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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1994
Commission File No. 0-12553
PACCAR FINANCIAL CORP.
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(Exact name of Registrant as specified in its charter)
Washington 91-6029712
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(State of Incorporation) (I.R.S. Employer Identification No.)
777 - 106th Avenue N.E., Bellevue, Washington 98004
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (206) 462-4100
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
--------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 1995:
None
The number of shares outstanding of the registrant's classes of common stock as
of March 1, 1995:
Common Stock, $100 par value -- 145,000 shares
----------------------------------------------
THE REGISTRANT IS A WHOLLY OWNED SUBSIDIARY OF PACCAR INC AND MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION (J)(1)(a) AND (b) OF FORM 10-K AND
IS, THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
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PART I
ITEM 1. BUSINESS
GENERAL
PACCAR Financial Corp.
PACCAR Financial Corp. (the "Company"), a wholly owned subsidiary of
PACCAR Inc ("PACCAR"), is a Washington corporation organized in 1961 to finance
the sale of PACCAR products. The Company provides financing and leasing of
trucks and related equipment manufactured primarily by PACCAR and sold through
PACCAR's independent dealers in the United States. The Company also finances
dealer inventories of transportation equipment.
PACCAR
PACCAR is a multi-national company which designs and manufactures
various types of industrial equipment that are marketed primarily through its
dealers. Heavy-duty diesel trucks (primarily Class 8 trucks with gross vehicle
weight in excess of 33,000 pounds) and related service parts are the principal
products of PACCAR and accounted for 90% of PACCAR's total revenues in 1994.
PACCAR markets these trucks under the "Kenworth," "Peterbilt" and "Foden"
nameplates. Domestic Kenworth and Peterbilt trucks are manufactured in five
plants in the United States. Outside of the U.S., PACCAR manufactures and
sells trucks through wholly owned subsidiary companies in Canada and Australia
and through an affiliate in Mexico. Foden trucks are manufactured and sold in
the United Kingdom through a wholly owned U.S. subsidiary. PACCAR also
competes in the North American Class 6/7 markets with cab-over-engine and
conventional models. These medium-duty trucks are assembled at several PACCAR
factories in North America. Other PACCAR products include industrial winches
and oilfield equipment. PACCAR competes in the truck parts aftermarket
primarily through its dealer network and also sells general automotive parts
and accessories through retail outlets.
In the United States, Kenworth and Peterbilt trucks are sold to an
independent dealer network, consisting of 290 outlets, for resale to retail
purchasers. Trucks manufactured in the United States for export are marketed
by a division of PACCAR through an international dealer network.
In addition to the Company, which provides financing and leasing in
the United States, PACCAR offers similar financing programs for PACCAR products
in Canada, Australia and the United Kingdom through four other wholly owned
finance companies and through a wholly owned subsidiary of its Mexican
affiliate.
As of December 31, 1994, PACCAR and its subsidiaries had total assets
of $3.9 billion and stockholders' equity of $1.2 billion. For the year ended
December 31, 1994, PACCAR's consolidated revenues and net income were $4.5
billion and $204.5 million respectively.
There were six principal competitors, including PACCAR, in the United
States Class 8 truck market in 1994. Based on 1994 industry registration
statistics, PACCAR's Kenworth and Peterbilt combined truck sales accounted for
approximately 22% of domestic Class 8 new truck registrations. The domestic
heavy-duty truck market is highly competitive in price, quality and service.
PACCAR is not dependent on any single customer for a significant amount of its
sales.
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PACCAR's common stock, $12 par value, is traded in the over-the-
counter market under the NASDAQ symbol "PCAR." PACCAR is subject to the
informational requirements of the Securities Exchange Act of 1934 and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). All reports, proxy statements and
other information filed by PACCAR with the Commission may be inspected and
copied at the Public Reference Section of the Commission at 450 Fifth Street
NW, Washington, D.C. 20549.
BUSINESS OF THE COMPANY
The Company operates primarily in one industry segment, truck and
related equipment financing. The Company provides financing for dealers' sales
of Kenworth and Peterbilt trucks in the United States. In addition, the
Company provides financing for dealers' purchases of new Class 6, 7 and 8
trucks and used trucks, regardless of make or model. Financing is also
provided for truck trailers and allied equipment such as mixer and dump bodies
attached to the truck.
The Company currently conducts business with most PACCAR dealers. The
volume of the Company's business is significantly affected by PACCAR's sales
and competition from other financing sources.
As of December 31, 1994, the Company employed 240 full-time employees,
none of whom are represented by a collective bargaining agent. The Company
considers relations with its employees to be good.
The Company's Products
Retail Receivables
Retail Contracts. The Company purchases contracts ("Retail
Contracts") from dealers and receives assignments of the contracts and a first
lien security interest in the vehicles financed. Collateral for vehicles sold
to leasing companies may also include an assignment of leases and rentals due
thereunder. Retail Contracts purchased by the Company have fixed or floating
interest rates.
Direct Loan. The Company also makes loans ("Direct Loans") to the end
users of the vehicles financed that are secured by a first lien security
interest in the vehicles. Direct Loans have fixed or floating interest rates.
Master Note
These contracts are an alternative form of retail financing offered to
selected dealers for new and used trucks. Retail installment contracts
originated by the dealer for new or used trucks and meeting the Company's
requirements as to form, terms and creditworthiness for Retail Contracts are
pledged to the Company as collateral for direct, full recourse loans by the
Company to the dealer ("Master Note").
Wholesale Contracts
The Company provides wholesale financing for new and used truck and
trailer inventories for dealers ("Wholesale Contracts"). Wholesale Contracts
are secured by the inventories financed. The amount of credit extended by the
Company for each truck is generally limited to the invoice price of new
equipment and to the wholesale value of used equipment. Interest under
Wholesale Contracts is based upon floating rates.
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Leases
The Company offers lease contracts ("Leases") where it is treated as
the owner of the equipment for tax purposes and generally retains the tax
depreciation. The lessee is responsible for the payment of property and sales
taxes, licenses, maintenance and other operating items. The lessee is
obligated to maintain the equipment and to insure the equipment against
casualty losses.
Most of the Company's Leases contain a Terminal Rental Adjustment
Clause which requires the lessee to guarantee to the Company a stated residual
value upon disposition of the equipment at the end of the lease term.
Insurance
In 1993, the Company initiated a property damage insurance program
offered through PACCAR dealers who are licensed insurance agents. The Company
retains the premium revenue and loss exposure for the policies which are issued
by an unrelated insurance carrier. In 1994, these activities were immaterial
to the Company's results.
CUSTOMER CONCENTRATION, PAST DUE ACCOUNTS AND LOSS EXPERIENCE
Customer Concentration
At December 31, 1994, the largest single customer for Retail
Contracts, Direct Loans or Leases represented 1.7% of the Company's net
receivables, and the five largest such accounts amounted to 5.7% of net
receivables.
At December 31, 1994, the largest Master Note dealer borrowing
amounted to 7.9% of the Company's net receivables and the five largest dealer
notes under Master Note receivables amounted to 12.5% of net receivables.
