Good morning, and welcome to PACCAR's Fourth Quarter 2016 Earnings Conference Call. All lines will be in a listen-only mode until the question-and-answer session. Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.

Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations. And joining me this morning are Ron Armstrong, Chief Executive Officer; Bob Christensen, President and Chief Financial Officer; Michael Barkley, Senior Vice President and Controller; and Harrie Schippers, Senior Vice President. As with prior conference calls, if there are members of the media on the line, we ask that they participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties, including general, economic and competitive conditions that may affect expected results. I would now like to introduce Ron Armstrong.

Good morning. Thanks to the accomplishment of PACCAR's 23,000 outstanding employees around the world, 2016 was a very good year for the company. PACCAR achieved revenues of $17 billion and adjusted net income of $1.355 billion, a strong after tax return on revenues of 8%. Including the $833 million non-recurring charge with the European Commission settlement, net income was $522 million. 2016 was PACCAR's 78th consecutive year of earning a net income. Last year's results reflect the strongest European heavy truck market since 2008, and excellent operating performance in truck operations around the world. In addition, PACCAR Parts and PACCAR Financial Services generated good operating results. PACCAR celebrated many important mile – important achievements in 2016. These included market share increases of a four percentage point in both the North American and European heavy-duty truck markets, the introduction of the PACCAR MX-11 engine in North America, the launch of the PACCAR tandem axle in North America, and the introduction of the DAF Connect Telematics System in Europe. DAF's registrations in the European above 16-tonne market were a record. PACCAR invested $650 million of capital and R&D in premium quality products and services and facility enhancements to provide for future growth. PACCAR's fourth quarter sales and Financial Services revenues were $4.1 billion, and quarterly net income was $289 million. PACCAR delivered 33,900 trucks during the fourth quarter, in line with expectations. The profitable contribution of all company segments enables PACCAR to attain the highest operating margins in our industry. PACCAR declared cash dividends of $1.56 per share last year, including a $0.60 per share special dividend declared in December. PACCAR has paid a dividend every year since 1941. During 2016, PACCAR repurchased 1.4 million shares of its stock for $71 million. PACCAR's total shareholder return was 38% in 2016 compared to…

Your first question will come from the line of Ross Gilardi of Bank of America Merrill Lynch.

Hey, good morning, gentlemen. Thank you.

Morning, Ross.

Just a couple up front here. So first, just on the North American Class 8 market, I mean do you think orders have bottomed out at this point? And assuming that they have, if that's what you think, what quarter do you think Class 8 production bottoms out?

Well, I guess based on our view of the market, I think the inventories, backlogs are pretty well in balance, and that order intake will be indicative of production, et cetera, going forward. So I would say that based on our market size estimates of 190,000 to 220,000, that we expect that production will improve as the year progresses.

Okay. Thank you. And just also wanted to ask you about the UK. What kind of trends did you see sequentially from Q3 to Q4 in the UK? And do you get hit on FX, importing engines from the continent or anything in particular that you would note on FX that we should consider in our models for the UK?

So the UK market is DAF's largest market. It's been a great market. In fact, DAF set a all-time market share record in the UK market last year for the combined above 6- to 16-tonne, and above 6-tonne of 30%. So, our team has done a great job there, and we continue to see good demand from our customers. I think the economy there is good, and so there's been no indications. The movement in the pound following the Brexit vote, the movements are similar to what we've seen over the years, and while there is some headwind temporarily, that will adjust over time.

Thanks very much.

You bet.

Your next question will come from the line of Alex Potter of Piper Jaffray.

Good morning, Alex. Alexander Eugene Potter - Piper Jaffray & Co.: Good morning. So, I guess following up there, more broadly on Europe. Just hoping you could try to help me understand maybe a little bit what's going on in the European truck cycle. From a high level, it seems like we're still below historical peak, and RLC Corps, seems like the European fleet maybe didn't go through a true up cycle. But now, everyone's guidance seems to suggest that the cycle is maybe taking a breather before running its full course. So, I'm just wondering if maybe the macro issues there are overpowering what would otherwise be a continued upturn or if you think that the cycle actually really did run its full course. So, I guess any additional color there would be helpful.

