Part I Business PACCAR is a global company operating in three main segments: Truck, Parts, and Financial Services, with its largest segment, Truck, accounting for 70% of 2020 revenues - PACCAR operates through three principal industry segments: Truck Segment (70% of 2020 total net sales and revenues), Parts Segment (21% of 2020 revenues), and Financial Services Segment (8% of 2020 revenues and 56% of total assets)131528 - As of December 31, 2020, the company had approximately 26,000 employees, with about 38% located in the U.S47 Segment Revenue Contribution | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Truck Segment Revenue % | 70% | 78% | - | | Parts Segment Revenue % | 21% | 16% | - | | Financial Services Revenue % | 8% | 6% | - | | Industrial Winch Sales % | <1% | <1% | <1% | - The company's truck production backlog was $7.6 billion at the end of 2020, with $4.6 billion considered firm (scheduled for delivery within 90 days)25 Risk Factors The company identifies significant risks that could negatively impact its financial condition, including market variability, production costs, and financial services risks - Business and Industry Risks: The commercial vehicle market is highly sensitive to economic conditions, and the company faces variability in material costs and component shortages, including the ongoing semiconductor supply shortage525455 - Political, Regulatory, and Economic Risks: The COVID-19 pandemic, the U.K.'s exit from the EU, and the transition away from LIBOR introduce uncertainties, with approximately 10% of the company's 2020 worldwide truck production located in the U.K636567 - Other Significant Risks: The company is exposed to information technology system disruptions, security breaches, product recalls, lawsuits, and extensive trade and environmental regulations607172 Unresolved Staff Comments The company reports that there are no unresolved staff comments from the SEC - None76 Properties PACCAR owns and operates manufacturing plants and parts distribution centers across the U.S., Canada, Europe, Australia, Mexico, and Brasil Facility Locations | Facility Type | U.S | Canada | Australia | Mexico | Europe | Central/So. America | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Truck Plants | 4 | 1 | 1 | 1 | 3 | 1 | | Parts Centers | 6 | 2 | 2 | 1 | 5 | 2 | | Other (Winch) | 2 | — | — | — | — | — | Legal Proceedings Information regarding the company's 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 matters79 Mine Safety Disclosures This item is not applicable to the company - Not applicable80 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PACCAR's common stock (PCAR) is traded on the Nasdaq Stock Market, with total dividends of $1.98 per share declared in 2020 2020 Dividend and Stock Price Data | Quarter | 2020 Dividends Declared | 2020 Stock Price High | 2020 Stock Price Low | | :--- | :--- | :--- | :--- | | First | $0.32 | $79.66 | $49.11 | | Second | $0.32 | $79.48 | $58.21 | | Third | $0.32 | $91.30 | $74.00 | | Fourth | $0.32 | $0.32 | $82.85 | | Year-End Extra | $0.70 | - | - | | Total | $1.98 | - | - | - On December 4, 2018, the Board approved a $500.0 million stock repurchase plan, with $110.0 million of shares repurchased as of December 31, 2020, and no repurchases in Q4 202091 - The company's cumulative total stockholder return for the five years ending December 31, 2020, was 118.07%, lagging the Peer Group Index's 202.22% but outperforming the S&P 500 Index's 103.04%9091 Selected Financial Data This section presents a five-year summary of key financial data, showing a significant decrease in 2020 revenues and net income compared to 2019 Key Financial Data | (in millions, except per share data) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total Revenues | $18,728.5 | $25,599.7 | $23,495.7 | | Net Income | $1,298.4 | $2,387.9 | $2,195.1 | | Diluted Net Income Per Share | $3.74 | $6.87 | $6.24 | | Cash Dividends Declared Per Share | $1.98 | $3.58 | $3.09 | | Total Assets | $28,260.0 | $28,361.1 | $25,482.4 | | Stockholders' Equity | $10,390.0 | $9,706.1 | $8,592.9 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) PACCAR's 2020 financial results were significantly impacted by the COVID-19 pandemic, leading to a 27% decrease in revenues and a 46% drop in net income, while the company pursued strategic initiatives for autonomous and zero-emissions vehicles Overview and Outlook The COVID-19 pandemic significantly impacted 2020 results, causing production suspensions and reduced demand, while the company advanced autonomous and zero-emissions vehicle development 2020 Financial Highlights vs. 2019 | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Sales & Revenues | $18.73 billion | $25.60 billion | | Net Income | $1.30 billion | $2.39 billion | | Diluted EPS | $3.74 | $6.87 | | Capital Investments | $569.5 million | $743.9 million | | R&D Expenses | $273.9 million | $326.6 million | - PACCAR signed a strategic agreement with Aurora to