Master Note receivables are secured by numerous retail installment contracts
which offset the amount of dealer concentration.
With respect to wholesale financing, at December 31, 1994, the
customer concentration was immaterial.
Past Due Receivables and Allowance for Losses
An account is considered past due by the Company if any portion of an
installment is due and unpaid for more than 30 days. In periods of adverse
economic conditions, past due levels, repossessions and losses generally
increase.
The Company maintains an allowance for losses on receivables at a
level which it considers to be adequate based on management's estimates of
future losses. The following table summarizes the activity in the Company's
allowance for losses on receivables and presents related ratios:
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Allowance for Losses
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
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1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Balance at Beginning of Period $24,000 $21,840 $21,840
Provision for Losses 2,473 6,079 8,611
Net Losses (Recoveries) (3,427) 3,919 8,611
------- ------- -------
Balance at End of Period $29,900 $24,000 $21,840
======= ======= =======
Ratios:
Net credit losses (recoveries) to average net
receivables and equipment on operating leases (.21%) .30% .77%
Allowance for losses to period end net
receivables and equipment on operating leases 1.68% 1.59% 1.85%
Period end gross contracts and leases past
due (over 60 days) to period end gross
contracts and lease receivables .23% .45% 1.49%
</TABLE>
For discussion of the allowance for losses and past due receivables,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations, 1992-1994."
COMPETITION AND ECONOMIC FACTORS
The truck financing business is highly competitive among banks,
commercial finance companies, captive finance companies and leasing companies.
Many of these institutions have substantially greater financial resources than
the Company and may occasionally borrow funds at lower rates.
The dealers are the primary source of contracts acquired by the
Company. However, dealers are not required to obtain financing from the
Company, and they have a variety of other sources which may be used for
wholesale and customer financing of trucks. Retail purchasers also have a
variety of sources available to finance truck purchases.
The ability of the Company to compete in its market is principally
based on the rates and terms which the Company offers dealers and retail
purchasers, as well as the specialized services it provides. Rates and terms
are based on the Company's desire to provide flexible financing which meets
dealer and customer financing needs, the ability of the Company to borrow funds
at competitive rates and the Company's need to earn an adequate return on its
invested capital. The Company's business is also affected by changes in market
interest rates, which in turn are related to general economic conditions,
demand for credit, inflation and governmental policies. Seasonality is not a
significant factor in the Company's business.
The volume of receivables available to be acquired by the Company from
dealers is largely dependent upon the number of Kenworth and Peterbilt trucks
sold. Domestic sales of heavy-duty trucks depend on the capital equipment
requirements of the transportation industry, which in turn is influenced by
economic growth and cyclical variations in the economy. Heavy-duty truck sales
are also sensitive to economic factors such as fuel costs, interest rates,
federal excise and highway use taxes and taxation of the acquisition and use of
capital goods.
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REGULATIONS AND SIMILAR MATTERS
In certain states, the Company is subject to retail installment sales
or installment loan statutes and related regulations, the terms of which vary
from state to state. These laws may require the Company to be licensed as a
sales finance company and may regulate disclosure of finance charges and other
terms of retail installment contracts. The Company is also subject to some of
the provisions of federal law relating to discrimination in the granting of
credit.
SOURCES OF FUNDS
The operations of the Company are financed by borrowings, retained
earnings, and equity investments by PACCAR. The Company's profitable
acquisition of additional receivables is dependent upon its ability to raise
funds at competitive rates in the public and private debt markets. The
receivables and leases that are financed are either fixed rate or floating
rate, with a term of generally five years or less.
To reduce the risk of changes in interest rates that could affect
interest margins, the Company obtains funds with interest rate characteristics
similar to the corresponding assets. Fixed rate assets are funded primarily
with publicly offered fixed rate medium-term notes. Floating rate assets are
funded primarily with commercial paper with maturities of thee months or less.
As a result, the Company's interest margin does not change significantly as
interest rates change.
The Company enters into over-the-counter interest rate contracts as a
tool to achieve its matched funding objectives and to reduce total borrowing
costs relative to its primary borrowing sources--commercial paper and fixed
rate medium-term notes. Fixed interest rate swaps, matched to floating rate
borrowings, are used to lock in the funding cost of fixed rate assets.
Floating interest rate swaps, matched to either fixed or floating rate debt,
are used to convert to a floating rate index more appropriate to the Company's
floating rate assets, often at a funding cost lower than the cost of commercial
paper. Interest rate caps are occasionally purchased to hedge the floating
rate funding cost of floating rate assets that have a maximum yield. As of
December 31, 1994, the total notional principal amount of interest rate
contracts outstanding were as follows: $407.2 million of interest rate swaps
resulting in a fixed rate payment obligation; $245.0 million of interest rate
swaps resulting in a floating rate payment obligation; and $76.2 million of
interest rate caps. The notional amount is used to measure the volume of these
contracts and does not represent exposure to credit loss. The Company's risk
in these transactions is the cost of replacing, at current market rates, these
contracts in the event of default by the counterparty. Management believes the
risk of incurring such losses is remote, and any losses would be immaterial.
The permitted types of derivatives, their transaction limits and related
approval authorizations have been established by the Company's senior
management and Board of Directors. The derivative contracts outstanding are
regularly reported to and reviewed by the Company's senior management.
As of December 31, 1994, PACCAR and the Company together had $300
million of unused, confirmed bank lines of credit that are reviewed annually
for renewal. These lines are maintained primarily to support the Company's
short-term borrowings. Neither PACCAR nor the Company is liable for the
borrowings of the other.
As of December 31, 1994, the Company had $870.3 million of term debt
outstanding, $328.8 million of which was due within 12 months. See "Note
E--Term Debt" in the Notes to Financial Statements for term debt maturities.
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An indenture of the Company dated as of December 1, 1984 as amended by
a first supplemental indenture dated June 19, 1989 (Exhibit 4.1), with respect
to the Company's term debt which is publicly issued from time to time, contains
restrictions limiting secured debt which may be incurred by the Company and any
subsidiary.
RELATIONSHIP WITH PACCAR
General
The operations of the Company are fundamentally affected by its
relationship with PACCAR. Sales of PACCAR products are the Company's principal
source of financing business. The Company receives administrative support from
PACCAR and may occasionally pay dividends to or borrow funds from PACCAR.
Since the majority of the directors of the Company are executives of PACCAR and
PACCAR is the sole owner of the Company's outstanding voting common stock,
PACCAR can determine the course of the Company's business. See "Note
D--Transactions with PACCAR" in the Notes to Financial Statements.
Support Agreement
The Company and PACCAR are parties to a Support Agreement which
obligates PACCAR to provide, when required, financial assistance to the Company
to assure that the Company maintains a ratio of net earnings available for
fixed charges to fixed charges (as defined) of at least 1.25 to 1 for any
fiscal year. The Support Agreement also requires PACCAR to own, directly or
indirectly, all outstanding voting stock of the Company. The required ratio
for the years ended December 31, 1994, 1993, 1992 and 1991 was met without
assistance. In order to maintain the ratio of 1.25 to 1 in 1990, PACCAR
provided earnings support of $7.3 million by assuming $4.5 million of the
Company's interest expense and forgiving $2.8 million in administrative service
charges.