Yeah, I think and last year, obviously, was a great year for the European truck market and DAF in particularly being able to improve its share a full percentage point in that market. If you look at the transportation statistics, the German MAUT statistics, December was another excellent month. Transport activity is at record highs across Germany, and so there's nothing near term that would say that the demand will tail off. I think we're being a bit conservative in how we view the market next year. We're actually starting the year at a higher production rate for our heavy-duty vehicles than we started last year. So, – but we're just a bit conservative in terms of how long that stays at that level. Alexander Eugene Potter - Piper Jaffray & Co.: Okay, great. And then, I guess, one other one there. You've historically talked about in Europe, rolling out more Financial Services availability and expecting at least over the medium or long-term that, that would start to impact your market share in the truck segment. Just wondering the extent to which you believe that was one of the reasons behind your share gain over the last year in Europe, or whether you think the impact of the increased Financial Services is – has maybe yet to be felt and will be felt over the next couple of years.

No, I think we're seeing – we've been open now in our Financial Services business for about two years or three years in Poland, Czech Republic, and we're seeing our share of the financing in those markets grow, and I think that also is translating into additional sales for DAF Trucks. DAF has a very strong position in the Central European countries. And so, I think as we look forward, we are looking at expanding some of our financing activities into the Romanian market. We've opened our sales subsidiary in Turkey. And so, at some point, we'll have some financing capability there. We're also, while it's not in Europe, we're also going to be opening a bank in Brazil to support the financing of trucks, DAF Trucks in Brazil. So, we continue to grow our footprint and our Finance business around the world, and it's a integral part of the model that supports our trucks in all of our markets. Alexander Eugene Potter - Piper Jaffray & Co.: Interesting. Okay. Thanks very much.

Thank you.

Your next question will come from the line of Ann Duignan of JPMorgan.

Morning, Ann.

Hi, guys. This is Ann Duignan. I hope everybody is okay out there.

We know you.

Yeah. Yeah. Yes. You guide to U.S. and Canada per your outlook for here at this region. Could you talk a little bit about Mexico at South and what your expectations are there so that we can kind of reconcile our NAFTA outlook with your U.S., Canada?

Yeah, I think Mexico will have another good year, probably in the 20,000- to 25,000-truck range would be how we would see that market for next year. Our – we continue to be the market leader in Mexico, the Kenworth brand is very well received. We've launched our 2.1-meter product, our MX engine. So they have all the latest products, and our dealers and our customers are very excited about the prospects to continue to have a excellent business in the Mexican market.

So, the market will be okay, but you'd expect to outperform, is that what I hear you saying?

Well, I think we know, I just think we'll continue to be at the – the market leader in the 35% to 40% share of the heavy-duty market.

Okay. Okay. Got you. Thank you.

Yeah.

That's good color. And then on gross margins, you had guided for full year 2017. What are you currently thinking on gross margins for 2017? It sounds like you might be a little bit more upbeat than you were at third quarter.

Yeah. I'd say the range for the year would be in the 13.5% to 14.5% range, and that will sort of tie in with those market ranges that we've talked about.

So, no change from Q3?

Okay. Yeah. No, I think that's still how we would view the year for next year.

Okay. And where do you see the biggest upside risk and the biggest downside risk? I mean I think your volumes might come in a bit better, if I'm not reading too much into what you're saying, and then where might the biggest headwinds be if – that we need to take into consideration?

I mean, typically, it's the level of demand and pricing in a given market. So, I think at the upper end of those ranges, there'll be opportunities for some pricing leverage; at the lower end, it's a competitive market, always has been and always will be. And so you just have to manage your pricing accordingly.

