2 0 0 5 A N N U A L R E P O R T
S T A T E M E N T O F C O M P A N Y B U S I N E S S
S T O C K H O L D E R S ’
I N F O R M A T I O N
As a multinational technology company, PACCAR manufactures heavy-duty,
on- and off-road Class 8 trucks sold around the world under the Kenworth,
Peterbilt and DAF nameplates. The company competes in the North American
Class 6-7 market with its medium-duty models assembled in North America and
sold under the Peterbilt and Kenworth nameplates. In addition, DAF manufactures
Class 6-7 trucks in the Netherlands and Belgium for sale throughout Europe, the
Middle East and Africa and distributes Class 4-7 trucks in Europe manufactured
by Leyland Trucks (UK). PACCAR manufactures and markets industrial winches
under the Braden, Gearmatic and Carco nameplates and competes in the truck
parts aftermarket through its dealer network. Finance and Leasing subsidiaries
facilitate the sale of PACCAR products in many countries worldwide. Significant
company assets are employed in financial services activities. PACCAR
maintains exceptionally high standards of quality for all of its products: they
are well-engineered, are 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 ownership.
C O N T E N T S
1
Financial Highlights
2 Message to Shareholders
6
PACCAR Operations
22 Financial Charts
23 Management’s Discussion and Analysis
31 Consolidated Statements of Income
32 Consolidated Balance Sheets
34 Consolidated Statements of Cash Flows
35 Consolidated Statements
of Stockholders’ Equity
36 Consolidated Statements
of Comprehensive Income
36 Notes to Consolidated Financial Statements
50 Management’s Report on Internal Control
Over Financial Reporting
50 Report of Independent Registered Public
Accounting Firm on the Company’s
Consolidated Financial Statements
51 Report of Independent Registered Public
Accounting Firm on the Company’s
Internal Controls
Selected Financial Data
52
52 Common Stock Market Prices and Dividends
53 Quarterly Results
54 Market Risks and Derivative Instruments
55 Officers and Directors
56 Divisions and Subsidiaries
Corporate Offices
PACCAR Building
777 106th Avenue N.E.
Bellevue, Washington
98004
Mailing Address
P.O. Box 1518
Bellevue, Washington
98009
Telephone
425.468.7400
Facsimile
425.468.8216
Homepage
http://www.paccar.com
Stock Transfer
and Dividend
Dispersing Agent
Wells Fargo Bank
Minnesota, N.A.
Shareowner Services
P.O. Box 64854
St. Paul, Minnesota
55164-0854
800.468.9716
www.wellsfargo.com/
shareownerservices
PACCAR’s transfer agent
maintains the company’s
shareholder records, issues
stock certificates and
distributes dividends and
IRS Form 1099. Requests
concerning these matters
should be directed to
Wells Fargo.
Online Delivery of
Annual Report and Proxy
Statement
PACCAR’s 2005 Annual
Report and the 2006 Proxy
Statement are available on
PACCAR’s Web site at www.
paccar.com/financials.asp
Registered stockholders
can sign up to receive future
proxy statements and annual
reports in electronic format,
instead of receiving paper
documents, by visiting www.
econsent.com/pcar/
Stockholders who hold
PACCAR stock in street
name may inquire of their
bank or broker about the
availability of electronic
delivery of annual
meeting documents.
Braden, Carco, DAF,
DYNACRAFT, Foden,
Gearmatic, INLINE,
Kenworth, Leyland,
MIRREX, PACCAR,
PacLease, Peterbilt and
ROADLEVELER are
trademarks owned by
PACCAR Inc and its
subsidiaries.
Independent Auditors
Ernst & Young LLP
Seattle, Washington
SEC Form 10-K
PACCAR’s annual report
to the Securities and
Exchange Commission
will be furnished to
stockholders on request
to the Corporate
Secretary, PACCAR Inc,
P.O. Box 1518, Bellevue,
Washington 98009. It is
also available online at
www.paccar.com/
financials.asp, under
SEC Filings.
Annual Stockholders’
Meeting
April 25, 2006, 10:30 a.m.
Meydenbauer Center
11100 N.E. Sixth Street
Bellevue, Washington
98004
An Equal Opportunity
Employer
This report was printed
on recycled paper.
F I N A N C I A L H I G H L I G H T S
Truck and Other Net Sales and Revenues
$13,298.4
$10,833.7
2005
2004
(millions except per share data)
1
Financial Services Revenues
Total Revenues
Net Income
Total Assets:
Truck and Other
Financial Services
Truck and Other Long-Term Debt
Financial Services Debt
Stockholders’ Equity
Per Common Share:
Net Income:
Basic
Diluted
Cash Dividends Declared
759.0
14,057.4
1,133.2
5,359.5
8,355.9
20.2
6,226.1
3,901.1
562.6
11,396.3
906.8
5,247.9
6,980.1
27.8
4,788.6
3,762.4
$ 6.60
$
$
6.56
2.87
5.19
5.16
2.75
R E V E N U E S
(cid:70)
billions of dollars
N E T I N C O M E
billions of dollars
(cid:17)(cid:21)
(cid:17)(cid:18)
(cid:25)
(cid:22)
(cid:19)
(cid:16)
S T O C K H O L D E R S ’ E Q U I T Y
billions of dollars
(cid:17)(cid:14)(cid:18)(cid:21)
(cid:20)(cid:14)(cid:16)
(cid:17)(cid:14)(cid:16)(cid:16)
(cid:19)(cid:14)(cid:18)
(cid:16)(cid:14)(cid:23)(cid:21)
(cid:18)(cid:14)(cid:20)
(cid:16)(cid:14)(cid:21)(cid:16)
(cid:17)(cid:14)(cid:22)
(cid:16)(cid:14)(cid:18)(cid:21)
(cid:16)(cid:14)(cid:24)
(cid:16)(cid:14)(cid:16)(cid:16)
(cid:16)(cid:14)(cid:16)
(cid:19)(cid:21)(cid:5)
(cid:18)(cid:24)(cid:5)
(cid:18)(cid:17)(cid:5)
(cid:17)(cid:20)(cid:5)
(cid:23)(cid:5)
(cid:16)(cid:5)
(cid:25)(cid:22)
(cid:25)(cid:23)
(cid:25)(cid:24)
(cid:25)(cid:25)
(cid:16)(cid:16)
(cid:16)(cid:17)
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:16)(cid:20)
(cid:16)(cid:21)
(cid:25)(cid:22)
(cid:25)(cid:23)
(cid:25)(cid:24)
(cid:25)(cid:25)
(cid:16)(cid:16)
(cid:16)(cid:17)
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:16)(cid:20)
(cid:16)(cid:21)
(cid:25)(cid:22)
(cid:25)(cid:23)
(cid:25)(cid:24)
(cid:25)(cid:25)
(cid:16)(cid:16)
(cid:16)(cid:17)
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:16)(cid:20)
(cid:16)(cid:21)
Return on Equity (percent)
PACCAR Inc and Subsidiaries
T O O U R S H A R E H O L D E R S
PACCAR had a record year in 2005 due to its superior product quality, strong
2
markets, technology-led process efficiency and excellent results from aftermarket parts
and financial services. PACCAR increased its share to record levels in the European
heavy- and medium-duty truck markets. Market share was strong in North America,
with record truck deliveries in both the heavy- and medium-duty segments. Customers
benefited from PACCAR’s ongoing investments in technology, which enhanced
manufacturing efficiency, extensive support programs and new product development.
PACCAR delivered a record 148,500 trucks and sold nearly $1.7 billion of aftermarket
parts and services.
Net income of $1.13 billion was the highest in the company’s 100-year history,
and revenues of $14.06 billion were 23 percent higher than in the previous year.
Dividends of $2.87 per share were declared during the year, including a special
dividend of $2.00. PACCAR increased its regular quarterly dividend twice during
the year, raising its quarterly payout by 25 percent, and has increased its dividend
345 percent in the last four years.
The North American truck market in 2005 grew 24 percent
performance for capital goods companies worldwide.
from the previous year, as a strong economy generated
After-tax return on beginning shareholder equity (ROE)
increased freight tonnage and transport companies
was 30.1 percent in 2005, compared to 27.9 percent in
increased their fleet sizes. The Class 8 truck market in
2004. The company’s 2005 after-tax return on revenues
North America, including Mexico, was 307,000 vehicles,
(ROR) was 8.1 percent, a new record. Excluding the
compared to 248,000 last year. The European heavy truck
$64.0 million one-time tax charge in 2005 for the
market in 2005 was a record 259,000 vehicles, compared
repatriation of foreign earnings, ROE was 31.8 percent
to 238,000 in 2004, as customer demand remained strong
and ROR was 8.5 percent. Sales and profits were driven
in spite of slow growth in the euro zone economy.
by strong truck and parts margins and new finance
Competitors experienced improved results due to
contracts for over 44,000 units. PACCAR shareholder
the stronger market, though their high operating costs,
equity tripled over the last decade, to $3.90 billion, as a
including the burden of expensive and underfunded
result of strong earnings. PACCAR’s total shareholder
pension plans and post-retirement health-care programs,
return averaged 27 percent per year, versus 9 percent
continue to negatively impact their performance.
annual return for the Standard & Poor’s 500 Index, over
PACCAR continued to set the standard for financial
that same ten-year period.
INVESTING FOR THE FUTURE — PACCAR’s record
projects have been implemented since its inception. Six
profits, excellent balance sheet, and intense focus on
Sigma, in conjunction with Supplier Quality, has been
quality, technology and productivity enhancements have
instrumental in delivering improved logistic performance
enabled the company to consistently invest in its
by the company’s suppliers.
products and processes during all phases of the business
INFORMATION TECHNOLOGY — PACCAR’s
3
cycle. Productivity, efficiency and capacity improvements
Information Technology Division (ITD) is an important
continue to be implemented in all manufacturing and
competitive asset for the company. PACCAR’s use of
parts facilities. Many of PACCAR’s facilities established
information technology is centered on developing and
new production records during the year in terms of quality
integrating software and hardware that will enhance the
metrics, inventory turns and assembly hours. PACCAR is
quality and efficiency of all operations throughout the
recognized as one of the leading technology companies in
company, including the seamless integration of suppliers,
the world, and innovation continues to be a cornerstone
dealers and customers.
of PACCAR’s success. PACCAR has integrated new
One of the major successes that ITD and Purchasing
technology to profitably support its own business, as well
achieved during the year was the construction and
as its dealers, customers and suppliers. One hundred
inauguration of the North American Transportation
and thirty new dealer locations were opened worldwide,
Center. The Center utilizes a sophisticated logistic
and more are planned to enhance PACCAR’s global
platform to track, real-time, supplier parts shipment to
distribution network.
PACCAR facilities, resulting in world-class just-in-time
Capital investments reached $300 million for the first
inventory deliveries. Other major accomplishments
time in the company’s history. Major capital projects
include increased activities at the Electronic Dealerships in
during the year included construction of a state-of-the-
Renton and Eindhoven. Over 11,000 dealers, customers,
art Kenworth manufacturing facility in Mexico, the launch
suppliers and employees have experienced the interactive
of the DAF XF105 and the fuel-efficient PACCAR MX
demonstration modules showing the application of
12.9-liter engine, the introduction of the aerodynamic
automated sales and service kiosks, tablet PCs and Radio
Peterbilt 386, installation of additional paint robotics in
Frequency Identification (RFID). New features include
manufacturing facilities, including robotic chassis paint,
an electronic sales and finance office and an electronic
the opening of the new North American Transportation
service analyst.
Center and the start of construction of a new PACCAR
In 2005, ITD provided breakthrough advancements
Parts Distribution Center.
in paint robotics software, wireless vehicle diagnostic
PACCAR is judiciously examining business
solutions, infrastructure capacity upgrades and
opportunities in Asia, with the primary focus being
installation of over 3,600 new personal computers.
China and India. The company has sold product in
TRUCKS — U.S. and Canadian Class 8 retail sales in 2005
China since 1908, and is cognizant of the benefits of a
were 287,000 units, and the Mexican market totaled 20,000.
long-term planning horizon for the region.
Western Europe heavy truck sales were 259,000 units.
SIX SIGMA — Six Sigma is integrated into all business
PACCAR’s Class 8 retail sales market share in the U.S.
activities at PACCAR and has been adopted at 150 of the
and Canada was a strong 23.1 percent in 2005. DAF’s
company’s suppliers and many of the company’s dealers.
heavy-duty truck market share in Europe increased to
Its statistical methodology is critical in the development
a record 13.7 percent. Industry Class 6 and 7 truck
of new product designs and manufacturing processes. In
registrations in the U.S. and Canada numbered 101,000
addition, the company introduced “High Impact Kaizen
units, a 5 percent increase from the previous year. In
Events” (HIKE), which leverage Six Sigma methods with
Europe, the 6- to 15-tonne market was 77,000 units, a
production flow improvement concepts. The HIKE
3 percent increase from 2004. PACCAR’s North American
projects conducted in 2005 were instrumental in delivering
and European market shares in the medium-duty truck
improved performance across the company. Over 8,000
segment both exceeded 9 percent, as the company delivered
employees have been trained in Six Sigma and 5,200
a record 25,000 medium-duty trucks and tractors in 2005.
The capital goods and financial services industries
introduction of new Kenworth models and expansion of
were impacted in 2005 by the negative cost effect of
the DAF product range led to a 24 percent heavy-duty
rapidly escalating commodity prices, especially steel and
market share in 2005. Aftermarket parts sales delivered
4
oil, higher interest rates and two devastating hurricanes.
another year of record performance.
However, PACCAR’s excellent pricing stability and long-
PACCAR International, responsible for exporting trucks
term supplier partnerships enabled increased production
and parts to over 100 countries, had another record year
and profits to be realized, facilitated by the tremendous
due to strong sales in South Africa and Latin America.
team effort of the company’s purchasing, materials and
AFTERMARKET TRUCK PARTS — PACCAR Parts had
production personnel.
an excellent year in 2005 as it earned its 13th consecutive
Another highlight in 2005 was PACCAR’s product
year of record profits. With sales of nearly $1.7 billion,
quality, which continued to be recognized as the leader
the PACCAR Parts aftermarket business is the primary
in the industry. Kenworth, Peterbilt and DAF earned
source for replacement parts for PACCAR products, and
industry awards as quality leaders in the Class 6, 7 and
supplies parts for other truck brands to PACCAR’s dealer
8 markets.
networks in many regions of the world.
Other North American PACCAR truck plant
Over five million Class 8 trucks are operating in North
accomplishments include the completion of the company’s
America and Europe, and the average age of these
new Kenworth Mexico facility, installation of robotic cab
vehicles is estimated to be over six years. These trucks
paint systems in all factories and the attainment of record
create an excellent platform for future parts and service
production levels in five of six plants.
business provided by a growing number of Kenworth,
Almost 50 percent of PACCAR’s business is generated
Peterbilt and DAF service facilities.
outside the United States, and the company is realizing
PACCAR Parts continues to lead the industry with
excellent synergies globally in product development, sales
technology that offers competitive advantages at PACCAR
and finance activities and manufacturing. DAF Trucks
dealerships. Managed Dealer Inventory (MDI) is now
achieved record truck production, sales and profits, while
installed at over 800 PACCAR dealers worldwide. MDI
increasing its market share for the sixth consecutive year.
utilizes proprietary software technology to determine
DAF introduced its new XF105 and the PACCAR MX
parts-replenishment schedules. Significant investments
engine to excellent reviews.
were also made in Call Center technology to improve the
Leyland Trucks, the United Kingdom’s leading truck
customer experience with its 24-hour/365-day-a-year
manufacturer, completed significant facility restructuring,
roadside assistance centers. PACCAR Parts enhanced
such as installing an industry-first robotic chassis paint
its Connect program, a software application for fleet-
line, which increased capacity, improved quality and
maintenance management. The enhanced program is a
enhanced efficiency. Foden Trucks announced that it
Web-based application providing fleets the opportunity
would be retiring vehicle production in mid-2006, after
to better manage vehicle operating costs.
150 years of industry leadership.
FINANCIAL SERVICES — At year-end, the PACCAR
PACCAR Mexico (KENMEX) had another record
Financial Services (PFS) group of companies had
profit year as the Mexican economy grew and truck
operations covering three continents and 15 countries.
fleets were renewed. KENMEX recorded gains in plant
The global breadth of PFS has enabled the portfolio to
efficiencies as production reached an all-time high. The
grow to more than 144,000 trucks and trailers, with total
largest capital investment in KENMEX history doubled
assets exceeding $8.3 billion. PFS is the preferred funding
production capacity, consolidated support services and
source in North America for Peterbilt and Kenworth
built a new fabrication center.
trucks, financing 25 percent of dealer sales in 2005.
PACCAR Australia achieved excellent profit, sales and
PACCAR Financial Corp.’s (PFC) conservative business
market share in 2005, supported by the second-highest
approach, coupled with PACCAR’s strong S&P credit
production level in the company’s history. The
rating of AA- and complemented by the strength
of the dealer network, enabled PFC to earn a record
continually invest in all facets of its business, strengthening
profit in 2005. PFC recorded increased finance volume in
its competitive advantage. Other fundamental elements
2005 by offering a comprehensive array of finance, lease
contributing to the exciting prospects of this vibrant,
and insurance products. PFC enhanced its credit-analysis
dynamic company are geographic diversification, with
5
program, Online Transportation Information System
almost 50 percent of revenues generated outside the U.S.,
(OTIS), by extending the system to Canadian customers
modern manufacturing and parts-distribution facilities,
and dealers.
leading-edge and innovative information technology,
PACCAR Financial Europe (PFE) completed its fourth
conservative and comprehensive financial services,
year of operations and increased profits as it served DAF
enthusiastic employees and the best distribution networks
dealers in 11 Western European countries. PFE provides
in the industry.
wholesale and retail financing for DAF dealers and
As PACCAR enters its second century, the company
customers and finances almost 20 percent of DAF’s
and its employees are focused on strong, quality growth.
dealer sales.
