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 nine months endedSeptember 30, 2020 were impacted by the COVID-19 pandemic, with the most significant impact in the quarter endedJune 30, 2020 . 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. In the third quarter the Company resumed production at rates sufficient to accommodate demand while maintaining appropriate health and safety protocols. Effects of the pandemic in the first nine 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 nine months to partially offset the increased costs. During the pandemic, the Company's Parts segment has continued to provide aftermarket support through its parts distribution centers, and the Financial Services segment has continued to provide financing, leasing services and related support to customers.
Third Quarter Financial Highlights:
• Worldwide net sales and revenues were
billion in 2019, primarily due to lower truck revenues.
• Truck revenues were
primarily due to lower truck deliveries in the
• Parts sales were
• Financial Services revenues were
million in 2019 primarily due to higher used truck sales in
offset by lower portfolio yields.
• Net income was
operating results.
• Capital investments were
2019.
• Research and development (R&D) expenses were
First Nine Months Financial Highlights:
• Worldwide net sales and revenues were
• Truck revenues were
due to lower truck deliveries in all markets, though primarily in the
• Parts sales were
primarily due to lower demand in the
• Financial Services revenues were
billion 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
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-------------------------------------------------------------------------------- Kenworth K270E and T680E,Peterbilt models 579EV, 220EV and 520EV, andDAF CF Electric zero emissions trucks are now available for customers to order, with plans to begin production in 2021.PACCAR is partnering withFaith Technologies and Schneider Electric to provide charging infrastructure solutions for dealers and customers who purchase battery electric Kenworth andPeterbilt trucks in theU.S. andCanada . Chargers will be available to order from PACCAR Parts. PACCAR Financial will offer flexible financing options and PacLease will bundle the cost of charging systems with full service lease offerings.
PACCAR Inc , Kenworth,Peterbilt , PACCAR Parts and Dynacraft were each honored by the Women inTrucking Association (WIT) as a 2020 "Top Company for Women to Work for in Transportation". The recognition was for fostering gender diversity, flexible hours, competitive compensation and benefits, training, professional development and career advancement opportunities.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$15.28 billion . PFS issued$1.89 billion in medium-term notes during the first nine 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. In the third quarter, production rates had almost returned to pre-pandemic levels. 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, truck industry retail sales in theU.S. andCanada in 2020 are expected to be 190,000 to 210,000 units compared to 308,800 in 2019. Estimates for theU.S. andCanada truck industry retail sales in 2021 are in the range of 210,000 to 250,000 units. InEurope , the 2020 truck industry registrations for over 16-tonne vehicles are expected to be 210,000 to 230,000 units compared to 320,200 in 2019. The 2021 European truck industry registrations in the above 16-tonne truck market are projected to be in a range 230,000 to 270,000 units. InSouth America , heavy-duty truck industry registrations in 2020 are estimated at 75,000 to 85,000 as compared to 105,100 in 2019. The 2021 heavy-duty truck industry sales inSouth America are projected to be in a range of 95,000 to 105,000 units. 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 the third quarter resulted in increased demand for aftermarket parts as compared to the prior quarter. In 2020, PACCAR Parts sales are expected to decrease 4-5% compared to 2019 sales. In 2021, PACCAR Parts sales are expected to increase 4-7% from 2020 levels. 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. 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. Based on the truck market outlook, average earning assets in 2020 and 2021 are expected to remain similar to 2019 levels. - 32 - --------------------------------------------------------------------------------
Capital Investments and R&D Outlook
Capital investments in 2020 are expected to be$570 to$600 million and R&D is expected to be$270 to$280 million . In 2021, capital investments are projected to be$575 to$625 million and R&D is expected to be$330 to$360 million . The Company is investing for long-term growth in aerodynamic truck models, diesel and zero emissions powertrain technologies, advanced driver assistance systems, connected vehicle services and next-generation manufacturing and distribution capabilities.
See the Forward-Looking Statements section of Management's Discussion and Analysis for factors that may affect these outlooks.
RESULTS OF OPERATIONS:
The Company's results of operations for the three and nine months ended
Three Months Ended Nine Months Ended
September 30 September 30
($ in millions, except per share amounts) 2020 2019 2020 2019
Net sales and revenues:
Truck $ 3,504.0 $ 4,977.4 $ 9,120.0 $ 15,296.6
Parts 1,016.2 1,000.9 2,838.5 3,031.0
Other 18.2 25.9 59.8 81.2
Truck, Parts and Other 4,538.4 6,004.2 12,018.3 18,408.8
Financial Services 397.6 362.8 1,141.6 1,073.7
$ 4,936.0 $ 6,367.0 $ 13,159.9 $ 19,482.5
Income (loss) before income taxes:
Truck $ 210.1 $ 481.5 $ 347.0 $ 1,509.2
Parts 210.2 207.4 576.8 625.6
Other 7.7 1.1 22.8 (16.4 )
Truck, Parts and Other 428.0 690.0 946.6 2,118.4
Financial Services 55.5 66.5 159.3 230.8
Investment income 6.4 21.1 30.2 62.2
Income taxes (104.4 ) (169.7 ) (243.5 ) (554.8 )
Net income $ 385.5 $ 607.9 $ 892.6 $ 1,856.6
Diluted earnings per share $ 1.11 $ 1.75 $ 2.57 $ 5.34
After-tax return on revenues 7.8 % 9.5 % 6.8 % 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 71% and 69% of revenues in the third quarter and first nine months of 2020, respectively, compared to 78% and 79% of revenues in the third quarter and first nine months of 2019, respectively.
