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. In North America, trucks are sold under the Kenworth and Peterbilt
nameplates, in Europe, under the DAF nameplate and in Australia and South
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 leasing PACCAR products in North America, Europe and Australia. The
Company's Other business includes the manufacturing and marketing of industrial
winches.

2019 Financial Highlights

• Worldwide net sales and revenues were a record $25.60 billion in 2019

compared to $23.50 billion in 2018 due to record revenues in the Truck, Parts

and Financial Services segments.

• Truck sales were $19.99 billion in 2019 compared to $18.19 billion in 2018

primarily due to higher truck deliveries in the U.S. and Canada and Latin

America.

• Parts sales were $4.02 billion in 2019 compared to $3.84 billion in 2018

primarily due to higher demand in the U.S. and Canada.

• Financial Services revenues were $1.48 billion in 2019 compared to $1.36

billion in 2018. The increase was primarily due to higher average earning

asset balances and higher yields in North America.

• In 2019, PACCAR earned net income for the 81st consecutive year. Net income

was $2.39 billion ($6.87 per diluted share) in 2019 compared to $2.20 billion

($6.24 per diluted share) in 2018 primarily reflecting higher Truck and Parts

revenues and operating results.

• Capital investments were $743.9 million in 2019 compared to $437.1 million in

2018 reflecting continued investments in the Company's manufacturing

facilities, new product development and enhanced aftermarket support.

• After-tax return on beginning equity (ROE) was 27.8% in 2019 compared to

27.3% in 2018.

• Research and development (R&D) expenses were $326.6 million in 2019 compared

to $306.1 million in 2018.

PACCAR opened Global Embedded Software centers in Kirkland, Washington and Eindhoven, the Netherlands, which will accelerate embedded software development and connected vehicle solutions to benefit customers' operating efficiency.



In January 2020, PACCAR exhibited three vehicles with autonomous and alternative
powertrain technologies at the CES 2020 show in Las Vegas, Nevada: a level 4
autonomous Kenworth T680; a battery-electric Peterbilt Model 520EV; and a
battery-electric Kenworth K270E. These trucks are designed for a range of
customer applications, including over-the-road transportation, refuse collection
and urban distribution.

Peterbilt, Kenworth and DAF are field-testing battery-electric, hydrogen fuel
cell and hybrid powertrain trucks with customers in North America and Europe.
These customer field tests are providing excellent feedback on future truck
technologies, which will support PACCAR's environmental and engineering
leadership with the development of innovative alternative powertrain
technologies.

PACCAR continues to add global distribution capacity to deliver industry-leading
aftermarket parts availability to customers. PACCAR will open a new 250,000
square-foot parts distribution center in Las Vegas, Nevada and a new 160,000
square-foot parts distribution center in Ponta Grossa, Brasil in 2020 to enhance
parts availability for customers.

PACCAR has been honored for the second consecutive year as a global leader in
environmental practices by environmental reporting firm CDP, earning recognition
on the 2019 CDP Climate Change A List. Over 8,000 companies disclosed data about
their environmental impacts, risks and opportunities to CDP for independent
assessment. PACCAR is one of only 35 companies in the U.S. earning a CDP score
of "A" and is placed in the top 2% of reporting companies worldwide.

The PACCAR Financial Services (PFS) group of companies has operations covering
four continents and 25 countries. The global breadth of PFS and its rigorous
credit application process support a portfolio of loans and leases with record
total assets of $16.07 billion. PFS issued $2.49 billion in medium-term notes
during 2019 to support portfolio growth and repay maturing debt.

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Truck Outlook



Heavy-duty truck industry retail sales in the U.S. and Canada in 2020 are
expected to decrease to 230,000 to 260,000 units compared to 308,800 in 2019. In
Europe, the 2020 truck industry registrations for over 16-tonne vehicles are
expected to be 260,000 to 290,000 units compared to 320,200 in 2019. In South
America, heavy-duty truck industry sales in 2020 are estimated to be 100,000 to
110,000 units compared to 105,000 units in 2019.

Parts Outlook

In 2020, PACCAR Parts sales are expected to grow 4-6% compared to 2019.

Financial Services Outlook



Based on the truck market outlook, average earning assets in 2020 are expected
to remain similar to 2019 levels. Current strong levels of freight tonnage are
contributing to customers' profitability and cash flow. If current freight
transportation conditions decline due to weaker economic conditions, then past
due accounts, truck repossessions and credit losses would likely increase from
the current low levels and new business volume would likely decline.

Capital Spending and R&D Outlook



Capital investments in 2020 are expected to be $625 to $675 million, and R&D is
expected to be $310 to $340 million. The Company is investing for long-term
growth in aerodynamic truck models, integrated powertrains including diesel,
electric, hybrid and hydrogen fuel cell technologies, advanced driver assistance
systems, digital services and next-generation manufacturing and distribution
capabilities.

See the Forward-Looking Statements section of Management's Discussion and Analysis for factors that may affect these outlooks.






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RESULTS OF OPERATIONS:



The Company's results of operations for the years ended December 31, 2019 and
2018 are presented below. For information on the year ended December 31, 2017,
refer to Part II, Item 7 in the 2018 Annual Report on Form 10-K.