The embedded principles of integrity, quality and
PACCAR Leasing (PacLease) earned its 12th consecutive
consistency of purpose continue to define the course in
year of record operating profits and placed in service
PACCAR’s daily operations. PACCAR has successfully
over 5,700 vehicles in 2005, a new record. The PacLease
evolved as a leader in several industries since its founding
fleet grew to 23,500 vehicles as 17 percent of the North
in 1905. The proven business strategy — delivering
American Class 6-8 market chose full-service leasing to
technologically advanced, premium products and an
satisfy their equipment needs. PacLease substantially
extensive array of tailored aftermarket customer services
strengthened its market presence in 2005, increasing
utilizing an independent global distribution channel —
the network to 245 outlets, and represents one of the
enables PACCAR to achieve strong earnings growth. The
largest full-service truck rental and leasing operations
strength of the business foundation provides a platform
in North America.
to examine growth opportunities in complementary
A LOOK AHEAD — PACCAR celebrated its Centennial
business segments worldwide. PACCAR is enhancing its
year by earning record financial results — the best year
stellar reputation as a leading technology company in the
in its 100-year history. PACCAR’s 22,000 employees
capital goods and finance businesses.
enabled the company to distinguish itself as a global
leader in the technology, capital goods, financial services
and aftermarket parts businesses. Superior product
quality, technological innovation and balanced global
diversification are three key operating characteristics that
define PACCAR’s business philosophy.
In North America, strong economic growth is driving
freight shipments and tonnage to record levels. These
market indicators should continue to have a positive
impact on the truck market in 2006. Euro zone GDP is
improving, which, in combination with a strong vehicle-
replacement cycle and the increased movement of goods
throughout the expanded European Union, is generating
increased demand for trucks. The company continues
to take aggressive steps to manage production rates and
M A R K C . P I G O T T
operating costs, consistent with its goal of achieving
profitable market share growth. PACCAR’s excellent
balance sheet ensures that the company is well positioned to
Chairman and Chief Executive Officer
Februar y 20, 2006
F I N A N C I A L C H A R T S
D A F T R U C K S
DAF vaulted to new sales, profit and production records in 2005, strengthening its
competitive position with strong market-share gains in the over 15 tonne and 6-15 tonne
7
segments. This outstanding achievement reflects the success of its new highly efficient,
captivating products and comprehensive customer support network.
DAF introduced a new flagship model, the XF105, to its comprehensive product range during 2005, reinforcing
its reputation as Europe’s commercial vehicle quality and resale-value leader. The XF105 presents a dazzling
exterior that complements the characteristic aerodynamic elements of the widely acclaimed XF95. The vehicle
offers a new interior and a completely restyled exterior, including a new upper and lower grille and a newly
designed steel front bumper. It also features optional xenon headlights with clear Lexan glass, cat-eye combi-
lights in the bumper and unique integrated spotlights in the Super Space Cab roof.
Inside, the XF105 sets best-of-class standards in ergonomics, productivity and comfort — enhancing DAF’s
industry-leading position for luxury that has long been defined by its cab interiors. From the stylish new door
panels to the high-tech instrument panel and dashboard layout to the sumptuous sleeping compartment,
uncompromising quality is the vehicle’s hallmark.
The XF105 is powered by the new PACCAR MX engine,
also introduced this year, with power outputs of 410 hp,
460 hp and 510 hp. An innovative new chassis layout
repositions air tanks and other components inside frame
rails to maximize fuel tank capacity.
DAF unveiled a tractor unit variant of its CF85 series that
offers an ultra-low fifth-wheel setting for customers who want to maximize payload in large-volume transport
applications. Trailers with an interior height of three meters can haul more volume per journey — up to 100
cubic meters — while remaining within Europe’s legal maximum height of four meters and maximum trailer
length of 13.65 meters.
The highly successful Leyland-built CF65 distribution truck has earned a reputation for class-leading payloads.
The new CF65 delivers a payload of almost 13.5 tonnes at 19 tonnes GVW. By making use of the innovative
chassis frame and design attributes of the LF55 series, the chassis weight of the CF65 has been further enhanced
to increase customer profit potential.
DAF continued to strengthen its extensive distribution network of over 1,000 dealer and service points and is
completing construction of its new full-service dealership in Frankfurt, Germany. DAF has more than doubled
its market share in Germany — Europe’s largest truck market — since 1996.
DAF constructed a new engine machining factory and substantially upgraded its manufacturing facilities in
Eindhoven and Westerlo.
Capitalizing on market momentum, DAF unveiled a new flagship model: the XF105.
From its striking exterior to its luxurious interior appointments, the XF105 presents new
benchmarks in reliability, operating efficiency and driver comfort for long-haul operators.
F I N A N C I A L C H A R T S
P E T E R B I L T M O T O R S C O M P A N Y
Peterbilt sales of both heavy- and medium-duty trucks set new company standards in
2005. Outstanding product quality, superior vehicle resale value and innovative styling
9
continue to reflect Peterbilt’s well-deserved reputation as the “Class” of the industry.
In one of the most significant new product introductions in the company’s history, Peterbilt unveiled its
2006 lineup of Class 8 conventional trucks and tractors: Models 379, 386, 385, 378 and 357. All the vehicles
incorporate new technologies that improve performance, reliability and serviceability, and redesigned operating
environments that optimize driver productivity, ergonomics and comfort.
The new lineup of trucks offers best-in-class cab interiors with unparalleled fit and finish and driver amenities
that rival luxury automotive quality. Three new interior trim levels meet a full range of market requirements.
State-of-the-art multiplexed instrumentation enhances reliability and enables efficient analysis by technicians via
PACCAR’s new wireless Electronic Service Analyst (ESA) tool. Restyled driver- and passenger-side doors improve
ground visibility by 17 percent, enhancing the driver’s field of vision. A new heating and air conditioning
(HVAC) system boosts airflow by 20 percent and delivers precise climate control throughout the vehicle.
The sleek new aerodynamic Model 386, with a full range of detachable
sleepers, expands Peterbilt’s offering of premium aerodynamic trucks
— complementing the Model 387, with its spacious, integrated
sleeper — and provides customers with fuel-efficient operation
in all applications. The new vehicle design features a contoured
sunvisor, side chassis fairings, dramatically sloped hood, integrated
headlamps, swept-back fender design and form-fitted bumper —
elements that together improve aerodynamic efficiency by 10 percent.
Peterbilt expanded its market share in vocational and construction industries. The Model 357 offers over
300 new options designed specifically for construction, gravel and off-road applications.
Peterbilt’s Denton, Texas, manufacturing facility celebrated its 25th anniversary in 2005 and became the first
North American truck plant to install advanced, fully integrated robotic cells to weld aluminum fuel tanks.
The Peterbilt dealer network reached a record level with 220 locations throughout the U.S. and Canada.
Peterbilt’s TruckCare services program also expanded, serving more customers with complimentary roadside
assistance and service scheduling, TruckCare Services Cards and QuickCare preventive maintenance. Peterbilt’s
TruckCare Maintenance Manager updates service bulletins electronically and provides a reminder for vehicles
within 1,000 miles of factory-recommended routine service intervals.
Peterbilt’s sleek new aerodynamic Model 386 debuted in 2005, offering customers
another premium choice for improved fuel economy, increased productivity,
optimum serviceability, greater resale value and industry-leading ergonomics.
F I N A N C I A L C H A R T S
K E N W O R T H T R U C K C O M P A N Y
Kenworth performed superbly in 2005 by earning five J.D. Power and Associates Awards
in Customer Satisfaction for its Class 8 and Class 7 vehicles and outstanding dealer
11
service.* “The World’s Best” introduced many new product designs and achieved
record profits, sales and production.
Kenworth sales of Class 8 and Class 6/7 vehicles increased to record levels in 2005, reflecting enhanced product
functionality, excellent operating efficiency and strong driver preference for the complete range of vehicles.
Two significant production milestones were celebrated by Kenworth in 2005. Kenworth marked the
production of its 700,000th truck in its 61-year history, and recognized the Chillicothe, Ohio, plant’s production
of its 250,000th truck since the plant’s opening in 1974.
Kenworth demonstrated its leadership in technology and innovation with the
introduction of its new Class 8 models. A new cab interior with world-class
automotive quality, multiplexed electronic instrumentation and increased driver
comfort enhances the productive Kenworth experience on and off highway.
The state-of-the-art instrument panel significantly enhances reliability
and functionality. Servicing has also become easier with the newly launched
Electronic Service Analyst (ESA), a wireless, computer-based diagnostics tool that
helps technicians quickly and efficiently verify instrument functions.
New options introduced on select Kenworth models include a factory-installed
collision-avoidance system, electronic vehicle-stability control, a keyless-entry
security system and adaptive cruise control.
Kenworth made significant capital investments in its factories, adding robotic
base-coat and clear-coat paint at the Chillicothe, Ohio, plant for enhanced quality
and productivity. More than 1,600 computers and tablet PCs are in service at Kenworth manufacturing facilities,
making each plant a wireless network able to access data in real time. Kenworth added Class 8 production to its
medium-duty vehicle assembly facility in Ste. Thérèse, Quebec.
Kenworth’s Six Sigma tools compressed the time required to design and introduce new products, improved
production efficiency and capacity, and generated numerous quality enhancements.
Heavy Duty Trucking magazine selected Kenworth’s factory-installed exhaust system that recirculates heat into
dump truck bodies in cold climates as one of its Nifty Fifty best new product introductions of the year. RoadStar
magazine honored Kenworth’s eCommerce effort in merchandising with its Most Valuable Product (MVP) award.
The strong Kenworth dealer network operates 284 locations in the U.S. and Canada. Kenworth’s PremierCare®
program expanded in 2005, serving more customers with roadside assistance, preventive maintenance, express
services, fleet card and electronic parts inventory management.
Kenworth’s reputation for manufacturing premium-quality trucks that satisfy both owners and
drivers is reflected in the many coveted industry awards the company has earned in the last few
years. This T800, popular with fleets and owner/operators alike, combines an extraordinarily durable,
lightweight chassis design with advanced truck technologies to minimize operating expenses.
* “Highest in Customer Satisfaction with Heavy-Duty Truck Dealer Service,” “Highest in Customer Satisfaction among Pickup & Delivery Segment Class 8 Trucks” and “Highest in
Customer Satisfaction among Over the Road Segment Class 8 Trucks.” J.D. Power and Associates 2005 U.S. Heavy-Duty Truck Customer Satisfaction StudySM. “Highest in Customer
Satisfaction among Conventional Medium-Duty Trucks” and “Highest in Customer Satisfaction with Medium-Duty Truck Dealer Service.” J.D. Power and Associates 2005 Medium-
Duty Truck Customer Satisfaction StudySM. www.jdpower.com
P A C C A R A U S T R A L I A
PACCAR Australia dominated the Australian heavy-duty truck market again in 2005,
12
with excellent profits, sales, market share and production. Kenworth defines trucking
in Australia, delivering custom-built quality with superior reliability.
PACCAR Australia, the continent’s leading producer of a complete range of commercial vehicles, strengthened
its position in the high-horsepower segment with more than 61 percent of the market in 2005. Kenworth posted
strong gains in sales to vocational applications, where its new products — such as the T604 — have proven to
deliver significant productivity enhancements.
PACCAR Australia reached an important milestone in 2005, delivering its 30,000th Kenworth truck since it
began production in 1971. The T650 livestock hauler, rated at 140 tonnes GCM and configured as a triple road
train, will operate in some of the roughest environments in Australia.
In 2005, PACCAR Australia introduced the T350 Agitator, a lightweight yet heavy-duty cement mixer model
that provides a half tonne more payload than competitive trucks. An agile and versatile performer, the T350 offers
all the maintenance advantages of a conventional plus the maneuverability and visibility of a cab-over — ideal for
negotiating metropolitan streets and construction sites.
PACCAR Australia unveiled the Kenworth T350 Agitator in 2005, a cement mixer capable of carrying an extra half tonne of
payload per trip compared to competitive vehicles — an immediate productivity gain and significant cost benefit over the
life of the truck.
P A C C A R M E X I C O
PACCAR Mexico (KENMEX) enhanced its leadership in the competitive Mexican market
— accounting for more than 53 percent of heavy-duty tractor sales — and extended a
13
tradition that has made Kenworth the most revered nameplate for over 45 years.
KENMEX set new records for sales, profits and production levels in 2005, strengthening its positions in
over-the-road and medium-duty markets. KENMEX also set new standards for driver comfort when it unveiled
Kenworth’s exciting world-class interior enhancements for its T600, T800, T2000 and W900 Class 8 models.
Kenworth’s new Class 6/7 KW45 and KW55 — based on the versatile DAF LF series — are becoming
increasingly popular in metropolitan delivery applications, where their excellent maneuverability, visibility and
ergonomics offer significant productivity advantages.
KENMEX completed the largest capital investment program in its history with a $70 million expansion of
its truck factory. The state-of-the-art production facility doubles in size to 508,000 square feet and incorporates
leading manufacturing technology — including paint robotics and production-line information systems — to
increase assembly capacity by 50 percent. KENMEX also increased the country’s most extensive parts and service
network to 102 dealer facilities nationwide.
This medium-duty Kenworth KW45 serves Mexico’s extensive in-city delivery requirements, offering excellent
maneuverability, visibility and ergonomic design.
L E Y L A N D T R U C K S
Leyland, the United Kingdom’s leading truck manufacturer, delivered a record 17,000
14
vehicles to customers throughout Europe in 2005. The innovative application of industry-
leading technology helped Leyland substantially increase production capacity.
Leyland produces a highly complex mix of vehicles in its state-of-the-art manufacturing plant, delivering a
range of DAF and Foden trucks. In 2005, Leyland expanded production capacity considerably with the addition
of a remarkable new robotic chassis paint facility — a world first in the commercial vehicle industry. Engineers
employed a detailed visioneering model to optimize and speed installation of the groundbreaking project.
Leyland worked with other PACCAR divisions worldwide to develop a patent-pending software program that
enables the robotic spraying process to handle an enormous variety of truck configurations.
Leyland has earned much industry recognition over the years for the high quality, efficiency and safety
standards achieved at its world-class 607,000-square-foot manufacturing facility. In 2005, Leyland was presented
with the President’s Prize by the Royal Society for the Prevention of Accidents (RoSPA) in recognition for
earning RoSPA’s Gold Award ten years in a row.
A world first in the commercial vehicle industry, Leyland added an innovative new robotic chassis paint facility in 2005 that helped
boost capacity and achieve record production levels for DAF and Foden trucks.
P A C C A R I N T E R N A T I O N A L
PACCAR International, a leader in delivering Kenworth, Peterbilt and DAF trucks to
customers worldwide, posted record sales and profits during 2005. A buoyant global
15
economy increased demand for premium-quality PACCAR vehicles.
Worldwide demand for PACCAR’s custom-built transportation solutions continued to grow in 2005.
PACCAR International delivered its 1,000th locally assembled DAF unit to South Africa, a market recognizing
the benefits of PACCAR’s vehicle reliability. Latin America’s economic recovery spurred growth in sales for on-
highway, vocational and medium-duty trucks. Customers in Colombia purchased record numbers of Kenworth
trucks in 2005.
Higher oil prices energized the oilfield servicing industry and resulted in greater truck demand. PACCAR
off-highway products such as the Kenworth Super 953 and the Kenworth C500 delivered excellent performance
in rugged and remote locales while serving the logging and mining markets.
PACCAR International strengthened its market presence in 2005, expanding its dealer network in China,
Taiwan, and Central and South America. Customers in over 100 countries benefit from the durability and
reliability of PACCAR trucks and on-time delivery of parts and service.
PACCAR International serves customers worldwide, merging PACCAR’s manufacturing expertise with the
specialized knowledge of its global dealer network to solve transportation challenges. This huge Kenworth
C540, destined for Middle East oilfields, reflects decades of successful experience serving remote locations.
A F T E R M A R K E T T R U C K P A R T S
PACCAR Parts achieved record sales and profits for the 13th consecutive year in 2005,
16
substantially increasing business in every market worldwide. The results included a
strong demand for the comprehensive PACCAR-branded aftermarket product line.
PACCAR Parts celebrated its best year in 2005, shipping 11.2 million order lines throughout the world for
all makes of trucks. Innovative efforts in marketing, sales, customer service and information technology
contributed to a surge in sales. PACCAR Parts U.K. assumed distribution of Leyland parts from a third-party
distributor in 2005, and a new 72,000-square-foot facility at Leyland was completed to meet increased customer
demand for DAF parts in the European market.
Popular PACCAR branded All-Makes parts lines — such as INLINE, DYNACRAFT, MIRREX and ROADLEVELER,
which include brakes, accessories, fenders, batteries and air and electrical components — expanded in 2005 and
posted dramatic volume increases. PACCAR Parts also introduced an extension of its popular Connect program
called WebConnect, a comprehensive vehicle-maintenance and parts-inventory system for small fleets.
The superlative PACCAR Customer Call Centers offer 24/7 roadside support to truck drivers throughout
North America and Europe, managing 1.7 million telephone calls annually.
PACCAR Parts employs industry-leading technologies to heighten competitive advantage throughout its distribution system. Preventive
Maintenance Automation, for example, enables dealership technicians to streamline maintenance inspections, customer communication
and payment processing.