The Company's new truck deliveries are summarized below:
Three Months Ended Nine Months Ended
September 30 September 30
2020 2019 % CHANGE 2020 2019 % CHANGE
U.S. and Canada 20,700 31,700 (35 ) 52,200 90,600 (42 )
Europe 10,500 12,700 (17 ) 28,500 45,300 (37 )
Mexico , South America , Australia
and other 4,800 4,900 (2 ) 11,800 17,200 (31 )
Total units 36,000 49,300 (27 ) 92,500 153,100 (40 )
The decrease in new truck deliveries worldwide in the third quarter and first
nine months of 2020 compared to the same period of 2019 is driven primarily by
lower build rates caused by lower demand partially as a result of the COVID-19
pandemic.
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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 nine months of 2020, industry retail sales in the heavy-duty market in theU.S. andCanada decreased to 151,600 units from 236,800 units in the same period of 2019. The Company's heavy-duty truck retail market share was 29.7% in the first nine months of 2020 compared to 29.2% in the first nine months of 2019. The medium-duty market was 53,200 units in the first nine months of 2020 compared to 87,700 units in the same period of 2019. The Company's medium-duty market share was 23.3% in the first nine months of 2020 compared to 16.0% in the first nine months of 2019. The over 16tonne truck market inEurope in the first nine months of 2020 was 161,000 units compared to 250,300 units in the first nine months of 2019.DAF EU over 16tonne market share was 16.2% in the first nine months of 2020 compared to 16.4% in the same period of 2019. The 6 to 16tonne market in the first nine months of 2020 was 29,800 units compared to 40,300 units in the first nine months of 2019. DAF market share in the 6 to 16-tonne market in the first nine months of 2020 was 9.4% compared to 9.3% in the same period of 2019.
The Company's worldwide truck net sales and revenues are summarized below:
Three Months Ended Nine Months Ended
September 30 September 30
($ in millions) 2020 2019 % CHANGE 2020 2019 % CHANGE
Truck net sales and revenues:
U.S. and Canada $ 2,251.8 $ 3,489.9 (35 ) $ 5,724.8 $ 10,060.6 (43 )
Europe 771.1 1,000.4 (23 ) 2,252.2 3,604.3 (38 )
Mexico , South America , Australia
and other 481.1 487.1 (1 ) 1,143.0 1,631.7 (30 )
$ 3,504.0 $ 4,977.4 (30 ) $ 9,120.0 $ 15,296.6 (40 )
Truck income before income taxes $ 210.1 $ 481.5 (56 ) $ 347.0 $ 1,509.2 (77 )
Pre-tax return on revenues 6.0 % 9.7 % 3.8 % 9.9 %
The Company's worldwide truck net sales and revenues in the third quarter
decreased to $3.50 billion in 2020 from $4.98 billion in 2019, primarily due to
lower truck deliveries in the U.S. and Canada and Europe . In the first nine
months, worldwide truck net sales and revenues decreased to $9.12 billion in
2020 compared to $15.30 billion in 2019 due to lower truck unit deliveries in
all markets, though primarily the U.S. and Canada and Europe .
For the third quarter and first nine months of 2020, Truck segment income before taxes and pretax return on revenues reflect the impact of lower truck unit deliveries and lower margins, driven primarily by reduced demand and the worldwide truck plant closures as a result of the COVID-19 pandemic.
The major factors for the Truck segment changes in net sales and revenues, cost
of sales and revenues and gross margin between the three months ended
NET COST OF
SALES AND SALES AND GROSS
($ in millions) REVENUES REVENUES MARGIN
Three Months Ended September 30, 2019 $ 4,977.4 $ 4,365.2 $ 612.2
(Decrease) increase
Truck sales volume (1,451.5 ) (1,178.7 ) (272.8 )
Average truck sales prices (31.5 ) (31.5 )
Average per truck material, labor and other
direct costs 57.4 (57.4 )
Factory overhead and other indirect costs (55.2 ) 55.2
Extended warranties, operating leases and other (19.6 ) (3.5 ) (16.1 ) Currency translation 29.2 23.2 6.0 Total decrease (1,473.4 ) (1,156.8 ) (316.6 ) Three Months Ended September 30, 2020$ 3,504.0 $ 3,208.4 $ 295.6
• Truck sales volume reflects lower unit deliveries, primarily in the
(
and reduced build rates.
• Average truck sales prices decreased sales by
lower price realization in the
• Average cost per truck increased cost of sales by
reflecting increased labor costs from lower volumes and inefficiencies related
to the COVID-19 pandemic, and higher accruals for product support costs.