($ in millions, except per share amounts)
Year Ended December 31,                           2019           2018
Net sales and revenues:
Truck                                       $ 19,989.5     $ 18,187.0
Parts                                          4,024.9        3,838.9
Other                                            105.3          112.7
Truck, Parts and Other                        24,119.7       22,138.6
Financial Services                             1,480.0        1,357.1
                                            $ 25,599.7     $ 23,495.7
Income (loss) before income taxes:
Truck                                       $  1,904.9     $  1,672.1
Parts                                            830.8          768.6
Other                                            (17.7 )          2.7
Truck, Parts and Other                         2,718.0        2,443.4
Financial Services                               298.9          305.9
Investment income                                 82.3           60.9
Income taxes                                    (711.3 )       (615.1 )
Net Income                                  $  2,387.9     $  2,195.1
Diluted earnings per share                  $     6.87     $     6.24
After-tax return on revenues                       9.3 %          9.3 %




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 market demand, fuel prices, freight tonnage and economic conditions
affecting the Company's results of operations.

2019 Compared to 2018:

Truck

The Company's Truck segment accounted for 78% of revenues in 2019 compared to 77% in 2018.

The Company's new truck deliveries are summarized below:





Year Ended December 31,                           2019          2018       % CHANGE
U.S. and Canada                                117,200       105,300             11
Europe                                          59,900        63,800             (6 )
Mexico, South America, Australia and other      21,700        20,000              9
Total units                                    198,800       189,100              5




In 2019, industry retail sales in the heavy-duty market in the U.S. and Canada
increased to 308,800 units from 284,800 units in 2018. The Company's heavy-duty
truck retail market share was 30.0% in 2019 compared to 29.4% in 2018. The
medium-duty market was 108,100 units in 2019 compared to 98,100 units in 2018.
The Company's medium-duty market share was 16.9% in 2019 compared to 17.7% in
2018.

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The over 16­tonne truck market in Europe in 2019 increased to 320,200 units from
318,800 units in 2018, and DAF's market share was 16.2% in 2019 compared to
16.6% in 2018. The 6 to 16­tonne market in 2019 increased to 53,600 units from
51,900 units in 2018. DAF's market share in the 6 to 16-tonne market in 2019 was
9.7% compared to 9.0% in 2018.

The Company's worldwide truck net sales and revenues are summarized below:





($ in millions)
Year Ended December 31,                            2019           2018       % CHANGE
Truck net sales and revenues:
U.S. and Canada                              $ 13,106.5     $ 11,357.0

15


Europe                                          4,797.6        4,808.4

Mexico, South America, Australia and other 2,085.4 2,021.6

3

$ 19,989.5     $ 18,187.0

10


Truck income before income taxes             $  1,904.9     $  1,672.1             14
Pre-tax return on revenues                          9.5 %          9.2 %




The Company's worldwide truck net sales and revenues increased to $19.99 billion
in 2019 from $18.19 billion in 2018, primarily due to higher truck deliveries in
the U.S. and Canada and Latin America, partially offset by unfavorable currency
translation effects. Truck segment income before income taxes and pre-tax return
on revenues increased in 2019, reflecting higher truck unit deliveries and
higher gross margins.

The major factors for the Truck segment changes in net sales and revenues, cost
of sales and revenues and gross margin between 2019 and 2018 are as follows:



                                                       NET        COST OF
                                                 SALES AND      SALES AND          GROSS
($ in millions)                                   REVENUES       REVENUES         MARGIN
2018                                            $ 18,187.0     $ 16,039.5     $  2,147.5
Increase (decrease)
Truck sales volume                                 1,613.3        1,395.8          217.5
Average truck sales prices                           489.8                         489.8
Average per truck material, labor and other
direct costs                                                        297.8         (297.8 )
Factory overhead and other indirect costs                            65.2          (65.2 )
Extended warranties, operating leases and
other                                                 71.9          101.9          (30.0 )
Currency translation                                (372.5 )       (337.6 )        (34.9 )
Total increase                                     1,802.5        1,523.1          279.4
2019                                            $ 19,989.5     $ 17,562.6     $  2,426.9

• Truck sales volume primarily reflects higher truck deliveries in the U.S. and

Canada ($1,414.4 million sales and $1,180.0 million cost of sales). In

Europe, the impact of lower truck unit deliveries was more than offset by a

decrease in units accounted for as operating leases, resulting in higher

sales ($236.8 million) and cost of sales ($217.9 million).

• Average truck sales prices increased sales by $489.8 million, primarily due

to higher price realization in North America.

• Average cost per truck increased cost of sales by $297.8 million, primarily

reflecting higher material and labor costs.

• Factory overhead and other indirect costs increased $65.2 million, primarily

due to higher salaries and related expenses and higher supplies and

maintenance costs to support increased truck production.

• Extended warranties, operating leases and other revenues increased by $71.9

million primarily due to a higher volume of repair and maintenance (R&M) and

extended warranty contracts, as well as higher revenues from operating

leases. Cost of sales and revenues increased by $101.9 million primarily due

to higher impairments and losses on used trucks and higher costs of extended

warranty and R&M contracts.

• The currency translation effect on sales and cost of sales reflects a decline

in the value of foreign currencies relative to the U.S. dollar, primarily the

euro.

• Truck gross margins increased to 12.1% in 2019 from 11.8% in 2018, primarily


    due to the factors noted above.


