PACCAR INC (PCAR)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW:

PACCAR is a global technology company whose Truck segment includes the design and manufacture of high-quality light-, medium- and heavy-duty commercial trucks. In the U.S. and Canada, trucks are sold under the Kenworth and Peterbilt nameplates, in Europe, under the DAF nameplate and in Mexico, Australia and South America, under the Kenworth and DAF nameplates. The Parts segment includes the distribution of aftermarket parts for trucks and related commercial vehicles. The Company’s Financial Services segment derives its earnings primarily from financing or leasing PACCAR products in North America, Europe, Australia and South America.

First Quarter Financial Highlights:

•
Worldwide net sales and revenues were $6.78 billion in 2026 compared to $7.44 billion in 2025, primarily due to lower truck revenues, partially offset by higher parts and financial services revenues.

•
Truck sales were $4.53 billion in 2026 compared to $5.23 billion in 2025, due to lower truck deliveries in all major markets except Europe.

•
Parts sales were $1.71 billion in 2026 compared to $1.69 billion in 2025.

•
Financial Services revenues were $542.2 million in 2026 compared to $528.0 million in 2025.

•
Net income was $605.3 million ($1.15 per diluted share) in 2026 compared to $505.1 million ($.96 per diluted share) in 2025. In 2025, adjusted net income (non-GAAP), excluding a $264.5 million after-tax charge related to civil litigation in Europe, was $769.6 million ($1.46 per diluted share). See Reconciliation of GAAP to Non-GAAP Financial Measures on page 45.

•
Capital investments were $135.5 million in 2026 compared to $171.9 million in 2025.

•
Research and development (R&D) expenses were $109.1 million in 2026 compared to $115.4 million in 2025.

Kenworth recently unveiled the new Kenworth C580 truck in the heavy-duty vocational segment. The C580 is designed to meet the most demanding vocational applications, such as mining and off-highway petroleum field work. DAF Trucks expanded its range of battery-electric trucks to include multiple axle tractor and rigid models for specific vocational applications such as construction. The new chassis models are available for the XD and XF Electric, which recently won the International Truck of the Year 2026, and for the larger XG and XG+ Electric, which feature the most spacious cabs in the European truck market.

The PACCAR Financial Services (PFS) group of companies has operations covering four continents and 26 countries. The global breadth of PFS and its rigorous credit application process support a portfolio of loans and leases with total assets of $22.35 billion. PFS issued $400.0 million in medium-term notes during the first three months of 2026 to support new business volume and market share growth and repay maturing debt.

Truck Outlook

Truck industry heavy-duty retail sales in the U.S. and Canada in 2026 are expected to be 230,000 to 270,000 units compared to 232,800 in 2025. In Europe, the 2026 truck industry registrations for over 16-tonne vehicles are expected to be 280,000 to 320,000 units compared to 297,000 in 2025. In South America, heavy-duty truck industry registrations in 2026 are projected to be 100,000 to 110,000 units compared to 115,000 in 2025.

The Company has taken mitigating actions to reduce the impact from import tariffs on truck order intake. The Company's North American truck factories are optimally located to operate under the new Section 232 truck tariffs that began in November 2025. The Company’s tariff exposure is minimized by producing trucks locally for the United States, Canada and Mexico. The Company manufactures its trucks for U.S. customers in its Ohio, Texas, and Washington state factories. Further on February 20, 2026, the United States Supreme Court issued a decision invalidating tariffs imposed under the International Emergency Economic Powers Act (IEEPA). This decision may provide tariff relief and the potential recovery of amounts previously paid.

- 32 -

The U.S. Environmental Protection Agency announcement reaffirmed the EPA27 NOx limit. It could make

changes to extended warranty requirements, useful life requirements or other modifications to new emissions systems.

The Company's results could be impacted by further changes in tariff policy, geopolitical uncertainty, emissions regulations and improving freight fundamentals.

Parts Outlook

In 2026, PACCAR Parts sales are expected to increase 3-6% compared to 2025, depending on the economic conditions.

Financial Services Outlook

In 2026, average earning assets are expected to be comparable to 2025. The used truck market has begun improving. If freight transportation conditions decline due to a weaker economy, then past due accounts, truck repossessions and credit losses would likely increase from the current levels and new business volume and average earning assets would likely decline.

Capital Investments and R&D Outlook

Capital investments in 2026 are expected to be $725 to $775 million and R&D is expected to be $450 to $500 million. PACCAR is increasing its investment in next generation internal combustion, hybrid and battery-electric powertrains, integrated connected vehicle services, advanced manufacturing capabilities, and the Company's autonomous vehicle platform.

In addition to the capital and R&D investments, the Company expects to continue investing in its U.S.-based battery joint venture, Amplify Cell Technologies. During the first quarter, expectations on electric vehicle demand in the commercial vehicle market continued to change. As a result, the Company and its joint venture partners agreed to finish building out the facility, and adjust the timing for installing the manufacturing capacity. As a result of these changes the production start date will be extended. See discussion in Note A.

See the Forward-Looking Statements section of Management’s Discussion and Analysis for factors that may affect these outlooks.

RESULTS OF OPERATIONS:

The Company’s results of operations for the three months ended March 31, 2026 and 2025 are presented below.

* In 2025, Other includes a $350.0 million charge related to civil litigation in Europe (EC-related claims).

- 33 -

The following provides an analysis of the results of operations for the Company’s three reportable segments - Truck, Parts and Financial Services. Where possible, the Company has quantified the impact of factors identified in the following discussion and analysis. In cases where it is not possible to quantify the impact of factors, the Company lists them in estimated order of importance. Factors for which the Company is unable to specifically quantify the impact include market demand and impact from tariffs, fuel prices, geopolitical events, freight tonnage and economic conditions affecting the Company’s results of operations.

2026 Compared to 2025:

Truck

The Company’s Truck segment accounted for 67% of revenues in the first quarter of 2026 compared to 70% in the first quarter of 2025.