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• Factory overhead and other indirect costs decreased
due to lower costs for labor, repair and maintenance and depreciation.
• Extended warranties, operating leases and other revenues decreased by
million primarily due to lower revenues from operating leases as a result of a
decreasing portfolio and lower revenues from dealer support services,
partially offset by higher revenues from extended warranty contracts. Cost of
sales decreased by
leases, partially offset by higher costs on extended warranty contracts in the
• The currency translation effect on sales and cost of sales primarily reflects
an increase in the value of the euro and the Australian dollar relative to the
• Truck gross margin was 8.4% in the third quarter of 2020 compared to 12.3% 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 nine months ended
NET COST OF
SALES AND SALES AND GROSS
($ in millions) REVENUES REVENUES MARGIN
Nine Months Ended September 30, 2019 $ 15,296.6 $ 13,410.5 $ 1,886.1
(Decrease) increase
Truck sales volume (6,030.7 ) (4,935.9 ) (1,094.8 )
Average truck sales prices (15.1 ) (15.1 )
Average per truck material, labor and other
direct costs 229.0 (229.0 )
Factory overhead and other indirect costs (178.9 ) 178.9
Extended warranties, operating leases and other (79.1 ) 7.7 (86.8 ) Currency translation (51.7 ) (55.8 ) 4.1 Total decrease (6,176.6 ) (4,933.9 ) (1,242.7 ) Nine Months Ended September 30, 2020$ 9,120.0 $ 8,476.6 $ 643.4
• Truck sales volume reflects lower unit deliveries, primarily in the
billion sales and
sales and
impact of the worldwide production suspension due to the COVID-19 pandemic.
• Average truck sales prices decreased sales by
lower price realization in the
• Average cost per truck increased cost of sales by
reflecting higher accruals for product support costs and increased labor costs
from lower volumes and inefficiencies related to the COVID-19 pandemic.
• Factory overhead and other indirect costs decreased
due to lower costs for labor, repair and maintenance and depreciation.
• Extended warranties, operating leases and other revenues decreased by
million primarily due to lower revenues from operating leases as a result of a
decreasing portfolio and lower revenues from dealer support services,
partially offset by higher revenues from extended warranty contracts. Cost of
sales increased by
on used trucks in
contracts in the
and dealer support services.
• The currency translation effect on sales and cost of sales primarily reflects
a decline in the value of the Brazilian real, the Canadian and the Australian
dollar relative to the
• Truck gross margin was 7.1% in the first nine 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 third quarter of 2020 to$40.0 million from$66.3 million in 2019, and for the first nine months of 2020, Truck SG&A decreased to$144.7 million from$192.5 million in 2019. The decrease in both periods was primarily due to lower sales and marketing costs, salaries and related expenses, and travel expenses. As a percentage of sales, Truck SG&A decreased to 1.1% in the third quarter of 2020 from 1.3% in the same period of 2019. For the first nine months, Truck SG&A increased to 1.6% in 2020 from 1.3% in the same period of 2019 due to lower net sales, partially offset by lower spending. - 35 - --------------------------------------------------------------------------------
Parts
The Company's Parts segment accounted for 21% and 22% of revenues in the third quarter and first nine months of 2020, respectively, compared to 16% in the third quarter and first nine months of 2019.
Three Months Ended Nine Months Ended
September 30 September 30
($ in millions) 2020 2019 % CHANGE 2020 2019 % CHANGE
Parts net sales and revenues:
U.S. and Canada $ 692.4 $ 684.6 1 $ 1,956.6 $ 2,068.3 (5 )
Europe 228.6 214.0 7 630.4 675.3 (7 )
Mexico , South America , Australia
and other 95.2 102.3 (7 ) 251.5 287.4 (12 )
$ 1,016.2 $ 1,000.9 2 $ 2,838.5 $ 3,031.0 (6 )
Parts income before income taxes $ 210.2 $ 207.4 1 $ 576.8 $ 625.6 (8 )
Pre-tax return on revenues 20.7 % 20.7 % 20.3 % 20.6 %
The Company's worldwide parts net sales and revenues for the third quarter
increased to $1.02 billion in 2020 from $1.00 billion in 2019, driven by
improved price realization and favorable currency translation effects, partially
offset by lower volumes. For the first nine months, worldwide parts net sales
and revenues decreased to $2.84 billion in 2020 from $3.03 billion in 2019,
primarily due to lower sales volume, partially offset by higher prices.
For the third quarter, Parts segment income before income taxes improved
slightly as compared to 2019, while pre-tax return on revenues in 2020 was
comparable to 2019. For the first nine 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. Parts income before taxes for the first nine
months of 2020 included a $10.2 million gain on the sale of the prior Las Vegas
parts distribution facility which was replaced by a new larger facility. The
gain was recorded in the second quarter in Interest and other (income), net on
the Consolidated Statements of Comprehensive Income.
