<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 0-12553
PACCAR Financial Corp.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-6029712
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
777 - 106th Avenue N.E., Bellevue, WA 98004
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 462-4100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 145,000 shares at July 31,
1996.
THE REGISTRANT IS A WHOLLY OWNED SUBSIDIARY OF PACCAR INC AND MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS,
THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
PACCAR Financial Corp.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(Thousands of Dollars)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
- --------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Interest and other income $43,856 $39,663 $87,639 $76,944
Rentals on operating leases 2,927 3,281 6,007 6,631
- --------------------------------------------------------------------------------
TOTAL FINANCE INCOME 46,783 42,944 93,646 83,575
Interest expense 24,559 21,765 49,234 42,064
Other borrowing expense 431 358 906 759
Depreciation expense related
To operating leases 2,374 2,640 4,848 5,266
- --------------------------------------------------------------------------------
TOTAL FINANCE EXPENSES 27,364 24,763 54,988 48,089
FINANCE MARGIN 19,419 18,181 38,658 35,486
Insurance premiums earned 1,373 1,032 2,705 1,966
Insurance claims and
underwriting expenses 980 1,033 1,930 1,818
- --------------------------------------------------------------------------------
INSURANCE MARGIN 393 (1) 775 148
Selling, general and
administrative expenses 5,936 5,850 12,030 11,897
Provision for losses on
receivables 905 874 1,280 1,962
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 12,971 11,456 26,123 21,775
Federal and state income taxes 5,052 4,617 10,169 8,768
- --------------------------------------------------------------------------------
NET INCOME 7,919 6,839 15,954 13,007
Retained earnings at beginning
of period 234,117 207,262 229,015 203,809
Cash dividends paid - - (2,933) (2,715)
- --------------------------------------------------------------------------------
RETAINED EARNINGS AT END
OF PERIOD $242,036 $214,101 $242,036 $214,101
- --------------------------------------------------------------------------------
Earnings per share and dividends per share are not reported because the Company
is a wholly owned subsidiary of PACCAR Inc.
See notes to financial statements.
-2-
<PAGE>
PACCAR Financial Corp.
BALANCE SHEETS
(Thousands of Dollars)
June 30 December 31
1996 1995*
- --------------------------------------------------------------------------------
(Unaudited)
ASSETS
Cash $ 6,156 $ 5,967
Net finance and other receivables 2,058,104 2,051,135
Allowance for losses (35,950) (35,790)
- --------------------------------------------------------------------------------
2,022,154 2,015,345
Equipment on operating leases, net of allowance
for depreciation of $21,421 (1995--$20,889) 35,839 40,905
Other assets 12,325 12,188
- --------------------------------------------------------------------------------
TOTAL ASSETS $2,076,474 $2,074,405
- --------------------------------------------------------------------------------
LIABILITIES
Accounts payable and accrued expenses $ 41,817 $ 36,461
Payable for finance receivables acquired 13,108 34,504
Commercial paper and other short-term borrowings 692,159 657,856
Medium-term notes 973,500 999,500
Income taxes-current & deferred 59,679 64,613
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 1,780,263 1,792,934
- --------------------------------------------------------------------------------
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 8,675 6,956
Retained earnings 242,036 229,015
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 296,211 281,471
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,076,474 $2,074,405
- --------------------------------------------------------------------------------
*The December 31, 1995 Balance Sheet has been derived from audited financial
statements.
See notes to financial statements.
-3-
<PAGE>
PACCAR Financial Corp.
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Six Months Ended
June 30
- --------------------------------------------------------------------------------
1996 1995
(Unaudited)
OPERATING ACTIVITIES:
Net income $ 15,954 $13,007
Items included in net income not affecting cash:
Provision for losses on receivables 1,280 1,962
Decrease in deferred taxes payable (6,624) (6,916)
Depreciation and amortization 7,031 7,078
Increase in payables, income taxes and other
liabilities 3,067 10,101
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,708 25,232
INVESTING ACTIVITIES:
Finance and other receivables acquired (531,289) (472,582)
Collections on finance and other receivables 440,186 376,762
Net decrease (increase) in wholesale receivables 58,035 (26,724)
Acquisition of equipment for operating leases (2,322) (4,795)
Proceeds from disposal of equipment 7,782 6,105
- --------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (27,608) (121,234)
FINANCING ACTIVITIES:
Net increase in commercial paper and
other short-term borrowings 34,303 100,194
Decrease in advances payable to PACCAR Inc - (46,000)
Proceeds from medium-term notes 217,000 220,000
Payments of medium-term notes (243,000) (180,950)
Additions to paid in capital 1,719 2,059
Payment of cash dividend (2,933) (2,715)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,089 92,588
NET INCREASE (DECREASE) IN CASH 189 (3,414)
CASH AT BEGINNING OF PERIOD 5,967 8,956
- --------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 6,156 $ 5,542
- --------------------------------------------------------------------------------
See notes to financial statements.