P A C C A R W I N C H
PACCAR Winch Division is the premier full-line producer of industrial winches in the
world. Robust global demand for products in every segment propelled PACCAR Winch
17
to new records in sales, profits and market share in 2005.
Braden recovery winches, hoists and drives, Gearmatic planetary hoists and Carco tractor winches are renowned
for their engineering excellence, dependability and precise handling characteristics in challenging environments.
The Winch Division reinforced its industry-leading reputation for innovation by introducing Electronic
Winch Monitoring (EWM), a patent-pending new technology that electronically senses winch performance
and automatically applies an auxiliary brake to assist in stopping the load in emergencies. Another industry
first, the Electronic Maintenance Module (EMM), detects the direction of winch rotation, remaining wire rope
capacity, load and speed and electronically logs critical operating history for improved maintenance.
PACCAR Winch expanded its extensive product line in 2005, introducing the BA series of air-driven winch
models engineered specifically to suit oil and gas drilling and mining industries. The division also unveiled
a series of compact winches featuring higher line pull, superior quality and longevity for the growing service
body crane market.
PACCAR Winch launched a new line of air-driven winches specifically engineered for offshore oil and gas markets. Each model
features an internal multi-disc brake and an overrunning clutch for superior load control.
P A C C A R F I N A N C I A L S E R V I C E S
PACCAR Financial Services Companies (PFS), which support the sale of PACCAR trucks
18
worldwide, achieved record income in 2005. PFS portfolios are comprised of more than
144,000 trucks and trailers, with total assets surpassing $8.3 billion.
PACCAR Financial Corp. (PFC), the preferred source of financing for Kenworth and Peterbilt trucks in North
America, set new records for finance volume in 2005. PFC’s innovative financial and insurance products
generated increased demand in all market segments.
Six Sigma driven process and technology investments enabled PFC to reduce credit application processing
time by 50 percent. An updated pre-owned equipment Web site, the introduction of tablet PCs for field sales
teams and new capabilities for PFC’s Web-based Online Transportation Information System (OTIS) dramatically
improved loan-processing efficiency and responsiveness. PFC introduced Retail Manager, an initiative designed
to streamline service to owner-operators.
PACCAR Financial Europe (PFE) achieved a record $1.85 billion in assets in 2005, and provides financial
services to DAF dealers and customers in 11 Western European countries. PFE is the market-share leader in
financing DAF products in Europe.
PACCAR Financial Services Companies facilitate the sale of PACCAR products throughout the world, utilizing
information technology in innovative ways to streamline credit processing and communication for customers
and dealers.
P A C C A R L E A S I N G C O M P A N Y
Celebrating its 25th anniversary, PACCAR Leasing achieved record profits for the
12th consecutive year in 2005 and delivered a record number of new Kenworth and
19
Peterbilt trucks throughout its North American network. The PacLease fleet contains
23,500 units — including 1,900 leased vehicles serving Mexico.
PacLease, one of the largest full-service truck rental and leasing networks in North America, provides customers
with complete and reliable daily transportation solutions. In 2005, PacLease inaugurated a new full-service lease
program geared to the exacting requirements of vocational operators, a growing segment of the lease industry.
During 2005, more than 17 percent of all Class 6, 7 and 8 vehicles manufactured were delivered to the
full-service leasing industry. Driver and technician shortages, rising fuel costs and sophisticated maintenance
requirements for truck systems have created a flourishing market for outsourced transport services such as leasing.
PACCAR Leasing offers significant competitive advantages: custom-built, premium-quality PACCAR trucks
with exceptional residual value, low operating expenses, an expansive network of 245 responsive franchises and
company locations, and a full spectrum of value-added transportation services.
PACCAR Leasing expanded its fleet by 20 percent in 2005 and increased its share of the medium-duty market with a
greater number of premium-quality Class 6-7 trucks, such as this popular Peterbilt Model 335.
P A C C A R T E C H N I C A L C E N T E R S
PACCAR Technical Centers in Europe and North America ensure that new product
20
designs perform to PACCAR’s rigorous quality standards. Increasing use of advanced
simulation techniques and sophisticated information technology systems has leveraged
worldwide engineering resources.
PACCAR Technical Centers are world-class facilities with state-of-the-art product test and validation capabilities.
At the U.S. Technical Center, engineers use high-speed computing clusters to model, test and validate designs
up to 10 times faster than with previous methods. The new Electronics Integration Center uses hardware-in-the-
loop technology to simulate and validate next-generation electronics systems in a laboratory environment. The
engine test laboratory simulates the demanding performance required in a million-mile powertrain.
In Europe, PACCAR’s Technical Center was instrumental in the development, testing and field validation
phases of DAF’s new XF105 model and low-deck CF85 tractor and the PACCAR MX engine. DAF opened its
new 8,000-square-meter semi-anechoic chamber, unique in the truck manufacturing industry, to evaluate vehicle
sound compliance.
PACCAR Technical Centers, in the Netherlands and in Washington State, employ highly sophisticated engineering analysis, simulation
and rapid prototyping technologies to accelerate the development of world-class components and designs.
I N F O R M A T I O N T E C H N O L O G Y D I V I S I O N
PACCAR’S Information Technology Division (ITD) is an industry leader in the innovative
application of software and hardware technology. ITD provides PACCAR a competitive
21
advantage at every stage of the product life cycle, including R&D, sales, manufacturing,
financial services and aftermarket support.
PACCAR earned the top position in InformationWeek magazine’s ranking of companies in the automotive
sector during 2005 for the use of information technology. Kenworth and Peterbilt launched product enhancements
that include advanced vehicle electronics and networked dashboard instrumentation developed by ITD. The
Electronic Service Analyst (ESA), a new wireless tool for North American factories, dealers and call centers to
enhance vehicle programming and diagnostics, also was designed by the Information Technology Division.
In 2005, ITD’s 700 employees’ expertise in software and hardware development contributed to achieving record
results for many PACCAR divisions. An updated Manufacturing Execution System (MES), for example, includes
enhancements that enable PACCAR’s production facilities to electronically track each vehicle chassis location,
monitor quality check status and interface with material and engineering personnel on design and parts queries.
Utilizing the ITD-developed PACCAR Transportation System, planners at PACCAR’s new state-of-the-art Logistics Center manage the
movement of inbound freight traffic to PACCAR factories and parts distribution centers throughout North America.
F I N A N C I A L C H A R T S
F I N A N C I A L C H A R T S
22
EARNINGS & DIVIDENDS PER SHARE
U.S. AND CANADA CLASS 8 TRUCK MARKET SHARE
dollars
(cid:23)(cid:14)(cid:16)(cid:16)
(cid:19)(cid:16)(cid:16)
retail sales
(cid:21)(cid:14)(cid:22)(cid:16)
(cid:18)(cid:20)(cid:16)
(cid:20)(cid:14)(cid:18)(cid:16)
(cid:17)(cid:24)(cid:16)
(cid:18)(cid:14)(cid:24)(cid:16)
(cid:17)(cid:18)(cid:16)
(cid:17)(cid:14)(cid:20)(cid:16)
(cid:16)(cid:14)(cid:16)(cid:16)
(cid:22)(cid:16)
(cid:16)
(cid:21)(cid:16)(cid:5)
(cid:20)(cid:16)(cid:5)
(cid:19)(cid:16)(cid:5)
(cid:18)(cid:16)(cid:5)
(cid:17)(cid:16)(cid:5)
(cid:16)(cid:5)
(cid:25)(cid:22)
(cid:25)(cid:23)
(cid:25)(cid:24)
(cid:25)(cid:25)
(cid:16)(cid:16)
(cid:16)(cid:17)
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:16)(cid:20)
(cid:16)(cid:21)
(cid:25)(cid:22)
(cid:25)(cid:23)
(cid:25)(cid:24)
(cid:25)(cid:25)
(cid:16)(cid:16)
(cid:16)(cid:17)
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:16)(cid:20)
(cid:16)(cid:21)
■ Diluted Earnings per Share
■ Dividends per Share
■ Total U.S. and Canada Class 8 Units
excluding PACCAR (in thousands)
■ PACCAR Units (in thousands)
PACCAR Market Share (percent)
T O TA L A S S E T S
billions of dollars
GEOGRAPHIC REVENUE
billions of dollars
(cid:17)(cid:21)
(cid:17)(cid:18)
(cid:25)
(cid:22)
(cid:19)
(cid:16)
(cid:17)(cid:21)
(cid:17)(cid:18)
(cid:25)
(cid:22)
(cid:19)
(cid:16)
(cid:25)(cid:22)
(cid:25)(cid:23)
(cid:25)(cid:24)
(cid:25)(cid:25)
(cid:16)(cid:16)
(cid:16)(cid:17)
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:16)(cid:20)
(cid:16)(cid:21)
(cid:25)(cid:22)
(cid:25)(cid:23)
(cid:25)(cid:24)
(cid:25)(cid:25)
(cid:16)(cid:16)
(cid:16)(cid:17)
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:16)(cid:20)
(cid:16)(cid:21)
■ Truck and Other
■ Financial Services
■ United States
■ Outside U.S.
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
(tables in millions, except truck unit and per share data)
R E S U LT S O F O P E R AT I O N S :
Selling, general and administrative (SG&A) expense
23
2005
2004
2003
Net sales and revenues:
Truck and
Other
Financial
Services
$13,298.4
759.0
$14,057.4
$10,833.7
$7,721.1
562.6
$11,396.3
473.8
$8,194.9
Income before taxes:
Truck and
Other
Financial
Services
Investment
Income
Income taxes
Net Income
Diluted earnings
per share
$ 1,516.8
$ 1,139.9
$ 640.6
199.9
168.4
123.6
56.9
(640.4)
$ 1,133.2
59.9
(461.4)
$ 906.8
41.3
(279.0)
$ 526.5
$ 6.56
$ 5.16 $ 2.99
Overview:
PACCAR is a multinational company whose principal
businesses include the design, manufacture and
distribu tion of high-quality, light-, medium- and
heavy-duty commercial trucks and related aftermarket
parts and the financing and leasing of its trucks and
related equipment. The Company also manufactures
and markets industrial winches.
Consolidated net sales and revenue increased
23% to a record $14.06 billion from $11.40 billion in
2004 due to strong global demand for the Company’s
high-quality trucks, aftermarket parts and financial
services. Financial Services revenues increased 35%
to $759.0 million in 2005.
PACCAR achieved record net income in 2005 of
$1,133.2 million ($6.56 per diluted share), which was
an increase of 25% over 2004 net income of $906.8
million ($5.16 per diluted share). Excellent results
were achieved in the Truck and Other businesses due
to the strong revenue growth, increased margins and
continued cost control. Financial Services income
before taxes increased 19% to a record $199.9 million
compared to $168.4 million in 2004 as a result of
robust asset growth, low credit losses and excellent
finance margins.
for Truck and Other increased to $429.9 million in
2005 compared to $390.4 million in 2004. SG&A
increased to support higher production levels,
expanded sales initiatives and technology invest-
ments. However, as a percent of revenues, SG&A
expense decreased to a record low of 3.2% in 2005
from 3.6% in 2004 as the Company benefited from
Six Sigma initiatives and process improvements
driven by technology investments.
Investment income of $56.9 million in 2005
compares to $59.9 million in 2004, which included
a one-time gain of $14.1 million from the sale of
equity securities. Excluding the gain in 2004, invest-
ment income was higher in 2005 due to higher
average interest rates earned on cash and marketable
debt securities.
The 2005 income tax provision includes a one-
time charge of $64.0 million ($.37 per share) related
to repatriation of $1.5 billion of foreign earnings.
Excluding the tax charge on repatriated earnings, the
effective rate was 32.5% in 2005 compared to 33.7%
in 2004. The lower effective tax rate in 2005 was
primarily due to lower tax rates in the Netherlands
and Mexico.
The Company’s return on revenues was a record
8.1% (8.5% excluding the one-time tax charge)
compared to 8.0% in 2004.
Truck
PACCAR’s truck segment, which includes the
manufac ture and distribution of trucks and related
aftermarket parts, accounted for 94% of revenues in
2005 and 2004 and 93% of revenues in 2003. In North
America, trucks are sold under the Kenworth and
Peterbilt nameplates and, in Europe, under the DAF
nameplate.
2005
2004
2003
Truck net sales
and revenues
$13,196.1
$10,762.3
$7,661.2
Truck income
before taxes
$ 1,520.2
$ 1,145.0
$ 655.4
PACCAR Inc and Subsidiaries
24
The Company achieved record new truck deliveries
in 2005, summarized as follows:
United States
Canada
U.S. and Canada
Europe
Mexico, Australia
and other
Total units
2005
71,900
10,900
82,800
52,200
2004
59,200
9,100
68,300
45,300
13,500
148,500
10,500
124,100
2003
39,000
6,600
45,600
38,600
8,800
93,000
2005 Compared to 2004:
PACCAR’s worldwide truck sales and revenues
increased 23% to $13.20 billion in 2005 due to
continued high demand for the Company’s trucks
and related aftermarket parts around the world.
Truck income before taxes was $1.52 billion
compared to $1.14 billion in 2004. The increase from
the prior year is due to higher production rates,
growing aftermarket part sales and improved truck
margins. The impact of exchange rate movements was
not significant to either revenues or profit in 2005.
Peterbilt and Kenworth delivered 82,800 medium
and heavy trucks in the U.S. and Canada during
2005, an increase of 21% over 2004 with heavy-duty
(Class 8) deliveries up 23% and medium-duty (Class 6
and 7) deliveries up 12%. The increased deliveries
reflect overall market growth. The Class 8 market
increased to 287,500 units in 2005 from 233,000 in
2004. The medium-duty market increased 5% to
100,700 units.
New truck deliveries in Europe increased 15% to
a record 52,200 units. The 15 tonne and above truck
market improved to a record 259,000 units, a 9%
increase from 2004 levels. PACCAR’s DAF truck
brand increased its share of the 15 tonne and above
market for the sixth year in a row. DAF market share
in the 6 to 15 tonne market also increased. Truck and
parts sales in Europe represented 31% of PACCAR’s
total truck segment net sales and revenues in 2005,
compared to 34% in 2004.
Truck unit deliveries in Mexico, Australia and other
countries outside the Company’s primary markets
increased 29%. Deliveries outside the primary markets
to customers in Africa, Asia and South America are
sold through PACCAR International, the Company’s
international sales division. Combined truck and
parts sales in these markets accounted for 10% of
total truck segment sales and 11% of truck segment
profit in 2005.
PACCAR’s worldwide aftermarket parts revenues
were $1.68 billion, an increase of 15% compared
to $1.46 billion in 2004. Parts operations in North
America and Europe benefited from a growing truck
population and the further integration of PACCAR
technology with dealer business systems to improve
responsiveness to customer needs.
Truck segment gross margin as a percentage of
net sales and revenues improved to 14.5% in 2005
from 14.3% in 2004 as a result of higher operating
efficiencies and strong demand for the Company’s
products. Higher material costs from suppliers due
to increases in steel, aluminum, crude oil and other
commodities have generally been reflected in new
truck sales prices.
25
Truck Outlook
Demand for heavy-duty trucks in the U.S. and Canada
is currently forecasted to increase approximately 5%
in 2006, with industry retail sales expected to be
290,000–310,000 trucks. European heavy-duty regis-
trations for 2006 are projected to be similar to 2005
at 245,000–265,000 units. Both markets will be
affected by engine emissions regulations. In Europe,
effective October 1, 2006, all new truck registrations
will be required to comply with Euro 4 emissions
standards. In the U.S., effective January 1, 2007, all
new diesel engines manufactured will be required to
comply with EPA 2007 engine emissions standards.
In both markets, conversion to the new engine
emissions standards will increase the end user vehicle
cost. Customers may adopt strategies to mitigate the
cost impact by accelerating purchases of trucks before
the new standards take effect. This could result in a
“pull forward” of vehicle sales in Europe in the first
three quarters of 2006 and in the U.S. prior to the
January 1, 2007 deadline.
2004 Compared to 2003:
PACCAR’s worldwide truck sales and revenues
increased $3.10 billion to $10.76 billion in 2004 pri-
marily due to higher demand for heavy-duty trucks
in all of the Company’s primary markets and a
$330.3 million increase due to the weaker U.S. dollar.
Truck income before taxes was $1.14 billion com-
pared to $655.4 million in 2003. The increase from
the prior year was the result of higher production
rates, aftermarket parts sales volume and truck mar-
gins, as well as a $52.9 million favorable impact of
the weaker U.S. dollar.
New trucks delivered in the U.S. and Canada
were 68,300, an increase of 50% from 2003. Industry
retail sales of new Class 8 trucks in the U.S. and
Canada totaled 233,000 units in 2004, an increase
of 42% from the 2003 level of 164,000. Kenworth and
Peterbilt improved their share of the U.S. and Canada
Class 6 and 7 truck market in 2004, contributing to
the increased deliveries.
In 2004, new trucks delivered in Europe totaled
45,300 units, an increase of 17%. The European 15
tonne and above truck market improved by 20,000
to 238,000 units. DAF Trucks increased its share of
both the European heavy-duty (above 15 tonne)
market and the 6 to 15 tonne market. Sales in Europe
repre sented approximately 34% of PACCAR’s total
truck segment net sales and revenue in 2004,
compared to 35% in 2003.
Truck unit deliveries in Mexico, Australia and
other countries increased 19%, primarily due to
larger markets in Mexico and Australia. Combined
results in these countries were 10% of total truck
segment sales and 14% of profit in 2004.
PACCAR’s worldwide aftermarket parts revenues
of $1.46 billion increased in 2004 compared to 2003
due to a larger truck population and improved
market penetration.