The major factors for the changes in Parts segment net sales and revenues, cost
of sales and revenues and gross margin between the three months ended
NET COST OF
SALES AND SALES AND GROSS
($ in millions) REVENUES REVENUES MARGIN
Three Months Ended September 30, 2019 $ 1,000.9 $ 720.9 $ 280.0
(Decrease) increase
Aftermarket parts volume (15.3 ) (11.8 ) (3.5 )
Average aftermarket parts sales prices 18.7 18.7
Average aftermarket parts direct costs 15.9 (15.9 ) Warehouse and other indirect costs 3.1 (3.1 ) Currency translation 11.9 7.0 4.9 Total increase 15.3 14.2 1.1
Three Months Ended
• Aftermarket parts sales volume decreased by
sales decreased by
America.
• 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 depreciation and salaries and related expenses.
• The currency translation effect on sales and cost of sales primarily reflects
an increase in the value of euro relative to the
• Parts gross margins in the third quarter of 2020 decreased to 27.7% from 28.0%
in the third quarter of 2019 due to the factors noted above.
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The major factors for the changes in Parts segment net sales and revenues, cost
of sales and revenues and gross margin between the nine months ended
NET COST OF
SALES AND SALES AND GROSS
($ in millions) REVENUES REVENUES MARGIN
Nine Months Ended September 30, 2019 $ 3,031.0 $ 2,189.0 $ 842.0
(Decrease) increase
Aftermarket parts volume (251.1 ) (167.5 ) (83.6 )
Average aftermarket parts sales prices 65.0 65.0
Average aftermarket parts direct costs 35.5 (35.5 ) Warehouse and other indirect costs 12.9 (12.9 ) Currency translation (6.4 ) (5.0 ) (1.4 ) Total decrease (192.5 ) (124.1 )
(68.4 )
Nine 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
Australian dollar and the Brazilian real.
• Parts gross margins in the first nine months of 2020 decreased to 27.3% from
27.8% in the first nine months of 2019 due to the factors noted above. Parts SG&A expense decreased in the third quarter of 2020 to$48.5 million from$52.1 million in 2019 primarily due to lower salaries and related expenses and lower travel expenses, partially offset by unfavorable currency translation effects. For the first nine months, Parts SG&A decreased to$142.5 million in 2020 from$156.7 million in 2019 primarily due to lower salaries and related expenses, travel expenses, sales and marketing costs and favorable currency translation effects. As a percentage of sales, Parts SG&A was 4.8% and 5.0% in the third quarter and first nine months of 2020, respectively, compared to 5.2% in the third quarter and first nine months of 2019. - 37 - --------------------------------------------------------------------------------
Financial Services
The Company's Financial Services segment accounted for 8% and 9% of revenues in
the third quarter and first nine months of 2020, respectively, compared to 6% in
the third quarter and first nine months of 2019.
Three Months Ended Nine Months Ended
September 30 September 30
($ in millions) 2020 2019 % CHANGE 2020 2019 % CHANGE
New loan and lease volume:
U.S. and Canada $ 857.8 $ 920.7 (7 ) $ 2,101.6 $ 2,497.3 (16 )
Europe 269.5 285.3 (6 ) 741.7 964.2 (23 )
Mexico, Australia and other 206.8 211.8 (2 ) 514.7 645.8 (20 )
$ 1,334.1 $ 1,417.8 (6 ) $ 3,358.0 $ 4,107.3 (18 )
New loan and lease volume by product:
Loans and finance leases $ 1,076.6 $ 1,059.5 2 $ 2,687.6 $ 3,122.9 (14 )
Equipment on operating lease 257.5 358.3 (28 ) 670.4 984.4 (32 )
$ 1,334.1 $ 1,417.8 (6 ) $ 3,358.0 $ 4,107.3 (18 )
New loan and lease unit volume:
Loans and finance leases 9,490 9,270 2 24,260 27,760 (13 )
Equipment on operating lease 2,620 3,560 (26 ) 6,930 9,860 (30 )
12,110 12,830 (6 ) 31,190 37,620 (17 )
Average earning assets:
U.S. and Canada $ 8,838.0 $ 9,016.2 (2 ) $ 9,082.1 $ 8,689.0 5
Europe 3,549.8 3,394.3 5 3,492.5 3,539.0 (1 )
Mexico, Australia and other 1,741.3 1,936.8 (10 ) 1,730.6 1,884.2 (8 )
$ 14,129.1 $ 14,347.3 (2 ) $ 14,305.2 $ 14,112.2 1
Average earning assets by product:
Loans and finance leases $ 9,134.7 $ 8,841.4 3 $ 8,998.8 $ 8,697.6 3
Dealer wholesale financing 1,894.3 2,389.1 (21 ) 2,191.4 2,360.0 (7 )
Equipment on lease and other 3,100.1 3,116.8 (1 ) 3,115.0 3,054.6 2
$ 14,129.1 $ 14,347.3 (2 ) $ 14,305.2 $ 14,112.2 1
Revenues:
U.S. and Canada $ 197.6 $ 204.3 (3 ) $ 591.7 $ 601.3 (2 )
Europe 145.6 92.6 57 383.2 278.6 38
Mexico, Australia and other 54.4 65.9 (17 ) 166.7 193.8 (14 )
$ 397.6 $ 362.8 10 $ 1,141.6 $ 1,073.7 6
Revenue by product:
Loans and finance leases $ 113.4 $ 121.2 (6 ) $ 340.0 $ 350.8 (3 )
Dealer wholesale financing 14.3 27.1 (47 ) 56.0 82.4 (32 )
Equipment on lease and other 269.9 214.5 26 745.6 640.5 16
$ 397.6 $ 362.8 10 $ 1,141.6 $ 1,073.7 6
Income before income taxes $ 55.5 $ 66.5 (17 ) $ 159.3 $ 230.8 (31 )
For the third quarter, new loan and lease volume was $1,334.1 million in 2020
compared to $1,417.8 million in 2019 and for the first nine months was $3,358.0
million in 2020 compared to $4,107.3 million in 2019, primarily reflecting lower
truck deliveries worldwide, partially offset by higher finance market share.
