2016 ANNUAL REPORT - Paccar

1 2016 ANNUAL REPORTSTOCKHOLDERS INFORMATIONC orporate OfficesPACCAR Building777 106th Avenue , Washington98004 Mailing Box 1518 Bellevue, , EPIQ, Kenmex, Kenworth, Leyland, Paccar , Paccar MX-11, Paccar MX-13, Paccar PX, PacFuel, PacLease, PacLink, PacTax, PacTrac, PacTrainer, Peterbilt, The World s Best, TRP, TruckTech+ and SmartLINQ are trademarks owned by Paccar Inc and its subsidiaries. Independent AuditorsErnst & Young LLPS eattle, WashingtonSEC Form 10-KPACCAR s ANNUAL REPORT to the Securities and Exchange Commission will be furnished to stockholders on request to the Corporate Secretary, Paccar Inc, Box 1518, Bellevue, Washington 98009.

2 It is also available online at , under SEC Filings or on the SEC s website at Stockholders MeetingApril 25, 2017, 10:30 Paccar Parts Distribution Center405 Houser Way North,Renton, Washington98057An Equal Opportunity EmployerThis REPORT was printedon recycled Transfer and Dividend Dispersing AgentWells Fargo Bank Minnesota, Box 64854St. Paul, Minnesota s transfer agent maintains the company s shareholder records, issues stock certificates and distributes dividends and IRS Forms 1099. Requests concerning these matters should be directed to Wells Delivery of ANNUAL REPORT and Proxy StatementPACCAR s 2016 ANNUAL REPORT and the 2017 Proxy Statement are available on Paccar s website who hold Paccar stock in street name may inquire of their bank or broker about the availability of electronic delivery of ANNUAL meeting OF COMPANY BUSINESS 1 Financial Highlights 3 Message from the Executive Chairman 4 Message from the Chief Executive Officer 8 Paccar

3 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 88 Management s REPORT on Internal Control Over Financial Reporting 88 REPORT of Independent Registered Public Accounting Firm on the Company s Consolidated Financial Statements 89 REPORT of Independent Registered Public Accounting Firm on the Company s Internal Control Over Financial Reporting 90 Selected Financial Data 90 Common Stock Market Prices and Dividends 91 Quarterly Results 92

4 Market Risks and Derivative Instruments 93 Officers and Directors 94 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. 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.

5 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 08 09 10 11 12 13 14 15 08 09 10 11 12 13 14 15 16* 08 09 10 11 12 13 14 15 16*10% HIGHLIGHTSREVENUES billions of dollarsSTOCKHOLDERS EQUITY billions of dollars NET INCOME billions of dollars2016 2015(millions, except per share data)

6 Truck, Parts and Other Net Sales and Revenues$15, $ 17, Services Revenues 1, 1, Total Revenues 17, 19, Net Income 1, Adjusted Net Income*1, Assets:Truck, Parts and Other 8, 8, Financial Services 12, 12, Financial Services Debt 8, 8, Stockholders' Equity 6, 6, Per Common Share:Net Income: Basic$ $ Adjusted Diluted* Cash Dividends * See Reconciliation of GAAP to Non-GAAP Financial Measures for 2016 on page 46. Revenues Net Income Adjusted Net Income*Return on Revenues (percent)Adjusted Return on Revenues (percent)* Stockholders EquityReturn on Equity (percent)Adjusted Return on Equity (percent)*23TO OUR SHAREHOLDERS Paccar is celebrating 111 years of success and delivered very good revenue and net profits to its shareholders in 2016 .

7 The company s long-term prosperity has been achieved by 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 achieved excellent financial results by focusing on the premium quality segment of its industry a notable record considering the cyclicality of the capital goods business. Paccar has strived to be at the forefront of technology for over a century and the company s world class range of products and services reflect that dedicated resolve.

8 Paccar is one of the leading technology companies worldwide, and innovation is a cornerstone of its success. Paccar continues to integrate new technology into its daily operations, including sophisticated mobile apps in truck manufacturing, parts distribution and sales of products and services. Connected architecture in Paccar s vehicles profitably supports its business, as well as its dealers, customers and suppliers. Paccar had an excellent year in 2016 due to growing share in North American and European truck markets as well as generating good results in the financial services and aftermarket parts businesses.

9 Customers renewed their fleets to take advantage of the reliability and operating efficiency of DAF, Kenworth and Peterbilt trucks and to meet strong freight demand. Paccar s financial results benefited from global diversification. The company has realized excellent synergies globally in product development, financial services, purchasing and manufacturing. DAF, in addition to most European truck competitors, reached a settlement with the European Commission regarding the review of the exchange of European commercial vehicle list prices. The company has reinforced its compliance program, including extensive employee training.

10 Paccar and its employees are proud of the remarkable achievement of 78 consecutive years of net profit. The Paccar Board of Directors embraces a long-term view of the business, and our shareholders have benefited from that approach. Our shareholders have enjoyed excellent returns, with steady regular dividend growth and increased shareholder value over the years. The embedded principles of integrity, quality and consistency of purpose define the course in Paccar s operations. The proven business strategy deliver technologically advanced premium products and provide an extensive array of tailored aftermarket customer services enables Paccar to pragmatically approach growth opportunities.