Okay. I'll let it go and get back in line. Thanks.

Thank you.

Your next question will come from the line of David Raso of Evercore ISI.

Good morning, David.

Good morning. The truck deliveries, fourth quarter to first quarter, can you help us a bit with the geographic mix of saying up a bit sequentially?

Yeah. I think it'd be up, that 1% to 2% increase in volume probably is all North America.

Okay.

And that just reflects additional production days. We shut our factories down during the Christmas holiday period in North America.

Okay. Helpful. And on the gross margins, you're saying up a little bit from fourth quarter to first quarter, then the comment earlier about your U.S., Canada production sequentially improves throughout the year. So, the gross margins starting the year, make a number up, 14.1%, of the quarter was 13.9%. If you're already above the midpoint of the full-year guide and your U.S. production improves as the year goes on, why would it drag down as the year goes on? Is that a price cost comment or something about Europe we should infer from that statement?

I think it's just predicated on the market continuing to improve as the year progresses.

But if that was the case, if you're 14.1% or so to start the year, why would the rest of the year drag you back down to 14% or, for that matter, for the low end point?

So, as I mentioned, the range is the 13.5% to 14.5%. So there's lots of room within that range.

Okay. I appreciate it. Thank you.

You bet.

Your next question will come from the line of Jamie Cook of Credit Suisse. Jamie L. Cook - Credit Suisse Securities (USA) LLC: A very good afternoon, I guess, depending on where you are. I guess just a couple questions. You mentioned to Ann, you think gross margins for the year will be 13.5% to 14.5%. But can you just comment, and I think everyone's trying to give this question specifically, what you're assuming for 2017 in terms of potential for material cost headwinds? And can price offset that specifically?

Yeah. I think in terms of commodity cost, I think there is a bit of a upward trend in terms of pressure on commodity cost. But our purchasing and materials and operations teams work very closely with our suppliers. We have long-term agreements that smooth the effects of commodity cost movements, and we have a continual effort on cost reduction activities. So we don't see material cost being a significant factor in the cost of our product in 2017. Jamie L. Cook - Credit Suisse Securities (USA) LLC: But is price cost net positive, flat, just to be clear?

I'd say that the pricing environment in North America is probably a little more competitive in the second half of last year. As we started this year, Europe, I think is pretty flat. You just have the effects of sort of the pound-euro exchange rate that have some temporary effects. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Right. So on the margin, a little bit of a headwind, it sounds like.

Yeah, yeah. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Okay. And then I guess my second question, can you talk about what your assumptions are on the 13-liter for market share in 2017 versus 2016, and on the 11-liter? And then last question, sorry. Obviously, energy had been – has been a headwind for the broader group. Are you seeing any signs of pickup just based on some of where your dealers are located? Could that be a potential tailwind in 2017?

So, I think that the PACCAR engine, around that 50% mark is sort of how we see the PACCAR engines, MX-11 and MX-13. And I think there is a bit of optimism about the energy market and the opportunities for next year, but again, that's not a significant element of our total business, but... Jamie L. Cook - Credit Suisse Securities (USA) LLC: And you didn't see anything in the fourth quarter or January?

No, no. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Okay. All right, thanks. I'll get back in queue.

Thank you.

Your next question will come from the line of Tim Thein of Citigroup.

Good morning, Tim.

Yeah. Hi. Good morning, thank you. The first question was just on the used market in North America. Maybe you could just update us in terms of what you're seeing or what you have seen with respect to pricing. And then just in terms of overall inventory levels, there has been some chatter here recently about some of the OEM groups – or I shouldn't say some, maybe one or two OEM groups holding abnormally high inventory levels. I'm just curious about your degree of confidence in the market's ability if, in fact, that's the case, to be able to kind of absorb that level of inventory.