The Company’s new truck deliveries are summarized below:

Worldwide new truck deliveries decreased in the first quarter of 2026 compared to the same period of 2025, reflecting lower retail demand in all major markets except Europe.

Market share data discussed below is provided by third-party sources and is measured by either retail sales or registrations for the Company’s dealer network as a percentage of total retail sales or registrations depending on the geographic market. In the U.S. and Canada, market share is based on retail sales. In Europe, market share is based primarily on registrations.

In the first three months of 2026, industry retail sales in the heavy-duty market in the U.S. and Canada was 44,900 units compared to 56,600 units in the same period of 2025. The Company’s heavy-duty truck retail market share was 29.4% in the first three months of 2026 compared to 29.1% in the first three months of 2025. The medium-duty market was 22,500 units in the first three months of 2026 compared to 26,000 units in the same period of 2025. The Company’s medium-duty market share was 12.8% in the first three months of 2026 compared to 14.5% in the first three months of 2025.

The over 16‑tonne truck market in Europe in the first three months of 2026 was 79,800 units compared to 72,000 units in the first three months of 2025. DAF over 16‑tonne market share was 13.1% in the first three months of 2026 compared to 14.0% in the same period of 2025. The 6 to 16‑tonne market in the first three months of 2026 was 8,800 units compared to 9,700 units in the same period of 2025. DAF market share in the 6 to 16-tonne market in the first three months of 2026 was 9.6% compared to 10.7% in the same period of 2025.

The over 16-tonne truck market in Brasil in the first three months of 2026 was 16,900 units compared to 21,500 units in the same period of 2025. DAF Brasil market share for the first three months of 2026 was 9.2% compared to 9.6% in the same period in 2025.

The Company’s worldwide truck net sales and revenues are summarized below:

- 34 -

The Company’s worldwide truck net sales and revenues in the first quarter decreased to $4.53 billion in 2026 from $5.23 billion in 2025, primarily due to lower unit truck deliveries from lower retail demand.

In the first quarter of 2026, Truck segment income before income taxes and pre-tax return on revenues decreased primarily due to lower truck unit deliveries from lower retail demand, reflecting economic conditions as well as higher tariff costs resulting from current trade policies, primarily in the U.S.

The major factors for the Truck segment changes in net sales and revenues, cost of sales and revenues and gross margin between the three months ended March 31, 2026 and 2025 are as follows:

[[GREPCENT_TABLE]]
[["","","NET","","","COST OF"],["","","SALES AND","","","SALES AND","","","GROSS"],["($

[Excerpt truncated for page length; source filing is linked above.]

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW:

PACCAR is a global technology company whose Truck segment includes the design and manufacture of high-quality light-, medium- and heavy-duty commercial trucks. In the U.S. and Canada, trucks are sold under the Kenworth and Peterbilt nameplates, in Europe, under the DAF nameplate and in Mexico, Australia and South America, under the Kenworth and DAF nameplates. The Parts segment includes the distribution of aftermarket parts for trucks and related commercial vehicles. The Company’s Financial Services segment derives its earnings primarily from financing or leasing PACCAR products in North America, Europe, Australia and South America.

2025 Financial Highlights

•
Worldwide net sales and revenues were $28.44 billion in 2025 compared to $33.66 billion in 2024, primarily due to lower truck revenues, partially offset by higher parts and financial services revenues.

•
Truck sales were $19.37 billion in 2025 compared to $24.84 billion in 2024 due to lower truck deliveries in all major markets.

•
Parts sales were $6.87 billion in 2025 compared to $6.67 billion in 2024, reflecting higher sales in the U.S. and Canada

and Europe.

•
Financial Services revenues were $2.21 billion in 2025 compared to $2.10 billion in 2024, primarily due to higher interest income driven by retail portfolio growth and higher portfolio yields.

•
In 2025, PACCAR earned net income for the 87th consecutive year. Net income was $2.38 billion ($4.51 per diluted share) in 2025 compared to $4.16 billion ($7.90 per diluted share) in 2024.

•
Adjusted net income (non-GAAP), excluding a $264.5 million after-tax charge related to civil litigation in Europe, was $2.64 billion ($5.01 per diluted share). After-tax return on beginning equity (ROE) was 13.6% in 2025, which includes the $264.5 million after-tax charge related to civil litigation in Europe in the first quarter of this year. Excluding the after-tax charge, adjusted ROE (non-GAAP) was 15.1%. This compares to an ROE of 26.2% in 2024. See Reconciliation of GAAP to Non-GAAP Financial Measures on page 31.

•
Capital investments were $728.5 million in 2025 compared to $795.8 million in 2024.

•
Research and development (R&D) expenses were $445.5 million in 2025 compared to $452.9 million in 2024.

Kenworth constructed a 46,000 square-foot robotic chassis paint facility in Chillicothe, Ohio. PACCAR also completed a new $35 million, 50,000 square-foot engine remanufacturing facility and is enhancing its existing engine factory in Columbus, Mississippi. PACCAR is also enhancing its other engine facility in the Netherlands. PACCAR opened a new 180,000 square-foot Parts Distribution Center (PDC) in Calgary, Canada, to enhance parts delivery to dealers and customers in the region.

The PACCAR Financial Services (PFS) group of companies has operations covering four continents and 26 countries. The global breadth of PFS and its rigorous credit application process support a portfolio of loans and leases with total assets of $22.80 billion. PFS issued $3.12 billion in medium-term notes during 2025 to support new business volume and market share growth and repay maturing debt.

Truck Outlook

Truck industry heavy-duty retail sales in the U.S. and Canada in 2026 are expected to be 230,000 to 270,000 units compared to 232,800 in 2025. In Europe, the 2026 truck industry registrations for over 16-tonne vehicles are expected to be 280,000 to 320,000 units compared to 297,000 in 2025. In South America, heavy-duty truck industry registrations in 2026 are projected to be 100,000 to 110,000 compared to 115,000 in 2025.