-4-
<PAGE>
PACCAR Financial Corp.
NOTES TO FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. For further information, refer to the
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
Reclassifications: Certain prior year amounts have been reclassified to conform
to the 1996 presentation.
NOTE B--TRANSACTIONS WITH PACCAR INC
The Company has a Support Agreement with PACCAR Inc which requires, among other
provisions, that PACCAR Inc provide financial assistance as necessary to assure
that the ratio of earnings to fixed charges (as defined) of the Company will not
fall below a level of 1.25 to 1 for a full fiscal year. The ratio for the six-
month period ended June 30, 1996 was 1.63 to 1 (see Exhibit 12.2).
PACCAR Inc 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 Inc'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. In lieu of payment, PACCAR Inc
recognizes certain of these administrative services as an additional investment
in the Company. The Company records the investment as paid-in capital.
Annually, the Company intends to pay a dividend to PACCAR Inc for the amount
invested in the prior year. Cash dividends of $2.9 million and $2.7 million
were paid to PACCAR Inc in 1996 and 1995, respectively.
Occasionally, the Company borrows funds from PACCAR Inc and makes market-rate,
short-term loans to PACCAR Inc. At June 30, 1996 and 1995, there were no
outstanding loans for the Company from or to PACCAR Inc.
NOTE C--PREFERRED STOCK
The Company's Articles of Incorporation provide that the 6% noncumulative,
nonvoting preferred stock (100% owned by PACCAR Inc) is redeemable only at the
option of the Company's Board of Directors.
-5-
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Pre-tax income for the second quarter and six months ended June 30, 1996
increased to $13.0 million and $26.1 million, respectively, compared to pre-tax
income of $11.5 million and $21.8 million for the second quarter and first half
of 1995. The earnings growth for both the quarter and first six months of 1996
resulted from an increase in finance income attributed primarily to a 15% growth
in average net receivables from June 1995 to June 1996. The income resulting
from the growth in receivables was partially offset by a lower average margin
rate earned on the receivables. The insurance margin in 1996 improved $.4
million and $.6 million, respectively, over the second quarter and first half of
1995, reflecting the continued growth of the physical damage insurance program
and a more favorable loss experience.
Second quarter and year-to-date 1996 selling, general and administrative
expenses increased only 1% from comparable 1995 periods due to ongoing expense
controls. A decline in the receivables growth rate as well as continued
emphasis on credit quality resulted in a decrease in the provision for losses of
35% in the first half of 1996 as compared to the first half of 1995. At June
30, 1996, the allowance for losses was 1.73% of earning assets compared to 1.74%
at June 30, 1995.
As a result of the foregoing factors, net income increased 16% to $7.9 million
in the second quarter of 1996 compared to $6.8 million in the second quarter of
1995. For the six months ended June 30, 1996, net income increased 23% to $16.0
million from $13.0 million for the comparable 1995 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash from operations of $20.7 million and net financing
activities of $7.1 million to fund portfolio growth of $27.6 million and
increase cash reserves by $.2 million during the six months ended June 30, 1996.
The funds from financing activities continued to be provided primarily by the
issuance of commercial paper and medium-term notes.
In order to minimize exposure to fluctuations in interest rates, the Company
seeks to borrow funds or enter into interest rate contracts with interest rate
characteristics similar to the characteristics of its receivables and leases.
Other considerations which affect the Company's funding operations include the
amount of fixed and variable rate receivables, the maturity schedule of existing
debt, the availability of desired debt maturities and the level of interest
rates.
As of June 30, 1996, the Company and PACCAR Inc together maintained unused bank
lines of credit of $355 million which are largely used to support the Company's
commercial paper borrowings.
Other information on liquidity and sources of capital as presented in the
Company's 1995 Annual Report on Form 10-K continues to be relevant.
-6-
<PAGE>
PART II--OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as part of this report are listed in the accompanying
Exhibit Index.
(b) There were no reports on Form 8-K for the quarter ended June 30, 1996.
-7-
<PAGE>
PACCAR Financial Corp.
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: August 5, 1996 BY: /s/ T. R. Morton
-------------------------------
T. R. Morton
President
(Authorized Officer)
BY: /S/ M. T. Barkley
-------------------------------
M. T. Barkley
Controller
(Chief Accounting Officer)
-8-
<PAGE>
PACCAR Financial Corp.
EXHIBIT INDEX
3.1 Restated Articles of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on 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).
4.5 Forms of Medium-Term Note, Series H (incorporated by reference to
Exhibits 4.3A and 4.3B to the Company's Registration Statement on Form
S-3 dated March 11, 1996, Registration Number 333-01623).
Form of Letter of Representation among the Company, Citibank, N.A. and
the Depository Trust Company, Series H (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on Form S-3 dated
March 11, 1996, Registration Number 333-01623).
-9-
<PAGE>
10.1 Support Agreement between the Company and PACCAR Inc 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 six-month
periods ended June 30, 1996 and 1995.
12.2 Statement re computation of ratio of earnings to fixed charges of the
Company pursuant to the Support Agreement with PACCAR Inc for the six-
month periods ended June 30, 1996 and 1995.
12.3 Statement re computation of ratio of earnings to fixed charges of
PACCAR Inc and subsidiaries pursuant to SEC reporting requirements for
the six-month periods ended June 30, 1996 and 1995.
27 Financial Data Schedule for Article 5 of Regulation S-X, Item 601(c)
for the six-month period ended June 30, 1996.
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
-10-
<PAGE>
EXHIBIT 12.1
PACCAR Financial Corp.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO SEC REPORTING REQUIREMENTS
(Thousands of Dollars)
Six Months Ended
June 30
1996 1995
- --------------------------------------------------------------------------------
FIXED CHARGES
Interest expense $49,234 $42,064
Portion of rentals deemed interest 122 120
- --------------------------------------------------------------------------------
TOTAL FIXED CHARGES $49,356 $42,184
- --------------------------------------------------------------------------------
EARNINGS
Income before taxes $26,123 $21,775
Fixed charges 49,356 42,184
- --------------------------------------------------------------------------------
EARNINGS AS DEFINED $75,479 $63,959
- --------------------------------------------------------------------------------
RATIO OF EARNINGS TO FIXED CHARGES 1.53X 1.52X
- --------------------------------------------------------------------------------
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 Inc. See Exhibit 12.2.
-11-
<PAGE>
EXHIBIT 12.2
PACCAR Financial Corp.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO THE SUPPORT AGREEMENT
BETWEEN THE COMPANY AND PACCAR INC
(Thousands of Dollars)
Six Months Ended
June 30
1996 1995
- --------------------------------------------------------------------------------
FIXED CHARGES
Interest expense $49,234 $42,064
Facility and equipment rental 367 360
- --------------------------------------------------------------------------------
TOTAL FIXED CHARGES $49,601 $42,424
- --------------------------------------------------------------------------------
EARNINGS
Income before income taxes $26,123 $21,775
Depreciation 4,943 5,391
- --------------------------------------------------------------------------------
31,066 27,166
Fixed charges 49,601 42,424
- --------------------------------------------------------------------------------
EARNINGS AS DEFINED $80,667 $69,590
- --------------------------------------------------------------------------------
RATIO OF EARNINGS TO FIXED CHARGES 1.63X 1.64X
- --------------------------------------------------------------------------------
-12-
<PAGE>
EXHIBIT 12.3
PACCAR Inc
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO SEC REPORTING REQUIREMENTS
(Thousands of Dollars)
Six Months Ended
June 30
1996 1995
- --------------------------------------------------------------------------------
FIXED CHARGES
Interest expense
PACCAR Inc and subsidiaries (1) $65,121 $59,079
Portion of rentals deemed interest 2,943 2,863
- --------------------------------------------------------------------------------
TOTAL FIXED CHARGES $68,064 $61,942
- --------------------------------------------------------------------------------
EARNINGS
Income before taxes -
PACCAR Inc and subsidiaries $138,392 $186,663
Fixed charges 68,064 61,942
- --------------------------------------------------------------------------------
EARNINGS AS DEFINED $206,456 $248,605
- --------------------------------------------------------------------------------
RATIO OF EARNINGS TO FIXED CHARGES 3.03X 4.01X
- --------------------------------------------------------------------------------
(1) Exclusive of interest, if any, paid to PACCAR Inc.
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Income and Retained Earnings for the six months ended June
30, 1996 and 1995 and from the Balance Sheets at June 30, 1996 and
December 31, 1995 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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,156
<SECURITIES> 0
<RECEIVABLES> 2,058,104
<ALLOWANCES> 35,950
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 57,260
<DEPRECIATION> 21,421
<TOTAL-ASSETS> 2,076,474
<CURRENT-LIABILITIES> 0
<BONDS> 973,500
0
31,000
<COMMON> 14,500
<OTHER-SE> 250,711
<TOTAL-LIABILITY-AND-EQUITY> 2,076,474
<SALES> 0
<TOTAL-REVENUES> 96,351
<CGS> 0
<TOTAL-COSTS> 56,918
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,280
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,123
<INCOME-TAX> 10,169
<INCOME-CONTINUING> 15,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,954
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
