PACCAR, INC. OVERVIEW:
PACCAR is a global technology company whose Truck segment includes the design and manufacture of high-quality light-, medium- and heavy-duty commercial trucks. InNorth America , trucks are sold under the Kenworth andPeterbilt nameplates, inEurope , under the DAF nameplate and inAustralia andSouth America , under the Kenworth and DAF nameplates. The Parts segment includes the distribution of aftermarket parts for trucks and related commercial vehicles. The Company's Financial Services segment derives its earnings primarily from financing or leasingPACCAR products inNorth America ,Europe ,Australia and Brasil. The Company's Other business includes the manufacturing and marketing of industrial winches.PACCAR's financial results for the three and six months endedJune 30, 2020 were impacted by the COVID-19 pandemic. The Company's truck and engine production was suspended at its factories worldwide startingMarch 24, 2020 . Truck and engine production restarted inEurope andAustralia onApril 20, 2020 , and factories gradually resumed operations inNorth America and Brasil in early May. Effects of the pandemic in the first six months included reduced truck deliveries, increased costs associated with suspension of production, lower aftermarket parts sales and higher provision for losses on Financial Services receivables. Increased costs related to suspension of production primarily included reduced labor efficiency, costs to prepare factories for safe re-opening and reduced factory utilization. The Company implemented cost saving measures in the first six months to partially offset the increased costs. During the pandemic, the Company's Parts segment continued to provide aftermarket support through its parts distribution centers, and the Financial Services segment continued to provide financing, leasing services and related support to customers.
Second Quarter Financial Highlights:
• Worldwide net sales and revenues were
billion in 2019, primarily due to lower truck revenues.
• Truck revenues were
due to lower truck deliveries in all markets, primarily in the
and
• Parts sales were
primarily due to lower demand in the
• Financial Services revenues were
million in 2019.
• Net income was
and Financial Services operating results.
• Capital investments were
2019.
• Research and development (R&D) expenses were
First Six Months Financial Highlights:
• Worldwide net sales and revenues were
billion in 2019, primarily due to lower truck revenues.
• Truck revenues were
due to lower truck deliveries in all markets, primarily in the
and
• Parts sales were
primarily due to lower demand in
• Financial Services revenues were
million in 2019. The increase was primarily the result of higher used truck
sales in
• Net income was
Truck operating results.
• Capital investments were
2019.
• R&D expenses were
Peterbilt , Kenworth and DAF continue to be global leaders in zero emissions vehicles, with customers field testing more than 60 battery electric, hydrogen fuel cell and hybrid trucks inNorth America andEurope . Kenworth is delivering 10 hydrogen fuel cell Kenworth T680 trucks to several customers for field testing in thePort of Los Angeles .Peterbilt has developed three application- - 31 - --------------------------------------------------------------------------------
specific battery electric truck models and many of these vehicles are
accumulating test miles with customers. Peterbilt Model 579EV trucks are
deployed in port and regional haul applications. DAF has developed a range of
electric and hybrid vehicles that are undergoing extensive field testing by
customers in a variety of applications in
PACCAR Parts opened a 250,000 square foot Parts Distribution Center (PDC) inLas Vegas, Nevada , and a 160,000 square foot PDC in Ponta Grossa, Brasil, in the second quarter of 2020.PACCAR Financial Services recently opened used truck centers inDenton, Texas , andPrague, Czech Republic , and plans to open a used truck facility inMadrid, Spain .The PACCAR Financial Services (PFS) group of companies has operations covering four continents and 26 countries. The global breadth of PFS and its rigorous credit application process support a portfolio of loans and leases with total assets of$15.05 billion . PFS issued$1.33 billion in medium-term notes during the first six months of 2020 to support new business volume and repay maturing debt. Truck Outlook The Company suspended truck production worldwide onMarch 24, 2020 , due to the COVID-19 pandemic. The Company began truck production at selected factories inEurope andAustralia onApril 20, 2020 .Resumption of North America and Brasil truck production occurred in early May. The Company adjusted its manufacturing facilities for social distancing and implemented deep cleaning procedures. Initial truck production rates at all facilities were lower than those in effect at the time of the worldwide closure. Future production volumes will depend on market demand for trucks, parts availability from the Company's suppliers and further government directives related to the COVID-19 pandemic. Assuming no significant impacts from a resurgence of the COVID-19 pandemic, the Company expects 2020 truck industry volumes as follows: in theU.S. andCanada truck industry sales are expected to be 160,000 to 190,000 units compared to 308,800 in 2019; inEurope , truck industry registrations for over 16-tonne vehicles are expected to be 190,000 to 220,000 units compared to 320,200 in 2019; and inSouth America , heavy-duty truck industry registrations are estimated at 60,000 to 80,000 as compared to 105,100 in 2019.
Parts Outlook
The Company continues to provide strong aftermarket support to enable the shipment of essential goods and services to communities around the world while following social distancing and hygiene protocols. Strengthening economies and higher truck traffic in June resulted in increased demand for aftermarket parts as compared to earlier in the quarter. The Company is not providing specific guidance on expected 2020 PACCAR Parts sales growth due to the uncertainty surrounding the impact of the pandemic. If general economic weakness persists, lower freight volumes could reduce the demand for replacement parts, resulting in lower parts revenues and operating results.
Financial Services Outlook
PACCAR Financial Services continues to provide financing and leasing services and related support to customers during the COVID19 pandemic. The size of the portfolio will be affected by the amount of new truck financing volume. Depending on the length and depth of the economic weakness associated with the pandemic, lower truck sales volume would result in lower volumes of new business. The lower level of economic activity is affecting some industries more than others. The Company does not have a concentration of exposure in any one segment or industry. Although past-dues and credit losses are at low levels, continued economic weakness could result in lower freight volumes which could adversely impact customers' operating results and cash flows. The Company has granted a large number of loan modifications to customers seeking to conserve cash in this uncertain environment. Substantially all modifications related to the COVID-19 pandemic were completed in the six months endedJune 30, 2020 . The modifications, which generally provided payment relief for up to three months, were evaluated and granted to credit worthy customers on a case-by-case basis. If economic conditions further worsen, it would likely lead to more credit modification requests, higher past due accounts, increased provisions for credit losses, and lower used truck values.
Capital Investments and R&D Outlook
Capital investments in 2020 are expected to be$525 to$575 million and R&D is expected to be$265 to$295 million . The Company is investing for long-term growth in aerodynamic truck models, diesel and zero emissions powertrain technologies, advanced driver assistance systems, connected vehicle services and next-generation manufacturing and distribution facilities.