The Company's truck and parts products have been negatively affected since March 2025 by import tariffs imposed by the U.S. government and actions taken by other countries. While the Company has taken mitigating actions to reduce the impact, the ongoing impact from import tariffs on truck order intake and profit margins remains unfavorable. The Company's North American truck factories are optimally located to operate under the new Section 232 truck tariffs that began in November 2025. The Company’s tariff exposure is minimized by producing trucks locally for the United States, Canada and Mexico. The Company manufactures its trucks for U.S. customers in its Ohio, Texas, and Washington state factories.

17

The recent U.S. Environmental Protection Agency announcement reaffirmed the EPA27 NOx limit and could eliminate changes to extended warranty requirements and useful life requirements on new emissions systems. The Company's results could be impacted by changes in tariff policy, including the expected U.S. Supreme Court ruling on the International Emergency Economic Power Acts (IEEPA) tariffs, emissions regulations and improving freight fundamentals.

Parts Outlook

In 2026, PACCAR Parts sales are expected to increase 4-8% compared to 2025, depending on the economic conditions.

Financial Services Outlook

In 2026, average earning assets are expected to be comparable to 2025. The used truck market has been improving, which is reflected in PFS' quarterly results this year. If freight transportation conditions decline due to a weaker economy, then past due accounts, truck repossessions and credit losses would likely increase from the current levels and new business volume and average earning assets would likely decline.

Capital Investments and R&D Outlook

PACCAR's excellent long-term profits, strong balance sheet and consistent focus on quality have enabled the Company to invest $9.2 billion in new and expanded facilities, innovative products and new technologies during the past decade. Capital investments in 2026 are expected to be $725 to $775 million, and R&D is expected to be $450 to $500 million. PACCAR is investing in next generation clean diesel and alternative powertrains, integrated connected vehicle services, flexible manufacturing capabilities and autonomous and advanced driver assistance systems that create value for customers. The Company is embedding artificial intelligence across its business to drive innovation, profitable growth and enhanced performance for the Company's customers. In addition to the capital and R&D investments, the Company expects to continue investing in its U.S.-based battery joint venture, Amplify Cell Technologies.

See the Forward-Looking Statements section of Management’s Discussion and Analysis for factors that may affect these outlooks.

18

RESULTS OF OPERATIONS:

The Company’s results of operations for the years ended December 31, 2025 and 2024 are presented below. For information on the year ended December 31, 2023, refer to Part II, Item 7 in the 2024 Annual Report on Form 10-K.

* In 2025, Other includes a $350.0 million charge related to civil litigation in Europe (EC-related claims) in the first quarter 2025. In 2024, Other includes a $14.0 million gain on sale of the winch business.

The following provides an analysis of the results of operations for the Company’s three reportable segments - Truck, Parts and Financial Services. Where possible, the Company has quantified the impact of factors identified in the following discussion and analysis. In cases where it is not possible to quantify the impact of factors, the Company lists them in estimated order of importance. Factors for which the Company is unable to specifically quantify the impact include market demand and impact from tariffs, fuel prices, freight tonnage and economic conditions affecting the Company’s results of operations.

2025 Compared to 2024:

Truck

The Company’s Truck segment accounted for 68% of revenues in 2025 compared to 74% in 2024.

The Company’s new truck deliveries are summarized below:

Worldwide new truck deliveries decreased in 2025 compared to 2024, reflecting lower retail demand in all major markets.

Market share data discussed below is provided by third-party sources and is measured by either retail sales or registrations for the Company’s dealer network as a percentage of total retail sales or registrations depending on the geographic market. In the U.S. and Canada, market share is based on retail sales. In Europe, market share is based primarily on registrations.

In 2025, industry retail sales in the heavy-duty market in the U.S. and Canada was 232,800 units compared to 268,100 units in 2024. The Company’s heavy-duty truck retail market share was 29.9% in 2025 compared to 30.7% in 2024. The medium-duty market was 88,400 units in 2025 compared to 110,400 units in 2024. The Company’s medium-duty market share was 15.9% in 2025 compared to 18.0% in 2024.

19

The over 16-tonne truck market in Europe in 2025 decreased to 297,000 units from 316,100 units in 2024, and DAF’s market share was 13.5% in 2025 compared to 14.4% in 2024. The 6 to 16-tonne market was 40,900 units in 2025 and 50,900 units in 2024. DAF’s market share in the 6 to 16-tonne market in 2025 was 9.7% compared to 9.5% in 2024.

The over 16-tonne truck market in Brasil in 2025 was 86,700 units compared to 97,700 units in 2024, and DAF Brasil's market share was 8.6% in 2025 compared to 9.9% in 2024.

The Company’s worldwide truck net sales and revenues are summarized below:

The Company’s worldwide truck net sales and revenues decreased to $19.37 billion in 2025 from $24.84 billion in 2024 primarily due to lower truck unit deliveries in all major markets from lower retail demand. Truck segment income before income taxes and pre-tax return on revenues decreased primarily due to lower truck unit deliveries in all major markets from lower retail demand, reflecting economic conditions as well as higher tariff costs resulting from current trade policies primarily in the U.S.

The major factors for the Truck segment changes in net sales and revenues, cost of sales and revenues and gross margin between 2025 and 2024 are as follows:

•
Truck sales volume decreased revenues by $5,333.6 million and costs by $4,489.9 million, primarily reflecting lower truck deliveries in all major markets.

•
Average truck sales prices decreased sales by $306.2 million, primarily due to lower price realization in the U.S. and Canada and Europe, reflecting an increased competitive environment, partially offset by tariff price increases in the U.S.

•
Average cost per truck increased cost of sales by $962.2 million, primarily reflecting higher regulatory and other truck content, increased tariff costs and product support accruals.

•
Factory overhead and other indirect costs decreased $188.6 million, primarily due to lower labor costs, maintenance

costs and factory supplies from lower truck build rates.

•
Extended warranties, operating leases and other increased revenues by $41.2 million primarily due to a higher portfolio of extended warranty and repair and maintenance (R&M) contracts and higher dealer support services. The increase in cost of sales of $80.0 million reflects the higher warranty and R&M contracts and higher used truck costs, primarily in Europe.