The Company and PACCAR may amend or terminate any or all of the
provisions of the Support Agreement upon 30 days notice, with copies of the
notice being sent to all nationally recognized statistical rating organizations
("NRSROs") which have issued ratings with respect to debt of the Company
("Rated Debt"). Such amendment or termination will be effective only if (i)
two NRSROs confirm in writing that their ratings with respect to any Rated Debt
would remain the same after such amendment or termination, or (ii) the notice
of amendment or termination provides that the Support Agreement will continue
in effect with respect to Rated Debt outstanding on the effective date of such
amendment or termination unless such debt has been paid or defeased pursuant to
the indenture or other agreement applicable to such debt, or (iii) the holders
of at least two-thirds of the aggregate principal amount of all outstanding
Rated Debt with an original maturity in excess of 270 days consent in writing
to such amendment or termination, provided that the holders of Rated Debt
having an original maturity of 270 days or less shall continue to have the
benefit of the Support Agreement until the maturity of such debt.
The Support Agreement expressly states that PACCAR's commitments to
the Company thereunder do not constitute a PACCAR guarantee of payment of any
indebtedness or liability of the Company to others and do not create rights
against PACCAR in favor of persons other than the Company. There are no
guarantees, direct or indirect, by PACCAR of payment of any indebtedness of the
Company.
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ITEM 2. PROPERTIES
The Company's principal office is located in the corporate
headquarters building of PACCAR (owned by PACCAR) at 777 - 106th Avenue N.E.,
Bellevue, Washington 98004.
Other offices of the Company are located in leased premises. Annual
lease rentals for offices in the aggregate are not material in relation to
expenses as a whole.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings incidental
to its business involving the collection of accounts and other matters. The
Company does not consider such matters to be material with respect to the
business or financial condition of the Company as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All outstanding common stock is owned by PACCAR; therefore, there is
no trading market in the common stock.
The Company began in 1994 to pay a dividend to PACCAR for the paid-in
capital invested in the prior year. A cash dividend of $1.3 million was paid
to PACCAR in July 1994.
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data for the Company
and should be read in conjunction with the more detailed financial statements
included under "Financial Statements and Supplementary Data." The information
with respect to each of the five years in the period ended December 31, 1994
has been derived from the Company's audited financial statements.
Balance Sheet Data and Income Statement Data
(Thousands of Dollars)
<TABLE>
<CAPTION>
As of December 31
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Balance Sheet Data 1994 1993 1992 1991 1990
------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Assets $1,770,769 $1,493,880 $1,169,139 $1,106,522 $1,201,298
Short-Term Debt 507,175 524,211 455,533 436,559 420,100
Term Debt 870,300 624,100 384,500 349,700 459,503
Stockholder's Equity 253,333 226,750 208,437 196,740 181,852
</TABLE>
<TABLE>
<CAPTION>
Income Statement Data Year Ended December 31
--------------------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Income $ 141,692 $ 116,022 $ 109,490 $ 121,136 $ 141,754
Interest Expense 62,851 45,815 48,914 62,520 79,505
Depreciation Expense 9,953 10,432 10,201 10,669 12,535
Operating and Other Expenses 24,268 23,247 23,119 21,056 22,337
Loss Provision Expense 2,473 6,079 8,611 21,237 28,579
---------- ---------- ---------- ---------- ----------
Income (Loss) Before Support 42,147 30,449 18,645 5,654 (1,202)
Earnings Support (1) - - - - 7,290
---------- ---------- ---------- ---------- ----------
Income Before Taxes and
Cumulative Effect of
Change in Accounting
Method 42,147 30,449 18,645 5,654 6,088
Income Taxes 16,968 13,446 6,948 2,089 2,016
---------- ---------- ---------- ---------- ----------
Income Before Cumulative
Effect of Change in
Accounting Method 25,179 17,003 11,697 3,565 4,072
Cumulative Effect of
Change in Accounting
Method (2) - - - 11,323 -
---------- ---------- ---------- ---------- ----------
Net Income $ 25,179 $ 17,003 $ 11,697 $ 14,888 $ 4,072
========== ========== ========== ========== ==========
Ratio of Earnings to Fixed
Charges (3) 1.67x 1.66x 1.38x 1.09x 1.08x
</TABLE>
(1) In 1990, PACCAR provided earnings support of $7.3 million through the
assumption of $4.5 million of the Company's interest expense and the
forgiveness of $2.8 million in administrative service charges. (See
"Relationship with PACCAR.")
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(2) Effective January 1, 1991, the Company adopted Financial Accounting
Standards Board Statement (FASB) No. 96, "Accounting for Income
Taxes." The most significant impact of this Statement was to change
the tax rate at which deferred taxes were recognized on the balance
sheet to the lower rate then specified by federal tax laws. The
change resulted in a one-time increase in net income of $11,323 in the
first quarter of 1991.
(3) For purposes of this ratio, earnings consist of income from operations
plus fixed charges. Fixed charges consist of interest expense plus
one-third of rent expense (which is deemed representative of an
interest factor). The method of computing the ratio of earnings to
fixed charges shown above complies with SEC reporting requirements but
differs from the method called for in the Support Agreement between
the Company and PACCAR. The ratios computed pursuant to the Support
Agreement were 1.82x, 1.89x, 1.59x, 1.26x and 1.25x for the years
1994-1990, respectively. See Exhibits 12.1 and 12.2.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, 1992-1994
Results of Operations
1994 Compared to 1993:
Pre-tax earnings increased to $42.1 million from $30.4 million in 1993
primarily as a result of higher gross income attributable to the growth in
receivables as well as a lower provision for losses. Average receivables
increased 21% to $1.6 billion from $1.3 billion in 1993. The growth resulted
from record high new business volume of $992.5 million in 1994 related to
increased heavy-duty truck sales by PACCAR. Interest expense was greater due
both to the increase in 1994 market interest rates and to the higher amount of
debt incurred to fund the receivables growth. Operating expenses remained
relatively stable.
The 1994 loss provision of $2.5 million, compared to $6.1 million in
1993, reflected net credit recoveries and an improvement in past due balances.
These credit recoveries resulted generally from an improving economy and
collections on accounts previously charged off. The number and magnitude of
problem accounts continued to decline from the levels in earlier years. At
year end 1994, contracts over 60 days past due declined to .23% of period end
gross contracts and operating lease receivables compared to .45% and 1.49% at
year ends 1993 and 1992, respectively. The reserve for credit losses was
increased to $29.9 million to reflect the growth in the portfolio and risks
inherent in the financing of heavy-duty trucks.
As a result of the foregoing factors, net income for 1994 improved to
$25.2 million from $17.0 million in 1993.