See the Forward-Looking Statements section of Management's Discussion and Analysis for factors that may affect these outlooks.
- 32 -
--------------------------------------------------------------------------------RESULTS OF OPERATIONS:
The Company's results of operations for the three and six months ended
Three Months Ended Six Months Ended
June 30 June 30
($ in millions, except per share amounts) 2020 2019 2020 2019
Net sales and revenues:
Truck $ 1,858.4 $ 5,211.9 $ 5,616.0 $ 10,319.2
Parts 823.7 1,025.4 1,822.3 2,030.1
Other 19.8 29.2 41.6 55.3
Truck, Parts and Other 2,701.9 6,266.5 7,479.9 12,404.6
Financial Services 360.3 361.4 744.0 710.9
$ 3,062.2 $ 6,627.9 $ 8,223.9 $ 13,115.5
(Loss) income before income taxes:
Truck $ (46.2 ) $ 510.7 $ 136.9 $ 1,027.7
Parts 151.9 210.6 366.6 418.2
Other 13.8 (9.0 ) 15.1 (17.5 )
Truck, Parts and Other 119.5 712.3 518.6 1,428.4
Financial Services 55.5 80.3 103.8 164.3
Investment income 9.0 21.8 23.8 41.1
Income taxes (36.3 ) (194.7 ) (139.1 ) (385.1 )
Net income $ 147.7 $ 619.7 $ 507.1 $ 1,248.7
Diluted earnings per share $ .43 $ 1.78 $ 1.46 $ 3.59
After-tax return on revenues 4.8 % 9.3 % 6.2 % 9.5 %
The following provides an analysis of the results of operations for the
Company's three reportable segments - Truck, Parts and Financial Services. Where
possible, the Company has quantified the impact of factors identified in the
following discussion and analysis. In cases where it is not possible to quantify
the impact of factors, the Company lists them in estimated order of importance.
Factors for which the Company is unable to specifically quantify the impact
include COVID-19 related factors, market demand, fuel prices, freight tonnage
and economic conditions affecting the Company's results of operations.
2020 Compared to 2019:
Truck
The Company's Truck segment accounted for 61% and 68% of revenues in the second quarter and first six months of 2020, respectively, compared to 79% in the second quarter and first six months of 2019.
The Company's new truck deliveries are summarized below:
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 % CHANGE 2020 2019 % CHANGE
U.S. and Canada 9,300 30,000 (69 ) 31,500 58,900 (47 )
Europe 6,400 15,700 (59 ) 18,000 32,600 (45 )
Mexico , South America , Australia
and other 2,400 6,600 (64 ) 7,000 12,300 (43 )
Total units 18,100 52,300 (65 ) 56,500 103,800 (46 )
The decrease in new truck deliveries worldwide in the second quarter and first
six months of 2020 compared to the same period of 2019 is driven primarily by
lower build rates, including a temporary suspension of worldwide truck
production as a result of the COVID-19 pandemic.
Market share data discussed below is provided by third party sources and is
measured by either registrations or retail sales for the Company's dealer
network as a percentage of total registrations or retail sales depending on the
geographic market. In the
In the first six months of 2020, industry retail sales in the heavy-duty market in theU.S. andCanada decreased to 93,900 units from 151,800 units in the same period of 2019. The Company's heavy-duty truck retail market share was 29.6% in the first six months of 2020 compared to 29.1% in the first six months of 2019. The medium-duty market was 35,400 units in the first six months of 2020 - 33 - -------------------------------------------------------------------------------- compared to 58,900 units in the same period of 2019. The Company's medium-duty market share was 23.6% in the first six months of 2020 compared to 15.4% in the first six months of 2019. The over 16tonne truck market inEurope in the first six months of 2020 was 105,700 units compared to 192,100 units in the first six months of 2019.DAF EU over 16tonne market share was 15.8% in the first six months of 2020 compared to 16.7% in the same period of 2019. The 6 to 16tonne market in the first six months of 2020 was 19,300 units compared to 30,200 units in the first six months of 2019. DAF market share in the 6 to 16-tonne market in the first six months of 2020 was 10.0% compared to 9.9% in the same period of 2019.
The Company's worldwide truck net sales and revenues are summarized below:
Three Months Ended Six Months Ended
June 30 June 30
($ in millions) 2020 2019 % CHANGE 2020 2019 % CHANGE
Truck net sales and revenues:
U.S. and Canada $ 1,056.6 $ 3,357.7 (69 ) $ 3,473.0 $ 6,570.7 (47 )
Europe 561.5 1,248.9 (55 ) 1,481.1 2,603.9 (43 )
Mexico , South America , Australia
and other 240.3 605.3 (60 ) 661.9 1,144.6 (42 )
$ 1,858.4 $ 5,211.9 (64 ) $ 5,616.0 $ 10,319.2 (46 )
Truck (loss) income before
income taxes $ (46.2 ) $ 510.7 (109 ) $ 136.9 $ 1,027.7 (87 )
Pre-tax return on revenues (2.5 )% 9.8 % 2.4 % 10.0 %
The Company's worldwide truck net sales and revenues in the second quarter
decreased to $1.86 billion in 2020 from $5.21 billion in 2019, and the first six
months decreased to $5.62 billion in 2020 compared to $10.32 billion in 2019
primarily due to lower truck unit deliveries in all markets, primarily the U.S.
and Canada and Europe , as well as unfavorable currency translation effects.
For the second quarter and first six months of 2020, Truck segment (loss) income
before taxes and pretax return on revenues reflect the impact of lower truck
unit deliveries and lower margins, driven primarily by reduced demand and the
worldwide truck plant closures as a result of the COVID-19 pandemic.
The major factors for the Truck segment changes in net sales and revenues, cost
of sales and revenues and gross margin between the three months ended June 30,
2020 and 2019 are as follows:
NET COST OF
SALES AND SALES AND GROSS
($ in millions) REVENUES REVENUES MARGIN
Three Months Ended June 30, 2019 $ 5,211.9 $ 4,576.4 $ 635.5
(Decrease) increase
Truck sales volume (3,288.6 ) (2,704.8 ) (583.8 )
Average truck sales prices 12.4 12.4
Average per truck material, labor and other
direct costs 86.1 (86.1 )
Factory overhead and other indirect costs (110.0 ) 110.0
Extended warranties, operating leases and other (47.0 ) (4.7 ) (42.3 ) Currency translation (30.3 ) (32.1 ) 1.8 Total decrease (3,353.5 ) (2,765.5 ) (588.0 ) Three Months Ended June 30, 2020$ 1,858.4 $ 1,810.9 $ 47.5
• Truck sales volume reflects lower unit deliveries, primarily in the
million sales and
sales and
plant closures and reduced build rates during much of the quarter due to the
COVID19 pandemic.