20

•
The currency translation effect on sales and cost of sales primarily reflects an increase in the value of the euro relative to the U.S. dollar, partially offset by the decrease in value of the Brazilian real, Canadian dollar and Australian dollar relative to the U.S. dollar.

•
Truck gross margin was 7.5% in 2025 compared to 13.9% in 2024 due to the factors noted above.

Truck SG&A expenses in 2025 decreased to $237.7 million from $254.2 million in 2024. The decrease was primarily due to lower salaries and related expenses, lower professional fees and lower travel and entertainment expenses, partially offset by higher sales and marketing expenses. As a percentage of sales, Truck SG&A was 1.2% in 2025 and 1.0% in 2024.

Parts

The Company’s Parts segment accounted for 24% of revenues in 2025 compared to 20% in 2024.

The Company’s worldwide parts net sales and revenues increased to $6.87 billion in 2025 from $6.67 billion in 2024 primarily due to higher sales in the U.S. and Canada and Europe.

The major factors for the Parts segment changes in net sales and revenues, cost of sales and revenues and gross margin between 2025 and 2024 are as follows:

•
Aftermarket parts sales volume decreased by $143.1 million and related cost of sales decreased by $69.6 million. The

decrease in parts sales and costs reflects lower sales volume, primarily Europe and Mexico.

•
Average aftermarket parts sales prices increased sales by $307.3 million, primarily due to price realization in the U.S. and Canada as well as tariff cost increases in the U.S.

•
Average aftermarket parts direct costs increased $213.7 million due to higher material costs and higher tariff costs,

primarily in the U.S.

•
Warehouse and other indirect costs increased $46.1 million, primarily due to higher indirect costs, including depreciation

expense.

•
The currency translation effect on sales and cost of sales primarily reflects an increase in the value of the euro relative to the U.S. dollar, partially offset by a decrease in the value of the Australian dollar and Canadian dollar relative to the U.S. dollar.

•
Parts gross margin was 29.9% in 2025 compared to 30.9% in 2024 due to the factors noted above.

21

Parts SG&A expense in 2025 increased to $257.8 million from $246.4 million in 2024. The increase was primarily due to higher salaries and related expenses. As a percentage of sales, Parts SG&A was 3.8% in 2025 and 3.7% in 2024.

Financial Services

The Company’s Financial Services segment accounted for 8% of revenues in 2025 compared to 6% in 2024.

New loan and lease volume was $6.88 billion in 2025 compared to $7.50 billion in 2024. The decrease in new loan and finance lease volume was primarily due to lower new loan and lease volume from lower retail sales of PACCAR trucks and currency translation effects, partly offset by higher finance market share of new PACCAR truck sales. PFS finance market share of new PACCAR truck sales was 27.0% in 2025 compared to 25.0% in 2024, reflecting higher shares in all markets. The decrease in equipment on operating lease volume was primarily due to lower market demand in the U.S. and Canada and Mexico. The effect of currency translation decreased new loan and lease volume by $28.3 million, primarily due to a decrease in the value of the Mexican peso and Brazilian real relative to the U.S. dollar, partially offset by an increase in the value of the euro relative to the U.S. dollar.

22

PFS revenues increased to $2.21 billion in 2025 from $2.10 billion in 2024. The increase was primarily driven by portfolio growth in all markets except Europe. The effects of currency translation decreased PFS revenues by $9.9 million in 2025, primarily due to a decrease in the value of the Mexican peso and Brazilian real relative to the U.S. dollar, partially offset by an increase in the value of the euro relative to the U.S. dollar.

PFS income before income taxes increased to $485.4 million in 2025 from $435.6 million in 2024, due to higher finance margins from a higher loan and finance lease portfolio, and higher operating lease margins from operating lease portfolio, partially offset by a higher provision for losses on receivables. The effect of currency translation decreased PFS income before income taxes by $13.2 million in 2025, primarily due to a decrease in the value of the Mexican peso and Brazilian real relative to the U.S. dollar.

Included in Financial Services, Other assets on the Company’s Consolidated Balance Sheets are used trucks held for sale, net of impairments, of $389.4 million at December 31, 2025 and $396.5 million at December 31, 2024. These trucks are primarily units returned from matured operating leases in the ordinary course of business, and also include trucks acquired from repossessions, through acquisitions of used trucks in trades related to new truck sales and trucks returned from residual value guarantees (RVGs).

The Company recognized losses on used trucks, excluding repossessions, of $38.8 million in 2025 compared to $59.0 million in 2024, including $35.5 million of losses on multiple unit transactions in 2025 compared to $40.3 million in 2024. Used truck losses related to repossessions, which are recognized as credit losses, were $11.5 million in 2025 and $9.8 million in 2024.

The major factors for the changes in interest and fees, interest and other borrowing expenses and finance margin between 2025 and 2024 are outlined below:

•
Average finance receivables increased $1.60 billion (excluding foreign exchange effects), increasing interest and fees by $120.3 million in 2025, primarily due to higher average loan, finance lease and dealer wholesale balances in the U.S. and Canada, Brasil and Mexico.

•
Average debt balances increased $879.3 million (excluding foreign exchange effects), increasing interest and other borrowing costs by $48.5 million in 2025, reflecting higher funding requirements for portfolio growth in loans, finance leases and dealer wholesale receivables.

•
Higher portfolio yields (7.4% in 2025 compared to 7.3% in 2024) increased interest and fees by $28.9 million. The higher portfolio yields were primarily due to higher market rates on new portfolio assets, primarily in the U.S. and Brasil.

•
Higher borrowing rates (5.1% in 2025 compared to 4.7% in 2024) increased interest and other borrowing expenses by $31.7 million and were primarily due to higher debt market rates in all markets except Canada.

•
The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the Mexican peso and Brazilian real.

23

The following table summarizes operating lease, rental and other revenues and depreciation and other expenses:

The major factors for the changes in operating lease, rental and other revenues, depreciation and other expenses and lease margin between 2025 and 2024 are outlined below:

•
Used truck sales from used trucks received on trade increased revenues by $6.8 million and increased related depreciation and other expenses by $6.3 million, primarily reflecting improved used truck market prices.

