2014 ANNUAL REPORT - Paccar

1 2014 ANNUAL REPORTSTATEMENT OF COMPANY BUSINESS 1 Financial Highlights 2 Message from the Executive Chairman 4 Message from the Chief Executive Officer 8 Paccar Operations 24 Financial Charts 25 Stockholder return Performance Graph 26 Management s Discussion and Analysis 50 Consolidated Statements of Income 51 Consolidated Statements of Comprehensive Income 52 Consolidated Balance Sheets 54 Consolidated Statements of Cash Flows 55 Consolidated Statements of Stockholders Equity 56 Notes to Consolidated Financial Statements 90 Management s REPORT on Internal Control Over Financial Reporting 90 REPORT of Independent Registered Public Accounting Firm on the Company s Consolidated Financial Statements 91 REPORT of Independent

2 Registered Public Accounting Firm on the Company s Internal Control Over Financial Reporting 92 Selected Financial Data 92 Common Stock Market Prices and Dividends 93 Quarterly Results 94 Market Risks and Derivative Instruments 95 Officers and Directors 96 Divisions and SubsidiariesCONTENTSPACCAR is a global technology company that designs and manufactures premium quality light, medium and heavy duty commercial vehicles sold worldwide under the Kenworth, Peterbilt and DAF nameplates.

3 Paccar designs and manufactures diesel engines for use in its own products and for sale to third party manufacturers of trucks and buses. Paccar distributes aftermarket truck parts to its dealers through a worldwide network of Parts Distribution Centers. Finance and leasing subsidiaries facilitate the sale of Paccar products in many countries worldwide. Paccar manufactures and markets industrial winches under the Braden, Carco and Gearmatic nameplates. Paccar maintains exceptionally high standards of quality for all of its products: they are well engineered, highly customized for specific applications and sell in the premium segments of their markets, where they have a reputation for superior performance and pride of HIGHLIGHTS1 2014 2013 (millions except per share data)

4 Truck, Parts and Other Net Sales and Revenues $17, $15, Services Revenues 1, 1, Revenues 18, 17, Income 1, 1, Assets: Truck, Parts and Other 8, 9, Financial Services 11, 11, , Parts and Other Long-Term Debt Services Debt 8, 8, Equity 6, 6, Common Share: Net Income: Basic $ Diluted Cash Dividends Declared REVENUES billions of dollarsSTOCKHOLDERS EQUITY billions of dollarsNET INCOME billions of dollars05 06 07 08 09 10 11 12 13 06 07 08 09 10 11 12 13 return on Revenues (percent)$ return on Equity (percent)2TO OUR SHAREHOLDERS Paccar is celebrating 110 years of success in 2015.

5 It is a major milestone that speaks eloquently to the steady and consistent leadership of the company and the unwavering commitment of all employees to exceed our customers expectations by delivering the highest quality products and services. Paccar has strived to be at the forefront of technology for over a century and the world class range of company products reflects that dedicated resolve. Paccar is recognized as one of the leading technology companies worldwide, and innovation continues to be a cornerstone of its success. Paccar has integrated new technology, such as 3D component printing, to profitably support its business, as well as its dealers, customers and suppliers.

6 Paccar has achieved excellent financial results by focusing on the premium quality segment of our industry a notable record considering the cyclicality of the capital goods business. The company is also an environmental leader and has pioneered no waste to landfill, led the industry in sales of alternative fuel vehicles and reduced its carbon footprint. Our shareholders have enjoyed excellent returns, with steady regular dividend growth and increased shareholder value. I would like to thank the tens of thousands of employees whose hard work, ingenuity and drive for quality through the decades have enabled Paccar to grow into a global technology company.

7 The Board views succession planning as a critical responsibility and we are pleased that the transition to Ron Armstrong, chief executive officer, has been very smooth. Ron and team are experienced executives who have managed through many business cycles and have delivered outstanding results to our shareholders. Paccar had an excellent year in 2014 as it achieved record revenues due to good truck markets in North America and excellent results in the financial services and aftermarket parts businesses. Customers renewed and expanded their fleets, reflecting strong freight demand.

8 Paccar s financial results benefited from global diversification as the strong North American truck market countered the slower European truck market. The company has realized excellent synergies globally in product development, sales and finance activities, purchasing and manufacturing. Paccar s superb credit rating of A+/A1 results from consistent profitability, a strong balance sheet and excellent cash flow. Paccar increased its regular quarterly dividend by 10 percent to $ and declared a special dividend of $ Regular quarterly cash dividends have more than doubled in the last ten years.

9 Shareholders equity was a record $ billion at year end. On behalf of the company, I would like to thank John Fluke, who is retiring from the Board of Directors after 30 years of outstanding commitment and exemplary dedication to the global growth of Paccar . Our shareholders have benefited from John s knowledge of the industry, excellent governance and broad perspective in analyzing business opportunities. John s thorough understanding of the cyclical capital goods business has enabled the company to make important investments during all phases of the business cycle.

10 His focus on the long-term, rather than being swayed by business fads that do not stand the test of time, has kept the company on a steady profitable path. We are grateful for 3 John s wisdom, counsel, insight and friendship that have nurtured several generations of management leaders and contributed outstanding financial results to our shareholders. I am pleased that the Board has elected Beth Ford to the Board of Directors, effective April 21, 2015. Beth s global experience and understanding of information technology and consumer markets will make an excellent contribution to Paccar s success.