PACCAR(PCAR) - 2022 Q4 - Annual Report

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