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Truck selling, general and administrative expenses (SG&A) for 2019 increased to
$269.7 million from $248.3 million in 2018. The increase was primarily due to
higher professional fees ($24.4 million) and higher salaries and related
expenses ($6.8 million), partially offset by favorable currency translation
effects ($9.7 million). As a percentage of sales, Truck SG&A decreased to 1.3%
in 2019 from 1.4% in 2018 due to higher net sales.



Parts

The Company's Parts segment accounted for 16% of revenues in 2019 and 2018.





($ in millions)
Year Ended December 31,                           2019          2018       % CHANGE
Parts net sales and revenues:
U.S. and Canada                              $ 2,731.7     $ 2,545.1              7
Europe                                           908.5         921.4             (1 )
Mexico, South America, Australia and other       384.7         372.4        

3

$ 4,024.9     $ 3,838.9

5


Parts income before income taxes             $   830.8     $   768.6              8
Pre-tax return on revenues                        20.6 %        20.0 %




The Company's worldwide parts net sales and revenues increased to a record $4.02
billion in 2019 from $3.84 billion in 2018, due to higher aftermarket demand in
U.S. and Canada. The increase in Parts segment income before income taxes and
pre-tax return on revenues in 2019 was primarily due to higher sales volume and
higher price realization, partially offset by unfavorable currency translation.



The major factors for the Parts segment changes in net sales and revenues, cost
of sales and revenues and gross margin between 2019 and 2018 are as follows:



                                                NET        COST OF
                                          SALES AND      SALES AND         GROSS
($ in millions)                            REVENUES       REVENUES        MARGIN
2018                                     $  3,838.9     $  2,793.5     $ 1,045.4
Increase (decrease)
Aftermarket parts volume                       75.4           51.1          24.3
Average aftermarket parts sales prices        173.9                        

173.9


Average aftermarket parts direct costs                        85.5         (85.5 )
Warehouse and other indirect costs                            17.6         (17.6 )
Currency translation                          (63.3 )        (40.9 )       (22.4 )
Total increase                                186.0          113.3          72.7
2019                                     $  4,024.9     $  2,906.8     $ 1,118.1

• Aftermarket parts sales volume increased by $75.4 million and related cost of

sales increased by $51.1 million due to higher demand in all markets.

• Average aftermarket parts sales prices increased sales by $173.9 million

primarily due to higher price realization in the U.S. and Canada.

• Average aftermarket parts direct costs increased $85.5 million due to higher

material costs.

• Warehouse and other indirect costs increased $17.6 million, primarily due to

higher salaries and related expenses and higher depreciation expense.

• The currency translation effect on sales and cost of sales primarily reflects

a decline in the value of foreign currencies relative to the U.S. dollar,

primarily the euro.

• Parts gross margins in 2019 increased to 27.8% from 27.2% in 2018 due to the

factors noted above.




Parts SG&A expense for 2019 was $207.8 million compared to $206.2 million in
2018 primarily due to higher salaries and related expenses, partially offset by
lower sales and marketing costs and favorable currency translation effects. As a
percentage of sales, Parts SG&A decreased to 5.2% in 2019 from 5.4% in 2018,
primarily due to higher net sales.

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Financial Services



The Company's Financial Services segment accounted for 6% of revenues in 2019
and 2018.



($ in millions)
Year Ended December 31,                       2019           2018       % CHANGE
New loan and lease volume:
U.S. and Canada                         $  3,425.8     $  3,076.7             11
Europe                                     1,349.5        1,364.5             (1 )
Mexico, Australia and other                  857.7          792.1              8
                                        $  5,633.0     $  5,233.3              8
New loan and lease volume by product:
Loans and finance leases                $  4,277.1     $  4,177.3              2
Equipment on operating lease               1,355.9        1,056.0             28
                                        $  5,633.0     $  5,233.3              8
New loan and lease unit volume:
Loans and finance leases                    38,000         40,500             (6 )
Equipment on operating lease                13,700         10,300             33
                                            51,700         50,800              2
Average earning assets:
U.S. and Canada                         $  8,837.7     $  7,815.4             13
Europe                                     3,547.6        3,364.9              5
Mexico, Australia and other                1,895.5        1,749.9              8
                                        $ 14,280.8     $ 12,930.2             10
Average earning assets by product:
Loans and finance leases                $  8,758.8     $  8,094.4

8


Dealer wholesale financing                 2,428.8        1,847.1           

31


Equipment on lease and other               3,093.2        2,988.7              3
                                        $ 14,280.8     $ 12,930.2             10
Revenues:
U.S. and Canada                         $    810.1     $    763.8              6
Europe                                       409.3          352.6             16
Mexico, Australia and other                  260.6          240.7              8
                                        $  1,480.0     $  1,357.1              9
Revenues by product:
Loans and finance leases                $    470.2     $    425.2             11
Dealer wholesale financing                   112.8           72.5           

56


Equipment on lease and other                 897.0          859.4              4
                                        $  1,480.0     $  1,357.1              9
Income before income taxes              $    298.9     $    305.9             (2 )




New loan and lease volume was a record $5.63 billion in 2019 compared to $5.23
billion in 2018, primarily reflecting higher truck deliveries in the U.S. and
Canada. PFS finance market share of new PACCAR truck sales was 24.5% in 2019
compared to 23.9% in 2018.