• Average truck sales prices increased sales by
higher price realization.
• Average cost per truck increased cost of sales by
reflecting increased labor costs due to inefficiencies related to the COVID-19
pandemic and higher accruals for product support costs.
• Factory overhead and other indirect costs decreased
due to lower costs for labor, depreciation and repair and maintenance,
partially offset by costs to prepare the factories for safe operations during
the COVID-19 pandemic.
• Extended warranties, operating leases and other revenues decreased by
million primarily due to lower revenues from service contracts as well as
operating leases as a result of decreasing portfolio. Cost of sales decreased
by
contracts, largely offset by higher impairments and losses on used trucks in
- 34 -
--------------------------------------------------------------------------------• The currency translation effect on sales and cost of sales reflects a decline
in the value of foreign currencies relative to the
euro, the Brazilian real and the Australian dollar.
• Truck gross margin was 2.6% in the second quarter of 2020 compared to 12.2% in
the same period of 2019 due to the factors noted above. The major factors for the Truck segment changes in net sales and revenues, cost of sales and revenues and gross margin between the six months endedJune 30, 2020 and 2019 are as follows: NET COST OF SALES AND SALES AND GROSS ($ in millions) REVENUES REVENUES MARGIN Six Months Ended June 30, 2019$ 10,319.2 $ 9,045.3 $ 1,273.9 (Decrease) increase Truck sales volume (4,579.2 ) (3,757.2 ) (822.0 ) Average truck sales prices 16.4 16.4 Average per truck material, labor and other direct costs 171.6 (171.6 ) Factory overhead and other indirect costs (123.7 )
123.7
Extended warranties, operating leases and other (59.5 ) 11.2 (70.7 ) Currency translation (80.9 ) (79.0 ) (1.9 ) Total decrease (4,703.2 ) (3,777.1 ) (926.1 ) Six Months Ended June 30, 2020$ 5,616.0 $ 5,268.2 $ 347.8
• Truck sales volume reflects lower unit deliveries, primarily in the
million sales and
sales and
impact of the worldwide production suspension due to the COVID-19 pandemic.
• Average truck sales prices increased sales by
higher price realization.
• Average cost per truck increased cost of sales by
reflecting higher accruals for product support costs and increased labor costs
due to inefficiencies related to the COVID-19 pandemic.
• Factory overhead and other indirect costs decreased
due to lower costs for labor, depreciation and repair and maintenance,
partially offset by costs to prepare the factories for safe operations during
the COVID-19 pandemic.
• Extended warranties, operating leases and other revenues decreased by
million primarily due to lower revenues from operating leases as a result of
decreasing portfolio and lower revenues from service contracts. Cost of sales
increased by
used trucks in
contracts in the
and service contracts.
• The currency translation effect on sales and cost of sales reflects a decline
in the value of foreign currencies relative to the
euro, the Brazilian real and the Australian dollar.
• Truck gross margin was 6.2% in the first six months of 2020 compared to 12.3%
in the same period of 2019 due to the factors noted above.
Truck SG&A expense decreased in the second quarter of 2020 to$43.8 million from$64.5 million in 2019, and for the first six months of 2020, Truck SG&A decreased to$104.7 million from$126.2 million in 2019. The decrease in both periods was primarily due to lower salaries and related expenses, sales and marketing costs, travel expenses and favorable currency translation effects. As a percentage of sales, Truck SG&A increased to 2.4% and 1.9% in the second quarter and first six months of 2020, respectively compared to 1.2% in the second quarter and first six months of 2019 due to lower net sales and partially offset by lower spending. - 35 -
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Parts
The Company's Parts segment accounted for 27% and 22% of revenues in the second quarter and first six months of 2020, respectively, compared to 15% in the second quarter and first six months of 2019.
Three Months Ended Six Months Ended
June 30 June 30
($ in millions) 2020 2019 % CHANGE 2020 2019 % CHANGE
Parts net sales and revenues:
U.S. and Canada $ 578.3 $ 701.0 (18 ) $ 1,264.2 $ 1,383.7 (9 )
Europe 178.5 229.8 (22 ) 401.8 461.3 (13 )
Mexico , South America , Australia
and other 66.9 94.6 (29 ) 156.3 185.1 (16 )
$ 823.7 $ 1,025.4 (20 ) $ 1,822.3 $ 2,030.1 (10 )
Parts income before income taxes $ 151.9 $ 210.6 (28 ) $ 366.6 $ 418.2 (12 )
Pre-tax return on revenues 18.4 % 20.5 % 20.1 % 20.6 %
The Company's worldwide parts net sales and revenues for the second quarter
decreased to $823.7 million in 2020 from $1.03 billion in 2019. For the first
six months, worldwide parts net sales and revenues decreased to $1.82 billion in
2020 from $2.03 billion in 2019. The decrease in both periods was primarily due
to lower sales volume and unfavorable currency translation, partially offset by
higher prices.
For the second quarter and first six months of 2020, the decrease in Parts
segment income before income taxes and pre-tax return on revenues was primarily
due to lower volume and margins as well as unfavorable currency translation.
Parts income before taxes for the second quarter and first half of 2020 included
a $10.2 million gain on the sale of the prior Las Vegas parts distribution
facility which was replaced by a new larger facility. The gain was recorded in
Interest and other (income), net on the Consolidated Statements of Comprehensive
Income.
The major factors for the changes in Parts segment net sales and revenues, cost
of sales and revenues and gross margin between the three months ended June 30,
2020 and 2019 are as follows:
NET COST OF
SALES AND SALES AND GROSS
($ in millions) REVENUES REVENUES MARGIN
Three Months Ended June 30, 2019 $ 1,025.4 $ 741.8 $ 283.6
(Decrease) increase
Aftermarket parts volume (210.5 ) (137.9 ) (72.6 )
Average aftermarket parts sales prices 16.7 16.7
Average aftermarket parts direct costs 14.3 (14.3 ) Warehouse and other indirect costs 2.9 (2.9 ) Currency translation (7.9 ) (5.5 ) (2.4 ) Total decrease (201.7 ) (126.2 )
(75.5 )
Three Months Ended
• Aftermarket parts sales volume decreased by
sales decreased by
America and
• Average aftermarket parts sales prices increased sales by
primarily due to higher price realization in
• Average aftermarket parts direct costs increased
material costs.