Sure. From a pricing standpoint, if you look at today versus a year ago, prices are down about 10% for our product. We continue to maintain a premium relative to the competition in the used truck market. A lot of the trucks now that we're starting to see return and we will see return during this year will be our new 2.1-meter product, and that will even have a better value compared to some of our legacy products. So, we're actively engaged in working with our customers on lease returns, trade packages. We just opened our newest used truck facility in Chicago in December. So we're continuing to build our capabilities to handle additional volumes of used trucks. As time goes on, we're also looking at a couple of other locations during the course of this year. So we feel very comfortable with our ability to handle the volume of trucks that we're seeing in our inventory and will be coming back to us during the course of 2017.

Okay. Got it. In that 10%, I know there are some quite big spreads between wholesale and retail, but would you – what would you put for the market, closer to 20%, in terms of year-over-year, and adjusting for model years and everything?

All I know is our product and our prices.

Yeah. Okay, fair enough.

And that average is 10%.

For – okay. And then just on the raw material question, can you update us, I know that you had done some work in a factory a couple years ago in terms of some of the basically engineering out some cost. And I believe you were about two-thirds of production, North America had moved to that kind of updated model. Is that where we sit today? I'm just curious if there is more room to effectively increase that, those production of the models that, yeah.

Yeah. Part of our R&D budget last year, this year, will just be continued to enhance the product offerings of our 2.1-meter product line. And so it's 70%, 75% of what we do today, and it will continue to grow as the years progress. So, the favorable benefits of that will continue to be recognized.

Okay. Thanks a lot.

Thank you.

Your next question will come from the line of Steven Fisher of UBS.

Thanks. Good morning.

Good morning.

Good morning. Wondering what your outlook is for Parts margins from here. And I think the theory was that the more of your own engines you have out there and the more they're aging, the margin mix of your Parts business should start to get more robust. But where are you in that process? Because it looks like the margins have maybe leveled off a little bit.

Yeah. If you look back over a two or three year period, the margins in our Parts business have progressed nicely. And so, it depends a lot any given time on the mix of parts that you sell, et cetera. And we expect the percentage of engine parts to continue to grow gradually over time, and I think that will have a positive impact on margin percentages. The other side of that is we're also growing and expanding our TRP capability. We ended the year with 77 independent TRP stores owned by our dealers. Those parts carry a lower margin, but they also give us additional volume, additional contact with additional customers, and is a great initiative that's really been a key focus of our dealers to take advantage of that opportunity to grow their presence in their market. So I think that there is a balance of puts and takes there.

So do you think that adds up to a higher Parts margin in 2017 versus 2016?

The effects are going to be, I think, nominal.

Okay. And then the Financial Services sequential profit improvement reversed a four-quarter slide. Were there any one-time benefits, and how should we think about the trajectory of Financial Services profit in 2017?

As we look at 2017, I think the portfolio balance will be comparable to where it has been. A lot of the variations in profitability over the last eight quarters had been tied to used truck movements. And so, used trucks will play a significant part in how the profitability of the Financial Services segment performs in 2017.

So the fact that it's showing improvement, do you think that's also a reflection of the more balanced used market?

Yeah. I think there's, yeah, I that's a key element of it, and when you recognize the impact of lower used truck prices on your portfolio.

Okay. Thank you.

Thank you.

Your next question will come from the line of Jerry Revich of Goldman Sachs.

Good morning, Jerry. Jerry Revich - Goldman Sachs & Co.: Hi. Good morning, good afternoon, everyone. I'm wondering if you could talk about the impact of dealer inventory destock on your Parts business in 2016. I think over the past couple of quarters, you mentioned that some dealers had reduced inventories. And now that the new order picture is clearing up, I'm wondering if we could see some inventory stocking in 2017. Can you just frame the order of magnitude for us?

Yeah, our dealer inventories have been in great shape, really, throughout 2016 and as we enter 2017. If anything, our dealers probably could use a few more trucks, and we're seeing some good orders early on in 2017 for inventory. So, I think the Parts impact of that is, I mean, it's sort of business as usual. Jerry Revich - Goldman Sachs & Co.: Okay. And I'm wondering if you could talk about how far out your lead times extend in Europe. You spoke about starting the year at higher build rates than a year ago. How much visibility do you have? What was book-to-bill in the fourth quarter, if you're willing to share it, for Europe specifically?