develop autonomous Peterbilt 579 and Kenworth T680 trucks, with deliveries expected in the next several years98 - The company is developing zero-emissions vehicles, including fuel cell electric and battery electric trucks, with over 60 currently in customer testing and production of a few hundred units anticipated for 202199 2021 Outlook | Metric | 2021 Projection | | :--- | :--- | | U.S. & Canada Truck Sales | 250,000 - 280,000 units | | Europe Truck Sales (>16t) | 250,000 - 280,000 units | | Parts Sales Growth | 7-9% increase from 2020 | | Capital Investments | $575 - $625 million | | R&D Expenses | $350 - $375 million | Results of Operations In 2020, total revenues decreased 27% to $18.73 billion, and income before taxes fell 46% to $1.66 billion compared to 2019, primarily due to a 69% drop in Truck segment income Income Before Income Taxes by Segment (2020 vs. 2019) | Segment (in millions) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Truck | $581.4 | $1,904.9 | (69)% | | Parts | $799.3 | $830.8 | (4)% | | Financial Services | $223.1 | $298.9 | (25)% | | Total Income Before Taxes | $1,657.9 | $3,099.2 | (46)% | Truck Deliveries by Region (2020 vs. 2019) | Region | 2020 Units | 2019 Units | % Change | | :--- | :--- | :--- | :--- | | U.S. and Canada | 73,300 | 117,200 | (37)% | | Europe | 42,900 | 59,900 | (28)% | | Other | 17,100 | 21,700 | (21)% | | Total Units | 133,300 | 198,800 | (33)% | - Truck segment gross margin decreased to 7.5% in 2020 from 12.1% in 2019, primarily due to lower sales volume, higher product support costs, and inefficiencies related to the COVID-19 pandemic119120 - Financial Services' provision for losses on receivables increased to $28.8 million in 2020 from $15.4 million in 2019, driven by portfolio growth and challenging economic conditions from the pandemic135 Liquidity and Capital Resources PACCAR maintained a strong liquidity position, ending 2020 with $5.0 billion in cash and marketable securities, and increased net cash from operating activities to $3.0 billion Cash and Marketable Securities | (in millions) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $3,539.6 | $4,175.1 | | Marketable debt securities | $1,429.0 | $1,162.1 | | Total | $4,968.6 | $5,337.2 | Summary of Cash Flows (in millions) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,987.2 | $2,860.3 | | Net cash used in investing activities | ($1,875.8) | ($2,207.4) | | Net cash (used in) provided by financing activities | ($1,808.5) | $83.4 | - The company has line of credit arrangements totaling $3.52 billion, of which $3.29 billion were unused at December 31, 2020, including $3.00 billion of committed bank facilities152 Critical Accounting Policies Management identifies several accounting policies as critical due to their reliance on sensitive estimates and judgments, including operating leases, allowance for credit losses, and product warranty reserves - Operating Leases: A hypothetical 10% decrease in used truck values worldwide would result in approximately $80.7 million in additional depreciation expense in 2021174 - Allowance for Credit Losses: A hypothetical 100 basis point increase in 30+ days past due accounts (from 0.5% to 1.5%) would likely increase the estimate of credit losses by a range of $2 million to $36 million180 - Product Warranty: A hypothetical 0.2% increase in warranty expense as a percentage of Truck, Parts and Other net sales would have increased 2020 warranty expense by approximately $34 million181 Quantitative and Qualitative Disclosures About Market Risk PACCAR is exposed to market risks from fluctuations in interest rates and foreign currency exchange rates, which it mitigates using derivative contracts - Interest-Rate Risk: A hypothetical 100 basis point increase in interest rates would result in a net fair value gain of $5.9 million on the company's portfolio of interest-rate sensitive instruments as of year-end 2020184 - Currency Risk: A 10% unfavorable change in foreign currency exchange rates would lead to a potential loss in fair value of $155.2 million for foreign currency exchange contracts, largely offset by gains in the value of the underlying hedged items184 Financial Statements and Supplementary Data This section contains the audited consolidated financial statements for the fiscal year ended December 31, 2020, including the Statements of Income, Comprehensive Income, Balance Sheets, Cash Flows, and Stockholders' Equity, along with accompanying Notes and independent auditor reports Consolidated Financial Statements The consolidated financial statements detail PACCAR's financial performance and position, reporting $1.30 billion in net income on $18.73 billion in revenues for 2020 Key Financial Statement Data (2020) | Metric (in millions) | Amount | | :--- | :--- | | Income Statement: | | | Total Revenues | $18,728.5 | | Net Income | $1,298.4 | | Balance Sheet (Year-End): | | | Total Assets | $28,260.0 | | Total Liabilities | $17,870.0 | | Total