• Warehouse and other indirect costs increased
higher salaries and related expenses.
• The currency translation effect on sales and cost of sales reflects a decline
in the value of foreign currencies relative to the
euro and the Australian dollar.
• Parts gross margins in the second quarter of 2020 decreased to 25.3% from
27.7% in the second quarter of 2019 due to the factors noted above.
- 36 -
-------------------------------------------------------------------------------- The major factors for the changes in Parts segment net sales and revenues, cost of sales and revenues and gross margin between the six months endedJune 30, 2020 and 2019 are as follows: NET COST OF SALES AND SALES AND GROSS ($ in millions) REVENUES REVENUES MARGIN Six Months Ended June 30, 2019$ 2,030.1 $ 1,468.1 $
562.0
(Decrease) increase Aftermarket parts volume (235.8 ) (155.7 ) (80.1 ) Average aftermarket parts sales prices 46.3
46.3
Average aftermarket parts direct costs 19.6 (19.6 ) Warehouse and other indirect costs 9.8 (9.8 ) Currency translation (18.3 ) (12.0 ) (6.3 ) Total decrease (207.8 ) (138.3 ) (69.5 ) Six Months Ended June 30, 2020$ 1,822.3 $ 1,329.8 $ 492.5
• Aftermarket parts sales volume decreased by
sales decreased by
America and
• Average aftermarket parts sales prices increased sales by
primarily due to higher price realization in
• Average aftermarket parts direct costs increased
material costs.
• Warehouse and other indirect costs increased
higher salaries and related expenses.
• The currency translation effect on sales and cost of sales reflects a decline
in the value of foreign currencies relative to the
euro and the Australian dollar.
• Parts gross margins in the first six months of 2020 decreased to 27.0% from
27.7% in the first six months of 2019 due to the factors noted above. Parts SG&A expense decreased in the second quarter of 2020 to$44.7 million from$53.3 million in 2019, and for the first six months, Parts SG&A decreased to$94.0 million in 2020 from$104.6 million in 2019. The decrease in both periods was primarily due to lower salaries and related expenses, travel expenses, sales and marketing costs and favorable currency translation effects. As a percentage of sales, Parts SG&A was 5.4% and 5.2% in the second quarter and first six months of 2020, respectively, compared to 5.2% in the second quarter and first six months of 2019. - 37 -
--------------------------------------------------------------------------------
Financial Services
The Company's Financial Services segment accounted for 12% and 9% of revenues in
the second quarter and first six months of 2020, respectively, compared to 5% in
the second quarter and first six months of 2019.
Three Months Ended Six Months Ended
June 30 June 30
($ in millions) 2020 2019 % CHANGE 2020 2019 % CHANGE
New loan and lease volume:
U.S. and Canada $ 576.4 $ 930.8 (38 ) $ 1,243.8 $ 1,576.6 (21 )
Europe 171.6 352.9 (51 ) 472.2 678.9 (30 )
Mexico, Australia and other 149.9 245.9 (39 ) 307.9 434.0 (29 )
$ 897.9 $ 1,529.6 (41 ) $ 2,023.9 $ 2,689.5 (25 )
New loan and lease volume by product:
Loans and finance leases $ 745.7 $ 1,158.9 (36 ) $ 1,611.0 $ 2,063.4 (22 )
Equipment on operating lease 152.2 370.7 (59 ) 412.9 626.1 (34 )
$ 897.9 $ 1,529.6 (41 ) $ 2,023.9 $ 2,689.5 (25 )
New loan and lease unit volume:
Loans and finance leases 6,870 10,150 (32 ) 14,770 18,490 (20 )
Equipment on operating lease 1,650 3,600 (54 ) 4,310 6,300 (32 )
8,520 13,750 (38 ) 19,080 24,790 (23 )
Average earning assets:
U.S. and Canada $ 9,058.7 $ 8,718.6 4 $ 9,204.7 $ 8,522.9 8
Europe 3,353.5 3,602.1 (7 ) 3,461.2 3,612.2 (4 )
Mexico, Australia and other 1,629.8 1,912.1 (15 ) 1,726.6 1,852.9 (7 )
$ 14,042.0 $ 14,232.8 (1 ) $ 14,392.5 $ 13,988.0 3
Average earning assets by product:
Loans and finance leases $ 8,863.2 $ 8,718.5 2 $ 8,928.9 $ 8,623.7 4
Dealer wholesale financing 2,114.2 2,468.0 (14 ) 2,341.0 2,341.4
Equipment on lease and other 3,064.6 3,046.3 1 3,122.6 3,022.9 3
$ 14,042.0 $ 14,232.8 (1 ) $ 14,392.5 $ 13,988.0 3
Revenues:
U.S. and Canada $ 190.9 $ 200.9 (5 ) $ 394.1 $ 397.0 (1 )
Europe 118.5 94.8 25 237.6 186.0 28
Mexico, Australia and other 50.9 65.7 (23 ) 112.3 127.9 (12 )
$ 360.3 $ 361.4 $ 744.0 $ 710.9 5
Revenue by product:
Loans and finance leases $ 110.2 $ 115.9 (5 ) $ 226.6 $ 229.6 (1 )
Dealer wholesale financing 16.0 31.9 (50 ) 41.7 55.3 (25 )
Equipment on lease and other 234.1 213.6 10 475.7 426.0 12
$ 360.3 $ 361.4 $ 744.0 $ 710.9 5
Income before income taxes $ 55.5 $ 80.3 (31 ) $ 103.8 $ 164.3 (37 )
For the second quarter, new loan and lease volume was $897.9 million in 2020
compared to $1,529.6 million in 2019 and for the first half was $2,023.9 million
in 2020 compared to $2,689.5 million in 2019, primarily reflecting lower truck
deliveries worldwide.
In the second quarter of 2020, PFS finance market share on new PACCAR truck
sales increased to 26.7% from 23.1% in the second quarter of 2019. In the first
six months of 2020, PFS finance market share on new PACCAR truck sales increased
to 25.7% from 22.6% in the first six months of 2019.