PFS revenues increased to $1.48 billion in 2019 from $1.36 billion in 2018. The
increase was primarily due to revenue on higher average earning assets and
higher portfolio yields reflecting higher market interest rates in North
America, and higher used truck sales volume in Europe, partially offset by the
effects of translating weaker foreign currencies to the U.S. dollar. The effects
of currency translation decreased PFS revenues by $26.7 million in 2019,
primarily due to changes in the euro.

PFS income before income taxes decreased to $298.9 million in 2019 from $305.9
million in 2018, primarily due to lower results on returned lease assets and
higher SG&A expenses as $12.0 million of certain initial direct costs were
immediately expensed in 2019 with the adoption of the new lease standard,
partially offset by higher average earning assets balances. Currency exchange
effects decreased PFS income before taxes by $3.2 million in 2019.

                                       19

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Included in Financial Services "Other Assets" on the Company's Consolidated Balance Sheets are used trucks held for sale, net of impairments, of $391.4 million at December 31, 2019 and $226.4 million at December 31, 2018. These trucks are primarily units returned from matured operating leases in the ordinary course of business, and also include trucks acquired from repossessions, 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 $57.5
million in 2019 compared to $35.4 million in 2018, including losses on multiple
unit transactions of $19.1 million in 2019 compared to $20.2 million in 2018.
Used truck losses related to repossessions, which are recognized as credit
losses, were not significant for 2019 or 2018.

The major factors for the changes in interest and fees, interest and other
borrowing expenses and finance margin between 2019 and 2018 are outlined below:



                                                 INTEREST AND
                                                        OTHER
                                   INTEREST         BORROWING      FINANCE
($ in millions)                    AND FEES          EXPENSES       MARGIN
2018                             $    497.7     $       186.9     $  310.8
Increase (decrease)
Average finance receivables            75.4                           75.4
Average debt balances                                    31.5        (31.5 )
Yields                                 16.6                           16.6
Borrowing rates                                          14.0        (14.0 )
Currency translation and other         (6.7 )            (1.9 )       (4.8 )
Total increase                         85.3              43.6         41.7
2019                             $    583.0     $       230.5     $  352.5

• Average finance receivables increased $1,452.5 million (excluding foreign

exchange effects) in 2019 as a result of retail portfolio new business volume

exceeding collections and higher dealer wholesale balances.

• Average debt balances increased $1,456.1 million (excluding foreign exchange


    effects) in 2019. The higher average debt balances reflect funding for a
    higher average earning assets portfolio, which includes loans, finance
    leases, wholesale receivables and equipment on operating lease.

• Higher portfolio yields (5.2% in 2019 compared to 5.0% in 2018) increased

interest and fees by $16.6 million. The higher portfolio yields were

primarily due to higher market rates in North America.

• Higher borrowing rates (2.2% in 2019 compared to 2.0% in 2018) were primarily

due to higher debt market rates in North America.

• The currency translation effects reflect a decrease in the value of foreign

currencies relative to the U.S. dollar, primarily the euro, the Australian

and Canadian dollars and the British pound.

The following table summarizes operating lease, rental and other revenues and depreciation and other expenses:





($ in millions)
Year Ended December 31,                         2019        2018

Operating lease and rental revenues $ 831.0 $ 826.0 Used truck sales and other

                      66.0        33.4

Operating lease, rental and other revenues $ 897.0 $ 859.4

Depreciation of operating lease equipment $ 605.4 $ 588.2 Vehicle operating expenses

                     143.8       121.5
Cost of used truck sales and other              49.0        18.3
Depreciation and other expenses              $ 798.2     $ 728.0




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The major factors for the changes in operating lease, rental and other revenues,
depreciation and other expenses and lease margin between 2019 and 2018 are
outlined below:



                                     OPERATING LEASE,
                                           RENTAL AND            DEPRECIATION       LEASE
($ in millions)                        OTHER REVENUES      AND OTHER EXPENSES      MARGIN
2018                               $            859.4     $             728.0     $ 131.4
Increase (decrease)
Used truck sales                                 32.3                    31.1         1.2
Results on returned lease assets                                         28.9       (28.9 )
Average operating lease assets                   34.7                    30.0         4.7
Revenue and cost per asset                      (11.2 )                   (.9 )     (10.3 )
Currency translation and other                  (18.2 )                 (18.9 )        .7
Total increase (decrease)                        37.6                    70.2       (32.6 )
2019                               $            897.0     $             798.2     $  98.8

• A higher sales volume of used trucks received on trade increased operating

lease, rental and other revenues by $32.3 million and increased depreciation

and other expenses by $31.1 million.

• Results on returned lease assets increased depreciation and other expenses by

$28.9 million primarily due to higher losses on sales of returned lease units

in Europe.

• Average operating lease assets increased $173.2 million (excluding foreign

exchange effects), which increased revenues by $34.7 million and related

depreciation and other expenses by $30.0 million.

• Revenue per asset decreased $11.2 million primarily due to lower rental

income and lower fleet utilization. Cost per asset decreased $.9 million due

to lower depreciation expense and lower vehicle related expenses, partially

offset by higher operating lease impairments in Europe.

• The currency translation effects reflect a decrease in the value of foreign

currencies relative to the U.S. dollar, primarily the euro.




Financial Services SG&A expense increased to $137.0 million in 2019 from $119.8
million in 2018. The increase was due to higher salaries and related expenses to
support portfolio growth and the adoption of the new lease accounting standard
under which $12.0 million of certain initial direct costs were immediately
expensed. In prior years, these costs were capitalized and amortized to expense
over the lease term. As a percentage of revenues, Financial Services SG&A
increased to 9.3% in 2019 from 8.8% in 2018.

