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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Paccar, Inc.    PCAR

PACCAR, INC.

(PCAR)
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PACCAR : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/02/2020 | 04:21pm EST

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, 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 ended September 30,
2020 were impacted by the COVID-19 pandemic, with the most significant impact in
the quarter ended June 30, 2020. The Company's truck and engine production was
suspended at its factories worldwide starting March 24, 2020. Truck and engine
production restarted in Europe and Australia on April 20, 2020, and factories
gradually resumed operations in North 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 $4.94 billion in 2020 compared to $6.37

billion in 2019, primarily due to lower truck revenues.

• Truck revenues were $3.50 billion in 2020 compared to $4.98 billion in 2019

primarily due to lower truck deliveries in the U.S. and Canada and Europe.

• Parts sales were $1.02 billion in 2020 compared to $1.00 billion in 2019.

• Financial Services revenues were $397.6 million in 2020 compared to $362.8

million in 2019 primarily due to higher used truck sales in Europe, partially

offset by lower portfolio yields.

• Net income was $385.5 million ($1.11 per diluted share) in 2020 compared to

$607.9 million ($1.75 per diluted share) in 2019 reflecting lower Truck

operating results.

• Capital investments were $130.0 million in 2020 compared to $196.0 million in

2019.

• Research and development (R&D) expenses were $64.7 million in 2020 compared to

$82.2 million in 2019.

First Nine Months Financial Highlights:

• Worldwide net sales and revenues were $13.16 billion in 2020 compared to

$19.48 billion in 2019, primarily due to lower truck revenues.

• Truck revenues were $9.12 billion in 2020 compared to $15.30 billion in 2019

due to lower truck deliveries in all markets, though primarily in the U.S. and

Canada and Europe.

• Parts sales were $2.84 billion in 2020 compared to $3.03 billion in 2019

primarily due to lower demand in the U.S. and Canada and Europe.

• Financial Services revenues were $1.14 billion in 2020 compared to $1.07

billion in 2019. The increase was primarily the result of higher used truck

sales in Europe.

• Net income was $892.6 million ($2.57 per diluted share) in 2020 compared to

$1.86 billion ($5.34 per diluted share) in 2019 primarily reflecting lower

Truck operating results.

• Capital investments were $438.8 million in 2020 compared to $504.3 million in

2019.

• R&D expenses were $202.2 million in 2020 compared to $243.0 million in 2019.




                                     - 31 -
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Kenworth K270E and T680E, Peterbilt models 579EV, 220EV and 520EV, and DAF CF
Electric zero emissions trucks are now available for customers to order, with
plans to begin production in 2021.



PACCAR is partnering with Faith Technologies and Schneider Electric to provide
charging infrastructure solutions for dealers and customers who purchase battery
electric Kenworth and Peterbilt trucks in the U.S. and Canada. 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 Financial Services recently opened used truck centers in Lyon, France, Denton, Texas, and Prague, Czech Republic, and plans to open a used truck facility in Madrid, Spain next year.


PACCAR Inc, Kenworth, Peterbilt, PACCAR Parts and Dynacraft were each honored by
the Women in Trucking 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 on March 24, 2020, due to the
COVID-19 pandemic. The Company began truck production at selected factories in
Europe and Australia on April 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 the U.S. and Canada in 2020 are expected to be
190,000 to 210,000 units compared to 308,800 in 2019. Estimates for the U.S. and
Canada truck industry retail sales in 2021 are in the range of 210,000 to
250,000 units. In Europe, 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.
In South 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 in South 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 -

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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 September 30, 2020 and 2019 are presented below.



                                               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.



                                     - 33 -
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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 U.S. and Canada, market share is based on retail sales. In Europe, market share is based primarily on registrations.




In the first nine months of 2020, industry retail sales in the heavy-duty market
in the U.S. and Canada 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 in Europe 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 September 30, 2020 and 2019 are as follows:



                                                       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 U.S. and

Canada ($1,198.3 million sales and $954.4 million cost of sales) and Europe

($259.7 million sales and $224.8 million cost of sales) due to reduced demand

and reduced build rates.

• Average truck sales prices decreased sales by $31.5 million primarily due to

lower price realization in the U.S and Canada.

• Average cost per truck increased cost of sales by $57.4 million, primarily

reflecting increased labor costs from lower volumes and inefficiencies related

   to the COVID-19 pandemic, and higher accruals for product support costs.


                                     - 34 -
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• Factory overhead and other indirect costs decreased $55.2 million primarily

due to lower costs for labor, repair and maintenance and depreciation.

• Extended warranties, operating leases and other revenues decreased by $19.6

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 $3.5 million primarily due to lower costs from operating

leases, partially offset by higher costs on extended warranty contracts in the

U.S. and Europe and higher losses on used trucks in Europe.

• 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

U.S. dollar, partially offset by a decline in the value of the Brazilian real.

• 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 September 30, 2020 and 2019 are as follows:



                                                       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 U.S. and

Canada ($4.30 billion sales and $3.49 billion cost of sales), Europe ($1.32

billion sales and $1.11 billion cost of sales) and Mexico ($296.1 million

sales and $243.9 million cost of sales), due to reduced retail demand and the

impact of the worldwide production suspension due to the COVID-19 pandemic.

• Average truck sales prices decreased sales by $15.1 million primarily due to

lower price realization in the U.S and Canada.