Yeah, I'd just say our backlogs are in excellent shape all around the world in all of our businesses, and Europe is right in line with that. So we're very comfortable with our backlogs, and they're really balanced in with order intake and demand in the markets right now. Jerry Revich - Goldman Sachs & Co.: Okay. And on pricing, in the 10-Q for last quarter, Mexico was a significant headwind. I'm wondering if you can talk about, is that continuing? Is that what you alluded to in the prior Q&A as a headwind in North America, and how much of that is currency driven?

One more time, Jerry? I missed the first part. Jerry Revich - Goldman Sachs & Co.: The pricing situation in Mexico.

Okay. Sure. Jerry Revich - Goldman Sachs & Co.: So, you just talked about a significant headwind in the third quarter 10-Q, and I'm wondering, is that situation continuing into the first quarter here? And would you attribute that to the currency moves, and any other color you can give us on what's playing out on that market from a pricing standpoint?

Yeah. I wouldn't – I don't know if we said significant headwind, that doesn't make sense to me. But with the depreciating peso, that's a – it's a competitive market. And so you – we try to – we basically sell in U.S. dollars. So, we've got to work with customers to balance their ability to invest in new equipment and our ability to sell it at a fair price. Jerry Revich - Goldman Sachs & Co.: And so, if the currency continues to move in the direction it's been trending up over the past, call it, one quarter to two quarters, do you have any opportunities to mitigate the currency impact on your sales into Mexico, maybe a small assembly operation, anything along those lines we should be thinking about?

We produce, for Mexico, we produce all of our trucks in Mexico. So, we don't have cross-border matters to deal with there. So, but a lot of the components come from U.S. suppliers, as they always have. Jerry Revich - Goldman Sachs & Co.: All right. Thank you.

Thank you.

Your next question will come from the line of David Leiker of Robert W. Baird.

Morning, David. Joe D. Vruwink - Robert W. Baird & Co., Inc.: Hey, this is actually Joe for David.

Good morning, Joe. Joe D. Vruwink - Robert W. Baird & Co., Inc.: You've been giving order share in the U.S., Canada market in recent quarters. Is it possible to get an update of maybe where that was during Q4?

Yeah, so for the full year, Peterbilt and Kenworth were at 32% share of the order intake, and I think for the fourth quarter, just under 30% in the fourth quarter. Joe D. Vruwink - Robert W. Baird & Co., Inc.: Okay. So, given share has been so high recently, and I think you've talked in the past, it's a competitive market, it's tough to maintain such a magnitude of a jump that PACCAR has seen, are you seeing maybe greater inroads? And thinking about the 2017 environment, particularly the two European OEMs entered 2016 with very high inventory, maybe they start to come back a bit?

Our guys – we have great products, and I think the market has always recognized the premium value of Kenworth and Peterbilt in North America, and DAF in Europe, and our teams are working hard to sell those great products. It's a premium value at a premium price, and not everybody is willing to pay that, but we've grown our share over time in both markets, and our goal is to continue to increment share as we progress over the coming years. Joe D. Vruwink - Robert W. Baird & Co., Inc.: And then maybe a similar conversation in Europe, I think what people might be trying to figure out is an industry forecast, minus 9% in 2017, you're going to start up. It sounds like you started to see some softening in particular countries as the UK softened at year-end. And so, is that difference between DAF and the industry, just your order intake and your backlog, and that's what's driving it?

I think our market assumption, as I mentioned previously, is probably a bit conservative based on where we're at currently, but the UK market has been pretty steady. And we've gotten good orders this year into the UK and all of our markets around the market. So I think we're in good shape as we enter 2017. Joe D. Vruwink - Robert W. Baird & Co., Inc.: Okay, great. Thank you.