•
Results on returned lease assets decreased depreciation and other expenses by $18.5 million, primarily due to lower losses on sale of returned lease units in 2025 and lower impairment on existing used truck inventories.

•
Average operating lease assets decreased $221.0 million (excluding foreign exchange effects), which decreased revenues by $106.2 million and related depreciation and other expenses by $87.9 million.

•
Revenue per asset increased $65.9 million primarily due to higher average truck values financed. Cost per asset increased $28.5 million due to higher depreciation and operating expenses, mainly in Europe and Mexico.

•
The currency translation effects reflect an increase in the value of foreign currencies relative to the U.S. dollar, primarily the euro.

Financial Services SG&A expense of $159.2 million in 2025 was comparable to $159.0 million in 2024. As a percentage of average earning assets, Financial Services SG&A was .7% in 2025 and .8% in 2024.

The following table summarizes the provision for losses on receivables and net charge-offs:

24

The provision for losses on receivables increased to $124.5 million in 2025 from $75.6 million in 2024, primarily due to a higher provision in Brasil and the U.S., reflecting an increase in 30+ days past due accounts and growth in retail portfolios. Net charge-offs increased to $85.0 million in 2025 from $53.5 million in 2024. The increased charge-offs in the U.S. and Canada were driven by a soft truckload market and included several large fleet customers, which were provisioned for previously. Higher charge-offs in Brasil reflected a decline in market conditions, including elevated interest rates.

The Company modifies loans and finance leases as a normal part of its Financial Services operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company’s modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification. When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts that the Company considers likely to perform under the modified terms.

The post-modification balances of accounts modified during the years ended December 31, 2025 and 2024 are summarized below:

* Amortized cost basis immediately after modification as a percentage of the year-end retail portfolio balance.

Modification activity increased to $1,175.3 million in 2025 from $994.5 million in 2024. The decrease in modifications for commercial reasons primarily reflects lower volumes of refinancing, primarily in the U.S. The increase related to Insignificant delay modifications reflects an increase in customers requesting payment relief for up to three months, primarily in the U.S. These customers were predominantly not past due at the time of modification and at December 31, 2025. The increase in Credit modifications reflects higher volumes of contract modifications for customers experiencing financial difficulties in Brasil and Mexico due to weaker market conditions, partially offset by lower contract modification volumes in the U.S.

The following table summarizes the Company’s 30+ days past due accounts:

Accounts 30+ days past due increased to 2.4% at December 31, 2025 from 1.3% at December 31, 2024, primarily due to higher past due accounts in Brasil, the U.S. and Mexico. The increased percentage of past due accounts in Brasil and Mexico reflected a decline in market conditions, including elevated interest rates in Brasil. The increased percentage of past due accounts in the U.S. reflected a soft truckload market and included three large fleet customers. The Company continues to focus on maintaining low past due balances.

25

When the Company modifies a 30+ days past due account, the customer is then generally considered current under the revised contractual terms. The Company modified $72.9 million and $40.7 million of accounts worldwide during the fourth quarter of 2025 and the fourth quarter of 2024, respectively, which were 30+ days past due and became current at the time of modification. Had these accounts not been modified and continued to not make payments, the pro forma percentage of retail loan and lease accounts 30+ days past due would have been as follows:

The Company typically requires customers to pay current before granting modifications. The higher pro forma percentage of retail loan and lease accounts 30+ days past due in the U.S. and Canada at December 31, 2025 was primarily due to a modification with an insignificant term extension granted to two large fleet customers in the U.S. The higher pro forma percentage of retail loan and lease accounts 30+ days past due in Mexico, Australia, Brasil and other was primarily due to accounts modified in Brasil and Mexico.

A contract modification that improves the past due status reduces the probability of default. The effect of modifications is included in the Company’s historical loss information used to determine the allowance for credit losses. Modifications of accounts in prior quarters that were more than 30 days past due at the time of modification are included in past dues if they were not performing under the modified terms at December 31, 2025 and 2024. For certain modifications to customers experiencing financial difficulties that are at-risk at December 31, 2025 and 2024, the allowance for credit losses is based on the value of the underlying collateral or a discounted cash flow analysis.

The Company’s annualized pre-tax return on average total assets for Financial Services was 2.1% in 2025 compared to 2.0% in 2024.

Other

Included in Other is sales, income and expenses not attributable to a reportable segment, as well as the Company’s industrial winch manufacturing business through October 31, 2024. Other also includes non-service cost components of pension expense and certain corporate income and expenses. Other sales represent less than 1% of consolidated net sales and revenues for 2025 and 2024. Other SG&A decreased to $81.1 million in 2025 from $84.4 million in 2024, primarily due to lower salaries and related expenses.

Other loss before tax was $346.8 million in 2025 compared to income of $13.5 million in 2024, primarily due to the EC-related charge in the first quarter 2025 which is discussed in Note L of the consolidated financial statements.

Investment income decreased to $346.1 million in 2025 from $394.7 million in 2024, primarily due to lower investment yields from lower market interest rates in the U.S. and Europe, partially offset by an increase in average investment balance, primarily in the U.S.

Income Taxes

In 2025, the effective tax rate was 21.4% compared to 22.9% in 2024, primarily reflecting higher U.S. federal R&D tax credits. Excluding the $350.0 million EC charge and its associated tax benefit, the adjusted 2025 effective tax rate (non-GAAP) was 21.7%.

26

In 2025, domestic income before income taxes decreased primarily due to lower Truck operation results, which also reduced domestic pre-tax return on revenues. In 2025, foreign income before income taxes decreased due to lower Truck operation results, mainly Mexico and Brasil, and included the EC-related charge of $350.0 million in the first quarter 2025, which also reduced foreign pre-tax return on revenues. Total pre-tax return on revenues decreased, reflecting lower returns in Truck operations.