In November 2004, PACCAR concluded an early
termination agreement with the RAC plc regarding
the distribution of Leyland aftermarket parts to
DAF dealers and customers in the United Kingdom.
PACCAR’s 2004 truck segment results include a
$33.3 million pretax charge for costs associated
with the agreement.
PACCAR Inc and Subsidiaries
26
Financial Services
The Financial Services segment, which includes
wholly owned subsidiaries in North America, Europe
and Australia, derives its earnings primarily from
financing or leasing PACCAR products.
Financial Services:
Average earning
assets
Revenues
Income before
taxes
2005
2004
2003
$7,389.0
759.0
$5,945.0
562.6
$5,139.0
473.8
199.9
168.4
123.6
2005 Compared to 2004:
PACCAR Financial Services (PFS) revenues increased
35% to $759.0 million due to higher earning assets
worldwide and, to a lesser extent, higher interest
rates in the U.S. New business volume was $3.73
billion, up 20% from 2004 on higher truck sales
levels and strong market share. PFS provided loan
and lease financing for over 27% of PACCAR new
trucks delivered in 2005.
Income before taxes increased 19% to a record
$199.9 million from $168.4 million in 2004. This
improvement was primarily due to higher finance
margins, partly offset by a higher provision for losses
on receivables related to growing earning asset bal-
ances. The increase in finance margins was due to
higher earning asset levels and higher yield rates on
assets, offset partly by a higher cost of funds. Net
portfolio charge-offs were $19.3 million compared
to $12.2 million in 2004 and represented .26% and
.21% of average earning assets, respectively. At
December 31, 2005, the earning asset portfolio was
performing well with the percentage of accounts
30+ days past due at 1.2% compared to 1.1% at the
end of 2004.
2004 Compared to 2003:
Financial Services revenues increased 19% to $562.6
million in 2004 compared to the prior year due to
higher asset levels in the Company’s primary operat-
ing markets. New business volume was $3.12 billion,
up 38%, reflect ing higher truck sales and improved
leasing market share.
Income before taxes increased 36% to $168.4
million in 2004 compared to $123.6 million in 2003.
The improvement was primarily due to higher finance
margins and lower credit losses. Credit losses for
the Financial Services segment were $12.2 million in
2004, compared to $24.2 million in 2003. The lower
credit losses reflect fewer truck repossessions and
higher used truck prices. The increase in finance
margins was due to higher earning assets and a lower
cost of funds, partially offset by a lower interest yield
on assets.
Financial Services Outlook
The outlook for the Financial Services segment is
principally dependent on the generation of new
business volume and the related spread between the
asset yields and the borrowing costs on new business,
as well as the level of credit losses experienced. Asset
growth is likely in North America and Europe, con-
sistent with the anticipated strong truck markets.
The segment continues to be exposed to the risk that
economic weakness, as well as higher interest rates
and fuel and insurance costs, could exert pressure on
the profit margins of truck operators and result in
higher past-due accounts and repossessions.
Other Business
Included in Truck and Other is the Company’s
winch manufacturing business. Sales from this
business represent less than 1% of net sales for
2005, 2004 and 2003.
L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S :
Cash and cash
equivalents
Marketable debt
securities
2005
2004
2003
$1,698.9
$1,614.7
$1,347.0
591.4
$2,290.3
604.8
$2,219.5
377.1
$1,724.1
The Company’s total cash and marketable debt
securities increased $70.8 million in 2005. Cash
provided by operations of $986.8 million was used
primarily to pay dividends of $496.9 million, make
capital additions totaling $300.4 million and repur-
chase PACCAR stock for $367.2 million. Cash required
to originate new loans and leases was funded by
repayments of existing loans and leases as well as
Financial Services borrowings.
The Company has line of credit arrangements
of $1.70 billion. The unused portion of these credit
lines was $1.62 billion at December 31, 2005 and is
primarily maintained to provide backup liquidity
for commercial paper borrowings of the financial
services companies. Included in these arrangements
is a $1.5 billion bank facility, of which $.5 billion
matures in 2006 and $1.0 billion matures in 2010.
The Company’s strong liquidity position and
AA- investment grade credit rating continue to
provide financial stability and access to capital
markets at competitive interest rates.
Truck and Other
The Company provides funding for working capital,
capital expenditures, research and development,
dividends and other business initiatives and commit-
ments primarily from cash provided by operations.
Management expects this method of funding to
continue in the future.
Long-term debt and commercial paper were $28.8
million as of December 31, 2005.
27
Expenditures for property, plant and equipment in
2005 totaled $299 million compared to $231 million
in 2004. Major capital projects included a new engine
factory at DAF to manufacture the new Euro 4/5
compliant PACCAR MX 12.9 liter engine for the
European market and a significantly expanded
Kenworth truck factory in Mexico. In addition, the
Company invested in robotics and other quality-
enhancing innovations in all of its truck factories.
Over the last five years, the Company’s worldwide
capital spending totaled $800 million.
Spending for capital investments in 2006, including
new product development, is expected to increase
from 2005 levels. PACCAR is investing in state-of-
the-art tech nology to improve product design and
quality, increase capacity, achieve efficiencies in
business processes and enhance the distribution
network, as well as develop new manufacturing
tooling to support product development plans.
As previously announced, during the second
quarter of 2005, PACCAR’s Board of Directors
authorized the Company to repatriate $1.5 billion
of foreign earnings under the provisions of The
American Jobs Creation Act. This repatriation was
completed by the end of 2005. In accordance with
FASB Staff Position No. 109-2, Accounting and
Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs
Creation Act of 2004, a provision of $64.0 million
for the repatriation of foreign earnings was recorded
as income tax expense in the second quarter of 2005.
U.S. income taxes are not provided on any remaining
undistributed earnings of the Company’s foreign
subsidiaries because of the intent to reinvest these
earnings indefinitely.
PACCAR Inc and Subsidiaries
28
Financial Services
The Company funds its financial services activities
primarily from collections on existing finance
receivables and borrowings in the capital markets.
An additional source of funds is loans from other
PACCAR companies in the truck segment.
The primary sources of borrowings in the capital
market are commercial paper and medium-term
notes issued in the public markets and, to a lesser
extent, bank loans. The majority of the medium-
term notes are issued by PACCAR’s largest financial
services subsidiary, PACCAR Financial Corp. (PFC).
PFC periodically files a shelf registration under
the Securities Act of 1933. At December 31, 2005,
$1.3 billion of such securities remained available
for issuance.
In September 2005, PACCAR’s European finance
subsidiary, PACCAR Financial Europe, registered a
€1 billion euro medium-term note program with the
London Stock Exchange. On December 31, 2005,
€341 million remained available for issuance. This
program is renewable annually through the filing of
a new prospectus.
To reduce exposure to fluctuations in interest
rates, the Financial Services companies pursue a
policy of structuring borrowings with interest-rate
characteristics similar to the assets being funded. As
part of this policy, the companies use interest-rate
contracts. The permitted types of interest-rate con-
tracts and transaction limits have been established
by the Company’s senior management, who receive
periodic reports on the contracts outstanding.
PACCAR believes its Financial Services companies
will be able to continue funding receivables and
servicing debt through internally generated funds,
lines of credit and access to public and private
debt markets.
Commitments
The following summarizes the Company’s contrac-
tual cash commitments at December 31, 2005:
Maturity
Within More than
One Year One Year
$ 935.5
$5,319.4
49.8
32.1
68.6
15.2
$1,053.9
$5,366.7
Total
$6,254.9
81.9
83.8
$6,420.6
Borrowings
Operating leases
Other obligations
Total
At the end of 2005, the Company had $6.42 billion
of cash commitments, including $5.37 billion
maturing within one year. Of the cash commitments,
$6.23 billion were related to the Financial Services
segment. As described in Note K of the consolidated
financial statements, borrowings consist primarily of
term debt and commercial paper of the Financial
Services segment. The Company expects to fund its
maturing Financial Services debt obligations princi-
pally from funds provided by collections from
customers on loans and lease contracts, as well as
from the proceeds of commercial paper and medium-
term note borrowings. Other obliga tions include
deferred cash compensation and the Company’s
contractual commitment to acquire future production
inventory.
The Company’s other commitments include the
following at December 31, 2005:
Commitment Expiration
Within More than
One Year
One Year
$ 15.0
$ 16.3
291.4
Total
$ 31.3
291.4
14.9
38.2
53.1
71.4
$394.0
175.6
$228.8
247.0
$622.8
Letters of credit
Loan and lease
commitments
Equipment
acquisition
commitments
Residual value
guarantees
Total
Loan and lease commitments are to fund new
retail loan and lease contracts. Equipment acquisition
commitments require the Company, under specified
circumstances, to purchase equipment. Residual
value guarantees represent the Company’s commit-
ment to acquire trucks at a guaranteed value if the
customer decides to return the truck at a specified
date in the future.
I M PA C T O F E N V I R O N M E N TA L M AT T E R S :
The Company, its competitors and industry in general
are subject to various domestic and foreign require-
ments relating to the environment. The Company
believes its policies, practices and procedures are
designed to prevent unreasonable risk of environ-
mental damage and that its handling, use and
disposal of hazardous or toxic substances have been
in accordance with environmental laws and regulations
enacted at the time such use and disposal occurred.
Expenditures related to environmental activities
were $1.2 million in 2005, $2.4 million in 2004
and $1.2 million in 2003.
The Company is involved in various stages of
inves tigations and cleanup actions in different coun-
tries related to environmental matters. In certain of
these matters, the Company has been designated as
a “potentially responsible party” by domestic and
foreign environmental agencies. The Company has
provided for the estimated costs to investigate and
complete cleanup actions where it is probable that
the Company will incur such costs in the future.
The Company’s estimated range of reasonably
possible costs to complete cleanup actions, where it
is probable that the Company will incur such costs
and where such amounts can be reasonably estimated,
is between $19.2 million and $44.2 million. The
Company has established a reserve to provide for
estimated future environmental cleanup costs.
While the timing and amount of the ultimate
costs associated with environmental cleanup matters
cannot be determined, management does not expect
that these matters will have a material adverse effect
on the Com pany’s consolidated cash flow, liquidity
or financial condition.
29
C R I T I C A L A C C O U N T I N G P O L I C I E S :
In the preparation of the Company’s financial state-
ments, in accordance with U.S. generally accepted
accounting principles, management uses estimates
and makes judgments and assumptions that affect
asset and liability values and the amounts reported
as income and expense during the periods presented.
The following are accounting policies which, in the
opinion of management, are particularly sensitive
and which, if actual results are different, may have
a material impact on the financial statements.
Operating Leases
The accounting for trucks sold pursuant to agree-
ments accounted for as operating leases is discussed
in Notes A and G of the consolidated financial state-
ments. In deter mining its estimate of the residual
value of such vehicles, the Company considers
the length of the lease term, the truck model and
anticipated market demand and the expected usage
of the truck. If the sales price of the trucks at the
end of the term of the agreement differs significantly
from the Company’s estimate, a gain or loss will
result. The Company believes its residual-setting
poli cies are appropriate; however, future market
conditions, changes in government regulations and
other factors outside the Company’s control can
impact the ultimate sales price of trucks returned
under these contracts. Residual values are reviewed
regularly and adjusted downward if market conditions
warrant.
Allowance for Credit Losses
The Company determines the allowance for credit
losses on financial services receivables based on a
combination of historical information and current
market conditions. This determination is dependent
on estimates, including assumptions regarding the
likelihood of collecting current and past-due accounts,
repossession rates and the recovery rate on the under-
lying collateral based on used truck values and other
pledged collateral or recourse. The Company believes
its reserve-setting policies adequately take into
account the known risks inherent in the financial
services portfolio. If there are significant variations
in the actual results from those estimates, the
provision for credit losses and operating earnings
may be adversely impacted.
PACCAR Inc and Subsidiaries
F O RWA R D - L O O K I N G S TAT E M E N T S :
Certain information presented in this report contains
forward-looking statements made pursuant to the
Private Securities Litigation Reform Act of 1995,
which 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
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 supplier capacity or access to raw materials;
labor disruptions; shortages of commercial truck
drivers; increased warranty costs or litigation; or
legis lative and governmental regulations.
30
Product Warranty
The expenses related to product warranty are estimated
and recorded at the time products are sold based on
his torical data regarding the source, frequency, and
cost of warranty claims. Management believes that the
warranty reserve is appropriate and takes actions to
minimize warranty costs through quality-improvement
programs; however, actual claims incurred could differ
from the original estimates, requiring adjustments to
the reserve.
Pension and Other Postretirement Benefits
The Company’s accounting for employee pension and
other postretirement benefit costs and obligations
is governed by the pronouncements of the Financial
Accounting Standards Board. Under these rules,
manage ment determines appropriate assumptions
about the future, which are used by actuaries to
estimate net costs and liabilities. These assumptions
include discount rates, health care cost trends, infla-
tion rates, long-term rates of return on plan assets,
retirement rates, mortality rates and other factors.
Management bases these assumptions on historical
results, the current environment and reasonable
expectations of future events. The discount rate for
each plan is based on market interest rates of high-
quality corporate bonds with a maturity profile that
matches the timing of the projected benefit payments
of the plans. The long-term rate of return on plan
assets is based on projected returns for each asset
class and the projected relative weighting of those
asset classes in the plans. Actual results that differ
from the assumptions are accumulated and amortized
over future periods and, therefore, generally affect
expense in such future periods. Changes in the
discount rate also affect the valuation of the plan
benefits obligation. While management believes that
the assumptions used are appropriate, significant
differences in actual experience or significant changes
in assumptions would affect pension and other post-
retirement benefit costs and obligations. See Note L
of the consolidated financial statements for more
information regarding costs and assumptions for
employee benefit plans.
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
Year Ended December 31
TRUCK AND OTHER:
Net sales and revenues
Cost of sales and revenues
Selling, general and administrative
Interest and other expense, net
Truck and Other Income Before Income Taxes
FINANCIAL SERVICES:
Revenues
Interest and other
Selling, general and administrative
Provision for losses on receivables
Financial Services Income Before Income Taxes
Investment income
Total Income Before Income Taxes
Income taxes
Net Income
Net Income Per Share
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
See notes to consolidated financial statements.
2005
2004
2003
31
(millions except per share data)
$13,298.4
$ 10,833.7
$ 7,721.1
11,340.5
429.9
11.2
11,781.6
1,516.8
9,268.6
390.4
34.8
9,693.8
1,139.9
6,732.0
345.0
3.5
7,080.5
640.6
759.0
433.8
84.9
40.4
559.1
199.9
562.6
296.1
80.0
18.1
394.2
168.4
473.8
248.7
72.9
28.6
350.2
123.6
56.9
1,773.6
640.4
$ 1,133.2
59.9
1,368.2
461.4
906.8
$
41.3
805.5
279.0
$ 526.5
$
$
6.60
6.56
$
$
5.19
5.16
$
$
3.01
2.99
171.7
172.8
174.6
175.7
174.8
176.1
PACCAR Inc and Subsidiaries
C O N S O L I D A T E D B A L A N C E S H E E T S
32
A S S E T S
December 31
TRUCK AND OTHER:
Current Assets
Cash and cash equivalents
Trade and other receivables, net
Marketable debt securities
Inventories
Deferred taxes and other current assets
Total Truck and Other Current Assets
Equipment on operating leases, net
Property, plant and equipment, net
Other noncurrent assets
Total Truck and Other Assets
FINANCIAL SERVICES:
Cash and cash equivalents
Finance and other receivables, net
Equipment on operating leases, net
Other assets
Total Financial Services Assets
2005
2004
(millions of dollars)
$ 1,624.4
582.2
591.4
495.5
214.9
3,508.4
361.0
1,143.0
347.1
5,359.5
$ 1,579.3
538.7
604.8
495.6
113.3
3,331.7
472.1
1,037.8
406.3
5,247.9
74.5
7,262.5
845.9
173.0
8,355.9
$13,715.4
35.4
6,106.1
716.4
122.2
6,980.1
$12,228.0
L I A B I L I T I E S A N D S T O C K H O L D E R S ’ E Q U I T Y
33
December 31
TRUCK AND OTHER:
Current Liabilities
Accounts payable and accrued expenses
Current portion of long-term debt and commercial paper
Dividend payable
Total Truck and Other Current Liabilities
Long-term debt and commercial paper
Residual value guarantees and deferred revenues
Deferred taxes and other liabilities
Total Truck and Other Liabilities
FINANCIAL SERVICES:
Accounts payable, accrued expenses and other
Commercial paper and bank loans
Term debt
Deferred taxes and other liabilities
Total Financial Services Liabilities
S T O C K H O L D E R S ’ E Q U I T Y
Preferred stock, no par value – authorized 1.0 million shares, none issued
Common stock, $1 par value – authorized 400.0 million shares;
issued 169.4 million and 173.9 million shares
Additional paid-in capital
Treasury stock – at cost – .5 million shares
Retained earnings
Accumulated other comprehensive income
Total Stockholders’ Equity
See notes to consolidated financial statements.