In the second quarter of 2020, PFS revenues were $360.3 million compared to
$361.4 million in 2019. In the first six months of 2020, PFS revenues increased
to $744.0 million from $710.9 million in 2019, driven primarily by higher used
truck sales in Europe . The effects of currency translation decreased PFS
revenues by $12.0 million and $17.9 million in the second quarter and first half
of 2020, respectively, primarily due to a weaker Mexican peso and euro.
- 38 -
--------------------------------------------------------------------------------
PFS income before income taxes decreased to $55.5 million in the second quarter
of 2020 from $80.3 million in the second quarter of 2019. In the first six
months of 2020, PFS income before income taxes decreased to $103.8 from $164.3
million in 2019. The decrease in both periods was primarily due to lower used
truck results, lower yields and a higher provision for credit losses. The
effects of translating weaker foreign currencies to the U.S. dollar decreased
PFS income before income taxes by $4.4 million and $5.4 million for the second
quarter and first half of 2020, respectively.
Included in Financial Services "Other assets" on the Company's Consolidated
Balance Sheets are used trucks held for sale, net of impairments, of $463.4
million at June 30, 2020 and $391.4 million at December 31, 2019 . These trucks
are primarily units returned from matured operating leases in the ordinary
course of business, and also include trucks acquired from repossessions or
through acquisitions of used trucks in trades related to new truck sales and
trucks returned from residual value guarantees (RVGs).
The Company recognized losses on used trucks, excluding repossessions, of $24.9
million in the second quarter of 2020 compared to $11.3 million in the second
quarter of 2019, including losses on multiple unit transactions of $7.0 million
in the second quarter of 2020 compared to $3.6 million in the second quarter of
2019. Used truck losses related to repossessions, which are recognized as credit
losses, and used truck gains, which are recognized as credit recoveries, were
not significant for either the second quarter of 2020 or 2019.
The Company recognized losses on used trucks, excluding repossessions, of $51.2
million in the first six months of 2020 compared to $18.3 million in the first
six months of 2019, including losses on multiple unit transactions of $14.5
million in the first six months of 2020 compared to $6.9 million in the first
six months of 2019. Used truck losses related to repossessions, which are
recognized as credit losses, and used truck gains, which are recognized as
credit recoveries, were not significant for either the first six months of 2020
or 2019.
The major factors for the changes in interest and fees, interest and other
borrowing expenses and finance margin between the three months ended
INTEREST
AND OTHER
INTEREST BORROWING FINANCE
($ in millions) AND FEES EXPENSES MARGIN
Three Months Ended June 30, 2019 $ 147.8 $ 60.0 $ 87.8
(Decrease) Increase
Average finance receivables (.5 ) (.5 )
Average debt balances .1 (.1 )
Yields (15.4 ) (15.4 )
Borrowing rates (10.6 ) 10.6
Currency translation and other (5.7 ) (2.6 ) (3.1 )
Total decrease (21.6 ) (13.1 ) (8.5 )
Three Months Ended
• Average finance receivables decreased
exchange effects) in the second quarter of 2020 primarily due to lower dealer
wholesale balances.
• Lower portfolio yields (4.6% in 2020 compared to 5.3% in 2019) decreased
interest and fees by
due to lower market rates in
• Lower borrowing rates (1.8% in 2020 compared to 2.3% in 2019) were primarily
due to lower debt market rates in
• The currency translation effects reflect a decrease in the value of foreign
currencies relative to the
Brazilian real.
- 39 -
-------------------------------------------------------------------------------- The major factors for the changes in interest and fees, interest and other borrowing expenses and finance margin between the six months endedJune 30, 2020 and 2019 are outlined below: INTEREST AND OTHER INTEREST BORROWING FINANCE ($ in millions) AND FEES EXPENSES MARGIN Six Months Ended June 30, 2019$ 284.9 $ 113.4 $ 171.5 Increase (decrease) Average finance receivables 11.5 11.5 Average debt balances 5.8 (5.8 ) Yields (19.9 ) (19.9 ) Borrowing rates (12.7 ) 12.7
Currency translation and other (8.2 ) (3.2 ) (5.0 ) Total decrease
(16.6 ) (10.1 ) (6.5 )
Six Months Ended
• Average finance receivables increased
exchange effects) in the first six months of 2020 as a result of retail
portfolio new business volume exceeding collections.
• Average debt balances increased
effects) in the first six months of 2020. The higher average debt balances
reflect funding for a higher average earning assets portfolio.
• Lower portfolio yields (4.8% in 2020 compared to 5.2% in 2019) decreased
interest and fees by
due to lower market rates in
• Lower borrowing rates (1.9% in 2020 compared to 2.2% in 2019) were primarily
due to lower debt market rates in
• The currency translation effects reflect a decrease in the value of foreign
currencies relative to the
Brazilian real and the Australian dollar.
The following table summarizes operating lease, rental and other revenues and depreciation and other expenses:
Three Months Ended Six Months Ended
June 30 June 30
($ in millions) 2020 2019 2020 2019
Operating lease and rental revenues $ 198.7 $ 206.2 $ 409.3 $ 412.0
Used truck sales and other 35.4 7.4 66.4 14.0
Operating lease, rental and other revenues $ 234.1 $ 213.6 $ 475.7 $ 426.0
Depreciation of operating lease equipment $ 157.4 $ 145.5 $ 320.3 $ 288.9
Vehicle operating expenses 33.5 34.7 72.1 66.6
Cost of used truck sales and other 33.2 3.4 61.1 5.5
Depreciation and other expenses $ 224.1 $ 183.6 $ 453.5 $ 361.0
The major factors for the changes in operating lease, rental and other revenues,
depreciation and other expenses and lease margin between the three months ended
June 30, 2020 and 2019 are outlined below:
OPERATING
LEASE, RENTAL DEPRECIATION
AND OTHER AND OTHER LEASE
($ in millions) REVENUES EXPENSES MARGIN
Three Months Ended June 30, 2019 $ 213.6 $ 183.6 $ 30.0
Increase (decrease)
Used truck sales 28.3 29.7 (1.4 )
Results on returned lease assets 10.5 (10.5 )
Average operating lease assets .2 .3 (.1 )
Revenue and cost per asset (1.8 ) 4.9 (6.7 )
Currency translation and other (6.2 ) (4.9 ) (1.3 )
Total increase (decrease) 20.5 40.5
(20.0 )
Three Months Ended
- 40 -
--------------------------------------------------------------------------------• A higher sales volume of used trucks received on trade and upon RVG contract
expiration increased operating lease, rental and other revenues by
million and increased depreciation and other expenses by
• Results on returned lease assets increased depreciation and other expenses by
in the
of lower truck market values.
• Average operating lease assets increased
exchange effects), which increased revenues by
depreciation and other expenses by
• Revenue per asset decreased
and lower fleet utilization. Cost per asset increased
higher depreciation expense and higher vehicle operating expenses.
• The currency translation effects reflect a decrease in the value of foreign
currencies relative to the
euro. The major factors for the changes in operating lease, rental and other revenues, depreciation and other expenses and lease margin between the six months endedJune 30, 2020 and 2019 are outlined below: OPERATING LEASE, RENTAL AND OTHER DEPRECIATION LEASE ($ in millions) REVENUES AND OTHER EXPENSES MARGIN Six Months Ended June 30, 2019 $ 426.0 $ 361.0$ 65.0 Increase (decrease) Used truck sales 52.9 55.4 (2.5 ) Results on returned lease assets 27.3 (27.3 ) Average operating lease assets 5.5 5.1
.4
Revenue and cost per asset 1.5 13.0 (11.5 ) Currency translation and other (10.2 ) (8.3 ) (1.9 ) Total increase (decrease) 49.7 92.5 (42.8 ) Six Months Ended June 30, 2020 $ 475.7 $ 453.5
• A higher sales volume of used trucks received on trade and upon RVG contract
expiration increased operating lease, rental and other revenues by
million and increased depreciation and other expenses by
• Results on returned lease assets increased depreciation and other expenses by
in the
truck market values.
• Average operating lease assets increased
exchange effects), which increased revenues by
depreciation and other expenses by
• Revenue per asset increased
income, partially offset by lower fleet utilization. Cost per asset increased
expenses.
• The currency translation effects reflect a decrease in the value of foreign
currencies relative to the
peso.
Financial Services SG&A expense was$26.3 million in the second quarter of 2020 compared to$33.5 million in 2019, and for the first six months was$58.9 million in 2020 compared to$66.0 million in 2019. The decrease in both periods was due to lower salaries and related expenses as a result of cost controls and lower travel expenses. As a percentage of revenues, Financial Services SG&A decreased to 7.3% in the second quarter of 2020 from 9.3% in the same period of 2019, and in the first six months, decreased to 7.9% in 2020 from 9.3% in 2019. The decrease in both periods was driven primarily by lower salaries and related expenses. - 41 - -------------------------------------------------------------------------------- The following table summarizes the provision for losses on receivables and net charge-offs: Three Months Ended Six Months Ended June 30, 2020 June 30, 2020 PROVISION FOR NET PROVISION FOR NET LOSSES ON CHARGE- LOSSES ON CHARGE- ($ in millions) RECEIVABLES OFFS RECEIVABLES OFFS U.S. and Canada $ 3.6$ 4.2 $ 14.4$ 11.4 Europe 1.4 1.0 5.7 1.9 Mexico, Australia and other 2.5 1.6 4.4 2.7 $ 7.5$ 6.8 $ 24.5$ 16.0 Three Months Ended Six Months Ended June 30, 2019 June 30, 2019 PROVISION FOR NET PROVISION FOR NET LOSSES ON CHARGE- LOSSES ON CHARGE- ($ in millions) RECEIVABLES OFFS RECEIVABLES OFFS U.S. and Canada $ 1.7$ 1.4 $ 5.1$ 2.2 Europe .9 .7 (1.5 ) (1.7 ) Mexico, Australia and other 1.4 .7 2.6 1.6 $ 4.0$ 2.8 $ 6.2$ 2.1 The provision for losses on receivables was$7.5 million for the second quarter of 2020 compared to$4.0 million in 2019, and in the first six months, the provision for losses on receivables was$24.5 in 2020 compared to$6.2 million in 2019. The increase in the provision for losses in both periods was primarily driven by challenging economic conditions related to the COVID-19 pandemic. In addition, the provision for losses in the first half of 2020 reflects the credit loss on a large fleet in theU.S. The provision for losses in 2019 also included recoveries on charged-off accounts inEurope . The Company modifies loans and finance leases as a normal part of its Financial Services operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress, but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company's modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification. When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts the Company considers likely to perform under the modified terms. When the Company modifies a loan or finance lease for credit reasons and grants a concession, the modification is classified as a troubled debt restructuring (TDR).
The post-modification balance of accounts modified during the six months ended
2020 2019
RECORDED % OF TOTAL RECORDED % OF TOTAL
($ in millions) INVESTMENT PORTFOLIO* INVESTMENT PORTFOLIO*
Commercial $ 131.3 2.9 % $ 142.7 3.2 %
Insignificant delay 2,306.7 51.7 % 36.6 .8 %
Credit - no concession 72.6 1.6 % 12.7 .3 %
Credit - TDR 40.1 .9 % .8
$ 2,550.7 57.1 % $ 192.8 4.3 %
* Recorded investment immediately after modification as a percentage of ending
retail portfolio, on an annualized basis.
During the first six months of 2020, total modification activity significantly increased compared to the first six months of 2019. The increase in modifications for Commercial reasons primarily reflects higher volumes of refinancing. The increase in modifications for Insignificant delay reflects fleet customers requesting payment relief for up to three months related to COVID-19. The increase in modifications for Credit - no concession is primarily due to higher volumes of refinancing and requests for payment relief inEurope , theU.S. andMexico . The increase in modification for Credit -TDR is primarily due to two fleet customers in theU.S. and two fleet customers inMexico . Substantially all modifications related to the COVID-19 pandemic were completed in the six months endedJune 30, 2020 . The Company has received some further customer requests for contract modifications inJuly 2020 due to the COVID-19 pandemic representing an immaterial amount of the portfolio. - 42 - --------------------------------------------------------------------------------
The following table summarizes the Company's 30+ days past due accounts:
June 30 December 31 June 30
2020 2019 2019
Percentage of retail loan and lease accounts
30+ days past due:
U.S. and Canada .3 % .4 % .5 %
Europe 1.6 % .7 % .8 %
Mexico, Australia and other 2.1 % 2.0 % 2.0 %
Worldwide .8 % .7 % .8 %
Accounts 30+ days past due increased slightly to .8% at June 30, 2020 from .7%
at December 31, 2019 , and remain at low levels. The Company continues to focus
on maintaining low past due balances.
When the Company modifies a 30+ days past due account, the customer is then
generally considered current under the revised contractual terms. The Company
modified $35.2 million of accounts worldwide during the second quarter of 2020,
$1.7 million during the fourth quarter of 2019 and $4.0 million during the
second quarter of 2019 that were 30+ days past due and became current at the
time of modification. Had these accounts not been modified and continued to not
make payments, the pro forma percentage of retail loan and lease accounts
30+ days past due would have been as follows:
June 30 December 31 June 30
2020 2019 2019
Pro forma percentage of retail loan and lease
accounts 30+ days past due:
U.S. and Canada .3 % .4 % .6 %
Europe 2.0 % .7 % .8 %
Mexico, Australia and other 4.1 % 2.1 % 2.3 %
Worldwide 1.2 % .7 % .8 %
Modifications of accounts in prior quarters that were more than 30 days past due
at the time of modification are included in past dues if they were not
performing under the modified terms at
The Company's annualized pre-tax return on average assets for Financial Services decreased to 1.5% in the second quarter of 2020 from 2.1% in the same period of 2019, and in the first six months, decreased to 1.3% in 2020 from 2.2% in 2019. The decrease in both periods was primarily driven by lower used truck results, lower yields and increased provision for losses.
Other
Other includes the winch business as well as sales, income and expenses not attributable to a reportable segment. Other also includes non-service cost components of pension expense and a portion of corporate expense. Other sales represent less than 1% of consolidated net sales and revenues for both the second quarter and first half of 2020 and 2019. Other SG&A decreased to$5.4 million for the second quarter of 2020 from$22.0 million for the second quarter of 2019 and decreased to$26.6 million for the first half of 2020 from$45.9 million for the first half of 2019. The decrease in both periods was primarily due to lower compensation costs reflecting stringent cost controls. For the second quarter, Other income (loss) before tax was$13.8 million compared to$(9.0) million in 2019. For the first six months, Other income (loss) before tax was$15.1 million compared to$(17.5) million in 2019. The income in the second quarter and first half of 2020 compared to loss in the same periods of 2019 was primarily due to lower salaries and related expenses and lower expected costs to resolve certain environmental matters, partially offset by lower results from the winch business. Investment income for the second quarter decreased to$9.0 million in 2020 from$21.8 million in 2019. For the first six months, investment income decreased to$23.8 million in 2020 from$41.1 million in 2019. The lower investment income in the second quarter and first six months of 2020 was primarily due to lower yields onU.S. investments due to lower market interest rates. - 43 - --------------------------------------------------------------------------------
Income Taxes
The effective tax rate for the second quarter of 2020 was 19.7% compared to
23.9% for the second quarter of 2019. The effective tax rate for the first six
months of 2020 was 21.5% compared to 23.6% for the first six months of 2019. The
lower effective tax rate in the second quarter and first half of 2020 was due
primarily to higher R&D benefits.
Three Months Ended Six Months Ended
June 30 June 30
($ in millions) 2020 2019 2020 2019
Domestic income before taxes $ 160.4 $ 566.1 $ 469.7 $ 1,115.7
Foreign income before taxes 23.6 248.3 176.5 518.1
Total income before taxes $ 184.0 $ 814.4 $ 646.2 $ 1,633.8
Domestic pre-tax return on revenues 9.9 % 14.5 % 10.3 % 14.8 %
Foreign pre-tax return on revenues 1.6 % 9.1 % 4.8 % 9.3 %
Total pre-tax return on revenues 6.0 % 12.3 % 7.9 % 12.5 %
For the second quarter and first six months of 2020, both domestic and foreign
income before income taxes and pre-tax return on revenues decreased primarily
due to lower revenues and lower margins from truck operations.
LIQUIDITY AND CAPITAL RESOURCES:
June 30 December 31
($ in millions) 2020 2019
Cash and cash equivalents
1,162.1
$ 4,275.2 $ 5,337.2 The Company's total cash and marketable debt securities at
The change in cash and cash equivalents is summarized below:
($ in millions) Six Months Ended June 30, 2020 2019 Operating activities: Net income$ 507.1 $ 1,248.7 Net income items not affecting cash 543.9 555.0
Changes in operating assets and liabilities, net 309.8 (614.2 ) Net cash provided by operating activities
1,360.8 1,189.5
Net cash used in investing activities (594.1 ) (1,125.4 )
Net cash used in financing activities (1,778.4 ) (282.0 )
Effect of exchange rate changes on cash (35.4 ) 1.4
Net decrease in cash and cash equivalents (1,047.1 ) (216.5 )
Cash and cash equivalents at beginning of period 4,175.1 3,435.9
Cash and cash equivalents at end of period
Operating activities: Cash provided by operations increased by$171.3 million to$1,360.8 million in the first half of 2020 from$1,189.5 million in 2019. Higher operating cash flows reflect$1,015.7 million from wholesale receivables as the first half of 2020 was a cash inflow of$694.7 million vs. a cash outflow of$321.0 million in 2019. In addition, higher cash from operations reflects a higher cash inflow of$467.0 from accounts receivables as collections exceeded sales in 2020 ($30.4 million ) compared to sales exceeding collections in 2019 ($436.6 million ). Additionally, the increase in operating cash flows reflects lower net purchases of inventories by$133.2 million . The higher operating cash inflows were partially offset by lower net income of$741.6 million and lower cash inflows from accounts payable and accrued expenses of$630.8 million , as payments for goods and services exceeded purchases by$233.2 million in 2020 compared to goods and services received which exceeded payments by$397.6 million in 2019. - 44 - -------------------------------------------------------------------------------- Investing activities: Cash used in investing activities decreased by$531.3 million to$594.1 million in the first half of 2020 from$1,125.4 million in 2019. Lower net cash used in investing activities reflects lower net originations from retail loans and finance leases of$306.6 million and lower cash used in the acquisition of equipment for operating leases of$220.8 million . In addition, lower net cash used reflects a$99.5 million increase from marketable debt securities, as there were$11.7 million in net proceeds from sale of marketable debt securities in the first half of 2020 compared to$87.8 million in net purchases of marketable debt securities in 2019. The lower cash usage was partially offset by lower proceeds from asset disposals of$56.6 million and higher payments for property, plant and equipment of$62.3 million . Financing activities: Cash used in financing activities was$1,778.4 million for the first half of 2020,$1,496.4 million higher than the$282.0 million in 2019. In the first half of 2020, the Company issued$1,474.8 million of term debt, repaid term debt of$1,012.4 million and decreased its outstanding commercial paper and short-term bank loans by$1,192.5 million . In the first half of 2019, the Company issued$1,453.9 million of term debt, repaid term debt of$1,116.9 million and increased its outstanding commercial paper and short-term bank loans by$330.6 million . This resulted in cash used by borrowing activities of$730.1 million in the first half of 2020,$1,397.7 million lower than the cash provided by borrowing activities of$667.6 million in 2019. The Company paid$1,018.0 million in dividends in the first half of 2020 compared to$917.0 million in 2019 due to a higher extra dividend paid inJanuary 2020 . In addition, the Company repurchased .7 million shares of common stock for$41.6 million in the first six months of 2020 compared to the purchase of .8 million shares for$56.5 million in the same period last year.
Credit Lines and Other
The Company has line of credit arrangements of$3.58 billion , of which$3.27 billion were unused atJune 30, 2020 . Included in these arrangements are$3.00 billion of committed bank facilities, of which$1.00 billion expires inJune 2021 ,$1.00 billion expires inJune 2023 and$1.00 billion expires inJune 2024 . The Company intends to extend or replace these credit facilities on or before expiration to maintain facilities of similar amounts and duration. These credit facilities are maintained primarily to provide backup liquidity for commercial paper borrowings and maturing medium-term notes. There were no borrowings under the committed bank facilities for the three months endedJune 30, 2020 . OnDecember 4, 2018 ,PACCAR's Board of Directors approved the repurchase of up to$500.0 million of the Company's outstanding common stock. As ofJune 30, 2020 , the Company has repurchased$110.0 million of shares under theDecember 4, 2018 authorization. The Company has temporarily suspended its repurchases as a result of the economic uncertainty related to the COVID19 pandemic.
Truck, Parts and Other
The Company provides funding for working capital, capital expenditures, R&D, dividends, stock repurchases and other business initiatives and commitments primarily from cash provided by operations. Management expects this method of funding to continue in the future. Investments for manufacturing property, plant and equipment in the first six months of 2020 were$302.5 million compared to$305.2 million for the same period of 2019. Over the past decade, the Company's combined investments in worldwide capital projects and R&D totaled$7.05 billion and have significantly increased the operating capacity and efficiency of its facilities and enhanced the quality and operating efficiency of the Company's premium products. In 2020, total capital investments forPACCAR are expected to be$525 to$575 million and R&D is expected to be$265 to$295 million . The Company is investing for long-term growth in aerodynamic truck models, diesel and zero emissions powertrain technologies, advanced driver assistance systems, connected vehicle services and next-generation manufacturing and distribution facilities.
Financial Services
The Company funds its financial services activities primarily from collections on existing finance receivables and borrowings in the capital markets. The primary sources of borrowings in the capital markets are commercial paper and medium-term notes issued in the public markets and, to a lesser extent, bank loans. InNovember 2018 , the Company'sU.S. finance subsidiary,PACCAR Financial Corp. (PFC), filed a shelf registration under the Securities Act of 1933. The total amount of medium-term notes outstanding for PFC as ofJune 30, 2020 was$6.15 billion . The registration expires inNovember 2021 and does not limit the principal amount of debt securities that may be issued during that period. - 45 - -------------------------------------------------------------------------------- As ofJune 30, 2020 , the Company's European finance subsidiary, PACCAR FinancialEurope , had €1.60 billion available for issuance under a €2.50 billion medium-term note program listed on the Euro MTF Market of theLuxembourg Stock Exchange . This program replaced an expiring program in the second quarter of 2020 and is renewed annually through the filing of a new listing. InApril 2016 , PACCAR Financial Mexico registered a10.00 billion peso medium-term note and commercial paper program with the Comision Nacional Bancaria y de Valores. The registration expires inApril 2021 and limits the amount of commercial paper (up to one year) to5.00 billion pesos . AtJune 30, 2020 ,8.37 billion pesos were available for issuance. InAugust 2018 , the Company's Australian subsidiary, PACCAR Financial Pty. Ltd. (PFPL), registered a medium-term note program. The program does not limit the principal amount of debt securities that may be issued under the program. The total amount of medium-term notes outstanding for PFPL as ofJune 30, 2020 was300.0 million Australian dollars . The Company believes its cash balances and investments, collections on existing finance receivables, committed bank facilities and current investment-grade credit ratings of A+/A1 will continue to provide it with sufficient resources and access to capital markets at competitive interest rates and therefore contribute to the Company maintaining its liquidity and financial stability. In the event of a decrease in the Company's credit ratings or a disruption in the financial markets, the Company may not be able to refinance its maturing debt in the financial markets. In such circumstances, the Company would be exposed to liquidity risk to the degree that the timing of debt maturities differs from the timing of receivable collections from customers. The Company believes its various sources of liquidity, including committed bank facilities, would continue to provide it with sufficient funding resources to service its maturing debt obligations. FORWARD-LOOKING STATEMENTS: This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements relating to future results of operations or financial position and any other statement that does not relate to any historical or current fact. Such statements are based on currently available operating, financial and other information and are subject to risks and uncertainties that may affect actual results. Risks and uncertainties include, but are not limited to: a significant decline in industry sales; competitive pressures; reduced market share; reduced availability of or higher prices for fuel; increased safety, emissions or other regulations or tariffs resulting in higher costs and/or sales restrictions; currency or commodity price fluctuations; lower used truck prices; insufficient or under-utilization of manufacturing capacity; supplier interruptions; insufficient liquidity in the capital markets; fluctuations in interest rates; changes in the levels of the Financial Services segment new business volume due to unit fluctuations in newPACCAR truck sales or reduced market shares; changes affecting the profitability of truck owners and operators; price changes impacting truck sales prices and residual values; insufficient supplier capacity or access to raw materials; labor disruptions; shortages of commercial truck drivers; increased warranty costs; pandemics; litigation, including EC settlement-related claims; or legislative and governmental regulations. A more detailed description of these and other risks is included under the headings Part 1, Item 1A, "Risk Factors" in the Company's Annual Report on Form 10K for the year endedDecember 31, 2019 and in Part II, Item 1, "Legal Proceedings" and Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q. - 46 -
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