The following table summarizes the provision for losses on receivables and net
charge-offs:

                                               2019                                  2018
                                   PROVISION FOR                         PROVISION FOR
                                       LOSSES ON               NET           LOSSES ON               NET
($ in millions)                      RECEIVABLES       CHARGE-OFFS         RECEIVABLES       CHARGE-OFFS
U.S. and Canada                  $          13.5     $        14.0     $          10.4     $         6.9
Europe                                      (3.2 )             (.8 )               (.8 )             5.9
Mexico, Australia and other                  5.1               4.2                 6.9               4.4
                                 $          15.4     $        17.4     $          16.5     $        17.2




The provision for losses on receivables was $15.4 million in 2019 compared to
$16.5 million in 2018, reflecting continued good portfolio performance. The
decrease in provision for losses was primarily driven by higher recoveries on
charged-off accounts in Europe.

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

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of the customers and modifies those accounts that 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 years ended December 31, 2019 and 2018 are summarized below:





                                     2019                              2018
                             RECORDED       % OF TOTAL         RECORDED       % OF TOTAL
($ in millions)            INVESTMENT       PORTFOLIO*       INVESTMENT       PORTFOLIO*
Commercial               $      316.4              3.5 %   $      213.6              2.5 %
Insignificant delay              83.2               .9 %           50.3               .6 %
Credit - no concession           23.3               .3 %           52.2               .6 %
Credit - TDR                      2.5                              13.1               .2 %
                         $      425.4              4.7 %   $      329.2              3.9 %



* Recorded investment immediately after modification as a percentage of the

year-end retail portfolio balance.




In 2019, total modification activity increased compared to 2018 due to higher
modifications for commercial reasons and insignificant delay, partially offset
by lower modifications for credit - no concession and credit - TDR. The increase
in modifications for commercial reasons primarily reflects higher volumes of
refinancing. The increase in modifications for insignificant delay reflects more
fleet customers requesting payment relief for up to three months. The decrease
in modifications for credit - no concession is primarily due to lower volumes of
refinancing in Europe for customers in financial difficulty. Credit - TDR
modifications decreased to $2.5 million in 2019 from $13.1 million in 2018 as
there were no large fleet modifications in 2019 compared to modifications for
two fleet customers in 2018.

The following table summarizes the Company's 30+ days past due accounts:





At December 31,                                                     2019

2018


Percentage of retail loan and lease accounts 30+ days past due:
U.S. and Canada                                                       .4 %       .1 %
Europe                                                                .7 %       .5 %
Mexico, Australia and other                                          2.0 %      1.6 %
Worldwide                                                             .7 %       .4 %




Accounts 30+ days past due increased slightly to .7% at December 31, 2019 from
.4% at December 31, 2018, 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 $1.7 million and $7.2 million of accounts worldwide during the fourth
quarter of 2019 and the fourth quarter of 2018, respectively, which 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:



At December 31,                                                 2019             2018
Pro forma percentage of retail loan and lease
accounts 30+ days past due:
U.S. and Canada                                                   .4 %             .2 %
Europe                                                            .7 %             .5 %
Mexico, Australia and other                                      2.1 %            1.8 %
Worldwide                                                         .7 %             .5 %




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 December 31, 2019 and 2018. The effect on
the allowance for credit losses from such modifications was not significant at
December 31, 2019 and 2018.

The Company's 2019 and 2018 annualized pre-tax return on average assets for Financial Services was 2.0% and 2.2%, respectively.


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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 2019 and 2018.
Other SG&A increased to $84.0 million in 2019 from $70.4 million in 2018
primarily due to higher compensation costs.

Other (loss) income before tax was $(17.7) million in 2019 compared to $2.7
million in 2018. The loss in 2019 compared to income in 2018 was primarily due
to higher compensation costs, lower results from the winch business and higher
expected costs to resolve certain environmental matters.

Investment income increased to $82.3 million in 2019 from $60.9 million in 2018,
primarily due to higher average portfolio balances and higher yields on U.S.
investments due to higher market interest rates.

Income Taxes

In 2019, the effective tax rate was 23.0% compared to 21.9% in 2018. The Company's effective tax rate for 2018 benefitted from a one-time reduction in tax liability related to extended warranty contracts.





($ in millions)
Year Ended December 31,                    2019          2018
Domestic income before taxes          $ 2,201.1     $ 1,775.2
Foreign income before taxes               898.1       1,035.0
Total income before taxes             $ 3,099.2     $ 2,810.2

Domestic pre-tax return on revenues 14.5 % 13.4 % Foreign pre-tax return on revenues 8.6 % 10.1 % Total pre-tax return on revenues

           12.1 %        12.0 %




In 2019, domestic income before income taxes and pre-tax return on revenues
improved primarily due to higher revenues from truck operations. The decrease in
foreign income before income taxes and pre-tax return on revenues was primarily
due to lower truck and finance results in Europe and lower truck volumes in
Australia.



LIQUIDITY AND CAPITAL RESOURCES:





($ in millions)
At December 31,                   2019          2018
Cash and cash equivalents    $ 4,175.1     $ 3,435.9
Marketable debt securities     1,162.1       1,020.4
                             $ 5,337.2     $ 4,456.3




The Company's total cash and marketable debt securities at December 31, 2019
increased $880.9 million from the balances at December 31, 2018, primarily due
to an increase in cash and cash equivalents.