LIQUIDITY AND CAPITAL RESOURCES:

The Company’s total cash and marketable securities at December 31, 2025 decreased $324.0 million from the balances at December 31, 2024. Total cash and marketable securities are primarily intended to provide liquidity while preserving capital.

The change in cash and cash equivalents is summarized below:

Operating activities: Cash provided by operations decreased by $225.1 million to $4.42 billion in 2025 from $4.64 billion in 2024. The decreased operating cash flow reflects lower net income of $1,786.2 million, partially offset by $406.2 million higher cash provided from net income items not affecting cash, primarily deferred income taxes and the provision for losses on financial services receivables, and higher cash provided from net changes in operating assets and liabilities of $1,138.6 million. The net changes in operating assets and liabilities are mainly due to higher cash provided by wholesale receivables on new trucks in the Financial Services segment of $1,485.8 million and lower cash usage of $253.9 million for inventories, partially offset by decrease in accounts payable and accruals of $712.0 million.

Investing activities: Cash used in investing activities decreased by $2.22 billion to $2.27 billion in 2025 from $4.49 billion in 2024. The decrease in net cash used in investing activities primarily reflects lower net purchases of marketable securities of $628.2 million, lower originations of retail loans and finance leases of $551.8 million, lower net increase in wholesale receivables on equipment of $507.2 million and a decrease in acquisitions of equipment for operating leases of $263.3 million.

Financing activities: Cash used in financing activities was $3,082.4 million in 2025, $2,959.3 million higher than the $123.1 million cash used in 2024, reflecting lower net borrowing activity and slightly lower cash dividends. Cash used in net borrowing activities was $822.6 million in 2025 compared to cash provided by net borrowing activity of $2,118.0 million in 2024. The Company paid $2.27 billion in dividends in 2025 compared to $2.29 billion in 2024.

The effect of exchange rate changes on cash increased cash and cash equivalents by $180.9 million in 2025, reflecting an increase in the value of foreign currencies relative to the U.S. dollar, primarily the euro, the Australian dollar and Brazilian real. In 2024, the effect of exchange rate changes on cash decreased cash and cash equivalents by $151.4 million, reflecting a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the euro, Mexican peso and Brazilian real.

27

The Company expects to continue paying dividends, although there is no assurance as to future dividends because they are dependent upon future earnings, capital requirements and financial conditions. Cash dividends declared for the last two years were as follows:

Credit Lines and Other:

The Company has line of credit arrangements of $5.64 billion, of which $5.28 billion were unused at December 31, 2025. Included in these arrangements are $4.00 billion of committed bank facilities, of which $1.50 billion expires in June 2026, $1.25 billion expires in June 2028 and $1.25 billion expires in June 2030. The Company intends to extend or replace these credit facilities on or before expiration to maintain facilities of similar amounts and duration. These credit facilities are maintained primarily to provide backup liquidity for commercial paper borrowings and maturing medium-term notes. There were no borrowings under the committed bank facilities for the year ended December 31, 2025.

On December 4, 2018, PACCAR’s Board of Directors approved the repurchase of up to $500.0 million of the Company’s outstanding common stock without expiration. The objective of the repurchase plan is to return value to PACCAR shareholders. As of December 31, 2025, the Company has repurchased $128.4 million shares under this plan. There were no repurchases made during the fourth quarter of 2025.

Truck, Parts and Other

The Company provides funding for working capital, capital expenditures, R&D, dividends, stock repurchases and other business initiatives and commitments primarily from cash provided by operations. Management expects this method of funding to continue in the future.

Investments for manufacturing property, plant and equipment in 2025 were $714.3 million compared to $787.3 million in 2024. Over the past decade, the Company’s combined investments in worldwide capital projects and R&D totaled $9.10 billion and have significantly increased the operating capacity and efficiency of its facilities and enhanced the quality and operating efficiency of the Company’s premium products.

Capital investments in 2026 are expected to be $725 to $775 million, and R&D is expected to be $450 to $500 million. PACCAR is investing in next generation clean diesel and alternative powertrains, electric battery cells, integrated connected vehicle services, flexible manufacturing capabilities, and autonomous and advanced driver assistance systems, that create value for customers. In addition to the capital and R&D investments, the Company expects to continue investing in its U.S.-based battery joint venture, Amplify Cell Technologies.

Financial Services

The Company funds its financial services activities primarily from collections on existing finance receivables and borrowings in the capital markets. The primary sources of borrowings in the capital markets are commercial paper and medium-term notes issued in the public markets and, to a lesser extent, bank loans.

In November 2024, the Company’s U.S. finance subsidiary, PACCAR Financial Corp. (PFC), filed a shelf registration under the Securities Act of 1933. In February 2026, the Company issued $400.0 million of medium-term notes under this registration. The total amount of medium-term notes outstanding for PFC as of December 31, 2025 was $7.70 billion. The registration expires in November 2027 and does not limit the principal amount of debt securities that may be issued during that period.

As of December 31, 2025, the Company’s European finance subsidiary, PACCAR Financial Europe, had €750.0 million available for issuance under a €2.50 billion medium-term note program listed on the Euro MTF Market of the Luxembourg Stock Exchange. This program renews annually and expires in May 2026.

28

In August 2021, PACCAR Financial Mexico registered a 10.00 billion Mexican peso program with the Comision Nacional Bancaria y de Valores to issue medium-term notes and commercial paper. The registration expires in August 2026 and limits the amount of commercial paper (up to one year) to 5.00 billion Mexican pesos. At December 31, 2025, 6.00 billion Mexican pesos were available for issuance.

In August 2018, the Company’s Australian subsidiary, PACCAR Financial Pty. Ltd. (PFPL Australia), established a medium-term note program. The program does not limit the principal amount of debt securities that may be issued under the program. The total amount of medium-term notes outstanding for PFPL Australia as of December 31, 2025 was 900.0 million Australian dollars.

In May 2021, the Company’s Canadian subsidiary, PACCAR Financial Ltd. (PFL Canada), established a medium-term note program. The program does not limit the principal amount of debt securities that may be issued under the program. There were no borrowings under this program as of December 31, 2025.