In the third quarter of 2020, PFS finance market share on new PACCAR truck sales
increased to 28.9% from 25.8% in the third quarter of 2019. In the first nine
months of 2020, PFS finance market share on new PACCAR truck sales increased to
26.8% from 23.6% in the first nine months of 2019.
In the third quarter of 2020, PFS revenues increased to $397.6 million from
$362.8 million in 2019, and in the first nine months of 2020, PFS revenues
increased to $1,141.6 million from $1,073.7 million in 2019. The increase in
both periods was primarily due to higher used truck sales in Europe , partially
offset by lower portfolio yields reflecting lower U.S. market interest rates.
The effects of currency translation increased PFS revenues by $1.4 million in
the third quarter of 2020 primarily due to a stronger euro, partially offset by
a weaker Mexican peso. In the first nine months of 2020, the effects of currency
translation decreased PFS revenues by $16.5 million primarily due to a weaker
Mexican peso and Brazilian real.
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PFS income before income taxes decreased to $55.5 million in the third quarter
of 2020 from $66.5 million in the third quarter of 2019 primarily due to lower
used truck results. In the first nine months of 2020, PFS income before income
taxes decreased to $159.3 from $230.8 million in 2019 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 $2.3 million and $7.7 million for the third
quarter and first nine months 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 $454.1
million at September 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 $24.0
million in the third quarter of 2020 compared to $16.2 million in the third
quarter of 2019, including losses on multiple unit transactions of $12.0 million
in the third quarter of 2020 compared to $3.6 million in the third 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 third quarter of 2020 or 2019.
The Company recognized losses on used trucks, excluding repossessions, of $75.2
million in the first nine months of 2020 compared to $34.5 million in the first
nine months of 2019, including losses on multiple unit transactions of $26.5
million in the first nine months of 2020 compared to $10.5 million in the first
nine months of 2019. Used truck losses related to repossessions, which are
recognized as credit losses, and used truck gains, which are recognized as
credit recoveries, were not significant for either the first nine months of 2020
or 2019.
The major factors for the changes in interest and fees, interest and other
borrowing expenses and finance margin between the three months ended
INTEREST
AND OTHER
INTEREST BORROWING FINANCE
($ in millions) AND FEES EXPENSES MARGIN
Three Months Ended September 30, 2019 $ 148.3 $ 59.6 $ 88.7
(Decrease) increase
Average finance receivables (3.4 ) (3.4 )
Average debt balances (2.1 ) 2.1
Yields (14.7 ) (14.7 )
Borrowing rates (11.9 ) 11.9
Currency translation and other (2.5 ) (.4 ) (2.1 )
Total decrease (20.6 ) (14.4 )
(6.2 )
Three Months Ended
• Average finance receivables decreased
exchange effects) in the third quarter of 2020 primarily due to lower dealer
wholesale balances.
• Average debt balances decreased
effects) in the third quarter of 2020. The lower average debt balances reflect
funding for a lower average earning assets portfolio.
• Lower portfolio yields (4.6% in 2020 compared to 5.2% in 2019) decreased
interest and fees by
due to lower market rates in
• Lower borrowing rates (1.7% 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.
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The major factors for the changes in interest and fees, interest and other
borrowing expenses and finance margin between the nine months ended
INTEREST
AND OTHER
INTEREST BORROWING FINANCE
($ in millions) AND FEES EXPENSES MARGIN
Nine Months Ended September 30, 2019 $ 433.2 $ 173.0 $ 260.2
Increase (decrease)
Average finance receivables 8.1 8.1
Average debt balances 3.7 (3.7 )
Yields (34.6 ) (34.6 )
Borrowing rates (24.6 ) 24.6
Currency translation and other (10.7 ) (3.6 ) (7.1 )
Total decrease (37.2 ) (24.5 )
(12.7 )
Nine Months Ended
• Average finance receivables increased
exchange effects) in the first nine months of 2020 as a result of retail
portfolio new business volume exceeding collections.
• Average debt balances increased
effects) in the first nine months of 2020. The higher average debt balances
reflect funding for a higher average earning assets portfolio.
• Lower portfolio yields (4.7% 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 Nine Months Ended
September 30 September 30
($ in millions) 2020 2019 2020 2019
Operating lease and rental revenues $ 206.1 $ 205.9 $ 615.4 $ 617.9
Used truck sales and other 63.8 8.6 130.2 22.6
Operating lease, rental and other revenues $ 269.9 $ 214.5 $ 745.6 $ 640.5
Depreciation of operating lease equipment $ 163.8 $ 155.7 $ 484.1 $ 444.6
Vehicle operating expenses 37.2 35.5 109.3 102.1
Cost of used truck sales and other 61.5 4.1 122.6 9.6
Depreciation and other expenses $ 262.5 $ 195.3 $ 716.0 $ 556.3
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
September 30, 2020 and 2019 are outlined below:
OPERATING
LEASE, RENTAL DEPRECIATION
AND OTHER AND OTHER LEASE
($ in millions) REVENUES EXPENSES MARGIN
Three Months Ended
$ 19.2 Increase (decrease) Used truck sales 56.2 56.7 (.5 ) Results on returned lease assets 4.7 (4.7 ) Average operating lease assets (1.9 ) (1.2 ) (.7 ) Revenue and cost per asset (2.0 ) .7 (2.7 ) Currency translation and other 3.1 6.3 (3.2 ) Total increase (decrease) 55.4 67.2 (11.8 ) Three Months Ended September 30, 2020 $ 269.9$ 262.5 $ 7.4 - 40 -
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• 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
• Average operating lease assets decreased
exchange effects), which decreased 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 an increase in the value of foreign
currencies relative to the
by a decline in the value of the Mexican peso. The major factors for the changes in operating lease, rental and other revenues, depreciation and other expenses and lease margin between the nine months endedSeptember 30, 2020 and 2019 are outlined below: OPERATING LEASE, RENTAL AND OTHER DEPRECIATION LEASE ($ in millions) REVENUES AND OTHER EXPENSES MARGIN Nine Months Ended September 30, 2019 $ 640.5 $ 556.3$ 84.2 Increase (decrease) Used truck sales 109.1 112.1 (3.0 ) Results on returned lease assets 32.0 (32.0 ) Average operating lease assets 3.6 3.9 (.3 ) Revenue and cost per asset (.5 ) 13.7 (14.2 ) Currency translation and other (7.1 ) (2.0 ) (5.1 ) Total increase (decrease) 105.1 159.7 (54.6 ) Nine Months Ended September 30, 2020 $ 745.6 $
716.0
• 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
higher losses on sales of returned lease units in the
• Average operating lease assets increased
exchange effects), which increased revenues by
depreciation and other expenses by
• Revenue per asset decreased
utilization. Cost per asset increased
expense and higher vehicle operating expenses.
• The currency translation effects reflect a decrease in the value of foreign
currencies relative to the
Financial Services SG&A expense was$31.3 million in the third quarter of 2020 compared to$35.8 million in 2019, and for the first nine months was$90.2 million in 2020 compared to$101.8 million in 2019. The decrease in both periods was due to lower salaries and related expenses as a result of cost controls and lower travel expenses. As a percentage of revenues, Financial Services SG&A decreased to 7.9% in the third quarter of 2020 from 9.9% in the same period of 2019, and in the first nine months, decreased to 7.9% in 2020 from 9.5% in 2019. The decrease in both periods was driven primarily by lower salaries and related expenses. - 41 - -------------------------------------------------------------------------------- The following table summarizes the provision for losses on receivables and net charge-offs: Three Months Ended Nine Months Ended September 30, 2020 September 30, 2020 PROVISION FOR NET PROVISION FOR NET LOSSES ON CHARGE- LOSSES ON CHARGE- ($ in millions) RECEIVABLES OFFS RECEIVABLES OFFS U.S. and Canada $ 1.1$ 1.8 $ 15.5$ 13.2 Europe .1 .4 5.8 2.3 Mexico, Australia and other 1.9 1.3 6.3 4.0 $ 3.1$ 3.5 $ 27.6$ 19.5 Three Months Ended Nine Months Ended September 30, 2019 September 30, 2019 PROVISION FOR NET PROVISION FOR NET LOSSES ON CHARGE- LOSSES ON CHARGE- ($ in millions) RECEIVABLES OFFS RECEIVABLES OFFS U.S. and Canada $ 5.0$ 5.6 $ 10.1$ 7.8 Europe (.6 ) .8 (2.1 ) (.9 ) Mexico, Australia and other 1.2 1.1 3.8 2.7 $ 5.6$ 7.5 $ 11.8$ 9.6 The provision for losses on receivables was$3.1 million for the third quarter of 2020 compared to$5.6 million in 2019, reflecting continued good portfolio performance. In the first nine months, the provision for losses on receivables increased to$27.6 million in 2020 from$11.8 million in 2019, primarily driven by challenging economic conditions related to the COVID-19 pandemic. In addition, the provision for losses in the first nine months of 2020 reflects the credit loss on a large fleet in theU.S. The provision for losses in 2019 also included recoveries on charged-off accounts inEurope . The Company modifies loans and finance leases as a normal part of its Financial Services operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress, but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company's modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification. When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts the Company considers likely to perform under the modified terms. When the Company modifies a loan or finance lease for credit reasons and grants a concession, the modification is classified as a troubled debt restructuring (TDR).
The post-modification balance of accounts modified during the nine months ended
2020 2019
RECORDED % OF TOTAL RECORDED % OF TOTAL
($ in millions) INVESTMENT PORTFOLIO* INVESTMENT PORTFOLIO*
Commercial $ 185.6 2.7 % $ 227.5 3.5 %
Insignificant delay 2,505.7 36.2 % 69.5 1.1 %
Credit - no concession 80.1 1.2 % 22.0 .3 %
Credit - TDR 48.7 .7 % 2.5
$ 2,820.1 40.8 % $ 321.5 4.9 %
* Recorded investment immediately after modification as a percentage of ending
retail portfolio, on an annualized basis.
During the first nine months of 2020, total modification activity significantly increased compared to the first nine months of 2019. The decrease in modifications for Commercial reasons primarily reflects lower 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 modifications for Credit -TDR is primarily due to two fleet customers in theU.S. and four fleet customers inMexico . - 42 - --------------------------------------------------------------------------------
The following table summarizes the Company's 30+ days past due accounts:
September 30 December 31 September 30
2020 2019 2019
Percentage of retail loan and lease accounts
30+ days past due:
U.S. and Canada .1 % .4 % .4 %
Europe 1.8 % .7 % 1.0 %
Mexico, Australia and other 1.7 % 2.0 % 2.1 %
Worldwide .6 % .7 % .7 %
Accounts 30+ days past due decreased to .6% at September 30, 2020 from .7% at
December 31, 2019 . 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 $13.5 million of accounts worldwide during the third quarter of 2020,
$1.7 million during the fourth quarter of 2019 and $7.7 million during the third
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:
September 30 December 31 September 30
2020 2019 2019
Pro forma percentage of retail loan and lease
accounts 30+ days past due:
U.S. and Canada .1 % .4 % .4 %
Europe 1.9 % .7 % 1.0 %
Mexico, Australia and other 2.4 % 2.1 % 2.6 %
Worldwide .8 % .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 September 30, 2020 , December 31, 2019 and
September 30, 2019 . The effect on the allowance for credit losses from such
modifications was not significant at September 30, 2020 , December 31, 2019 and
September 30, 2019 .
The Company's annualized pre-tax return on average assets for Financial Services
decreased to 1.4% in the third quarter of 2020 from 1.7% in the same period of
2019, primarily driven by lower used truck results. In the first nine months,
annualized pre-tax return on average assets for Financial Services decreased to
1.4% in 2020 from 2.0% in 2019, 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 third quarter and first nine months of 2020 and 2019. Other SG&A decreased to$11.9 million for the third quarter of 2020 from$18.4 million for the third quarter of 2019 and decreased to$38.5 million for the first nine months of 2020 from$64.3 million for the first nine month of 2019. The decrease in both periods was primarily due to lower compensation costs reflecting stringent cost controls. For the third quarter, Other income before tax increased to$7.7 million from$1.1 million in 2019 primarily due to lower salaries and related expenses and lower travel expenses, partially offset by lower results from the winch business. For the first nine months, Other income (loss) before tax was$22.8 million compared to$(16.4) million in 2019. The income in the first nine months of 2020 compared to loss in the same period of 2019 was primarily due to lower salaries and related expenses, lower expected costs to resolve certain environmental matters and lower travel expenses, partially offset by lower results from the winch business. Investment income for the third quarter decreased to$6.4 million in 2020 from$21.1 million in 2019. For the first nine months, investment income decreased to$30.2 million in 2020 from$62.2 million in 2019. The lower investment income in the third quarter and first nine months of 2020 was primarily due to lower yields onU.S. investments due to lower market interest rates.
Income Taxes
The effective tax rate for the third quarter of 2020 was 21.3% compared to 21.8%
for the third quarter of 2019. The effective tax rate for the first nine months
of 2020 was 21.4% compared to 23.0% for the first nine months of 2019. The lower
effective tax rate in the third quarter and first nine months of 2020 was
primarily due to the change in mix of income generated in jurisdictions with
lower tax rates in 2020 as compared to 2019.