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The change in cash and cash equivalents is summarized below:





($ in millions)
Year Ended December 31,                                    2019           2018
Operating activities:
Net income                                           $  2,387.9     $  2,195.1
Net income items not affecting cash                     1,190.1        

1,123.2


Pension contributions                                     (35.7 )        (88.9 )
Changes in operating assets and liabilities, net         (682.0 )       (237.1 )
Net cash provided by operating activities               2,860.3        

2,992.3


Net cash used in investing activities                  (2,207.4 )     (1,930.7 )
Net cash provided by financing activities                  83.4           

71.1


Effect of exchange rate changes on cash                     2.9          (61.5 )
Net increase in cash and cash equivalents                 739.2        

1,071.2

Cash and cash equivalents at beginning of the year 3,435.9 2,364.7 Cash and cash equivalents at end of the year $ 4,175.1 $ 3,435.9






Operating activities: Cash provided by operations decreased by $132.0 million to
$2.86 billion in 2019 from $2.99 billion in 2018. The decrease in operating cash
flows reflects lower cash inflows of $556.5 million from accounts payable and
accrued expenses, as payments for goods and services exceeded purchases by $27.6
million in 2019 compared to purchases of goods and services exceeding payments
by $528.9 million in 2018. Additionally, lower operating cash flows reflect a
reduction in liabilities for RVGs and deferred revenues of $454.7 million,
primarily due to a lower volume of new RVG contracts accounted for as operating
leases in 2019 compared to 2018. The lower cash inflows were partially offset by
higher cash inflow of $357.3 million from inventories as there were $24.6
million in net inventory reductions in 2019 versus $332.7 million in net
purchases in 2018. There was a $226.8 million increase from accounts receivable
as sales of goods and services exceeding cash receipts were lower in 2019
compared to 2018. In addition, there was a higher net income of $192.8 million
and an increase of $140.3 million from income taxes, primarily due to lower tax
payments in 2019 compared to 2018.

Investing activities: Cash used in investing activities increased by $276.7
million to $2.21 billion in 2019 from $1.93 billion in 2018. Higher net cash
used in investing activities reflects $450.7 million for marketable debt
securities as there were $135.1 million in net purchases of marketable debt
securities in 2019 compared to $315.6 million in net proceeds from sales of
marketable debt securities in 2018. Payments for property, plant and equipment
increased by $116.4 million. This was partially offset by lower net originations
from retail loans and finance leases of $251.9 million and fewer acquisitions of
equipment on operating leases of $97.9 million.

Financing activities: Cash provided by financing activities was $83.4 million in
2019, $12.3 million higher than the $71.1 million provided in 2018. In 2019, the
Company issued $2.50 billion of term debt, repaid term debt of $1.79 billion and
increased its outstanding commercial paper and short-term bank loans by $557.1
million. In 2018, the Company issued $2.34 billion of term debt, repaid term
debt of $1.76 billion and increased its outstanding commercial paper and
short-term bank loans by $625.9 million. This resulted in cash provided by
borrowing activities of $1.27 billion in 2019, $60.9 million higher than the
cash provided by borrowing activities of $1.21 billion in 2018. The Company paid
$1.14 billion in dividends in 2019, $334.3 million higher than the $804.3
million paid in 2018 due primarily to a higher extra dividend paid in January
2019. In addition, the Company repurchased 1.7 million shares of common stock
for $110.2 million in 2019 compared to the purchase of 5.8 million shares for
$354.4 million in 2018.

Credit Lines and Other:

The Company has line of credit arrangements of $3.58 billion, of which $3.27
billion were unused at December 31, 2019. Included in these arrangements are
$3.00 billion of committed bank facilities, of which $1.00 billion expires in
June 2020, $1.00 billion expires in June 2023 and $1.00 billion expires in
June 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 year ended December 31,
2019.

                                       24

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On July 9, 2018, PACCAR's Board of Directors approved the repurchase of up to
$300.0 million of the Company's outstanding common stock, and on December 4,
2018, approved a plan to repurchase an additional $500.0 million of common stock
upon completion of the prior plan. During the second quarter of 2019, the
Company completed the repurchase of $300.0 million of the Company's common stock
under the authorization approved on July 9, 2018. As of December 31, 2019, the
Company has repurchased $69.5 million of shares under the December 4, 2018
authorization.

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.

Over the past decade, the Company's combined investments in worldwide capital
projects and R&D totaled $6.77 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.

Capital investments in 2020 are expected to be $625 to $675 million, and R&D is
expected to be $310 to $340 million. The Company is investing for long-term
growth in aerodynamic truck models, integrated powertrains including diesel,
electric, hybrid and hydrogen fuel cell technologies, advanced driver assistance
systems, digital services and next-generation manufacturing and distribution
capabilities.

The Company conducts business in certain countries which have been experiencing
or may experience significant financial stress, fiscal or political strain and
are subject to the corresponding potential for default. The Company routinely
monitors its financial exposure to global financial conditions, global
counterparties and operating environments. As of December 31, 2019, the
Company's exposures in such countries were insignificant.

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. An additional source of funds is loans from other PACCAR companies.

In November 2018, the Company's U.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 of December 31, 2019 was
$5.55 billion. In February 2020, PFC issued $300.0 million of medium-term notes
under this registration. The registration expires in November 2021 and does not
limit the principal amount of debt securities that may be issued during that
period.