The Company’s Brazilian subsidiary, Banco PACCAR S.A., established a lending program in December 2021 with the local development bank, Banco Nacional de Desenvolvimento Economico e Social (BNDES), for qualified customers to receive preferential conditions and generally market interest rates. This program is limited to 2.51 billion Brazilian reais and has 1.03 billion Brazilian reais outstanding as of December 31, 2025. The Brazilian subsidiary also established a Letra Financeira (LF) program in May 2024 and the program does not limit the principal amount of debt securities that may be issued under the program. A total of 500.0 million Brazilian reais medium-term notes were outstanding as of December 31, 2025.

The Company believes its cash balances and investments, collections on existing finance receivables, committed bank facilities, and current investment-grade credit ratings of A+/A1 will continue to provide it with sufficient resources and access to capital markets at competitive interest rates and therefore contribute to the Company maintaining its liquidity and financial stability. In the event of a decrease in the Company’s credit ratings or a disruption in the financial markets, the Company may not be able to refinance its maturing debt in the financial markets. In such circumstances, the Company would be exposed to liquidity risk to the degree that the timing of debt maturities differs from the timing of receivable collections from customers. The Company believes its various sources of liquidity, including committed bank facilities, would continue to provide it with sufficient funding resources to service its maturing debt obligations.

Commitments

The following summarizes the Company’s contractual cash commitments at December 31, 2025:

* Commercial paper included in borrowings is at par value.

** Interest on floating-rate debt is based on the applicable market rates at December 31, 2025.

Total cash commitments for borrowings and interest on term debt were $16.74 billion and were related to the Financial Services segment. As described in Note J of the consolidated financial statements, borrowings consist primarily of term notes and commercial paper issued by the Financial Services segment. The Company expects to fund its maturing Financial Services debt obligations principally 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. Purchase obligations are the Company’s contractual commitments to acquire future production inventory and capital equipment. Other obligations primarily include commitments for commodities.

29

The Company’s other commitments include the following at December 31, 2025:

Loan and lease commitments are for funding new retail loan and lease contracts. Residual value guarantees represent the Company’s commitment to acquire trucks at a guaranteed value if the customer decides to return the truck at a specified date in the future.

IMPACT OF ENVIRONMENTAL MATTERS:

The Company, its competitors and industry in general are subject to various domestic and foreign requirements relating to the environment and greenhouse gases. The statutory and regulatory requirements governing greenhouse gas and non-greenhouse gas emissions are included in Item 1A, “Risk Factors – Emissions Requirements and Reduction Targets.” The Company believes its policies, practices and procedures are designed to prevent unreasonable risk of environmental damage and that its handling, use and disposal of hazardous or toxic substances have been in accordance with environmental laws and regulations in effect at the time such use and disposal occurred.

The Company is involved in various stages of investigations and cleanup actions in different countries 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 accrued the estimated costs to investigate and complete cleanup actions where it is probable that the Company will incur such costs in the future. Expenditures related to environmental activities in the years ended December 31, 2025 and 2024 were $1.5 million and $4.4 million, respectively. While the timing and amount of the ultimate costs associated with future environmental cleanup cannot be determined, management expects that these matters will not have a significant effect on the Company’s consolidated cash flow, liquidity or financial condition.

30

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES:

This Form 10-K includes “adjusted net income (non-GAAP)” and “adjusted net income per diluted share (non-GAAP)”, which are financial measures that are not in accordance with U.S. generally accepted accounting principles (“GAAP”), since they exclude a charge for EC-related claims. These measures differ from the most directly comparable measures calculated in accordance with GAAP and may not be comparable to similarly titled non-GAAP financial measures used by other companies. In addition, the Form 10-K includes the financial ratios noted below calculated on non-GAAP measures.

Adjustment for the EC-related claims relates to a pre-tax charge of $350.0 million ($264.5 million after-tax) for estimable total costs recorded in Interest and other expenses (income), net in the first quarter 2025.

The Company utilizes these non-GAAP measures to allow investors and management to evaluate operating trends by excluding

a significant charge that is not representative of company performance.

Reconciliations from the most directly comparable GAAP measures to adjusted net income (non-GAAP) and adjusted net income per diluted shares (non-GAAP) are as follows:

31

CRITICAL ACCOUNTING POLICIES:

The Company’s significant accounting policies are disclosed in Note A of the consolidated financial statements. In the preparation of the Company’s financial statements, 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 from estimates used by management, may have a material impact on the financial statements.

Operating Leases

Trucks sold pursuant to agreements accounted for as operating leases are disclosed in Note F of the consolidated financial statements. In determining its estimate of the residual value of such vehicles, the Company considers the length of the lease term, the truck model, the expected usage of the truck and anticipated market demand. Operating lease terms generally range from three to five years. The resulting residual values on operating leases generally range between 30% and 70% of the original equipment cost. If the sales price of a truck at the end of the term of the agreement differs from the Company’s estimated residual value, a gain or loss will result.

Future market conditions, changes in government regulations and other factors outside the Company’s control could impact the ultimate sales price of trucks returned under these contracts. Residual values are reviewed regularly and adjusted if market conditions warrant. A decrease in the estimated equipment residual values would increase annual depreciation expense over the remaining lease term.

During 2025, market values on equipment returning upon operating lease maturity were generally lower than the residual values on the equipment in Europe and higher in Mexico, the U.S. and Australia, resulting in an increase in depreciation expense of $16.2 million.

At December 31, 2025, the aggregate residual value of equipment on operating leases in the Financial Services segment and residual value guarantee on trucks accounted for as operating leases in the Truck segment was $1.12 billion. A 10% decrease in used truck values worldwide, if expected to persist over the remaining maturities of the Company’s operating leases, would reduce residual value estimates and result in the Company recording additional depreciation expense of approximately $31.5 million in 2026, $21.8 million in 2027, $29.6 million in 2028, $22.0 million in 2029, and $6.8 million in 2030 and thereafter.