2005
2004
(millions of dollars)
$ 1,834.9
8.6
338.7
2,182.2
20.2
410.4
344.0
2,956.8
168.9
3,568.6
2,657.5
462.5
6,857.5
169.4
140.6
(35.1)
3,471.5
154.7
3,901.1
$13,715.4
$ 1,794.4
8.4
347.8
2,150.6
27.8
526.2
372.9
3,077.5
148.8
2,502.0
2,286.6
450.7
5,388.1
173.9
450.5
2,826.9
311.1
3,762.4
$12,228.0
PACCAR Inc and Subsidiaries
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
34
Year Ended December 31
OPERATING ACTIVITIES:
Net income
Items included in net income not affecting cash:
Depreciation and amortization:
Property, plant and equipment
Equipment on operating leases and other
Provision for losses on financial services receivables
Other, net
Change in operating assets and liabilities:
(Increase) decrease in assets other than cash and equivalents:
Receivables:
Trade and other
Wholesale receivables on new trucks
Sales-type finance leases and dealer direct loans on
new trucks
Inventories
Other, net
Increase (decrease) in liabilities:
Accounts payable and accrued expenses
Residual value guarantees and deferred revenues
Other, net
Net Cash Provided by Operating Activities
INVESTING ACTIVITIES:
Retail loans and direct financing leases originated
Collections on retail loans and direct financing leases
Net (increase) decrease in wholesale receivables on used equipment
Marketable securities purchases
Marketable securities sales and maturities
Acquisition of property, plant and equipment
Acquisition of equipment for operating leases
Proceeds from asset disposals
Other, net
Net Cash Used in Investing Activities
FINANCING ACTIVITIES:
Cash dividends paid
Purchase of treasury stock
Stock option transactions
Net increase in commercial paper and bank loans
Proceeds from long-term debt
Payments on long-term debt
Net Cash Provided by (Used in) Financing Activities
Effect of exchange rate changes on cash
Net Increase in Cash and Cash Equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See notes to consolidated financial statements.
2005
2004
2003
(millions of dollars)
$ 1,133.2
$ 906.8
$ 526.5
133.3
236.8
40.4
(19.8)
(80.1)
(398.9)
(194.3)
(30.1)
(37.5)
147.1
45.5
11.2
986.8
(2,946.4)
2,202.5
(15.5)
(1,172.4)
1,135.1
(300.4)
(548.1)
96.1
46.5
(1,502.6)
(496.9)
(367.2)
11.9
1,148.4
1,016.9
(592.1)
721.0
(121.0)
84.2
1,614.7
$ 1,698.9
122.0
193.0
18.1
19.4
(53.0)
(298.4)
(164.0)
(142.1)
(30.2)
409.7
(69.5)
(20.8)
891.0
(2,333.1)
1,816.0
7.1
(876.3)
710.5
(231.9)
(401.6)
103.2
(1,206.1)
(270.9)
(107.7)
15.7
148.2
1,588.6
(857.6)
516.3
66.5
267.7
1,347.0
$ 1,614.7
116.1
151.4
28.6
21.7
(32.8)
(29.7)
(10.7)
23.6
(57.3)
57.5
(55.3)
38.7
778.3
(1,829.4)
1,822.4
1.9
(945.6)
1,097.9
(111.2)
(258.1)
30.9
(7.7)
(198.9)
(171.9)
23.8
20.2
659.2
(662.0)
(130.7)
125.3
574.0
773.0
$ 1,347.0
C O N S O L I D A T E D S T A T E M E N T S O F S T O C K H O L D E R S ’ E Q U I T Y
December 31
COMMON STOCK, $1 PAR VALUE:
Balance at beginning of year
Treasury stock retirement
50% stock dividend
Stock options exercised and other stock compensation
Balance at end of year
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year
Treasury stock retirement
50% stock dividend
Stock options exercised and tax benefit
Other stock compensation
Balance at end of year
TREASURY STOCK, AT COST:
Balance at beginning of year
Purchases
Retirements
Balance at end of year
RETAINED EARNINGS:
Balance at beginning of year
Net income
Cash dividends declared on common stock,
per share: 2005-$2.87; 2004-$2.75; 2003-$1.37
Balance at end of year
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance at beginning of year
Other comprehensive (loss) income
Balance at end of year
Total Stockholders’ Equity
See notes to consolidated financial statements.
2005
2004
2003
35
(millions of dollars except per share data)
$ 173.9
(5.0)
$ 175.1
(2.0)
$ 115.9
58.4
.8
175.1
545.8
(58.4)
32.9
3.9
524.2
.5
169.4
450.5
(338.4)
27.0
1.5
140.6
(378.5)
343.4
(35.1)
.8
173.9
524.2
(105.7)
25.6
6.4
450.5
(107.7)
107.7
2,826.9
1,133.2
2,399.2
906.8
(488.6)
3,471.5
(479.1)
2,826.9
311.1
(156.4)
154.7
$ 3,901.1
147.9
163.2
311.1
$ 3,762.4
2,113.3
526.5
(240.6)
2,399.2
(174.3)
322.2
147.9
$ 3,246.4
PACCAR Inc and Subsidiaries
C O N S O L I D A T E D S T A T E M E N T S O F C O M P R E H E N S I V E I N C O M E
36
Year Ended December 31
Net income
Other comprehensive (loss) income:
Unrealized gains (losses) on investments
Net holding (loss) gain
Tax effect
Reclassification adjustment
Tax benefit
Minimum pension liability adjustment
Tax effect
Unrealized gains (losses) on derivative contracts
Gains (losses) arising during the period
Tax effect
Reclassification adjustment
Tax effect
Foreign currency translation (losses) gains
Net other comprehensive (loss) income
Comprehensive Income
See notes to consolidated financial statements.
2005
2004
2003
(millions of dollars)
$1,133.2
$ 906.8
$526.5
(1.6)
.6
(.5)
.2
(1.3)
(20.2)
7.9
(12.3)
28.5
(10.5)
9.6
(2.8)
24.8
(167.6)
(156.4)
$ 976.8
(1.2)
.4
(13.6)
5.2
(9.2)
(8.0)
2.7
(5.3)
(11.9)
3.8
31.4
(12.3)
11.0
166.7
163.2
$1,070.0
9.1
(3.5)
(5.7)
2.2
2.1
25.8
(8.7)
17.1
(12.4)
5.6
50.6
(19.2)
24.6
278.4
322.2
$848.7
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions)
A . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
Description of Operations: PACCAR Inc (the Company
or PACCAR) is a multinational company operating in
two segments: (1) the manufacture and distribution of
light-, medium- and heavy-duty commercial trucks
and related aftermarket parts and (2) finance and
leasing products and services provided to customers
and dealers. PACCAR’s sales and revenues are derived
primarily from North America and Europe. The
Company also operates in Australia and sells trucks
and parts outside its primary markets to customers in
Asia, Africa and South America.
Principles of Consolidation: The consolidated financial
statements include the accounts of the Company and
its wholly owned domestic and foreign subsidiaries.
All significant intercompany accounts and transactions
are eliminated in consolidation.
Use of Estimates: The preparation of financial
statements in conformity with accounting principles
generally accepted in the United States requires
management to make estimates and assumptions
that affect the amounts reported in the financial
statements and accompanying notes. Actual results
could differ from those estimates.
Cash and Cash Equivalents: Cash equivalents
consist of short-term liquid investments with a
maturity at date of purchase of three months or less.
Long-lived Assets, Goodwill and Other Intangible
Assets: The Company evaluates the carrying value of
long-lived assets (including property and equipment,
goodwill and other intangible assets) when events and
circumstances warrant such a review. Goodwill is also
reviewed for impairment on an annual basis. There
were no impairment charges during the three years
ended December 31, 2005.
Revenue Recognition: Substantially all sales and
revenues of trucks and related aftermarket parts are
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions except per share amounts)
recorded by the Company when products are shipped
to dealers or customers, except for certain truck ship-
ments that are subject to a residual value guarantee to
the customer. Revenues related to these shipments are
recognized on a straight-line basis over the guarantee
period (see Note G). At the time certain truck and
parts sales to a dealer are recognized, the Company
records an estimate of the future sales incentive costs
related to such sales. The estimate is based on historical
data and announced incentive programs.
Interest income from finance and other receivables
is recognized using the interest method. Certain loan
origination costs are deferred and amortized to inter-
est income. For operating leases, rental revenue is
recog nized on a straight-line basis over the lease term.
Recog nition of interest income and rental revenue is
suspend ed when management determines that collec-
tion is not probable (generally after 90 days past the
contractual due date). Recognition is resumed if the
receivable becomes contractually current and the
collection of amounts is again considered probable.
Foreign Currency Translation: For most of
PACCAR’s foreign subsidiaries, the local currency
is the functional currency. All assets and liabilities
are translated at year-end exchange rates and all
income statement amounts are translated at the
weighted average rates for the period. Adjustments
resulting from this translation are recorded in accu-
mulated other compre hensive income (loss), a compo-
nent of stockholders’ equity.
During 2005 the Company entered into forward
currency contracts to hedge its net investment in for-
eign subsidiaries. The gain, net of tax effects, of $45.3
on the hedges was recorded as an adjustment to the
foreign currency translation component of other
comprehensive income.
PACCAR uses the U.S. dollar as the functional
currency for its Mexican subsidiaries. Accordingly,
inventories, cost of sales, property, plant and equip-
ment, and depreciation were translated at historical
rates. Resulting gains and losses are included in
net income.
Research and Development: Research and develop-
ment costs are expensed as incurred and included as
a component of cost of sales in the accompanying
consoli dated statements of income. Amounts charged
against income were $117.8 in 2005, $103.2 in 2004
and $81.1 in 2003.
Earnings per Share: Diluted earnings per share are
based on the weighted average number of basic shares
outstanding during the year, adjusted for the dilutive
effect of stock options under the treasury stock method.
37
Stock-Based Compensation: Effective January 1, 2003,
PACCAR began to recognize compensation expense on
all new employee stock option awards over the option
vesting period, generally three years.
In December 2004, the Financial Accounting Stan-
dards Board issued FAS No. 123(R), Share-Based Pay-
ment, which requires the expensing of all share-based
payment transactions, including stock option awards.
FAS No. 123(R) also requires that certain tax benefits
from stock options be classified as financing rather
than operating cash flows. PACCAR will apply FAS
No. 123(R) on a modified prospective basis, effective
January 1, 2006. The Company does not expect the
adoption of FAS No. 123(R) to have a significant effect
on its consolidated financial statements.
Stock-based employee compensation expense (net of
related tax effects) included in net income amounted to
$4.4 in 2005. The following table illustrates the effect on
net income and earnings per share as if the expensing
of stock options had been applied to all outstanding
and unvested shares in 2004 and 2003:
Net income, as reported
Add: Stock-based compensation
included in net income,
net of related tax effects
Deduct: Fair value of stock
compensation, net of tax
Pro forma net income
Earnings per share:
Basic–as reported
Basic–pro forma
Diluted–as reported
Diluted–pro forma
2004
$ 906.8
2003
$ 526.5
2.8
1.7
(4.0)
$ 905.6
(4.7)
$ 523.5
$ 5.19
5.19
5.16
5.15
$ 3.01
2.99
2.99
2.97
The estimated fair value of stock options granted
during 2005, 2004 and 2003 was $21.25, $18.87 and
$9.82 per share. These amounts were determined using
the Black-Scholes-Merton option-pricing model, which
values options based on the stock price at the grant
date, and the following assumptions:
2005
3.73%
2004
3.11%
2003
3.21%
Risk-free interest rate
Expected volatility of
common stock
39%
3.2%
Dividend yield
Expected life of options 5 years
45%
3.0%
5 years
48%
4.4%
5 years
See Note Q for a description of PACCAR’s stock
compensation plans.
PACCAR Inc and Subsidiaries
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
38
December 31, 2005, 2004 and 2003 (currencies in millions)
New Accounting Pronouncements: In March 2005,
the FASB issued Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations (FIN 47).
FIN 47 is an interpretation of FAS No. 143, Asset
Retirement Obligations, and relates to the timing of
liability recognition for legal obligations associated
with the retirement of a tangible long-lived asset in
which the timing and (or) method of settlement are
conditional on a future event that may or may not
be within the control of the entity. The adoption of
FIN 47, effective December 31, 2005, did not have
an effect on the Company’s consolidated results of
operations or financial position.
Reclassifications: Certain prior-year amounts have
been reclassified to conform to the 2005 presentation.
B .
I N V E S T M E N T S I N M A R K E TA B L E S E C U R I T I E S
The Company’s investments in marketable securities
are classified as available-for-sale. These investments
are stated at fair value with any unrealized holding
gains or losses, net of tax, included as a component of
accumulated other comprehensive income until real-
ized. Gross realized gains on marketable debt securities
were $3.5 in 2005, not significant in 2004 and $5.1 in
2003. Gross realized losses and gross unrealized gains
and losses were not significant for any of the three
years ended December 31, 2005.
The cost of debt securities available-for-sale is
adjusted for amortization of premiums and accretion
of discounts to maturity. Amortization of premiums,
accretion of discounts, interest and dividend income
and realized gains and losses are included in invest-
ment income. The cost of securities sold is based on
the specific identification method.
Marketable debt securities at December 31, 2005,
were as follows:
U.S. tax-exempt securities
Non U.S. government securities
amortized
cost
$ 553.6
39.3
$ 592.9
fair
value
$ 552.7
38.7
$ 591.4
Marketable debt securities at December 31, 2004,
were as follows:
U.S. tax-exempt securities
Corporate securities
Non U.S. government securities
Other debt securities
amortized
cost
$ 194.8
187.3
203.0
19.1
$ 604.2
fair
value
$ 195.4
187.4
202.9
19.1
$ 604.8
The contractual maturities of debt securities at
December 31, 2005, were as follows:
Maturities:
Within one year
One to five years
Five to ten years
10 or more years
amortized
cost
$ 78.6
196.7
14.7
302.9
$ 592.9
fair
value
$ 78.5
195.3
14.7
302.9
$ 591.4
Marketable debt securities include $342.3 of variable
rate demand obligations (VRDOs). VRDOs are debt
instruments with long-term scheduled maturities which
have interest rates that periodically reset through an
auction process.
The Company had no investments in marketable
equity securities at either December 31, 2005 or 2004.
Gross realized gains on marketable equity securities
were $14.1 and $.7 for the years ended December 31,
2004 and 2003.
C . I N V E N T O R I E S
Inventories include the following:
Finished products
Work in process and raw
materials
Less LIFO reserve
2005
$ 299.3
2004
$ 270.6
330.1
629.4
(133.9)
$ 495.5
353.1
623.7
(128.1)
$ 495.6
Inventories are stated at the lower of cost or market.
Cost of inventories in the United States is determined
principally by the last-in, first-out (LIFO) method.
Cost of all other inventories is determined principally
by the first-in, first-out (FIFO) method. Inventories
valued using the LIFO method comprised 49% and
50% of consolidated inventories before deducting the
LIFO reserve at December 31, 2005 and 2004.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions)
D . F I N A N C E A N D O T H E R R E C E I VA B L E S
Finance and other receivables are as follows:
Loans
Retail direct financing leases
Sales-type finance leases
Dealer wholesale financing
Interest and other receivables
Unearned interest:
Loans
Finance leases
Less allowance for losses
2005
2004
$ 3,745.9 $ 3,306.1
1,881.8
1,635.7
701.2
497.5
1,402.8
1,061.0
86.6
73.0
(103.6)
(307.0)
7,407.7
(145.2)
(100.6)
(239.2)
6,233.5
(127.4)
$ 7,262.5 $ 6,106.1
The majority of the Company’s customers are
located in the United States, which represented 58%
of total receivables at December 31, 2005, and 56%
at December 31, 2004. Terms for substantially all
finance and other receivables range up to 60 months.
Repayment experience indicates that some receivables
will be paid prior to contract maturity, while some
others will be extended or renewed.
Included in Loans are dealer direct loans on the sale
of new trucks of $155.8 and $124.2 as of December
31, 2005, and December 31, 2004.
The cash flow effects of sales-type leases, dealer
direct loans and wholesale financing of new trucks
are shown as operating cash flows in the consolidated
statement of cash flows since they finance the sale of
company inventory.
Annual payments due on loans beginning January
1, 2006, are $1,372.8, $981.9, $728.7, $456.3, $184.1
and $22.1 thereafter.
Annual minimum lease payments due on finance
leases beginning January 1, 2006, are $718.2, $595.4,
$474.9, $362.9, $193.1 and $89.3 thereafter. Estimated
residual values included with finance leases amounted
to $134.4 in 2005 and $120.1 in 2004.
E . A L L O WA N C E F O R L O S S E S
The provision for losses on finance, trade and other
re ceivables is charged to income in an amount suffi-
cient to maintain the allowance for losses at a level
considered adequate to cover estimated credit losses.
Receivables are charged to this allowance when, in the
judgment of management, they are deemed uncollect-
ible (generally upon repossession of the collateral).
The allowance for losses on Truck and Other and
Financial Services receivables is summarized as follows:
financial
services
truck
and other
39
Balance, December 31, 2002
Provision for losses
Net losses
Currency translation
Balance, December 31, 2003
Provision for losses
Net losses
Currency translation
Balance, December 31, 2004
Provision for losses
Net losses
Currency translation
Balance, December 31, 2005
$
$
25.9 $ 109.1
28.6
(8.6)
(24.2)
(4.8)
5.7
2.4
119.2
14.9
18.1
(2.2)
(12.2)
(1.0)
2.3
1.0
127.4
12.7
40.4
.3
(19.3)
(.5)
(3.3)
(1.6)
10.9 $ 145.2
The Company’s customers are principally concen-
trated in the transportation industry in North America
and Europe. There are no significant concentrations
of credit risk in terms of a single customer. Generally,
Financial Services and trade receivables are collateral-
ized by the related equipment and parts.
F. P R O P E RT Y, P L A N T A N D E Q U I P M E N T
Property, plant and equipment include the following:
Land
Buildings
Machinery and equipment
Less allowance for
depreciation
2005
2004
$ 123.6 $ 105.6
625.4
1,477.1
2,208.1
633.3
1,569.7
2,326.6
(1,183.6) (1,170.3)
$ 1,143.0 $ 1,037.8
Property, plant and equipment are stated at cost.