Thank you.

Your next question comes from the line of Nicole Deblase from Deutsche Bank.

Yeah. Thanks. Good morning.

Good morning, Nicole.

Yeah. So my first question is just around, I guess, the tone of conversations that you're having with dealers and customers in the U.S. Just we've got improvement in the PMIs and it feels like general business sentiment is getting better. So just curious if you're seeing that reflected in your conversations with dealers and customers as well.

Well, I might let Bob address that for North America and let Harrie comment on the Europe situation.

I think that's a correct assessment, that the tone of conversations is generally positive. We just came back from the American Truck Dealers meeting in New Orleans this past weekend, and I would say dealers are looking optimistically towards the year. Quote activity seems to be normalized, and it should be a very good year for the truck industry once again in 2017.

And in Europe, I think I can confirm that business and industry confidence levels are at high levels. Freight, like Ron mentioned, is at good strong levels, and as a result, our order and backlog is in good shape.

Okay. Great. Thanks. And this one is kind of nitpicky, but I'm getting to the bottom of my question list here. Just why did you guys opt to cut R&D guidance for 2017? Is there anything significant there?

Nothing significant. As we dialed in our budgets for next year and looked at our product plans, that's the amount we need to continue to support the product and build our business. So, I think we are very – just a little bit sharpening of the pencil, as I say.

Got it. Thanks. I'll pass it on.

Thank you.

Your next question will come from the line of Andy Casey from Wells Fargo.

Good morning, Andy.

Hey, good morning and afternoon. And good luck, Bob.

Thank you.

You're welcome. So, not sure if you guys mentioned this already, but can you share any change in the order activity? I know in Europe, I know Harrie just talked about it being in good shape. Was that up, down or flat?

I think when you compare orders, Harrie, I mean, you've got some information in terms of the fourth quarter of this year compared to the fourth quarter of the prior year?

Yeah, the total order intake for DAF in the fourth quarter in the heavy segment was up 19% in the fourth quarter of 2016 compared to 2015.

Okay. And then, rest of world volume has been steadily growing through 2016. Can you give a little color as to what regions were driving that?

Well, we continue to increment our build in Brazil. It's a difficult market, but our team is step-by-step increasing production and increasing their market share, and Mexico was – a good year for Mexico. Australia, the mining sector is – has slowed, but we just launched our new T610 product in Australia, and their backlog is starting off very strong and we'll be looking at some build rate increases in Australia in the coming weeks. And we are seeing some increasing demand in markets like Russia, that the demand for Euro 5 vehicles is increasing, and DAF is doing a good job of getting their share of that additional demand in Russia.

That's good news. Thank you very much.

Thank you.

Your next question comes from the line of Seth Weber of RBC Capital Markets.

Good morning, Seth.

Hey, good morning and good afternoon. I just wanted to go – a couple quick questions. On Brazil, you mentioned that the market is obviously still tough, but your volumes are increasing and your absorption should be getting better. Is there a kind of a critical mass that we should be thinking about for that region or for your production where, I don't know if you'll comment or not, but is that facility breakeven for you or profitable for you today, or can that sort of flip from losing money to making money any time soon, if you can comment on that?

Yeah. I think a lot – just it all really depends on the economic developments in the country. And we've seen two years of contraction of over 3%, the expectations for this year is more of a flat development, but the Brazilian economy and the Brazilian – the Brazilians have a lot going for them in terms of resources, agricultural capability. So I think we feel very comfortable long-term with our investment, and as time goes on, it will provide a good return to our shareholders.

But at current levels, though, it's still a drag to you?

It is, yes.

Okay. And then just, I guess, a follow-up question. As production volumes get better just across the company or North America, I guess, kind of given the puts and takes around material cost and things like that, is there an incremental margin that you're comfortable talking to as volumes get better?

I think if you just look at the history of incremental and decremental margins, I think that's how you should think about us going forward.