Allowance for Credit Losses

The allowance for credit losses related to the Company’s loans and finance leases is disclosed in Note E of the consolidated financial statements. The Company has developed a systematic methodology for determining the allowance for credit losses for its two portfolio segments, retail and wholesale. The retail segment consists of retail loans and sales-type finance leases, net of unearned interest. The wholesale segment consists of truck inventory financing loans to dealers that are collateralized by trucks and other collateral. The wholesale segment generally has less risk than the retail segment. Wholesale receivables generally are shorter in duration than retail receivables, and the Company requires periodic reporting of the wholesale dealer’s financial condition, conducts periodic audits of the trucks being financed and, in many cases, obtains guarantees or other security such as dealership assets. In determining the allowance for credit losses, retail loans and finance leases are evaluated together since they relate to a similar customer base, their contractual terms require regular payment of principal and interest, generally over three to five years, and they are secured by the same type of collateral. The allowance for credit losses consists of both specific and general reserves.

The Company individually evaluates certain finance receivables for expected credit losses. Finance receivables that are evaluated individually consist of all wholesale accounts and certain large retail accounts with past due balances or otherwise determined to be at a higher risk of loss. In general, finance receivables that are 90 days past due are placed on non-accrual status. Finance receivables on non-accrual status which have been performing for 90 consecutive days are placed on accrual status if it is deemed probable that the Company will collect all principal and interest payments.

Individually evaluated receivables on non-accrual status are generally considered collateral dependent. Large balance retail and all wholesale receivables on non-accrual status are individually evaluated for loss based on the value of the underlying collateral or a discounted cash flow analysis. Small balance receivables on non-accrual status with similar risk characteristics are evaluated as a separate pool to determine the appropriate reserve for losses using the historical loss information discussed below.

32

The Company evaluates finance receivables that are not individually evaluated and share similar risk characteristics on a collective basis and determines the general allowance for credit losses for both retail and wholesale receivables based on historical loss information, using past due account data, current market conditions, and expected changes in future macroeconomic conditions that affect collectability. Historical credit loss data provides relevant information of expected credit losses. The historical information used includes assumptions regarding the likelihood of collecting current and past due accounts, repossession rates, and the recovery rate on the underlying collateral based on used truck values and other pledged collateral or recourse.

The Company has developed a range of loss estimates for each of its country portfolios based on historical experience, taking into account loss frequency and severity in both strong and weak truck market conditions. A projection is made of the range of estimated credit losses inherent in the portfolio from which an amount is determined based on current market conditions and other factors impacting the creditworthiness of the Company’s borrowers and their ability to repay. Adjustments to historical loss information are made for changes in forecasted economic conditions that are specific to the industry and markets in which the Company conducts business. The Company utilizes economic forecasts from third-party sources and determines expected losses based on historical experience under similar market conditions. After determining the appropriate level of the allowance for credit losses, a provision for losses on finance receivables is charged to income as necessary to reflect management’s estimate of expected credit losses, net of recoveries, inherent in the portfolio.

The adequacy of the allowance is evaluated quarterly based on the most recent past due account information and current and future market conditions. As accounts become past due, the likelihood that they will not be fully collected increases. The Company’s experience indicates the probability of not fully collecting past due accounts ranges between 10% and 90%. Over the past two years, the Company’s year-end 30+ days past due accounts have ranged between 1.3% and 2.4% of loan and lease receivables. Historically, a 100 basis point increase in the 30+ days past due percentage has resulted in an increase in credit losses of 4 to 26 basis points of receivables. At December 31, 2025, 30+ days past dues were 2.4%. If past dues were 100 basis points higher or 3.4% as of December 31, 2025, the Company’s estimate of credit losses would likely have increased by a range of $7 to $40 million depending on the extent of the past dues, the estimated value of the collateral as compared to amounts owed and general economic factors.

Product Warranty

Product warranty, including changes in estimates for pre-existing warranties, is disclosed in Note I of the consolidated financial statements. The expenses related to product warranty are estimated and recorded at the time products are sold based on historical and current data and reasonable expectations for the future regarding the frequency and cost of warranty claims, net of recoveries. Estimates consider product type, geographical differences, labor rates, and any other known factors affecting the number or amount of expected claim payments. For new products with no historical experience, reference to similar products is utilized. Management takes actions to minimize warranty costs through quality-improvement programs; however, actual claim costs incurred could materially differ from the estimated amounts and require adjustments to the reserve. Historically, those adjustments have not been material. Over the past two years, warranty expense as a percentage of Truck, Parts and Other net sales and revenues has ranged between 2.5% and 2.8%. If the 2025 warranty expense had been .2% higher as a percentage of net sales and revenues in 2025, warranty expense would have increased by approximately $52 million.

FORWARD-LOOKING STATEMENTS:

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements relating to future results of operations or financial position and any other statement that does not relate to any historical or current fact. Such statements are based on currently available operating, financial and other information and are subject to risks and uncertainties that may affect actual results. Risks and uncertainties include, but are not limited to: a significant decline in industry sales; competitive pressures; reduced market share; reduced availability of or higher prices for fuel; increased safety, emissions, or other regulations or tariffs resulting in higher costs and/or sales restrictions; currency or commodity price fluctuations; lower used truck prices; insufficient or under-utilization of manufacturing capacity; supplier interruptions; insufficient liquidity in the capital markets; fluctuations in interest rates; changes in the levels of the Financial Services segment new business volume due to unit fluctuations in new PACCAR truck sales or reduced market shares; changes affecting the profitability of truck owners and operators; price changes impacting truck sales prices and residual values; insufficient supplier capacity or access to raw materials and components, including semiconductors; labor disruptions; shortages of commercial truck drivers; increased warranty costs; cybersecurity risks to the Company’s information technology systems; use of artificial intelligence and machine learning in business processes; pandemics; climate-related risks; global conflicts; litigation, including EC settlement-related claims; or legislative and governmental regulations. A more detailed description of these and other risks is included under the heading Part I, Item 1A, “Risk Factors” and in Note L in the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

33