1993 Compared to 1992:
Pre-tax earnings improved to $30.4 million from $18.6 million in 1992
primarily as a result of higher gross income from higher receivables
outstanding and a lower provision for losses. Average receivables were $1.3
billion compared to $1.1 billion in 1992. The growth resulted from high new
business volume related to increased heavy-duty truck sales by PACCAR.
Interest expense decreased due to the general decline in interest rates during
1993. Operating and other expenses remained relatively stable.
The 1993 loss provision of $6.1 million, compared to $8.6 million in
1992, reflected significantly lower net credit losses and an improvement in
past due balances. The lower credit losses resulted generally from an
improving economy. The number and magnitude of problem accounts continued to
decline from the levels in earlier years.
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As a result of the 1993 tax law change, which increased corporate
income tax rates from 34% to 35%, the Company recorded a one-time increase of
$2.3 million to the income tax provision to adjust deferred tax liabilities for
the higher 35% rate.
Net income for 1993 was $17.0 million compared to $11.7 million in
1992.
Funding and Liquidity
The Company manages its capital structure consistent with industry
standards. Since 1983, the Company has registered senior debt securities under
the Securities Act of 1933 for offering to the public. In 1993, the Company
registered $1 billion of senior debt securities for offering to the public. At
the end of 1994, $513 million of such securities was available for issuance.
The Company believes that it has sufficient financial capabilities,
including internally generated funds, access to public and private debt
markets, lines of credit and other financial resources, to fund current
business needs and service debt maturities.
Impact of New Accounting Rules
FASB No. 114, "Accounting by Creditors for Impairment of a Loan," and
FASB No. 118, "Accounting for Impairment of a Loan - Income Recognition and
Disclosures," were issued in May 1993 and October 1994, respectively, and are
effective for fiscal years beginning after December 15, 1994. The Company does
not expect the adoption of FASB No. 114 and FASB No. 118 to have a material
impact on the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and related schedules
described under Item 14, "Exhibits, Financial Statement Schedules, and Reports
on Form 8-K," are included following this page.
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Report of Independent Auditors
Board of Directors
PACCAR Inc and PACCAR Financial Corp.
We have audited the accompanying balance sheets of PACCAR Financial Corp. as of
December 31, 1994 and 1993, and the related statements of income and retained
earnings and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PACCAR Financial Corp. at
December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
February 10, 1995
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BALANCE SHEETS
PACCAR Financial Corp.
<TABLE>
<CAPTION>
December 31
1994 1993
----------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Cash $ 8,956 $ 5,554
Net finance and other receivables 1,733,253 1,466,049
Allowance for losses (29,900) (24,000)
----------------------------------------------------------------------------------------------
1,703,353 1,442,049
----------------------------------------------------------------------------------------------
Equipment on operating leases, net of
allowance for depreciation of $15,351
(1993--$15,246) 43,500 39,823
Other assets 14,960 6,454
----------------------------------------------------------------------------------------------
TOTAL ASSETS $1,770,769 $1,493,880
----------------------------------------------------------------------------------------------
LIABILITIES
Accounts payable and accrued expenses $ 61,683 $ 22,074
Payable for loans and leases originated 8,371 20,905
Commercial paper 461,175 475,210
Bank loans - 49,000
Advance payable to PACCAR Inc 46,000 -
Term debt 870,300 624,100
Deferred income taxes 69,907 75,841
----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,517,436 1,267,130
----------------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY
Preferred stock, par value $100 per share
6% noncumulative and nonvoting
450,000 shares authorized,
310,000 shares issued and outstanding 31,000 31,000
Common stock, par value $100 per share
200,000 shares authorized,
145,000 shares issued and outstanding 14,500 14,500
Paid in capital 4,024 1,310
Retained earnings 203,809 179,940
----------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 253,333 226,750
----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,770,769 $1,493,880
----------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
-13-
<PAGE> 14
STATEMENTS OF INCOME AND RETAINED EARNINGS
PACCAR Financial Corp.
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
--------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Interest and finance charges $129,369 $102,983 $ 96,384
Rentals on operating leases 12,323 13,039 13,106
--------------------------------------------------------------------------------------------------------------------
GROSS INCOME 141,692 116,022 109,490
--------------------------------------------------------------------------------------------------------------------
Interest expense 62,851 45,815 48,914
Other borrowing expense 1,453 1,257 1,151
Depreciation expense related
to operating leases 9,953 10,432 10,201
Selling, general &
administrative expenses 22,815 21,990 21,968
Provision for losses on receivables 2,473 6,079 8,611
--------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 42,147 30,449 18,645
--------------------------------------------------------------------------------------------------------------------
Income taxes 16,968 13,446 6,948
--------------------------------------------------------------------------------------------------------------------
NET INCOME 25,179 17,003 11,697
--------------------------------------------------------------------------------------------------------------------
Retained earnings at beginning of year 179,940 162,937 151,240
Cash dividends paid (1,310) - -
--------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS AT END OF YEAR $203,809 $179,940 $162,937
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
-14-
<PAGE> 15
STATEMENTS OF CASH FLOWS
PACCAR Financial Corp.
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
----------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 25,179 $ 17,003 $ 11,697
Items included in net income not
affecting cash:
Provision for losses on receivables 2,473 6,079 8,611
Deferred taxes (5,935) (13,250) (8,093)
Depreciation and amortization 11,392 11,253 11,290
Increase in payables, income taxes and other 2,804 10,462 3,572
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 35,913 31,547 27,077
--------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Finance and other receivables acquired (956,176) (839,887) (563,474)
Collections on finance and other receivables 684,011 563,597 472,743
Net decrease (increase) in wholesale 27,892 (49,747) 24,647
receivables
Acquisition of equipment for
operating leases (19,858) (20,462) (17,950)
Disposal of equipment 1,052 5,255 1,361
--------------------------------------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (263,079) (341,244) (82,673)
--------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in
commercial paper (14,036) 49,677 33,074
Net increase (decrease)
in bank loans (49,000) 19,000 (14,100)
Increase in advances payable to PACCAR Inc 46,000 - -
Proceeds from term debt 467,000 359,500 267,800
Payments of term debt (220,800) (119,900) (233,000)
Additions to paid in capital 2,714 1,310 -
Payment of cash dividend (1,310) - -
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 230,568 309,587 53,774
--------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 3,402 (110) (1,822)
CASH AT BEGINNING OF YEAR 5,554 5,664 7,486
--------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 8,956 $ 5,554 $ 5,664
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
-15-
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1994
(Thousands of Dollars)
NOTE A--SUMMARY OF ACCOUNTING POLICIES
Industry: PACCAR Financial Corp. (the "Company"), a wholly owned subsidiary of
PACCAR Inc ("PACCAR"), provides financing of trucks and related equipment
manufactured primarily by PACCAR and sold by authorized dealers. The Company
also finances dealer inventories of transportation equipment.
Due to the nature of the Company's business, customers are concentrated in the
transportation industry throughout the United States. The Company's
receivables and direct financing lease portfolio are not concentrated in any
geographic region. Generally, all receivables are collateralized by the
equipment being financed. The risk of bad debt losses related to this
concentration has been considered in establishing the allowance for losses.