So something like the 20% range or so?

Yeah, exactly.

Okay. Thank you very much, guys.

Thank you.

Your next question comes from the line of Mike Shlisky of Seaport Global.

Good morning, guys.

Good morning.

Just following up on Seth's question about Brazil. Does opening a bank in Brazil help you ramp up the market share penetration? It's been roughly 1% a year for a couple years now. Does it make it any more of a positive tailwind on that, either 2017 or 2018?

Yes. For sure, it does, and that's our whole drive behind our finance business, is profitably supporting the sale of PACCAR products around the world, and Brazil is no different. And as we have that financing capability, that will enhance DAF's ability to sell to more customers in the Brazilian market.

So, if you have been getting about 1% a year, could you maybe get you to 2% a year of additional share going forward? Just kind of help us to quantify the upside here.

Yeah. I can't really comment on that. I think there's some benefit there. We've been able to get that share here. The product is performing great. We have a great team that represents the DAF brand in the market. And I'm totally confident that we'll continue to grow our share, whatever pace that might be, and that, yeah, the finance company, all other things being equal, will enhance that share growth.

Okay, great. And then secondly, I saw on your issue, you've got a Toronto Parts DC opening. Is that going to open in 2017? And would that be serving?

No, it will probably be a mid 2018. We're just finalizing the purchase of the land and there will be a permitting process, and so construction will start probably mid-year this year and then finalize mid-year 2018.

Is that going to serve just Canada or will it also serve the Eastern U.S.? And I was curious as to what kind of operation you are placing there. Is that going to be a good margin efficiency improvement like we saw in Renton this year?

Well, I was just in that, our current Toronto Distribution Center about two weeks ago, and the team does a great job in a 55,000-square-foot facility. This will triple the amount of space. We have a growing business, both our dealers and our customers in that area, and this will allow them to grow their parts business in that area and better support a growing base of customers. So, just you saw us build the Renton PDC this last year, which doubled the amount of square footage. We expanded our PDC in Lancaster in Pennsylvania, that really supports the Northeastern part of the U.S. We have a Distribution Center in Montréal that supports customers in Québec. So, this particular PDC is primarily focused on the Ontario area and Middle Canada.

Perfect. Thank you very much.

Thank you.

Your next question will come from the line of Neil Frohnapple of Longbow Research.

Good morning, Neil.

Thanks. Yeah. I believe a few years ago, you indicated that Kenworth and Peterbilt U.S. and Canada Class 8 vocational truck share was above 40%. Is that still the case today? And I guess as a follow-up, could you just talk about order activity for the segment in the market and the prospects from higher infrastructure spending potentially coming in 2018?

Yeah, I think that share position is still about right. In terms of demand in that arena, I think demand has been pretty consistent. And for sure, if there is substantial infrastructure investment, I think that would bode well for our ability to sell more trucks into that segment. So, the Peterbilt and Kenworth products do great in that area.

Okay. Could you also talk about your industry outlook for the U.S. and Canada in medium-duty market versus 2016, whether you expect that to be flat, up or down?

I think fairly flat.

Great. Thanks a lot. Congrats, Bob.

Thank you.

Your next question will come from the line of Robert Wertheimer of Barclays.

Hi. Good morning. Could you talk about, you mentioned Russia earlier, where are we versus peak in Russia and what's the outlook for the next two, three years, I mean, gradual strengthening your return? And maybe just a second comment, we have data on used truck pricing, which you alluded to in the North American market. What is European used truck pricing like, up or down or flat?

Yeah, I'd say European used truck pricing is relatively flat. In terms of the Russian market, we're probably still on the ascent in terms of a couple years ago, the market was stronger. DAF sold about 3,000 trucks into Russia. Last year, it was just under 1,000 trucks. And so, there is good upward trend, but certainly more upside potential.

Great. Thank you.

Thank you.

