 'Commitments and Contingencies' of the Consolidated Financial Statements[240] ITEM 1A. RISK FACTORS No material changes to the Company's risk factors were reported during the three months ended June 30, 2025, with comprehensive risk factor information available in the 2024 Annual Report on Form 10-K - No material changes in the Company's risk factors occurred during the three months ended June 30, 2025[241] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES This section reports on issuer purchases of equity securities, noting that PACCAR repurchased 205,592 shares of common stock in May 2025 under its authorized $500.0 million repurchase plan - PACCAR repurchased 205,592 shares of common stock in May 2025 at an average price of $89.60 per share under its $500.0 million repurchase plan[243] - As of June 30, 2025, $371,580,963 remains authorized for repurchase under the current program[243] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities were reported for the period - There were no defaults upon senior securities[244] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the Company - Mine safety disclosures are not applicable to PACCAR Inc[245] ITEM 5. OTHER INFORMATION No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by the Company's directors or officers during the quarter ended June 30, 2025 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during the quarter ended June 30, 2025[246] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, instruments defining rights of security holders, material contracts, and certifications - The report includes an index to exhibits, detailing various corporate documents, debt instruments, material contracts, and certifications[249][250][251] SIGNATURE The report is duly signed on behalf of PACCAR Inc by B. J. Poplawski, Senior Vice President and Chief Financial Officer, as of July 31, 2025 - The report was signed by B. J. Poplawski, Senior Vice President and Chief Financial Officer of PACCAR Inc, on July 31, 2025[253]