Revenue Recognition: Revenue from net finance receivables and other
receivables is recognized using the interest method. Certain loan origination
costs are deferred and amortized to interest and finance charge income.
Equipment: Equipment on operating leases is recorded at cost and depreciated
on a straight-line basis over the term of each operating lease based upon its
estimated useful life of five years to an estimated residual value.
Income Taxes: The Company is included in the consolidated federal income tax
return of PACCAR. Any related tax liability is paid by the Company to PACCAR
and any current related tax benefit is paid by PACCAR to the Company.
Credit Losses: The provision for losses on net finance and other receivables
is charged to income in an amount sufficient to maintain the allowance for
losses at a level considered adequate to cover anticipated losses. Receivables
are charged to this allowance when, in the judgement of management, they are
deemed uncollectible.
Interest Rate Contracts: The Company enters into interest rate contracts which
generally involve the exchange of fixed or floating rate interest payment
obligations without the exchange of the underlying principal amounts. These
contracts are used to effectively change the terms of debt to better match the
interest rate characteristics of the Company's receivables and thereby reduce
the effect of interest rate fluctuations on the Company's income. Net amounts
paid or received are reflected as adjustments to interest expense.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the 1994 presentations.
-16-
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
NOTE B--RECEIVABLES
Terms for substantially all finance and other receivables range up to 60
months. Experience of the Company has shown that some receivables will be paid
prior to contractual maturity and others will be extended or renewed.
Accordingly, the maturities of receivables presented here should not be
regarded as a forecast of future collections.
The Company's finance and other receivables are as follows:
<TABLE>
<CAPTION> December 31
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Notes and contracts due within:
One year $ 503,289 $ 392,504
Two years 420,384 309,267
Three years 297,551 218,960
Four years 141,995 108,562
Five years and beyond 28,703 28,766
------------------------------------------------------------------------------
1,391,922 1,058,059
Wholesale financing 107,322 134,874
Direct financing leases 340,950 355,067
Interest and other receivables 11,151 12,072
------------------------------------------------------------------------------
1,851,345 1,560,072
Unearned interest:
Notes and contracts (79,008) (53,536)
Direct financing leases (39,084) (40,487)
------------------------------------------------------------------------------
(118,092) (94,023)
------------------------------------------------------------------------------
Net finance and other receivables $1,733,253 $1,466,049
------------------------------------------------------------------------------
</TABLE>
The Company's net investment in direct financing leases is as follows:
<TABLE>
<CAPTION> December 31
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Minimum lease payments receivable $317,530 $332,376
Estimated residual values of leased equipment 23,420 22,691
------------------------------------------------------------------------------
340,950 355,067
Unearned interest (39,084) (40,487)
------------------------------------------------------------------------------
Net investment in direct financing leases $301,866 $314,580
------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
Future minimum lease payments on direct financing leases at December 31, 1994
are due as follows:
<TABLE>
<S> <C>
1995 $109,470
1996 88,889
1997 62,202
1998 42,702
1999 and beyond 14,267
----------------------------------------------------------------------------
$317,530
----------------------------------------------------------------------------
</TABLE>
The allowance for losses on receivables is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $24,000 $21,840 $21,840
Provision for losses 2,473 6,079 8,611
Net losses (recoveries) (3,427) 3,919 8,611
----------------------------------------------------------------------------
Balance at end of year $29,900 $24,000 $21,840
----------------------------------------------------------------------------
</TABLE>
NOTE C--OPERATING LEASES
Terms of operating leases range up to 44 months. Future minimum rental
payments to be received for transportation equipment on operating leases at
December 31, 1994 are due as follows:
<TABLE>
<S> <C>
1995 $11,915
1996 9,183
1997 4,550
1998 768
----------------------------------------------------------------------------
$26,416
----------------------------------------------------------------------------
</TABLE>
NOTE D--TRANSACTIONS WITH PACCAR
The Company has a Support Agreement with PACCAR that requires, among other
provisions, that PACCAR maintain a ratio of earnings to fixed charges, as
defined, for the Company of at least 1.25 to 1 for any fiscal year, and that
PACCAR own all outstanding voting stock of the Company.
The required ratio of 1.25 to 1 for the years ended December 31, 1994 - 1992
was met without assistance.
-18-
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
PACCAR charges the Company for certain administrative services it provides.
These costs are charged to the Company based upon the Company's specific use of
the services and PACCAR's cost. Management considers these charges reasonable
and not significantly different from the costs that would be incurred if the
Company were on a stand-alone basis. Fees for services of $3,134, $3,628 and
$3,093 for 1994, 1993 and 1992, respectively, were charged to the Company.
Beginning July 1993, in lieu of payment, PACCAR began recognizing these
administrative services as an additional investment in the Company. The
Company records the investment as paid-in capital. As of 1994, the Company
pays a dividend to PACCAR for the paid-in capital invested in the prior
year. A cash dividend of $1.3 million was paid to PACCAR in 1994.
The Company's employees are covered by a defined benefit pension plan, an
unfunded postretirement medical and life insurance plan and a defined
contribution plan sponsored by PACCAR. Separate allocations of plan assets,
defined benefit accumulated plan benefits and defined contribution plan
benefits relating to the Company have not been made. Expenses charged to the
Company by PACCAR for these plans were $626, $482 and $326 for years 1994, 1993
and 1992, respectively.
Periodically, the Company borrows funds from PACCAR. At December 31, 1994,
the Company had outstanding to PACCAR a $46,000 short term note payable at
a market rate. The note was repaid in January 1995.
The Company's Articles of Incorporation provide that the 6% noncumulative,
nonvoting preferred stock (100% owned by PACCAR) is redeemable only at the
option of the Company's Board of Directors.
NOTE E--TERM DEBT
Term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
4.18% to 8.75% medium-term notes
due through 1998 $645,300 $364,100
Floating interest rate medium-term
notes due through 1995 225,000 260,000
------------------------------------------------------------------------------
$870,300 $624,100
------------------------------------------------------------------------------
</TABLE>
Interest rates on the floating interest rate medium-term notes are based on
various indices, primarily LIBOR and the prime rate.
Principal amounts due over the next five years at December 31, 1994 are
$328,800 in 1995, $220,500 in 1996, $227,000 in 1997, $91,000 in 1998, and
$3,000 in 1999.
At December 31, 1994, the Company had outstanding 48 interest rate contracts
with various financial institutions, having a total notional principal amount
of $728.4 million. These agreements expire as follows: $392.4 million in
1995, $313.3 million in 1996, and $22.7 million in 1997. The notional amount
is used to measure the volume of these contracts and does not represent
exposure to credit loss. The Company's risk in these transactions is the cost
of replacing, at current market rates, these contracts in the event of default
by the counterparty. Management believes the risk of incurring such losses is
remote, and any losses would be immaterial.
-19-
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
NOTE F-- CREDIT ARRANGEMENTS
The Company and PACCAR together have lines of credit arrangements with various
commercial banks that are reviewed annually for renewal. These lines are
maintained primarily to support the Company's short-term borrowings. At
December 31, 1994, the unused portion of these credit lines was $300 million.
The Company compensates banks with fees which are immaterial in amount.
The Company has entered into loan participation programs with various lending
institutions under which notes, between the Company and the lending
institutions, are sold by the lending institutions to investors. These notes
generally mature within 30 days. At December 31, 1994, and 1993, there were $0
and $49 million, respectively, borrowed under these terms.
NOTE G--INTEREST EXPENSE
The following is a summary of interest expense:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Bank loans and commercial paper $17,798 $14,814 $16,491
Term debt 45,053 31,001 32,423
------------------------------------------------------------------------------
$62,851 $45,815 $48,914
------------------------------------------------------------------------------
</TABLE>
Cash paid for interest was $55,349 in 1994, $45,734 in 1993 and $49,667 in
1992.
The weighted average interest rates on bank loans and commercial paper
outstanding was 5.55%, 3.15%, and 3.25% as of December 31, 1994, 1993, and
1992, respectively.
NOTE H--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision
Federal $19,285 $ 23,516 $13,103
State 3,618 3,180 1,938
------------------------------------------------------------------------------
22,903 26,696 15,041
Deferred benefit (5,935) (13,250) (8,093)
------------------------------------------------------------------------------
$16,968 $ 13,446 $ 6,948
------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
Deferred income tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
As of December 31
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities
Depreciation $ 74,599 $ 78,899
State income tax 9,098 9,344
------------------------------------------------------------------------------
83,697 88,243
Deferred tax (assets)
Allowance for doubtful accounts (10,465) (9,180)
Other (3,325) (3,222)
------------------------------------------------------------------------------
(13,790) (12,402)
------------------------------------------------------------------------------
Net deferred tax liability $ 69,907 $ 75,841
------------------------------------------------------------------------------
</TABLE>
A reconciliation between the statutory federal income tax rate and the actual
provision for income taxes is shown below:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
35% 35% 34%
--- --- ---
Tax at the statutory rate $14,752 $10,657 $6,339
Effect of:
Rate increases on deferred taxes 364 2,302 -
State income taxes and other 1,852 487 609
------------------------------------------------------------------------------
$16,968 $13,446 $6,948
------------------------------------------------------------------------------
</TABLE>
The change in the federal income tax rate from 34% to 35%, effective January 1,
1993, increased the 1993 provision for income tax by $2,302. An increase in
the Company's effective state income tax rate raised the 1994 provision by
$364.
Cash paid for income taxes was $26,583 in 1994, $20,960 in 1993 and $11,173 in
1992.
NOTE I--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and equivalents: The carrying amount reported in the balance sheets
approximates fair value.
-21-
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
Net Receivables: For floating rate loans including wholesale financings that
reprice frequently with no significant change in credit risk, fair values are
based on carrying values. For fixed rate loans, fair values are estimated
using discounted cash flow analyses using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
The carrying amount of accrued interest and other receivables approximates
their fair value. Direct financing leases and the related loss provision are
not included in net receivables.
Off-Balance-Sheet Instruments: Fair values for the Company's interest rate
contracts are based on costs which would be incurred to terminate existing
agreements and enter into new agreements with similar notional amounts,
maturity dates and counterparties' credit standing at current market interest
rates.
Bank Loans and Term Debt: The carrying amount of the Company's commercial
paper and bank loans and floating rate term debt approximates their fair value.
The fair value of the Company's fixed rate term debt is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The carrying amount of trade payables and receivables approximate their fair
value and have been excluded from the accompanying table.
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and equivalents $ 8,956 $ 8,956 $ 5,554 $ 5,554
Net receivables 1,407,670 1,383,881 1,133,117 1,143,743
Commercial paper, bank loans and
Advance to PACCAR Inc 507,175 507,175 524,211 524,211
Term debt 870,300 845,784 624,100 626,293
</TABLE>
The Company's off-balance-sheet financial instruments (interest rate contracts)
at December 31, 1994 represented gross assets of $7,446 and offsetting gross
liabilities of $4,402, resulting in a net asset balance of $3,044, if recorded
at fair value. At December 31, 1993, the Company's off-balance-sheet financial
instruments reflected an additional liability of $2,000, if recorded at fair
value.
-22-
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
NOTE J--QUARTERLY RESULTS (Unaudited)
<TABLE>
<CAPTION>
---------------------------QUARTER---------------------------
First Second Third Fourth
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994
----
Gross income $31,747 $34,375 $36,542 $39,028
Income before income taxes 9,294 10,696 11,588 10,569
Net income 5,673 6,451 6,867 6,188
1993
----
Gross income $27,836 $28,142 $29,386 $30,658
Income before income taxes 7,114 7,384 7,507 8,444
Net income 4,463 4,630 2,695 5,215
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The registrant has not had any disagreements with its independent
auditors on accounting or financial disclosure matters.
-23-
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company at February 1,
1995, their ages, current positions with the Company and principal occupations
during the past five years are set forth in the following table. The table
also shows directorships held by a director in public corporations.
Directors and Executive Officers
<TABLE>
<CAPTION>
Present Position and Other Position(s)
Name and Age Held During Last Five Years
------------------------ ----------------------------------------------------------------------------
<S> <C>
Charles M. Pigott (65) Chairman and Director; Chairman, Chief Executive Officer and Director of
PACCAR. Also a director of The Boeing Company, Chevron Corporation and
Seattle Times Company. Charles M. Pigott is the father of Mark C. Pigott.
William E. Boisvert (52) Vice Chairman and Director; Executive Vice President of PACCAR since April
1989.
T. Ronald Morton (48) President and Director; President of the Company since August 1988.
G. Don Hatchel (50) Vice President and Director; Vice President-Controller of PACCAR since
January 1991. Various management positions with PACCAR prior thereto.
David J. Hovind (54) Director; President and Director of PACCAR since January 1992. Executive
Vice President of PACCAR from July 1987 to January 1992.
Mark C. Pigott (40) Director; Vice Chairman of PACCAR since January 1995. Executive Vice
President of PACCAR from December 1993 to January 1995. Senior Vice
President of PACCAR from December 1990 to December 1993. Vice President
of PACCAR prior to December 1990. Mark C. Pigott is the son of Charles
M. Pigott.
James L. Shiplet (56) Director; President of PACCAR Leasing Corporation since September 1987.
Michael A. Tembreull (48) Director; Vice Chairman of PACCAR since January 1995. Executive Vice
President of PACCAR from January 1992 to January 1995. Senior Vice
President of PACCAR from September 1990 to January 1992. Previously
General Manager of PACCAR's Peterbilt division.
John J. Waggoner (46) Director; Treasurer of PACCAR since May 1991. Director of Strategic
Analysis of PACCAR from July 1989 to May 1991.
</TABLE>
-24-
<PAGE> 25
The directors of the Company are elected annually by PACCAR. All
officers are elected annually by the Board of Directors or appointed by the
Board of Directors or Chairman to serve at the pleasure of the Board or until
their successors are elected or appointed.
ITEM 11. EXECUTIVE COMPENSATION
This item is omitted pursuant to Form 10-K General Instruction J(1)
and (2)(c).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Securities of the Company
PACCAR owns beneficially and of record 100% of the outstanding
preferred stock (310,000 shares, $100 par value) and common stock (145,000
shares, $100 par value) of the Company.
Securities of PACCAR
This item is omitted pursuant to Form 10-K General Instruction J(1)
and (2)(c).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See generally "Relationship with PACCAR," "Selected Financial Data"
and "NOTE D--Transactions with PACCAR" in the Notes to Financial
Statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of the Company are included in
Item 8:
At December 31, 1994 and 1993 and for the Years Ended December 31,
1994, 1993, and 1992
Balance Sheets -- December 31, 1994 and 1993
Statements of Income and Retained Earnings -- Years Ended
December 31, 1994, 1993 and 1992
Statements of Cash Flows -- Years Ended December 31, 1994,
1993 and 1992
Notes to Financial Statements -- December 31, 1994
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or have been otherwise disclosed and,
therefore, have been omitted.
Listing of Exhibits
The exhibits required by Item 601 of Regulation S-K are listed in the
accompanying Exhibit Index.
b. REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1994
There were no reports on Form 8-K for the quarter ended December 31, 1994.
-25-
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PACCAR Financial Corp.
By /S/ T. Ronald Morton
----------------------------------
T. Ronald Morton
President
Date: March 23, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant as of the above date and in the capacities indicated.
<TABLE>
<S> <C> <C>
(1) Principal Executive Officer
/S/ T. Ronald Morton President
---------------------------------
T. Ronald Morton
(2) Principal Financial Officer
/S/ Ron E. Ranheim Treasurer
---------------------------------
Ron E. Ranheim
(3) Principal Accounting Officer
/S/ Brian J. Kimble Controller
---------------------------------
Brian J. Kimble
(4) A Majority of the Board of Directors:
/S/ T. Ronald Morton
---------------------------------
T. Ronald Morton
William E. Boisvert*
G. Don Hatchel*
David J. Hovind*
Charles M. Pigott*
Mark C. Pigott*
James L. Shiplet*
Michael A. Tembreull*
John J. Waggoner*
*By /S/ T. Ronald Morton
----------------------------------
T. Ronald Morton
Attorney-in-Fact
</TABLE>
-26-
<PAGE> 27
PACCAR Financial Corp.
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Restated Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the
Company's Form 10-K dated March 26, 1985. Amendment incorporated by reference to Exhibit 19.1 to the Company's
Quarterly Report on Form 10-Q dated August 13, 1985, File Number 0-12553).
3.2 By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company's Registration
Statement on Form 10 dated October 20, 1983, File Number 0-12553).
4.1 Indenture for Senior Debt Securities dated as of December 1, 1983 and first Supplemental Indenture dated as of
June 19, 1989 between the Company and Citibank, N.A. (incorporated by reference to Exhibit 4.1 to the Company's
Annual Report on Form 10-K dated March 26, 1984, File Number 0-12553 and Exhibit 4.2 to the Company's
Registration Statement on Form S-3 dated June 23, 1989, Registration Number 33-29434).
4.2 Forms of Medium-Term Note, Series E (incorporated by reference to Exhibits 4.3A, 4.3B and 4.3C to the Company's
Registration Statement on Form S-3 dated June 23, 1989, Registration Number 33-29434, and Forms of Medium-Term
Note, Series E, incorporated by reference to Exhibit 4.3B.1 to the Company's Current Report on Form 8-K dated
December 19, 1991, under Commission File Number 0-12553).
Letter of Representation among the Company, Citibank, N.A. and the Depository Trust Company, Series E, dated
July 6, 1989 (incorporated by reference to Exhibit 4.3 of the Company's Annual Report on Form 10-K dated March
29, 1990, File Number 0-12553).
4.3 Forms of Medium-Term Note, Series F (incorporated by reference to Exhibits 4.3A, 4.3B and 4.3C to the Company's
Registration Statement on Form S-3 dated May 26, 1992, Registration Number 33-48118).
Form of Letter of Representation among the Company, Citibank, N.A. and the Depository Trust Company, Series F
(incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3 dated May 26,
1992, Registration Number 33-48118).
4.4 Forms of Medium-Term Note, Series G (incorporated by reference to Exhibits 4.3A and 4.3B to the Company's
Registration Statement on Form S-3 dated December 8, 1993, Registration Number 33-51335).
Form of Letter of Representation among the Company, Citibank, N.A. and the Depository Trust Company, Series G
(incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3 dated December 8,
1993, Registration Number 33-51335).
10.1 Support Agreement between the Company and PACCAR dated as of June 19, 1989 (incorporated by reference to
Exhibit 28.1 to the Company's Registration Statement on Form S-3 dated June 23, 1989, Registration Number
33-29434).
12.1 Statement re computation of ratio of earnings to fixed charges of the Company pursuant to SEC reporting
requirements for the years ended December 31, 1994 and 1993.
12.2 Statement re computation of ratio of earnings to fixed charges of the Company pursuant to the Support Agreement
with PACCAR for the years ended December 31, 1994 and 1993.
</TABLE>
-27-
<PAGE> 28
<TABLE>
<S> <C>
12.3 Statement re computation of ratio of earnings to fixed charges of PACCAR and subsidiaries pursuant to SEC
reporting requirements for the years ended December 31, 1994 and 1993.
12.4 Statement re computation of ratios for allowance for losses on receivables and past due levels of the Company
for the years ended December 31, 1994 and 1993.
24.1 Consent of Independent Auditors.
25.1 Power of attorney of certain officers and directors.
27 Financial Data Schedule for Article 5 of Regulation S-X, Item 601(c) for the year ended December 31, 1994.
</TABLE>
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
-28-
<PAGE> 1
EXHIBIT 12.1
PACCAR Financial Corp.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO SEC REPORTING REQUIREMENTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------
1994 1993 1992 1991 1990
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES
Interest expense $ 62,851 $45,815 $48,914 $62,520 $79,505
Less: Assumption by PACCAR
of interest expense (1) - - - - 4,450
-------- ------- ------- ------- -------
Net interest expense 62,851 45,815 48,914 62,520 75,055
Portion of rentals
deemed interest 226 218 217 278 274
-------- ------- ------- ------- -------
TOTAL FIXED CHARGES $ 63,077 $46,033 $49,131 $62,798 $75,329
======== ======= ======= ======= =======
EARNINGS
Income before taxes $ 42,147 $30,449 $18,645 $ 5,654 $ 6,088
FIXED CHARGES 63,077 46,033 49,131 62,798 75,329
-------- ------- ------- ------- -------
EARNINGS AS DEFINED $105,224 $76,482 $67,776 $68,452 $81,417
======== ======= ======= ======= =======
RATIO OF EARNINGS
TO FIXED CHARGES (2) 1.67x 1.66x 1.38x 1.09x 1.08x
</TABLE>
(1) In order to maintain the ratio of earnings to fixed charges in 1990,
pursuant to the support agreement between the Company and PACCAR,
PACCAR provided earnings support of $7.3 million by assuming $4.5
million of the Company's interest expense and forgiving $2.8 million
in administrative service charges.
(2) The method of computing the ratio of earnings to fixed charges shown
above complies with SEC reporting requirements but differs from the
method called for in the Support Agreement between the Company and
PACCAR. See Exhibit 12.2.
-29-
<PAGE> 1
EXHIBIT 12.2
PACCAR Financial Corp.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO THE SUPPORT AGREEMENT
BETWEEN THE COMPANY AND PACCAR
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------
1994 1993 1992 1991 1990
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES
Interest expense $ 62,851 $45,815 $48,914 $62,520 $79,505
Less: Assumption by PACCAR
of interest expense (1) - - - - 4,450
-------- ------- ------- ------- -------
Net interest expense 62,851 45,815 48,914 62,520 75,055
Facility and equipment rental 678 655 650 834 823
-------- ------- ------- ------- -------
TOTAL FIXED CHARGES $ 63,529 $46,470 $49,564 $63,354 $75,878
======== ======= ======= ======= =======
EARNINGS
Income before taxes $ 42,147 $30,449 $18,645 5,654 $ 6,088
Depreciation 10,168 10,701 $10,524 11,057 12,906
-------- ------- ------- ------- -------
52,315 41,150 29,169 16,711 18,994
FIXED CHARGES 63,529 46,470 49,564 63,354 75,878
-------- ------- ------- ------- -------
EARNINGS AS DEFINED $115,844 $87,620 $78,733 $80,065 $94,872
======== ======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES 1.82x 1.89x 1.59x 1.26x 1.25x
</TABLE>
(1) In order to maintain the ratio of earnings to fixed charges in 1990,
PACCAR provided earnings support of $7.3 million by assuming $4.5
million of the Company's interest expense and forgiving $2.8 million
in administrative service charges.
-30-
<PAGE> 1
EXHIBIT 12.3
PACCAR AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES
Interest expense
PACCAR and
Subsidiaries (1) $ 87,465 $ 64,000 $ 71,912 $ 94,264 $118,680
Portion of rentals
deemed interest 5,494 6,001 6,870 6,785 6,447
-------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 92,959 $ 70,001 $ 78,782 $101,049 $125,127
======== ======== ======== ======== ========
EARNINGS
Income before taxes - PACCAR
and Subsidiaries (2) $320,098 $219,757 $ 91,613 $ 48,344 $ 94,156
FIXED CHARGES 92,959 70,001 78,782 101,049 125,127
-------- -------- -------- -------- --------
EARNINGS AS DEFINED $413,057 $289,758 $170,395 $149,393 $219,283
======== ======== ======== ======== ========
RATIO OF EARNINGS
TO FIXED CHARGES 4.44x 4.14x 2.16x 1.48x 1.75x
</TABLE>
(1) Exclusive of interest paid to PACCAR.
(2) Includes before-tax earnings of wholly owned subsidiaries and
distributed income received from less than 50% owned subsidiaries.
-31-
<PAGE> 1
EXHIBIT 12.4
PACCAR Financial Corp.
COMPUTATION OF RATIOS FOR ALLOWANCE FOR LOSSES
ON RECEIVABLES AND PAST DUE LEVELS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net credit losses (recoveries) $ (3,427) $ 3,919 $ 8,611
Allowance for losses at end of period 29,900 24,000 21,840
Average finance receivables and equipment
on operating leases 1,602,593 1,320,214 1,124,850
Period end finance receivables and equipment
on operating leases 1,776,753 1,505,872 1,179,225
Period end gross contracts and operating
lease receivables past due over 60 days 3,575 5,704 15,184
Period end gross contracts and
operating lease receivables (1) 1,542,071 1,259,213 1,022,382
Ratios:
Net credit losses (recoveries) to average
finance receivables and equipment on
operating leases (.21%) .30% .77%
Allowance for losses to period end finance
receivables and equipment on
operating leases 1.68% 1.59% 1.85%
Period end gross contracts and operating lease receivables
receivables past due (over 60 days) to period end
gross contracts and operating lease receivables .23% .45% 1.49%
</TABLE>
(1) Exclusive of Master Note receivables.
-32-
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-51335) of PACCAR Financial Corp. and in the related Prospectus
of our report dated February 10, 1995 with respect to the financial statements
of PACCAR Financial Corp. included in this Annual Report (Form 10-K) for the
year ended December 31, 1994.
/S/Ernst & Young, LLP
Seattle, Washington
March 23, 1995
-33-
<PAGE> 1
EXHIBIT 25.1
POWER OF ATTORNEY
We, the undersigned directors and officers of PACCAR Financial Corp., a
Washington corporation, hereby severally constitute and appoint, C. M. Pigott,
M. A. Tembreull, W. E. Boisvert, T. R. Morton or any of them, singly, our true
and lawful attorneys-in-fact, with full power to them and each of them to sign
for us, and in our names in the capacities indicated below, a Form 10-K of this
corporation for fiscal year 1994 to be filed with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, together with
any and all amendments to said Form 10-K, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys-in-fact to said Form
10-K and any and all amendments thereto.
IN WITNESS WHEREOF each of the undersigned has executed this power of attorney
as of the 28th day of February 1995.
<TABLE>
<S> <C> <C> <C>
/S/ T. R. Morton President /S/ G. D. Hatchel Vice President
---------------------- and Director ---------------------- and Director
T. R. Morton G. D. Hatchel
/S/ R. E. Ranheim Treasurer /S/ D. J. Hovind Director
---------------------- ----------------------
R. E. Ranheim D. J. Hovind
/S/ B. J. Kimble Controller /S/ M. C. Pigott Director
---------------------- ----------------------
B. J. Kimble M. C. Pigott
/S/ C. M. Pigott Chairman of /S/ J. L. Shiplet Director
---------------------- the Board ----------------------
C. M. Pigott and Director J. L. Shiplet
/S/ W. E. Boisvert Vice Chairman /S/ M. A. Tembreull Director
---------------------- of the Board ----------------------
W. E. Boisvert and Director M. A. Tembreull
/S/ J. J. Waggoner Director
----------------------
J. J. Waggoner
</TABLE>
-34-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1994, 1993 AND 1992 AND FROM THE BALANCE SHEETS AT DECEMBER 31, 1994 AND
1993 OF PACCAR FINANCIAL CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 8,956
<SECURITIES> 0
<RECEIVABLES> 1,733,253
<ALLOWANCES> 29,900
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 58,851
<DEPRECIATION> 15,351
<TOTAL-ASSETS> 1,770,769
<CURRENT-LIABILITIES> 0
<BONDS> 870,300
<COMMON> 0
31,000
14,500
<OTHER-SE> 207,833
<TOTAL-LIABILITY-AND-EQUITY> 1,770,769
<SALES> 0
<TOTAL-REVENUES> 141,692
<CGS> 0
<TOTAL-COSTS> 74,257
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,473
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 42,147
<INCOME-TAX> 16,968
<INCOME-CONTINUING> 25,179
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,179
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