Your next question will come from the line of Sam Rathod of Macquarie. Sameer Rathod - Macquarie Capital (USA), Inc.: Hi. Good mooning. Sameer Rathod.

Good morning. Sameer Rathod - Macquarie Capital (USA), Inc.: There has been a lot of discussion by the current administration about reducing regulation, including environmental. Do you think this is a net positive or negative for intermediate truck demand? Because on one hand, you have newer standards historically helping driving replacement cycles, on the other hand, reduced regulation may spur business activity.

We're preparing for the regulations as they exist currently. It's difficult to plan based on speculation, and so we're developing our products for the future, following the greenhouse gas regulations that are in place. So, if those change, we will reevaluate our plans and adapt accordingly. Sameer Rathod - Macquarie Capital (USA), Inc.: Okay. Thank you.

Thank you.

Your next question comes from the line of Scott Group of Wolfe Research.

Hey. Thanks. Morning, guys.

Good morning.

So can you share the – sorry, if I missed it, what you're expecting for Parts revenue growth this year and Financial Services margins?

So Parts revenue growth, I indicated we expect 2017 to be 2% to 4% growth rate. Financial Services margins, I think were – probably see our spreads be relatively steady, and I think a big factor in the results would be the movement of used truck values, but our portfolio in our Finance business is performing excellently. Our team generated a share of 26% of all PACCAR products sold that they financed last year. And so the finance team continues to manage their business in a very prudent way, and generate a good contribution to PACCAR's results.

Okay. And then, just secondly, can you just talk about the percent of your U.S. cost of goods sold that are imported into the U.S.? And then maybe just broadly, how you're thinking about any potential changes you might want to make if we get a border adjustment tax?

That's – a lot of speculation on trade matters, and so we'll address those as they come at us. We source materials from all over the world, majority out of the U.S., I don't know what that percentage might be. But we're – we source just as all the automotive and commercial vehicle industry does. So whatever the effects might be for us would be similar for the industry.

So you're saying that you don't want to give a number in terms of how much of your U.S. cost of goods are imported, but you're saying you wouldn't think it's any different than any other OEM?

I don't think it's any different.

Okay. Perfect. Thank you.

Thank you.

And your final question comes from the line of Joel Tiss of BMO.

Last and least, I'm used to that.

Hey. The best for last with Joel. That's how I look at it.

Yeah. Something like that. And then, so just there's been a lot of questions, so I'll make it quick. But the fourth quarter, the drop-off in the gross margin and the profitability is really just from end of year adjusting inventory, cleaning out, whatever, getting rid of some new unused product, and feeling some of the pricing pressure that's been evident in the market to set up for 201. Is that fair?

Yeah. I think there is a bit of competitive pricing pressure, the pound-euro exchange rate had some effect. In our fourth quarter, we typically will do some projects in our factories, so we have some maintenance projects that we do over the shutdown period. And so just normal stuff, so nothing unusual.

Okay. And then there was a slide from your December presentation that you – it suggested at least that you're going to capture some parts sales from the more technologically advanced stuff, like adaptive cruise control and lane departure warning system. Can you give me a sense of how can you do that? Those are someone else's – those are mostly someone else's parts. And so, I just – I don't know, it's hard for me to understand that. But I'm not the brightest guy in the planet either.

So, Joel, we sell a combination of our captive parts, as well as vendor supplied parts that we bring into our warehouse and have available for dealers. We manage that dealer inventory, and as parts for those systems are consumed at retail, then we will resupply the dealer from our warehouses. But we have access to all parts that are used on PACCAR products around the world.

Okay. So, just maybe a little bit less markup just because there is more hands touching it or something like that?

Yeah, I think that's fair.

Okay. All right. I'm not getting back in queue. Thank you very much.

Joel, always good to talk to you.

All right, see you.

Bye.

There are no other questions in the queue at this time. Are there any additional remarks from the company?

We would like to thank everyone for their participation, and thank you, operator.

Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect.