2020 ANNUAL REPORT STATEMENT OF COMPANY BUSINESS STOCKHOLDERS’ INFORMATION PACCAR is a global technology company that designs and manufactures premium quality light, medium and heavy duty commercial vehicles sold worldwide under Corporate Offices Stock Transfer Trademarks Owned by PACCAR Building and Dividend PACCAR Inc and its 777 106th Avenue N.E. Dispersing Agent Subsidiaries the Kenworth, Peterbilt and DAF nameplates. PACCAR designs and manufactures Bellevue, Washington Equiniti Trust Company DAF, EPIQ, Kenmex, 98004 Shareowner Services Kenworth, Leyland, Online diesel engines and other powertrain components for use in its own products and for P.O. Box 64854 Parts Counter, PACCAR, Mailing Address St. Paul, Minnesota PACCAR MX-11, P.O. Box 1518 55164-0854 PACCAR MX-13, PACCAR sale to third party manufacturers of trucks and buses. PACCAR distributes Bellevue, Washington 800.468.9716 PX, PacFuel, PacLease, 98009 www.shareowneronline.com PacLink, PacTax, PacTrac, aftermarket truck parts to its dealers through a worldwide network of Parts PacTrainer, Peterbilt, Telephone PACCAR’s transfer agent The World’s Best, TRP, 425.468.7400 maintains the company’s TruckTech+, SmartNav and Distribution Centers. Finance and leasing subsidiaries facilitate the sale of shareholder records, issues SmartLINQ Facsimile stock certificates and PACCAR products in many countries worldwide. PACCAR manufactures and 425.468.8216 distributes dividends and Independent Auditors IRS Forms 1099. Requests Ernst & Young LLP Website concerning these matters Seattle, Washington markets industrial winches under the Braden, Carco and Gearmatic nameplates. www.paccar.com should be directed to Equiniti. SEC Form 10-K PACCAR maintains exceptionally high standards of quality for all of its products: PACCAR’s annual report Online Delivery of to the Securities and Annual Report and Proxy Exchange Commission they are well engineered, highly customized for specific applications and sell in Statement will be furnished to PACCAR’s 2020 Annual stockholders on request the premium segments of their markets, where they have a reputation for superior Report and the 2021 Proxy to the Corporate Statement are available on Secretary, PACCAR Inc, PACCAR’s website at P.O. Box 1518, Bellevue, performance and pride of ownership. www.paccar.com/ Washington 98009. It is 2021annualmeeting also available online at www.paccar.com/investors/ Stockholders who hold investor_resources.asp, PACCAR stock in street under SEC Filings or name may inquire of their on the SEC’s website at bank or broker about the www.sec.gov. availability of electronic delivery of annual Annual Stockholders’ meeting documents. Meeting April 27, 2021, 10:30 a.m. PACCAR Parts Distribution Center 405 Houser Way North CONTENTS Renton, Washington 98057 1 Financial Highlights 89 Management’s Report on Internal Control 3 Message from the Executive Chairman Over Financial Reporting An Equal Opportunity Employer 4 Message from the Chief Executive Officer 89 Report of Independent Registered Public 8 PACCAR Operations Accounting Firm on the Company’s 26 Financial Charts Consolidated Financial Statements 27 Stockholder Return Performance Graph 91 Report of Independent Registered Public This report was printed 28 Management’s Discussion and Analysis Accounting Firm on the Company’s on recycled paper. 46 Consolidated Statements of Income Internal Control Over Financial Reporting 47 Consolidated Statements 92 Selected Financial Data of Comprehensive Income 93 Quarterly Results 48 Consolidated Balance Sheets 94 Market Risks and Derivative Instruments 50 Consolidated Statements of Cash Flows 94 Common Stock Market Prices and Dividends 51 Consolidated Statements 95 Officers and Directors of Stockholders’ Equity 96 Divisions and Subsidiaries 52 Notes to Consolidated Financial Statements FINANCIAL HIGHLIGHTS 2020 2019 (millions, except per share data) 1 Truck, Parts and Other Net Sales and Revenues $ 17,154.3 $ 24,119.7 Financial Services Revenues 1,574.2 1,480.0 Total Revenues 18,728.5 25,599.7 Net Income 1,298.4 2,387.9 Total Assets: Truck, Parts and Other 12,460.2 12,289.7 Financial Services 15,799.8 16,071.4 Financial Services Debt 10,853.3 11,222.7 Stockholders’ Equity 10,390.0 9,706.1 Per Common Share: Net Income: Basic $ 3.74 $ 6.88 Diluted 3.74 6.87 Cash Dividends Declared Per Share 1.98 3.58 REVENUES NET INCOME STOCKHOLDERS’ EQUITY billions of dollars billions of dollars billions of dollars 28.0 28.0 2.4 10.0% 12.0 28% 21.0 21.0 1.8 7.5% 9.0 21% 14.0 14.0 1.2 5.0% 6.0 14% 7.0 7.0 0.6 2.5% 3.0 7% 0.0 0.0 0.0 0.0% 0.0 0% 11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20 ■ Revenues ■ Net Income ■ Stockholders’ Equity Return on Revenues (percent) Return on Equity (percent) TO OUR SHAREHOLDERS PACCAR is celebrating 115 years of success and delivered very good revenues and profits to its shareholders in 2020, despite the impact of the global pandemic. This is the 82nd consecutive year of earning a net profit — a notable 3 record considering the cyclicality of the capital goods market. In response to the serious challenges of the virus, PACCAR initiated prompt and thorough actions to reconfigure its manufacturing facilities, parts distribution centers, and offices to ensure the health and safety of our employees. PACCAR achieved very good financial results by continuing to focus on the premium segment of our industry. The company has enhanced its leadership in developing products and services that reflect the rapidly changing world with the development of e-commerce, zero emission vehicles, and autonomous trucks. In addition, PACCAR Parts and PACCAR Financial have introduced many technology initiatives to streamline customer connectivity. The company is an environmental leader and is partnering with industry groups to reduce the effects of climate change. PACCAR continues to emphasize “zero waste to landfill”, solar power generation, water recycling, and increasing the recyclable material content in its trucks. PACCAR’s strong year in 2020 is due to many positive factors including excellent Kenworth and Peterbilt market share in North America and DAF’s strong performance in the European truck market. Customers renewed their fleets to take advantage of the reliability and operating efficiency of new DAF, Kenworth, and Peterbilt trucks. PACCAR Parts delivered excellent aftermarket results reflecting new sales initiatives, a growing population of integrated and connected PACCAR vehicles, and more TRP stores. PACCAR Financial Services, including PacLease, had a very good year, generating strong new business volume. PACCAR benefits from its global diversification, industry leading independent dealer organizations and increased investments in all segments of the business. PACCAR’s superb credit rating of A+/A1 results from consistent profitability, a strong balance sheet, and excellent cash flow. Our shareholders have enjoyed very good returns, with total shareholder return of 12% in 2020, annual regular dividend growth of 13% in the last ten years and a $0.70 per share extra dividend paid in early 2021. On behalf of our shareholders and employees, I would like to thank Chuck Williamson for his fifteen years of outstanding leadership on the Board. Chuck was our lead director for six years and chaired several of our committees. I am pleased that the Directors have nominated Ganesh Ramaswamy to the Board of Directors, effective upon election by the shareholders on April 27, 2021. PACCAR is committed to a strong, diverse and inclusive culture and the company’s excellent financial results reflect its human centered philosophy. I would like to thank our employees for their commitment in this past challenging year, their many ideas and suggestions to maintain the regular cadence in our daily operations and their personal outreach to local communities. Their volunteering and financial support was inspirational to everyone in our company and the communities in which we live and work. MARK C. PIGOTT Executive Chairman February 17, 2021 TO OUR SHAREHOLDERS PACCAR had a very good year in 2020, generating strong revenues and profits as well as industry leading operating 4 margins. Revenues were $18.73 billion and net income was $1.30 billion with an after-tax return on revenue of 6.9%. The company has earned an annual net income for 82 consecutive years. PACCAR’s financial results reflect the company’s premium-quality trucks, powertrains, aftermarket parts business, financial services and technology leadership. I am proud of PACCAR’s employees who did an excellent job creating and maintaining safety protocols that allowed the company to support our customers during the global pandemic. The results reflect the efforts of our dedicated employees who deliver industry leading product quality, innovation and outstanding efficiency in all operating environments. PACCAR’s financial strength enabled the company to invest $843.4 million in capital projects and research and development to enhance its manufacturing capability, expand its range of vehicles and engines, develop advanced vehicle technologies and strengthen its aftermarket transportation solutions. PACCAR delivered 133,300 trucks to its customers, and sold $3.91 billion of aftermarket parts. PACCAR’s excellent credit ratings of A+/A1 supported PACCAR Financial Services’ new loan and lease volume of $5.02 billion. Class 8 truck industry retail sales in North America, including Mexico, were 235,000 vehicles in 2020 compared to 336,000 the prior year. The European 16+ tonne market in 2020 was 230,000 vehicles compared to 320,000 in 2019. PACCAR customers are generating good profits due to strong freight tonnage, low fuel prices and the superior operating efficiency provided by Kenworth, Peterbilt and DAF trucks. PACCAR’s strong financial performance in 2020 benefited from PACCAR Parts’ pre-tax profits of $799.3 million and PACCAR Financial Services’ pre-tax profits of $223.1 million.