- 43 -
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Three Months Ended Nine Months Ended
September 30 September 30
($ in millions) 2020 2019 2020 2019
Domestic income before taxes $ 322.8 $ 579.8 $ 792.5 $ 1,695.5
Foreign income before taxes 167.1 197.8 343.6 715.9
Total income before taxes $ 489.9 $ 777.6 $ 1,136.1 $ 2,411.4
Domestic pre-tax return on revenues 11.2 % 14.5 % 10.7 % 14.7 %
Foreign pre-tax return on revenues 8.1 % 8.3 % 6.0 % 9.0 %
Total pre-tax return on revenues 9.9 % 12.2 % 8.6 % 12.4 %
For the third quarter and first nine 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:
September 30 December 31
($ in millions) 2020 2019
Cash and cash equivalents $ 3,344.3 $ 4,175.1
Marketable debt securities 1,194.3 1,162.1
$ 4,538.6 $ 5,337.2
The Company's total cash and marketable debt securities at September 30, 2020
decreased $798.6 million from the balances at December 31, 2019 , primarily due
to a decrease in cash and cash equivalents, primarily reflecting $1,128.9
million of dividends paid during the first nine months of 2020.
The change in cash and cash equivalents is summarized below:
($ in millions) Nine Months EndedSeptember 30, 2020
2019
Operating activities: Net income$ 892.6 $
1,856.6
Net income items not affecting cash 841.8
857.2
Changes in operating assets and liabilities, net 458.1 (797.2 ) Net cash provided by operating activities
2,192.5 1,916.6
Net cash used in investing activities (1,034.3 ) (1,556.5 ) Net cash used in financing activities (1,988.0 ) (88.7 ) Effect of exchange rate changes on cash (1.0 ) (37.8 ) Net (decrease) increase in cash and cash equivalents (830.8 ) 233.6 Cash and cash equivalents at beginning of period 4,175.1 3,435.9 Cash and cash equivalents at end of period$ 3,344.3 $ 3,669.5 Operating activities: Cash provided by operations increased by$275.9 million to$2,192.5 million in the first nine months of 2020 from$1,916.6 million in 2019. Higher operating cash flows reflect$1,258.5 million from wholesale receivables as the first nine months of 2020 was a cash inflow of$785.7 million versus a cash outflow of$472.8 million in 2019. There was a$436.2 million increase from accounts receivables as sales of goods and services exceeding collections were lower in 2020 compared to 2019. In addition, higher operating cash flows reflect lower net purchases of inventories of$147.1 million as there was$11.9 million in net inventory reductions in 2020 versus$135.2 million in net purchases in 2019. The higher operating cash inflows were partially offset by lower net income of$964.0 million and lower cash inflows of$325.3 million from accounts payable and accrued expenses as purchases of goods and services exceeding payments were lower in 2020 compared to 2019. The higher cash inflows were also offset by higher outflows from product support liabilities of$204.9 million as payments exceeded accruals by$79.2 million in 2020 and accruals exceeded payments by$125.7 million in 2019. Additionally, there were higher cash outflows for pension contributions of$110.1 million . - 44 - -------------------------------------------------------------------------------- Investing activities: Cash used in investing activities decreased by$522.2 million to$1,034.3 million in the first nine months of 2020 from$1,556.5 million in 2019. Lower net cash used in investing activities reflects lower net originations from retail loans and finance leases of$154.2 million and lower cash used in the acquisition of equipment for operating leases of$331.7 million . In addition, lower net cash used reflects$65.1 million in lower net purchases of marketable securities in the first nine months of 2020 compared to 2019. The lower cash usage was partially offset by lower proceeds from asset disposals of$58.3 million . Financing activities: Cash used in financing activities was$1,988.0 million for the first nine months of 2020,$1,899.3 million higher than the$88.7 million in 2019. In the first nine months of 2020, the Company issued$2,031.3 million of term debt, repaid term debt of$1,419.1 million and decreased its outstanding commercial paper and short-term bank loans by$1,471.0 million . In the first nine months of 2019, the Company issued$2,056.2 million of term debt, repaid term debt of$1,677.2 million and increased its outstanding commercial paper and short-term bank loans by$636.5 million . This resulted in cash used by borrowing activities of$858.8 million in the first nine months of 2020,$1,874.3 million lower than the cash provided by borrowing activities of$1,015.5 million in 2019. The Company paid$1,128.9 million in dividends in the first nine months of 2020 compared to$1,027.8 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 nine months of 2020 compared to the purchase of 1.7 million shares for$110.2 million in the same period last year.
Credit Lines and Other
The Company has line of credit arrangements of$3.52 billion , of which$3.30 billion were unused atSeptember 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 nine months endedSeptember 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 ofSeptember 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 nine months of 2020 were$431.1 million compared to$498.0 million for the same period of 2019. Over the past decade, the Company's combined investments in worldwide capital projects and R&D totaled$7.12 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$570 to$600 million and R&D is expected to be$270 to$280 million . In 2021, capital investments are projected to be$575 to$625 million and R&D is expected to be$330 to$360 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 capabilities.
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 ofSeptember 30, 2020 was$6.35 billion . InOctober 2020 , PFC issued an additional$100.0 million of medium-term notes under this registration. The registration expires inNovember 2021 and does not limit the principal amount of debt securities that may be issued during that period. - 45 - -------------------------------------------------------------------------------- As ofSeptember 30, 2020 , the Company's European finance subsidiary,PACCAR Financial Europe, 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.
In
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 ofSeptember 30, 2020 was450.0 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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