As of December 31, 2019, the Company's European finance subsidiary, PACCAR
Financial Europe, had €1.35 billion available for issuance under a €2.50 billion
medium-term note program listed on the Professional Securities Market of the
London Stock Exchange. This program replaced an expiring program in the second
quarter of 2019 and is renewable annually through the filing of a new listing.

In April 2016, PACCAR Financial Mexico registered a 10.00 billion peso
medium-term note and commercial paper program with the Comision Nacional
Bancaria y de Valores. The registration expires in April 2021 and limits the
amount of commercial paper (up to one year) to 5.00 billion pesos. At December
31, 2019, 6.80 billion pesos were available for issuance.

In August 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 of December 31, 2019
was 300.0 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.

                                       25

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Commitments



The following summarizes the Company's contractual cash commitments at December
31, 2019:



                                             MATURITY
                        WITHIN 1           1-3           3-5       MORE THAN
($ in millions)             YEAR         YEARS         YEARS         5 YEARS          TOTAL
Borrowings*            $ 5,631.3     $ 4,581.1     $ 1,030.8                     $ 11,243.2
Purchase obligations        83.8         123.6            .8                          208.2
Interest on debt**         156.2         155.5          19.8                          331.5
Lease liabilities           15.7          17.9           4.2     $       2.5           40.3
Other obligations           38.7           3.3           1.2                           43.2
                       $ 5,925.7     $ 4,881.4     $ 1,056.8     $       2.5     $ 11,866.4

* Commercial paper included in borrowings is at par value.




**  Interest on floating-rate debt is based on the applicable market rates at
    December 31, 2019.




Total cash commitments for borrowings and interest on term debt were $11.57
billion and were related to the Financial Services segment. As described in Note
J of the consolidated financial statements, borrowings consist primarily of term
notes and commercial paper issued by the Financial Services segment. The Company
expects to fund its maturing Financial Services debt obligations principally
from funds provided by collections from customers on loans and lease contracts,
as well as from the proceeds of commercial paper and medium-term note
borrowings. Purchase obligations are the Company's contractual commitments to
acquire future production inventory and capital equipment. Other obligations
primarily include commitments to purchase energy.

The Company's other commitments include the following at December 31, 2019:





                                           COMMITMENT EXPIRATION
                              WITHIN 1         1-3         3-5       MORE THAN
($ in millions)                   YEAR       YEARS       YEARS         5 YEARS         TOTAL
Loan and lease commitments   $   885.8                                             $   885.8
Residual value guarantees        445.9     $ 730.2     $ 131.3     $      26.7       1,334.1
Letters of credit                  9.5          .1          .3             1.4          11.3
                             $ 1,341.2     $ 730.3     $ 131.6     $      28.1     $ 2,231.2




Loan and lease commitments are for funding new retail loan and lease contracts.
Residual value guarantees represent the Company's commitment to acquire trucks
at a guaranteed value if the customer decides to return the truck at a specified
date in the future.

IMPACT OF ENVIRONMENTAL MATTERS:

The Company, its competitors and industry in general are subject to various domestic and foreign requirements relating to the environment. The Company believes its policies, practices and procedures are designed to prevent unreasonable risk of environmental damage and that its handling, use and disposal of hazardous or toxic substances have been in accordance with environmental laws and regulations in effect at the time such use and disposal occurred.



The Company is involved in various stages of investigations and cleanup actions
in different countries related to environmental matters. In certain of these
matters, the Company has been designated as a "potentially responsible party" by
domestic and foreign environmental agencies. The Company has accrued the
estimated costs to investigate and complete cleanup actions where it is probable
that the Company will incur such costs in the future. Expenditures related to
environmental activities in the years ended December 31, 2019 and 2018 were $1.3
million and $1.2 million, respectively. While the timing and amount of the
ultimate costs associated with future environmental cleanup cannot be
determined, management expects that these matters will not have a significant
effect on the Company's consolidated cash flow, liquidity or financial
condition.

                                       26

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CRITICAL ACCOUNTING POLICIES:



The Company's significant accounting policies are disclosed in Note A of the
consolidated financial statements. In the preparation of the Company's financial
statements, in accordance with U.S. generally accepted accounting principles,
management uses estimates and makes judgments and assumptions that affect asset
and liability values and the amounts reported as income and expense during the
periods presented. The following are accounting policies which, in the opinion
of management, are particularly sensitive and which, if actual results are
different from estimates used by management, may have a material impact on the
financial statements.

Operating Leases

Trucks sold pursuant to agreements accounted for as operating leases are
disclosed in Note F of the consolidated financial statements. In determining its
estimate of the residual value of such vehicles, the Company considers the
length of the lease term, the truck model, the expected usage of the truck and
anticipated market demand. Operating lease terms generally range from three to
five years. The resulting residual values on operating leases generally range
between 30% and 70% of the original equipment cost. If the sales price of a
truck at the end of the term of the agreement differs from the Company's
estimated residual value, a gain or loss will result.

Future market conditions, changes in government regulations and other factors
outside the Company's control could impact the ultimate sales price of trucks
returned under these contracts. Residual values are reviewed regularly and
adjusted if market conditions warrant. A decrease in the estimated equipment
residual values would increase annual depreciation expense over the remaining
lease term.

During 2019 and 2018, market values on equipment returning upon operating lease
maturity were generally lower than the residual values on the equipment,
resulting in an increase in depreciation expense of $109.0 million and $45.7
million, respectively.

At December 31, 2019, the aggregate residual value of equipment on operating
leases in the Financial Services segment and residual value guarantee on trucks
accounted for as operating leases in the Truck segment was $2.36 billion. A 10%
decrease in used truck values worldwide, if expected to persist over the
remaining maturities of the Company's operating leases, would reduce residual
value estimates and result in the Company recording an average of approximately
$67 million of additional depreciation per year.

Allowance for Credit Losses



The allowance for credit losses related to the Company's loans and finance
leases is disclosed in Note E of the consolidated financial statements. The
Company has developed a systematic methodology for determining the allowance for
credit losses for its two portfolio segments, retail and wholesale. The retail
segment consists of retail loans and finance leases, net of unearned interest.
The wholesale segment consists of truck inventory financing loans to dealers
that are collateralized by trucks and other collateral. The wholesale segment
generally has less risk than the retail segment. Wholesale receivables generally
are shorter in duration than retail receivables, and the Company requires
periodic reporting of the wholesale dealer's financial condition, conducts
periodic audits of the trucks being financed and in many cases obtains
guarantees or other security such as dealership assets. In determining the
allowance for credit losses, retail loans and finance leases are evaluated
together since they relate to a similar customer base, their contractual terms
require regular payment of principal and interest, generally over three to five
years, and they are secured by the same type of collateral. The allowance for
credit losses consists of both specific and general reserves.

The Company individually evaluates certain finance receivables for impairment.
Finance receivables that are evaluated individually for impairment consist of
all wholesale accounts and certain large retail accounts with past due balances
or otherwise determined to be at a higher risk of loss. A finance receivable is
impaired if it is considered probable the Company will be unable to collect all
contractual interest and principal payments as scheduled. In addition, all
retail loans and leases which have been classified as TDRs and all customer
accounts over 90 days past due are considered impaired. Generally, impaired
accounts are on non-accrual status. Impaired accounts classified as TDRs which
have been performing for 90 consecutive days are placed on accrual status if it
is deemed probable that the Company will collect all principal and interest
payments.

Impaired receivables are generally considered collateral dependent. Large
balance retail and all wholesale impaired receivables are individually evaluated
to determine the appropriate reserve for losses. The determination of reserves
for large balance impaired receivables considers the fair value of the
associated collateral. When the underlying collateral fair value exceeds the
Company's recorded investment, no reserve is recorded. Small balance impaired
receivables with similar risk characteristics are evaluated as a separate pool
to determine the appropriate reserve for losses using the historical loss
information discussed below.

                                       27

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The Company evaluates finance receivables that are not individually impaired on
a collective basis and determines the general allowance for credit losses for
both retail and wholesale receivables based on historical loss information,
using past due account data and current market conditions. Information used
includes assumptions regarding the likelihood of collecting current and past due
accounts, repossession rates, the recovery rate on the underlying collateral
based on used truck values and other pledged collateral or recourse. The Company
has developed a range of loss estimates for each of its country portfolios based
on historical experience, taking into account loss frequency and severity in
both strong and weak truck market conditions. A projection is made of the range
of estimated credit losses inherent in the portfolio from which an amount is
determined as probable based on current market conditions and other factors
impacting the creditworthiness of the Company's borrowers and their ability to
repay. After determining the appropriate level of the allowance for credit
losses, a provision for losses on finance receivables is charged to income as
necessary to reflect management's estimate of incurred credit losses, net of
recoveries, inherent in the portfolio.

The adequacy of the allowance is evaluated quarterly based on the most recent
past due account information and current market conditions. As accounts become
past due, the likelihood that they will not be fully collected increases. The
Company's experience indicates the probability of not fully collecting past due
accounts ranges between 30% and 70%. Over the past three years, the Company's
year-end 30+ days past due accounts have ranged between .4% and .7% of loan and
lease receivables. Historically, a 100 basis point increase in the 30+ days past
due percentage has resulted in an increase in credit losses of 2 to 35 basis
points of receivables. At December 31, 2019, 30+ days past dues were .7%. If
past dues were 100 basis points higher or 1.7% as of December 31, 2019, the
Company's estimate of credit losses would likely have increased by a range of $2
to $32 million depending on the extent of the past dues, the estimated value of
the collateral as compared to amounts owed and general economic factors.

Product Warranty



Product warranty is disclosed in Note I of the consolidated financial
statements. The expenses related to product warranty are estimated and recorded
at the time products are sold based on historical and current data and
reasonable expectations for the future regarding the frequency and cost of
warranty claims, net of recoveries. Management takes actions to minimize
warranty costs through quality-improvement programs; however, actual claim costs
incurred could materially differ from the estimated amounts and require
adjustments to the reserve. Historically those adjustments have not been
material. 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 1.7%. If the
2019 warranty expense had been .2% higher as a percentage of net sales and
revenues in 2019, warranty expense would have increased by approximately $48
million.

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 new PACCAR 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; litigation,
including EC settlement-related claims; or legislative and governmental
regulations. A more detailed description of these and other risks is included
under the heading Part 1, Item 1A, "Risk Factors" and Item 3, "Legal
Proceedings" in the Company's Annual Report on Form 10-K for the year ended
December 31, 2019.



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