Depreciation is computed principally by the straight-
line method based upon the estimated useful lives of
the various classes of assets, which range as follows:
Buildings
Machinery and equipment
30-40 years
5-12 years
PACCAR Inc and Subsidiaries
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions)
40
G . E Q U I P M E N T O N O P E R AT I N G L E A S E S
The Company leases equipment under operating
leases to customers in the financial services segment.
In addition, in the truck segment, equipment sold to
customers in Europe subject to a residual value guar-
antee (RVG) is accounted for as operating leases.
Equipment is recorded at cost and is depreciated on the
straight-line basis to the lower of the estimated residual
value or guarantee value. Lease and guarantee periods
generally range from three to seven years. Estimated
useful lives of the equipment range from five to ten
years. The Company reviews residual values of equip-
ment on operating leases periodically to determine that
recorded amounts are appropriate.
Truck and Other:
Equipment on operating leases is as follows:
Equipment on lease
Less allowance for depreciation
2005
$ 493.4
(132.4)
$ 361.0
2004
$ 649.0
(176.9)
$ 472.1
When the equipment is sold subject to an RVG, the
full sales price is received from the customer. A liability
is established for the residual value obligation with the
remainder of the proceeds recorded as deferred lease
revenue. These amounts are summarized below:
Deferred lease revenues
Residual value guarantee
2005
$ 163.4
247.0
$ 410.4
2004
$ 191.5
334.7
$ 526.2
The deferred lease revenue is amortized on a
straight-line basis over the RVG contract period.
At December 31, 2005, the annual amortization
of deferred revenue beginning January 1, 2006,
is $68.1, $48.5, $28.0, $12.6, $5.2 and $1.0 there-
after. Annual maturities of the residual value guarantees
beginning January 1, 2006, are $71.4, $72.6, $56.8,
$27.1, $16.6 and $2.5 thereafter.
Financial Services:
Equipment on operating leases is as follows:
Transportation equipment
Less allowance for depreciation
2005
2004
$ 1,130.7 $ 930.4
(214.0)
$ 845.9 $ 716.4
(284.8)
Annual minimum lease payments due on operating
leases beginning January 1, 2006, are $225.3, $142.9,
$92.4, $39.5, $11.8 and $.8 thereafter.
H . A C C O U N T S PAYA B L E A N D A C C R U E D E X P E N S E S
Accounts payable and accrued expenses include the
following:
Truck and Other:
Accounts payable
Salaries and wages
Product support reserves
Other
2005
2004
$ 983.2 $ 964.0
130.0
247.0
453.4
$ 1,834.9 $ 1,794.4
137.2
253.3
461.2
I . P R O D U C T S U P P O RT R E S E RV E S
Product support reserves include warranty reserves
related to new products sales, as well as reserves
related to optional extended warranties and repair
and maintenance (R&M) contracts. The Company
generally offers one-year warranties covering most
of its vehicles and related aftermarket parts. Specific
terms and conditions vary depending on the product
and the country of sale. Optional extended warranty
and R&M contracts can be purchased for periods
which generally range up to five years. Warranty
expenses and reserves are estimated and recorded at
the time products or contracts are sold based on his-
torical data regarding the source, frequency and cost
of claims. PACCAR periodically assesses the adequacy
of its recorded liabilities and adjusts the reserves as
appropriate to reflect actual experience.
Changes in warranty and R&M reserves are summa-
rized as follows:
Beginning balance
Cost accruals and
revenue deferrals
Payments and
revenue recognized
Currency translation
2005
2004
$ 348.8 $ 300.5
268.4
246.9
(228.0)
(30.3)
(218.6)
20.0
$ 358.9 $ 348.8
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions)
Warranty and R&M reserves are included in the
accompanying consolidated balance sheets as follows:
Truck and Other:
Accounts payable and accrued
expenses
Deferred taxes and other
liabilities
Financial Services:
Deferred taxes and other
liabilities
2005
2004
$ 253.3 $ 247.0
34.3
32.5
71.3
69.3
$ 358.9 $ 348.8
J . L E A S E S
The Company leases certain facilities, computer equip-
ment and aircraft under operating leases. Leases expire
at various dates through the year 2019.
Annual minimum rent payments under non-cancel-
able operating leases having initial or remaining terms
in excess of one year at January 1, 2006, are $32.1,
$20.5, $12.5, $5.9, $3.4 and $7.5 thereafter.
Total rental expenses under all leases amounted to
$42.3, $34.3 and $29.9 for 2005, 2004 and 2003.
K . B O R R O W I N G S A N D C R E D I T A R R A N G E M E N T S
Borrowings include the following:
effective
rate 2005
2004
Truck and Other:
Long-term debt:
Commercial paper 5.7% $
Noninterest bearing
notes
Less current portion 5.7%
$
8.6
$
16.7
20.2
28.8
(8.6)
20.2 $
19.5
36.2
(8.4)
27.8
Long-term debt of $8.6 matures in 2006 and $20.2
matures in 2011.
effective
rate 2005
2004
Financial Services:
Commercial paper
Bank loans
Term debt:
Fixed rate
Floating rate
4.0% $ 3,566.3 $ 2,480.0
22.0
5.0%
$ 3,568.6 $ 2,502.0
2.3
7.0% $ 127.3 $ 100.5
2,530.2
2,186.1
3.6%
$ 2,657.5 $ 2,286.6
41
The effective rate is the weighted average rate as of
December 31, 2005, and includes the effects of interest-
rate agreements.
Annual maturities of term debt beginning January 1,
2006, are $1,742.2, $393.4, $388.9, $132.0 and $1.0.
Maturities for 2006 include $100.0 of floating rate
exten dible notes, which were issued in 2005. The
extendible notes have an initial maturity of 13 months,
which can be extended at the investor’s option to a final
maturity of five years.
Consolidated:
Interest paid on consolidated borrowings was
$204.0, $134.4 and $137.9 in 2005, 2004 and 2003.
The weighted average interest rate on consolidated
commercial paper and bank loans was 4.0%, 3.4%
and 3.5% at December 31, 2005, 2004 and 2003.
The primary sources of borrowings are commercial
paper and medium-term notes issued in the public
markets. The medium-term notes are issued by
PACCAR Financial Corp. (PFC) and PACCAR
Financial Europe (PFE). PFC periodically files
a shelf registration under the Securities Act of
1933. PFC filed a $3,000.0 shelf registration that
became effective in 2004. On December 31, 2005,
$1,300.0 of debt remained available for issuance.
In September 2005, PFE registered a €1,000.0 euro
medium-term note program with the London Stock
Exchange. On December 31, 2005, €341.1 of such
securities remained available under the program.
The Company has line of credit arrangements of
$1,695.1. Included in these arrangements is a $1,500
bank facility, of which $500 matures in 2006 and
$1,000 matures in 2010. The unused portion of
these credit lines was $1,615.2 at December 31, 2005,
of which the majority is maintained to provide
backup liquidity for commercial paper borrowings
of the financial services companies. Compensating
balances are not required on the lines, and service
fees are immaterial.
PACCAR Inc and Subsidiaries
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions)
42
L . E M P L O Y E E B E N E F I T P L A N S
2005
2004
PACCAR has several defined benefit pension plans,
which cover a majority of its employees.
The Company evaluates its actuarial assumptions
on an annual basis and considers changes based upon
market conditions and other factors.
The Company funds its pensions in accordance with
applicable employee benefit and tax laws. The Company
contributed $63.7 to its pension plans in 2005 and
$58.4 in 2004. The Company expects to contribute in
the range of $30.0 to $70.0 to its pension plans in 2006,
of which $13.5 is estimated to satisfy minimum funding
require ments. Annual benefits expected to be paid
beginning January 1, 2006, are $32.6, $33.0, $37.3, $40.4,
$44.1, and for the five years thereafter, a total of $286.7.
Plan assets are invested in a diversified mix of
equity and debt securities through professional invest-
ment managers with the objective to achieve targeted
risk adjusted returns and maintain liquidity sufficient
to fund current benefit payments. Allocation of plan
assets may change over time based upon investment
manager determination of the relative attractiveness
of equity and debt securities. The Company periodi-
cally assesses allocation of plan assets by investment
type and evaluates external sources of information
regarding the long-term historical returns and expected
future returns for each investment type.
The following information details the allocation of
plan assets by investment type:
Target
Actual
2005
2004
Plan assets allocation as of December 31:
Equity securities
Debt securities
Total
55 - 65%
35 - 45%
62.9%
37.1
63.9%
36.1
100.0% 100.0%
The following additional data relate to all pension
plans of the Company, except for certain multi-employer
and foreign-insured plans:
2005
2004
Weighted Average Assumptions as of December 31:
Discount rate
Rate of increase in future
compensation levels
Assumed long-term rate of
return on plan assets
4.2%
5.5%
7.4%
5.7%
4.2%
7.4%
Change in Projected Benefit Obligation:
Benefit obligation at January 1
Service cost
Interest cost
Benefits paid
Actuarial loss
Currency translation
Participant contributions
Plan amendment
Projected benefit obligation at
December 31
$ 935.2
40.8
52.8
(29.4)
61.0
(19.7)
3.9
$ 1,044.6
$ 799.3
32.2
48.4
(33.0)
64.8
16.7
3.8
3.0
$ 935.2
Change in Plan Assets:
Fair value of plan assets at
January 1
Employer contributions
Actual return on plan assets
Benefits paid
Currency translation
Participant contributions
Fair value of plan assets at
December 31
$ 880.3
63.7
75.4
(29.4)
(20.2)
3.9
$ 763.9
58.4
77.5
(33.0)
9.7
3.8
$ 973.7
$ 880.3
Funded Status at December 31:
Funded status
Unrecognized actuarial loss
Unrecognized prior service cost
Unrecognized net initial
obligation
Net pension asset
$ (70.9)
220.1
17.7
$ (54.9)
184.1
21.0
2.2
$ 169.1
2.2
$ 152.4
Amounts Recorded in Balance Sheet:
Prepaid benefit
Accrued benefit liability
Intangible asset
Accumulated other
$ 160.3
(30.9)
6.5
$ 171.0
(39.9)
8.3
comprehensive loss
Net pension asset
33.2
$ 169.1
13.0
$ 152.4
The projected benefit obligation includes $38.6 at
December 31, 2005, and $33.3 at December 31, 2004,
related to an unfunded supplemental plan.
The accumulated benefit obligation for all pension
plans of the Company, except for certain multi-
employer and foreign-insured plans, was $904.9 at
December 31, 2005, and $806.8 at December 31, 2004.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions)
2005
Components of Pension Expense:
$ 40.8
Service cost
Interest on projected
52.8
benefit obligation
Expected return on assets (64.1)
Amortization of prior
2004
2003
$ 32.2
$ 27.0
48.5
(59.5)
44.2
(48.5)
service costs
Recognized actuarial
loss
Other
Net pension expense
3.6
3.4
2.9
9.2
.1
$ 42.4
3.8
.2
$ 28.6
4.1
.3
$ 30.0
Pension expense for multi-employer and foreign-
insured plans was $29.0, $24.9 and $19.3 in 2005,
2004 and 2003.
The Company has certain defined contribution
benefit plans whereby it generally matches employee
contributions of 2% to 5% of base wages. The majority
of participants in these plans are non-union employees
located in the United States. Expenses for these plans
were $20.6, $18.5 and $16.1 in 2005, 2004 and 2003.
The Company also provides coverage of approxi-
mately 50% of medical costs for the majority of its
U.S. employees from retirement until age 65 as well
as a nominal death benefit.
The following data relate to unfunded postretirement
medical and life insurance plans:
Unfunded Status at December 31:
Unfunded status
Unrecognized actuarial loss
Unrecognized prior service cost
Unrecognized net initial obligation
Accrued postretirement benefits
2005
2004
$ (76.7)
19.8
.6
2.8
$ (53.5)
$ (69.3)
18.5
.8
3.2
$ (46.8)
2005
2004
43
Change in Projected Benefit Obligation:
Benefit obligation at January 1
Service cost
Interest cost
Benefits paid
Actuarial loss
Projected benefit obligation
at December 31
$ 69.3
3.6
4.2
(1.4)
1.0
$ 76.7
$ 51.2
2.6
3.7
(1.9)
13.7
$ 69.3
2005
2004
2003
Components of Retiree Expense:
Service cost
Interest cost
Recognized actuarial loss
Recognized prior service
$ 3.6
4.2
1.5
$ 2.6
3.7
.7
$ 1.7
2.9
cost
Recognized net initial
obligation
Net retiree expense
.2
.1
.1
.4
$ 9.9
.5
$ 7.6
.5
$ 5.2
The discount rate used for calculating the accumu-
lated plan benefits was 5.6% for 2005 and 5.8% for
2004. In 2005 the assumed long-term medical inflation
rate was 12% declining to 6% over six years. In 2004 the
rate assumption was 7% for all future years. Annual
benefits expected to be paid beginning January 1, 2006,
are $2.8, $3.2, $3.7, $4.3, $5.0 and for the five years
thereafter, a total of $35.5.
Assumed health care cost trends have an effect on
the amounts reported for the postretirement health care
plans. A one-percentage-point change in assumed health
care cost trend rates would have the following effects:
1%
1%
increase decrease
Effect on annual total of
service and interest
cost components
Effect on accumulated
postretirement benefit
obligation
$ 1.0
$
(.8)
$ 7.6
$ (6.6)
PACCAR Inc and Subsidiaries
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions)
44
M . I N C O M E TA X E S
2005
2004
2003
Income Before Income Taxes:
Domestic
Foreign
$ 960.3 $ 643.5
724.7
$ 1,773.6 $ 1,368.2
813.3
Provision for Income Taxes:
Current provision:
Federal
State
Repatriated earnings
Foreign
$ 330.7 $ 139.9
22.1
41.9
64.0
257.7
694.3
251.4
413.4
Deferred (benefit) provision:
Federal
State
Foreign
(35.7)
.4
(18.6)
(53.9)
64.7
6.7
(23.4)
48.0
$ 640.4 $ 461.4
$ 273.6
531.9
$ 805.5
$ 53.6
13.4
195.8
262.8
33.4
(17.2)
16.2
$ 279.0
35%
35%
$ 620.8 $ 478.9
Reconciliation of Statutory U.S. Federal Tax to Actual
Provision:
Statutory rate
Statutory tax
Effect of:
State income taxes
Repatriated earnings
Foreign income taxes
Other, net
27.5
64.0
(45.3)
(26.6)
18.7
35%
$ 281.9
8.7
(25.7)
(10.5)
$ 640.4 $ 461.4
(4.6)
(7.0)
$ 279.0
The American Jobs Creation Act of 2004 (AJCA)
created a special 85% tax deduction available during
2005 for certain repatriated foreign earnings that are
reinvested in qualifying domestic activities, as defined
in the AJCA. PACCAR repatriated $1.5 billion of
foreign earnings in 2005. In accordance with FASB
Staff Position No. 109-2, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Pro-
vision within the AJCA, a provision of $64.0 for the
repatriation of foreign earnings was recorded as current
income tax expense during the second quarter of 2005.
United States income taxes are not provided on any
remaining undistributed earnings of the Company’s
foreign subsidiaries because of the intent to reinvest
these earnings indefinitely. The amount of undistrib-
uted earnings, which are considered to be indefinitely
reinvested, is $1.68 billion at December 31, 2005.
During 2005, the Company generated $50.0 in U.S.
foreign tax credit carryforwards, which expire in 2015.
The Company does not expect to utilize these credits,
and accordingly, recorded a valuation reserve for the
full amount in 2005.
At December 31, 2005, the Company’s net tax
operating loss carryforwards were $221.2. Substantially
all of the loss carryforwards are in foreign subsidiaries
and carry forward indefinitely, subject to certain limita-
tions under applicable laws. The future tax benefits of
net operating loss carryforwards are evaluated on an
ongoing basis, including a review of historical and pro-
jected operating results. During 2004, the Company’s
evaluation resulted in a $9.5 reduction in the valuation
reserve related to net operating loss carryforwards at its
sub sidiary Leyland Trucks Ltd. in the United Kingdom.
At December 31:
Components of Deferred Tax Assets (Liabilities):
Assets:
Provisions for accrued
2005
2004
expenses
Net operating loss
carryforwards
Allowance for losses on
receivables
U.S. foreign tax credit
carryforward
Foreign product
development costs
Other
Valuation reserve
$ 232.3
$ 210.9
64.5
81.5
50.8
43.2
50.0
41.1
71.7
510.4
(95.5)
414.9
36.3
25.3
397.2
(56.0)
341.2
Liabilities:
Financial Services
leasing depreciation
Depreciation and amortization
Pension
Other
Net deferred tax liability
(343.9)
(338.4)
(91.5)
(85.4)
(56.2)
(42.2)
(68.2)
(56.8)
(559.8)
(522.8)
$ (144.9) $ (181.6)
At December 31:
Classification of Deferred Tax Assets (Liabilities):
Truck and Other:
Deferred taxes and
2005
2004
other current assets
Other noncurrent assets
Deferred taxes and
other liabilities
Financial Services:
Other assets
Deferred taxes and
other liabilities
Net deferred tax liability
$ 132.4
43.6
$ 82.4
59.5
(22.1)
(35.5)
27.8
28.3
(326.6)
(316.3)
$ (144.9) $ (181.6)
Cash paid for income taxes was $722.0, $418.7 and
$246.0 in 2005, 2004 and 2003.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions)
N . FA I R VA L U E S O F F I N A N C I A L I N S T R U M E N T S
O . C O M M I T M E N T S A N D C O N T I N G E N C I E S
45
The following methods and assumptions were used by
the Company in determining its fair value disclosures
for financial instruments:
Cash and Equivalents: The carrying amount reported
in the balance sheet is stated at fair value.