Stockholders' Equity | $10,390.0 | | Cash Flow Statement: | | | Net Cash from Operating Activities | $2,987.2 | Notes to Consolidated Financial Statements The notes provide detailed disclosure on PACCAR's accounting policies, segment information, financial instruments, debt, and other commitments, including the adoption of the new credit loss standard and specifics on borrowings - Adoption of New Credit Loss Standard (ASU 2016-13): The company adopted the new standard on January 1, 2020, resulting in a cumulative-effect adjustment that decreased retained earnings by $4.6 million249250 - Financial Services Receivables: Total finance and other receivables were $11.82 billion at year-end 2020, with an allowance for credit losses of $127.0 million, and 99.5% of the retail loan and lease portfolio was current or less than 30 days past due261140 - Borrowings: Total Financial Services borrowings were $10.85 billion at year-end 2020, primarily consisting of commercial paper ($3.11 billion) and term notes ($7.51 billion)287 - Legal Contingencies: Following a 2016 European Commission settlement, the company faces claims and lawsuits in various European jurisdictions alleging EC-related claims, with no reasonably estimable range of loss302 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports that it has had no disagreements with its independent auditors, Ernst & Young LLP, on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - The registrant has not had any disagreements with its independent auditors on accounting or financial disclosure matters404 Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2020, with no material changes in Q4 2020 - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report (December 31, 2020)405 - Management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2020, based on the COSO 2013 framework383 - There were no changes in internal controls over financial reporting during Q4 2020 that materially affected, or are reasonably likely to materially affect, these controls407 Part III Directors, Executive Officers and Corporate Governance Information regarding directors, corporate governance, and the audit committee is incorporated by reference from the company's proxy statement for the annual stockholders' meeting on April 27, 2021 - Information regarding directors, the audit committee, and audit committee financial experts is incorporated by reference from the proxy statement for the April 27, 2021 annual stockholders meeting411414 - Information about the Company's executive officers is included in Part I, Item 1 of this Form 10-K411 Executive Compensation All information related to executive compensation, including compensation of directors and executive officers and the Compensation Committee Report, is incorporated by reference from the company's proxy statement - The required information is incorporated by reference from the proxy statement for the annual stockholders meeting of April 27, 2021414 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding the security ownership of certain beneficial owners, directors, and executive officers is incorporated by reference from the company's proxy statement, while equity compensation plan details are in Part II, Item 5 - Stock ownership information is incorporated by reference from the proxy statement for the annual stockholders meeting of April 27, 2021414 - Information regarding equity compensation plans is provided in Item 5 of this Form 10‑K415 Certain Relationships and Related Transactions, and Director Independence The company reports no related party transactions in 2020, and information concerning director independence is incorporated by reference from the proxy statement - No transactions with management and others as defined by Item 404 of Regulation S‑K occurred in 2020416 - Information concerning director independence is incorporated by reference from the proxy statement for the annual stockholders meeting of April 27, 2021416 Principal Accounting Fees and Services Information regarding the fees paid to and services provided by the company's principal independent auditor, Ernst & Young LLP, is incorporated by reference from the proxy statement - Principal accounting fees and services information is incorporated by reference from the proxy statement for the annual stockholders meeting of April 27, 2021417 Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the 10-K report, with financial statements included in Item 8 and a detailed index of all exhibits provided - Lists the consolidated financial statements of PACCAR Inc included in Item 8419 - States that all financial statement schedules are omitted because they are not applicable or the information is included in the financial statements and notes419 - Provides a detailed index of all exhibits filed with the report, such as governance documents, debt instruments, material contracts, and required certifications420421422
PACCAR(PCAR) - 2020 Q4 - Annual Report