• Average cost per truck increased cost of sales by $229.0 million, primarily

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 $178.9 million primarily

due to lower costs for labor, repair and maintenance and depreciation.

• Extended warranties, operating leases and other revenues decreased by $79.1

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 $7.7 million primarily due to higher impairments and losses

on used trucks in Europe and the U.S. and higher costs on extended warranty

contracts in the U.S., partially offset by lower costs from operating leases

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 U.S. dollar.

• 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 -

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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 September 30, 2020 and 2019 are as follows:



                                                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 September 30, 2020$ 1,016.2$ 735.1$ 281.1

• Aftermarket parts sales volume decreased by $15.3 million and related cost of

sales decreased by $11.8 million primarily due to lower demand in North

America.

• Average aftermarket parts sales prices increased sales by $18.7 million

primarily due to higher price realization in North America.

• Average aftermarket parts direct costs increased $15.9 million due to higher

material costs.

• Warehouse and other indirect costs increased $3.1 million primarily due to

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 U.S. dollar.

• 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.


                                     - 36 -
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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 September 30, 2020 and 2019 are as follows:



                                                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 September 30, 2020$ 2,838.5$ 2,064.9$ 773.6

• Aftermarket parts sales volume decreased by $251.1 million and related cost of

sales decreased by $167.5 million primarily due to lower demand in North

America and Europe.

• Average aftermarket parts sales prices increased sales by $65.0 million

primarily due to higher price realization in North America.

• Average aftermarket parts direct costs increased $35.5 million due to higher

material costs.

• Warehouse and other indirect costs increased $12.9 million primarily due to

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 U.S. dollar, primarily 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 -

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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.

                                     - 38 -

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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 September 30, 2020 and 2019 are outlined below:


                                                          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 September 30, 2020$ 127.7$ 45.2$ 82.5

• Average finance receivables decreased $281.7 million (excluding foreign

exchange effects) in the third quarter of 2020 primarily due to lower dealer

wholesale balances.

• Average debt balances decreased $467.8 million (excluding foreign exchange

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 $14.7 million. The lower portfolio yields were primarily

due to lower market rates in North America.

• Lower borrowing rates (1.7% in 2020 compared to 2.2% in 2019) were primarily

due to lower 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 Mexican peso and the

   Brazilian real.


                                     - 39 -
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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 September 30, 2020 and 2019 are outlined below:


                                                         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 September 30, 2020$ 396.0$ 148.5$ 247.5

• Average finance receivables increased $209.5 million (excluding foreign

exchange effects) in the first nine months of 2020 as a result of retail

portfolio new business volume exceeding collections.

• Average debt balances increased $222.4 million (excluding foreign exchange

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 $34.6 million. The lower portfolio yields were primarily

due to lower market rates in North America.

• Lower borrowing rates (1.9% in 2020 compared to 2.2% in 2019) were primarily

due to lower 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 Mexican peso, 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 September 30, 2019 $ 214.5 $ 195.3

   $  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 $56.2

million and increased depreciation and other expenses by $56.7 million.

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

$4.7 million primarily due to higher losses on sales of returned lease units

in the U.S. and higher impairments in Europe.

• Average operating lease assets decreased $86.0 million (excluding foreign

exchange effects), which decreased revenues by $1.9 million and related

depreciation and other expenses by $1.2 million.

• Revenue per asset decreased $2.0 million primarily due to lower rental income

and lower fleet utilization. Cost per asset increased $.7 million due to

higher depreciation expense and higher vehicle operating expenses.

• The currency translation effects reflect an increase in the value of foreign

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

   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 ended
September 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 $ 29.6

• A higher sales volume of used trucks received on trade and upon RVG contract

expiration increased operating lease, rental and other revenues by $109.1

million and increased depreciation and other expenses by $112.1 million.

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

$32.0 million primarily due to higher impairments in the U.S. and Europe and

higher losses on sales of returned lease units in the U.S.

• Average operating lease assets increased $61.2 million (excluding foreign

exchange effects), which increased revenues by $3.6 million and related

depreciation and other expenses by $3.9 million.

• Revenue per asset decreased $.5 million primarily due to lower fleet

utilization. Cost per asset increased $13.7 million due to higher depreciation

expense and higher vehicle operating expenses.

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

currencies relative to the U.S. dollar, primarily the Mexican peso.



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 -

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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 the U.S. The provision for losses in 2019 also
included 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 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 September 30, 2020 and 2019 are summarized below:



                                     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 in Europe,
the U.S. and Mexico. The increase in modifications for Credit -TDR is primarily
due to two fleet customers in the U.S. and four fleet customers in Mexico.

                                     - 42 -

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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 on U.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 Ended September 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 -

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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 in
January 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 at September 30, 2020. Included in these arrangements are
$3.00 billion of committed bank facilities, of which $1.00 billion expires in
June 2021, $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 nine months ended
September 30, 2020.

On December 4, 2018, PACCAR's Board of Directors approved the repurchase of up
to $500.0 million of the Company's outstanding common stock. As of September 30,
2020, the Company has repurchased $110.0 million of shares under the December 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 for PACCAR 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.

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 September 30, 2020 was
$6.35 billion. In October 2020, PFC issued an additional $100.0 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.

                                     - 45 -

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As of September 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 the Luxembourg 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 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 September 30, 2020, 8.10 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 September 30, 2020
was 450.0 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 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; 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 ended December 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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