Marketable Debt and Equity Securities: Amounts
are carried at fair value, based on quoted market prices
(see Note B).
Financial Services Net Receivables: For floating-rate
loans and wholesale financings, fair values approximate
carrying values. For fixed-rate loans, fair values are
estimated using discounted cash flow analysis based
on interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
The carrying amount of accrued interest and other
receivables approximates its fair value. Finance lease
receivables and the related loss provisions have been
excluded from the accompanying table.
Short- and Long-term Debt: The carrying amount
of commercial paper and short-term bank borrowings
and floating-rate, long-term debt approximates fair
value. The fair value of fixed-rate, long-term debt is
estimated using discounted cash flow analysis, based
on current rates for similar types and maturities of debt.
Derivative Instruments: Derivative instruments
are carried at fair value. Fair values for interest-rate
contracts are based on amounts that would be paid
or received to terminate agreements outstanding at
December 31, 2005 (see Note P). The fair value of
outstanding foreign exchange contracts is the amount
the Company would receive or pay to terminate the
contracts. This amount is calculated using quoted
market rates.
Trade Receivables and Payables: Carrying amounts
approximate fair value.
Balance sheet captions, which include financial
instruments that are not carried at fair value, are
as follows:
2005
Truck and Other:
Long-term debt
Financial Services:
Net receivables
Term debt
2004
Truck and Other:
Long-term debt
Financial Services:
Net receivables
Term debt
carrying
amount
fair
value
$
28.8
$
26.8
4,954.5
2,657.5
4,909.4
2,657.3
$
36.2
$
34.6
4,185.1
2,286.6
4,172.0
2,286.5
The Company is involved in various stages of inves-
tigations and cleanup actions in different countries
related to environmental matters. In certain of these
matters, the Company has been designated as a “poten-
tially responsible party” by domestic and foreign
en vironmental agencies. The Company has provided for
the estimated costs to investigate and complete cleanup
actions where it is probable that the Company will
incur such costs in the future.
While neither the timing nor the amount of the
ulti mate costs associated with future environmental
cleanup can be determined, management does not
expect that those matters will have a material adverse
effect on the Company’s consolidated financial position.
Expenditures related to environmental activities
were $1.2 in 2005, $2.4 in 2004 and $1.2 in 2003. The
Company’s estimated range of reasonably possible costs
to complete cleanup actions, where it is probable that
the Company will incur such costs and where such
amounts can be reasonably estimated, is between $19.2
and $44.2. The Company has established a reserve to
provide for estimated future environmental cleanup
costs.
At December 31, 2005, PACCAR had standby letters
of credit of $31.3, which guarantee various insurance
and financing activities. The Company is committed,
under specific circumstances, to purchase equipment at
a cost of $14.9 in 2006, $8.1 in 2007 and $30.1 in 2008.
At December 31, 2005, PACCAR’s financial services
companies, in the normal course of business, had
outstanding commitments to fund new loan and lease
transactions amounting to $291.4. The commitments
generally expire in 90 days. The Company had other
commitments, primarily to purchase production
inventory amounting to $11.2 in 2006, $9.3 annually
from 2007 to 2010 and $2.2 in 2011.
PACCAR is a defendant in various legal proceedings
and, in addition, there are various other contingent
lia bilities arising in the normal course of business.
After consultation with legal counsel, management does
not anticipate that disposition of these proceedings
and contingent liabilities will have a material effect
on the consolidated financial statements.
PACCAR Inc and Subsidiaries
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions)
46
P. D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S
Deriva tive financial instruments are used as hedges to
manage exposures to fluctuations in interest rates and
foreign currency exchange rates. PACCAR’s policies
prohibit the use of derivatives for speculation or
trading. The Company documents its hedge objectives,
proce dures and accounting treatment at the inception
of and during the term of each hedge. Exposure limits
and minimum credit ratings are used to minimize the
risks of counterparty default, and the Company had
no material exposures to default at December 31, 2005.
Interest-Rate Contracts: The Company enters into
various interest-rate contracts, including interest-rate
and basis swaps and cap agreements. Interest-rate
contracts generally involve the exchange of fixed
and floating rate interest payments. These contracts
are used to manage exposures to fluctuations in interest
rates. Net amounts paid or received are reflected as
adjustments to interest expense. At December 31, 2005,
the Company had 401 interest-rate contracts outstand-
ing. The notional amount of these contracts totaled
$3,927.7, with amounts expiring annually over the
next six years. The notional amount is used to measure
the volume of these contracts and does not represent
exposure to credit loss. In the event of default by a
counterparty, the risk in these transactions is the cost
of replacing the interest-rate contract at current market
rates. The total fair value of all interest-rate con tracts
amounted to an asset of $38.0 and a liability of $9.7 at
December 31, 2005. Fair values at December 31, 2004,
amounted to an asset of $16.2 and a liability of $34.6.
Notional maturities for all interest-rate contracts for
the six years beginning January 1, 2006, are $1,306.7,
$1,234.9, $914.3, $352.9, $106.9 and $12.0. The
majority of these contracts are floating to fixed swaps
that effectively convert an equivalent amount of
commercial paper and other variable rate debt to
fixed rates. The weighted average pay rate of 3.76%
for the fixed rate swaps approximates the Company’s
net cost of funds. The weighted average receive rate
of 4.10% for fixed rate swaps offsets rates on associated
debt obligations. In addition, cross currency interest-rate
swaps with a notional amount of $100.3 are used to
hedge both the interest rate risk and the foreign
exchange risk of Mexican peso-denominated debt.
Foreign Currency Exchange Contracts: PACCAR
enters into foreign currency exchange contracts to hedge
certain anticipated transactions denominated in foreign
currencies, particularly the Canadian dollar, the euro,
the British pound and the Mexican peso. Foreign
exchange contracts mature within one year. PACCAR
had net foreign exchange purchase contracts outstanding
amounting to $321.1 and $399.6 U.S. dollars at
December 31, 2005 and 2004. The fair value of these
foreign exchange contracts was a liability of $.7 and
an asset of $9.3 at December 31, 2005 and 2004.
Derivative assets are included in the accompanying
consolidated balance sheets, in Truck and Other
“Deferred taxes and other current assets” and
Financial Services “Other assets.” Derivative liabilities
are included in Truck and Other “Accounts payable
and accrued expenses” and “Deferred taxes and other
liabilities” and in Financial Services “Accounts payable,
accrued expenses and other.”
Substantially all of the Company’s interest-rate
contracts and all of its foreign currency exchange
contracts have been designated as cash flow hedges.
Gains or losses on the effective portion of derivatives
designated and qualifying as cash flow hedges that
arise from changes in fair value are initially reported
in other comprehensive income. Gains or losses on the
ineffective portion of cash flow hedges are recognized
currently in earnings and were immaterial for each of
the three years ended December 31, 2005. Amounts
in accumulated other comprehensive income are
reclassified into net income in the same period in
which the hedged forecasted transaction affects earnings.
Net realized gains and losses from foreign exchange
contracts are recognized as an adjustment to cost of
sales or to financial services interest expense,
consistent with the hedged transaction. Net realized
gains and losses from interest-rate contracts are
recognized as an adjustment to interest expense. Of the
accumulated net gain included in other comprehensive
income as of December 31, 2005, $12.3 is expected to
be reclassified to interest expense in 2006. The fixed
interest earned on finance receivables will offset the
amount recognized in interest expense, resulting in a
stable interest margin consistent with the Company’s
interest-rate risk manage ment strategy.
In 2005, the Company entered into cross currency
interest-rate swaps in connection with its financing
operations in Mexico. These instruments have been
designated and accounted for as fair value hedges.
Unrealized gains and losses related to these interest-
rate swaps, together with changes in the fair value of
the underlying debt, are recognized and recorded as an
adjustment to interest expense. Ineffectiveness from
these hedges was immaterial during the year ended
December 31, 2005.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003
Q . S T O C K C O M P E N S AT I O N P L A N S
Stock Options Exercisable:
47
PACCAR has certain plans under which officers and key
employees may be granted options to purchase shares of
the Company’s authorized but unissued common stock.
Non-employee directors may be granted restricted shares
of the Company’s common stock. The maximum
number of shares of the Company’s common stock
authorized for issuance under these plans is 20.7
million. As of December 31, 2005, the maximum
number of shares available for future grants under
these plans is 9.5 million. Options currently outstand-
ing under these plans were granted with exercise
prices equal to the fair market value of the Company’s
common stock at the date of grant. Options currently
expire no later than 10 years from the grant date and
generally vest within three years. Stock option activity
is as follows:
Outstanding at 12/31/02
Granted
Exercised
Cancelled
Outstanding at 12/31/03
Granted
Exercised
Cancelled
Outstanding at 12/31/04
Granted
Exercised
Cancelled
Outstanding at 12/31/05
number
of shares
4,523,300
864,100
(1,267,600)
(229,600)
3,890,200
457,600
(736,100)
(270,400)
3,341,300
414,600
(484,400)
(101,900)
3,169,600
average
exercise
price*
$21.88
31.40
19.31
26.45
24.56
56.95
20.78
32.66
29.18
72.25
23.59
44.05
$35.19
The following tables summarize information
about stock options outstanding and exercisable at
December 31, 2005:
Stock Options Outstanding:
range of
exercise prices
$11.00-18.56
22.94-23.90
28.20-31.40
56.95
72.25
number
of shares
463,500
725,300
1,181,400
396,300
403,100
3,169,600
remaining
contractual
life in years
2.5
4.2
6.5
8.0
9.0
5.9
average
exercise
price*
$16.28
23.29
29.96
56.95
72.25
$35.19
range of
exercise prices
$11.00-18.56
22.94-23.90
28.20
*Weighted Average
number
of shares
463,500
725,300
531,300
1,720,100
average
exercise price*
$16.28
23.29
28.20
$22.92
See Note A for additional information regarding
estimated fair values, Black-Scholes-Merton option
pricing assumptions and pro forma net income and
earnings per share amounts.
Diluted Earnings Per Share: The following table
shows the additional shares added to weighted average
basic shares outstanding to calculate diluted earnings
per share. These amounts primarily represent the
dilutive effect of stock options.
Additional shares
2005
2003
1,103,500 1,188,600 1,218,600
2004
Options outstanding at each year-end with exercise
prices in excess of the respective year’s average
common stock market price (antidilutive options)
have been excluded from the diluted earnings per
share calculation. Antidilutive options amounted to
403,100 in 2005, 428,300 in 2004 and none in 2003.
PACCAR Inc and Subsidiaries
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions except share amounts)
48
R . S T O C K H O L D E R S ’ E Q U I T Y
Stockholder Rights Plan: The plan provides one right
for each share of PACCAR common stock outstand-
ing. Rights become exercisable if a person publicly
announces the intention to acquire 15% or more of
PACCAR’s common stock or if a person (Acquiror)
acquires such amount of common stock. In all cases,
rights held by the Acquiror are not exercisable. When
exercisable, each right entitles the holder to purchase
for two hundred dollars a fractional share of Series A
Junior Participating Preferred Stock. Each fractional
preferred share has dividend, liquidation and voting
rights which are no less than those for a share of
common stock. Under certain circumstances, the
rights may become exercisable for shares of PACCAR
common stock or common stock of the Acquiror having
a market value equal to twice the exercise price of the
right. Also under certain circumstances, the Board of
Directors may exchange exercisable rights, in whole
or in part, for one share of PACCAR common stock
per right. The rights, which expire in the year 2009,
may be redeemed at one cent per right, subject to
certain conditions. For this plan, 50,000 preferred
shares are reserved for issuance. No shares have
been issued.
Accumulated Other Comprehensive Income:
Following are the components of accumulated other
comprehensive income:
Minimum pension
liability adjustment
Deferred tax asset
Unrealized gain (loss) on
derivative contracts
Deferred tax (liability)
asset
Unrealized (loss) gain on
investments
Deferred tax asset
(liability)
Currency translation
adjustment
Accumulated other
comprehensive
income
2005
2004
2003
$ (33.2)
12.4
(20.8)
$ (13.0)
4.5
(8.5)
$ (5.0)
1.8
(3.2)
32.7
(5.4)
(24.9)
(12.0)
20.7
1.3
(4.1)
9.8
(15.1)
(1.6)
.5
15.3
.6
(1.0)
(.2)
.3
(5.8)
9.5
155.8
323.4
156.7
$ 154.7
$ 311.1
$ 147.9
Other Capital Stock Changes: During 2005 the
Company acquired 5.5 million of its common shares,
of which five million were retired. In 2004, the Company
acquired and retired two million of its outstanding
common shares.
Stock Dividend: On December 9, 2003, the Board
of Directors declared a 50% common stock dividend
payable on February 5, 2004, to stockholders of record
on January 19, 2004, with fractional shares paid in cash.
This resulted in the issuance of 58,398,302 additional
shares and 583 fractional shares paid in cash.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2005, 2004 and 2003 (currencies in millions)
S . S E G M E N T A N D R E L AT E D I N F O R M AT I O N
PACCAR operates in two principal segments, Truck
and Financial Services.
The Truck segment includes the manufacture of
trucks and the distribution of related aftermarket
parts, both of which are sold through a network of
company-appointed dealers. This segment derives a
large propor tion of its revenues and operating profits
from operations in North America and Europe.
The Financial Services segment is composed of
finance and leasing products and services provided
to truck customers and dealers. Revenues are primarily
generated from operations in North America and Europe.
Included in All Other is PACCAR’s industrial winch
manufacturing business. Also within this category are
other sales, income and expenses not attributable to a
reportable segment, including a portion of corporate
expense. Intercompany interest income on cash advances
to the financial services companies is included in All
Other and was $15.7, $10.8 and $9.3 for 2005, 2004
and 2003. Geographic revenues from external customers
are presented based on the country of the customer.
PACCAR evaluates the performance of its Truck
segment based on operating profits, which excludes
investment income, other income and expense and
income taxes. The Financial Services segment’s
performance is evaluated based on income before
income taxes.
2003
2005
2004
Geographic Area Data
Revenues:
$ 7,161.8 $ 5,414.2 $ 3,653.9
United States
Continental Europe 2,889.5
1,928.3
1,206.7
872.3
United Kingdom
2,799.4
1,740.4
Other
$ 14,057.4 $ 11,396.3 $ 8,194.9
2,640.3
1,085.6
2,256.2
Long-lived assets:
Property, plant and equipment, net
United States
The Netherlands
Other
$ 443.0 $ 424.7 $ 371.8
217.5
304.1
$ 1,143.0 $ 1,037.8 $ 893.4
276.8
336.3
308.4
391.6
Goodwill and other intangibles, net
The Netherlands $ 105.7 $
Other
1.3
$ 107.0 $
122.7 $ 121.2
1.2
124.0 $ 122.4
1.3
Geographic Area Data
Equipment on operating leases, net
2005
2004
2003
49
United States
United Kingdom
France
Other
$ 400.7 $ 340.9 $ 198.7
301.8
155.3
310.0
$ 1,206.9 $ 1,188.5 $ 965.8
278.8
157.0
411.8
206.6
130.7
468.9
Business Segment Data
Net sales and revenues:
Truck
Total
Less intersegment
(363.3)
External customers 13,196.1
102.3
All Other
13,298.4
759.0
Financial Services
$ 13,559.4 $ 11,081.8 $ 7,894.3
(233.1)
7,661.2
59.9
7,721.1
473.8
$ 14,057.4 $ 11,396.3 $ 8,194.9
(319.5)
10,762.3
71.4
10,833.7
562.6
Income before income taxes:
Truck
All Other
Financial Services
Investment income
(3.4)
1,516.8
199.9
56.9
$ 1,520.2 $ 1,145.0 $ 655.4
(14.8)
640.6
123.6
41.3
$ 1,773.6 $ 1,368.2 $ 805.5
(5.1)
1,139.9
168.4
59.9
Depreciation and amortization:
Truck
Financial Services
All Other
$ 190.3 $ 182.1 $ 174.1
83.3
10.1
$ 370.1 $ 315.0 $ 267.5
124.0
8.9
166.6
13.2
Expenditures for long-lived assets:
Truck
Financial Services
Other
$ 419.3 $ 222.7 $ 127.2
228.1
14.0
$ 848.5 $ 633.5 $ 369.3
386.1
24.7
413.7
15.5
Segment assets:
Truck
Other
Cash and marketable
$ 2,955.8 $ 2,889.3 $ 2,470.6
163.3
174.5
187.9
securities
Financial Services
2,215.8
1,700.3
5,359.5
4,334.2
8,355.9
5,605.4
$ 13,715.4 $ 12,228.0 $ 9,939.6
2,184.1
5,247.9
6,980.1
PACCAR Inc and Subsidiaries
M A N A G E M E N T ’ S R E P O R T O N I N T E R N A L C O N T R O L O V E R
F I N A N C I A L R E P O R T I N G
50
The management of PACCAR Inc (the Company) is responsible for establishing and maintaining satisfactory
internal control over financial reporting. Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting may not prevent or detect misstatements because of its inherent
limitations. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies
and procedures may deteriorate.
Management assessed the Company’s internal control over financial reporting as of December 31, 2005, based
on criteria for effective internal control over financial reporting described in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, we concluded that the Company maintained effective internal control over financial reporting as of
December 31, 2005.
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting has
been audited by Ernst & Young LLP, an Independent Registered Public Accounting Firm, as stated in their report.
Mark C. Pigott
Chairman and Chief Executive Officer
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M
O N T H E C O M P A N Y ’ S C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Board of Directors and Stockholders
PACCAR Inc
We have audited the accompanying consolidated balance sheets of PACCAR Inc as of December 31, 2005 and
2004, and the related consolidated statements of income, stockholders’ equity, comprehensive income and cash
flows for each of the three years in the period ended December 31, 2005. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assur-
ance about whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consoli-
dated financial position of PACCAR Inc at December 31, 2005 and 2004, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of PACCAR Inc’s internal control over financial reporting as of December 31,
2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Or ganizations of the Treadway Commission, and our report dated February 17, 2006, expressed
an unqualified opinion thereon.
Seattle, Washington
February 17, 2006
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G
F I R M O N T H E C O M P A N Y ’ S I N T E R N A L C O N T R O L S
Board of Directors and Stockholders
PACCAR Inc
51
We have audited management’s assessment, included in the accompanying Management’s Report on Internal
Control over Financial Reporting, that PACCAR Inc maintained effective internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
PACCAR Inc’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, evaluating management’s
assessment, testing and evaluating the design and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
In our opinion, management’s assessment that PACCAR Inc maintained effective internal control over
financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria.
Also, in our opinion, PACCAR Inc maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of PACCAR Inc as of December 31, 2005 and 2004, and the
related consolidated statements of income, stockholders’ equity, comprehensive income and cash flows for each of
the three years in the period ended December 31, 2005, of PACCAR Inc, and our report dated February 17, 2006,
expressed an unqualified opinion thereon.
Seattle, Washington
February 17, 2006
PACCAR Inc and Subsidiaries
S E L E C T E D F I N A N C I A L D A T A
52
2005
2004
2003
2002
2001
Truck and Other Net Sales
and Revenues
$ 13,298.4
$ 10,833.7
$ 7,721.1
$ 6,786.0
$ 5,641.7
Financial Services Revenues
759.0
562.6
473.8
432.6
458.8
(millions except per share data)
Total Revenues
Net Income
Net Income Per Share:
Basic
Diluted
Cash Dividends Declared
Total Assets:
Truck and Other
Financial Services
Truck and Other Long-Term Debt
Financial Services Debt
Stockholders’ Equity
$ 14,057.4
$ 11,396.3
$ 8,194.9
$ 1,133.2
$ 906.8
$
526.5
$ 7,218.6
$ 372.0
$ 6,100.5
$ 173.6
6.60
6.56
2.87
5,359.5
8,355.9
20.2
6,226.1
3,901.1
5.19
5.16
2.75
3.01
2.99
1.37
2.15
2.13
1.00
5,247.9
6,980.1
27.8
4,788.6
3,762.4
4,334.2
5,605.4
33.7
3,786.1
3,246.4
3,590.2
5,112.3
33.9
3,527.6
2,600.7
1.01
1.00
.64
3,155.4
4,758.5
40.7
3,426.2
2,252.6
C O M M O N S T O C K M A R K E T P R I C E S A N D D I V I D E N D S
Common stock of the Company is traded on the NASDAQ National Market under the symbol PCAR. The table
be low reflects the range of trading prices as reported by NASDAQ and cash dividends declared. There were 2,187
record holders of the common stock at December 31, 2005.
quarter
First
Second
Third
Fourth
Year-End Extra
cash dividends
declared
$ .20
.21
.21
.25
2.00
2005
stock price
high
$81.38
74.04
76.61
73.59
low
$68.50
63.84
66.21
63.30
cash dividends
declared
$ .15
.20
.20
.20
2.00
2004
stock price
high
$59.82
60.70
69.25
81.42
low
$49.61
51.00
52.95
62.00
The Company expects to continue paying regular cash dividends, although there is no assurance as to future
dividends because they are dependent upon future earnings, capital requirements and financial conditions.
Q U A R T E R L Y R E S U L T S ( U N A U D I T E D )
2005
Truck and Other Net Sales and Revenues
Truck and Other Gross Profit (Before SG&A and Interest)
Financial Services Revenues
Financial Services Gross Profit (Before SG&A)
Net Income (1)
Net Income Per Share (2):
Basic
Diluted
2004
Truck and Other Net Sales and Revenues
Truck and Other Gross Profit (Before SG&A and Interest)
Financial Services Revenues
Financial Services Gross Profit (Before SG&A)
Net Income (3)
Net Income Per Share (2):
Basic
Diluted
first
second
third
fourth
53
quarter
(millions except per share data)
$3,154.6
$3,372.9
$3,345.4
$3,425.5
464.9
171.4
75.1
274.0
496.5
182.5
80.0
241.5
502.9
195.6
83.2
304.8
493.6
209.5
86.9
312.9
$ 1.57
1.56
$ 1.40
1.39
$ 1.79
1.78
$ 1.85
1.83
$2,374.3
$2,653.4
$2,774.7
$3,031.3
330.8
127.0
59.6
182.2
398.2
133.4
64.4
236.5
395.8
143.1
69.0
246.7
440.3
159.1
73.5
241.4
$ 1.04
1.03
$ 1.35
1.34
$ 1.42
1.41
$ 1.39
1.38
(1) Second quarter net income includes a $64.0 income tax provision for repatriation of foreign earnings.
(2) The sum of quarterly per share amounts may not equal per share amounts reported for year-to-date
periods. This is due to changes in the number of weighted shares outstanding and the effects of rounding
for each period.
(3) Fourth quarter net income includes $23.3 for costs associated with the termination of an agreement regarding
distribution of Leyland parts in the United Kingdom and $5.4 for a gain on the sale of real estate.
Third quarter net income includes a $9.5 tax benefit related to higher expected utilization of net operating
loss carryforwards in the United Kingdom.
PACCAR Inc and Subsidiaries
M A R K E T R I S K S A N D D E R I V A T I V E I N S T R U M E N T S
(currencies in millions)
54
Interest Rate Risks – See Note P for a description of the Company’s hedging programs and exposure to interest rate
fluctuations. The Company measures its interest rate risk by estimating the amount by which the fair value of
interest rate sensitive assets and liabilities, including derivative financial instruments, would change assuming
an immediate 100 basis point increase across the yield curve as shown in the following table:
Fair Value Gains (Losses)
C O N S O L I D AT E D :
Assets
Cash equivalents and marketable securities
T R U C K A N D O T H E R :
Liabilities
Borrowings and related swaps:
2005
2004
$ (6.1)
$ (9.9)
Long-term debt
Interest rate swaps related to commercial paper classified as long-term debt
.6
(0.1)
.7
.2
F I N A N C I A L S E RV I C E S :
Assets
Loans and wholesale financing, net of unearned interest,
less allowance for losses
Liabilities
Term debt
Interest rate swaps related to financial services debt
Total
(46.7)
(40.2)
.9
54.6
$ 3.2
.9
45.0
$ (3.3)
Currency Risks – The Company enters into foreign exchange forward contracts to hedge its exposure to exchange
rate fluctuations of foreign currencies, particularly the Canadian dollar, the euro, the British pound and the
Mexican peso (See Note P for additional information concerning these hedges). The Company uses a sensitivity anal-
ysis to evaluate its exposure to foreign currency exchange rate fluctuations. This analysis measures the potential
gain or loss in the fair value of forward contracts based on a percentage increase or decrease in exchange rates
relative to the U.S. dollar. A hypothetical 10% weakening of the U.S. dollar relative to all other currencies would
result in a potential unrealized loss of $31.3 related to contracts outstanding at December 31, 2005, compared to
$17.9 at December 31, 2004. These amounts would be largely offset by changes in the values of the underlying
hedged exposures.
O F F I C E R S A N D D I R E C T O R S
O F F I C E R S
Mark C. Pigott
Chairman and
Chief Executive Officer
Michael A. Tembreull
Vice Chairman
Thomas E. Plimpton
President
James G. Cardillo
Senior Vice President
Kenneth R. Gangl
Senior Vice President
Ronald E. Armstrong
Vice President and Controller
David C. Anderson
Vice President and
General Counsel
Richard E. Bangert, II
Vice President
Robert J. Christensen
Vice President
Aad Goudriaan
Vice President
Timothy M. Henebry
Vice President
William D. Jackson
Vice President
55
Thomas A. Lundahl
Vice President
Helene N. Mawyer
Vice President
Janice B. Skredsvig
Vice President and
Chief Information Officer
Daniel D. Sobic
Vice President
George E. West, Jr.
Vice President
Andrew J. Wold
Treasurer
Janice M. D’Amato
Secretary
D I R E C T O R S
Mark C. Pigott
Chairman and
Chief Executive Officer
PACCAR Inc (3)
Alison J. Carnwath
Chairman, Management Board
ISIS Equity Partners, LLP (2)
John M. Fluke, Jr.
Chairman
Fluke Capital Management, L.P. (1,2)
David K. Newbigging OBE
Chairman
Talbot Holdings Limited (2,4)
James C. Pigott
President
Pigott Enterprises, Inc. (3,4)
Stephen F. Page
Retired Vice Chairman and
Chief Financial Officer
United Technologies Corporation (1,4)
Robert T. Parry
Retired President and
Chief Executive Officer
Federal Reserve Bank
of San Francisco (2)
William G. Reed, Jr.
Retired Chairman
Simpson Investment Company (1,3)
Michael A. Tembreull
Vice Chairman
PACCAR Inc
Harold A. Wagner
Retired Chairman
Air Products and Chemicals, Inc. (1)
C O M M I T T E E S O F T H E B O A R D
( 1 ) A U D I T C O M M I T T E E
( 2 ) C O M P E N S A T I O N C O M M I T T E E
( 3 ) E X E C U T I V E C O M M I T T E E
( 4 ) N O M I N A T I N G C O M M I T T E E
PACCAR Inc and Subsidiaries
D I V I S I O N S A N D S U B S I D I A R I E S
Leyland Trucks Ltd.
Croston Road
Leyland, Preston
Lancs PR26 6LZ
United Kingdom
Factory:
Leyland, Lancashire
Kenworth Méxicana,
S.A. de C.V.
Kilometro 10.5
Carretera a San Luis
Mexicali, Baja California
Mexico
Factory:
Mexicali, Baja California
PACCAR
Australia Pty. Ltd.
Kenworth Trucks
64 Canterbury Road
Bayswater, Victoria 3153
Australia
Factory:
Bayswater, Victoria
T R U C K P A R T S
A N D S U P P L I E S
PACCAR Parts
Division Headquarters:
750 Houser Way N.
Renton, Washington 98055
Dynacraft
Division Headquarters:
650 Milwaukee Avenue N.
Algona, Washington 98001
PacLease Méxicana
S.A. de C.V.
Kilometro 10.5
Carretera a San Luis
Mexicali, Baja California
Mexico
PACCAR Financial
Services Ltd.
Markborough Place I
6711 Mississauga Road N.
Mississauga, Ontario
L5N 4J8 Canada
PACCAR Financial
Pty. Ltd.
64 Canterbury Road
Bayswater, Victoria 3153
Australia
PACCAR Leasing Company
Division of PACCAR
Financial Corp.
PACCAR Building
777 106th Avenue N.E.
Bellevue, Washington 98004
E X P O R T S A L E S
PACCAR International
Division Headquarters:
PACCAR Building
777 106th Avenue N.E.
Bellevue, Washington 98004
Offices:
Beijing, People’s Republic
of China
Jakarta, Indonesia
Manama, Bahrain
Miami, Florida
Sandbach, United Kingdom
W I N C H E S
PACCAR Winch Division
Division Headquarters:
800 E. Dallas Street
Broken Arrow, Oklahoma
74012
Factories:
Broken Arrow, Oklahoma
Okmulgee, Oklahoma
P R O D U C T T E S T I N G ,
R E S E A R C H A N D
D E V E L O P M E N T
PACCAR Technical Center
Division Headquarters:
12479 Farm to Market Road
Mount Vernon, Washington
98273
DAF Trucks Test Center
Weverspad 2
5491 RL St. Oedenrode
The Netherlands
P A C C A R F I N A N C I A L
S E R V I C E S G R O U P
PACCAR Financial Corp.
PACCAR Building
777 106th Avenue N.E.
Bellevue, Washington 98004
PACCAR Financial
Europe B.V.
Hugo van der Goeslaan 1
P.O. Box 90065
5600 PT Eindhoven
The Netherlands
PACCAR Capital
México S.A. de C.V.
Kilometro 10.5
Carretera a San Luis
Mexicali, Baja California
Mexico
56
T R U C K S
Kenworth Truck Company
Division Headquarters:
10630 N.E. 38th Place
Kirkland, Washington 98033
Factories:
Chillicothe, Ohio
Renton, Washington
Peterbilt
Motors Company
Division Headquarters:
1700 Woodbrook Street
Denton, Texas 76205
Factories:
Denton, Texas
Madison, Tennessee
PACCAR of Canada Ltd.
Markborough Place I
6711 Mississauga Road N.
Mississauga, Ontario
L5N 4J8 Canada
Factory:
Ste-Thérèse, Quebec
Canadian Kenworth
Company
Division Headquarters:
Markborough Place I
6711 Mississauga Road N.
Mississauga, Ontario
L5N 4J8 Canada
Peterbilt of Canada
Division Headquarters:
Markborough Place I
6711 Mississauga Road N.
Mississauga, Ontario
L5N 4J8 Canada
DAF Trucks N.V.
Hugo van der Goeslaan 1
P.O. Box 90065
5600 PT Eindhoven
The Netherlands
Factories:
Eindhoven,
The Netherlands
Westerlo, Belgium
S T A T E M E N T O F C O M P A N Y B U S I N E S S
S T O C K H O L D E R S ’
I N F O R M A T I O N
As a multinational technology company, PACCAR manufactures heavy-duty,
on- and off-road Class 8 trucks sold around the world under the Kenworth,
Peterbilt and DAF nameplates. The company competes in the North American
Class 6-7 market with its medium-duty models assembled in North America and
sold under the Peterbilt and Kenworth nameplates. In addition, DAF manufactures
Class 6-7 trucks in the Netherlands and Belgium for sale throughout Europe, the
Middle East and Africa and distributes Class 4-7 trucks in Europe manufactured
by Leyland Trucks (UK). PACCAR manufactures and markets industrial winches
under the Braden, Gearmatic and Carco nameplates and competes in the truck
parts aftermarket through its dealer network. Finance and Leasing subsidiaries
facilitate the sale of PACCAR products in many countries worldwide. Significant
company assets are employed in financial services activities. PACCAR
maintains exceptionally high standards of quality for all of its products: they
are well-engineered, are 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 ownership.
C O N T E N T S
1
Financial Highlights
2 Message to Shareholders
6
PACCAR Operations
22 Financial Charts
23 Management’s Discussion and Analysis
31 Consolidated Statements of Income
32 Consolidated Balance Sheets
34 Consolidated Statements of Cash Flows
35 Consolidated Statements
of Stockholders’ Equity
36 Consolidated Statements
of Comprehensive Income
36 Notes to Consolidated Financial Statements
50 Management’s Report on Internal Control
Over Financial Reporting
50 Report of Independent Registered Public
Accounting Firm on the Company’s
Consolidated Financial Statements
51 Report of Independent Registered Public
Accounting Firm on the Company’s
Internal Controls
Selected Financial Data
52
52 Common Stock Market Prices and Dividends
53 Quarterly Results
54 Market Risks and Derivative Instruments
55 Officers and Directors
56 Divisions and Subsidiaries
Corporate Offices
PACCAR Building
777 106th Avenue N.E.
Bellevue, Washington
98004
Mailing Address
P.O. Box 1518
Bellevue, Washington
98009
Telephone
425.468.7400
Facsimile
425.468.8216
Homepage
http://www.paccar.com
Stock Transfer
and Dividend
Dispersing Agent
Wells Fargo Bank
Minnesota, N.A.
Shareowner Services
P.O. Box 64854
St. Paul, Minnesota
55164-0854
800.468.9716
www.wellsfargo.com/
shareownerservices
PACCAR’s transfer agent
maintains the company’s
shareholder records, issues
stock certificates and
distributes dividends and
IRS Form 1099. Requests
concerning these matters
should be directed to
Wells Fargo.
Online Delivery of
Annual Report and Proxy
Statement
PACCAR’s 2005 Annual
Report and the 2006 Proxy
Statement are available on
PACCAR’s Web site at www.
paccar.com/financials.asp
Registered stockholders
can sign up to receive future
proxy statements and annual
reports in electronic format,
instead of receiving paper
documents, by visiting www.
econsent.com/pcar/
Stockholders who hold
PACCAR stock in street
name may inquire of their
bank or broker about the
availability of electronic
delivery of annual
meeting documents.
Braden, Carco, DAF,
DYNACRAFT, Foden,
Gearmatic, INLINE,
Kenworth, Leyland,
MIRREX, PACCAR,
PacLease, Peterbilt and
ROADLEVELER are
trademarks owned by
PACCAR Inc and its
subsidiaries.
Independent Auditors
Ernst & Young LLP
Seattle, Washington
SEC Form 10-K
PACCAR’s annual report
to the Securities and
Exchange Commission
will be furnished to
stockholders on request
to the Corporate
Secretary, PACCAR Inc,
P.O. Box 1518, Bellevue,
Washington 98009. It is
also available online at
www.paccar.com/
financials.asp, under
SEC Filings.
Annual Stockholders’
Meeting
April 25, 2006, 10:30 a.m.
Meydenbauer Center
11100 N.E. Sixth Street
Bellevue, Washington
98004
An Equal Opportunity
Employer
This report was printed
on recycled paper.
2 0 0 5 A N N U A L R E P O R T