<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For transition period from __________ to __________
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
-----------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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(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, 1996:
None
The number of shares outstanding of the registrant's classes of common stock as
of March 1, 1996:
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 INSTRUCTIONS (J)(1)(a) AND (b) OF FORM 10-K AND
IS, THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
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 89% of PACCAR's total revenues
in 1995. 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, Australia and 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 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 292 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, Mexico and the United Kingdom through four other wholly
owned finance companies.
As of December 31, 1995, PACCAR and its subsidiaries had total assets of
$4.4 billion and stockholders' equity of $1.3 billion. For the year ended
December 31, 1995, PACCAR's consolidated revenues and net income were $4.8
billion and $252.8 million, respectively.
There were six principal competitors, including PACCAR, in the United
States Class 8 truck market in 1995. Based on 1995 industry registration
statistics, PACCAR's Kenworth and Peterbilt combined truck sales accounted
for approximately 21% 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 facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661; and at 7
World Trade Center, 13th Floor, New York, New York 10048.
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, 1995, the Company employed 248 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.
Retail Contracts purchased by the Company have fixed or floating interest
rates.
DIRECT LOANS. 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"). Master Note contracts have fixed or
floating interest rates.
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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.
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 and liability 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 physical damage insurance program
offered through PACCAR dealers who are licensed insurance agents. The
Company retains the premium revenues and loss exposure for the policies which
are issued through an unrelated insurance carrier.
The Company also offers wholesale physical damage insurance on new
trucks, used trucks and trailer inventory to dealers which have Wholesale
Contracts with the Company. Through a retention program, the Company retains
premium revenues and annual loss exposure up to that year's premium revenues.
Losses beyond premium revenues for that year are reinsured by an unrelated
insurance carrier.
CUSTOMER CONCENTRATION, PAST DUE ACCOUNTS AND LOSS EXPERIENCE
CUSTOMER CONCENTRATION
At December 31, 1995, the largest single customer for Retail Contracts,
Direct Loans or Leases represented 1.6% of the Company's net receivables, and
the five largest such accounts amounted to 5.4% of net receivables.
At December 31, 1995, the largest Master Note dealer borrowing amounted
to 8.6% of the Company's net receivables and the five largest dealer notes
under Master Note receivables amounted to 12.8% 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, 1995, the customer
concentration was immaterial.
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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:
ALLOWANCE FOR LOSSES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
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1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Balance at beginning of period $29,900 $24,000 $21,840
Provision for losses 4,816 2,473 6,079
Net (losses) recoveries 1,074 3,427 (3,919)
-------- -------- -------
Balance at end of period $35,790 $29,900 $24,000
-------- -------- -------
-------- -------- -------
Ratios:
Net (losses) recoveries to average
net receivables and equipment on
operating leases .06% .21% (.30%)
Allowance for losses to period end
net receivables and equipment on
operating leases 1.72% 1.69% 1.61%
Period end gross contracts and leases past
due (over 60 days) to period end gross
contracts and lease receivables .56% .23% .45%
</TABLE>
For discussion of the allowance for losses, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations, 1993-1995."
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,
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<PAGE>
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.
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 three 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, 1995, the total notional principal amount of
interest rate contracts outstanding were as follows: $406.4 million of
interest rate swaps resulting in a fixed rate payment obligation; $215.0
million of interest rate swaps resulting in a floating rate payment
obligation; and $61.9 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
interest rate contracts, their transaction limits and related approval
authorizations have been established by the Company's senior management and
Board of Directors. The interest rate contracts outstanding are regularly
reported to and reviewed by the Company's senior management.
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<PAGE>
As of December 31, 1995, PACCAR and the Company together had $345
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 any
borrowings of the other under these lines of credit.
As of December 31, 1995, the Company had $999.5 million of medium-term
notes outstanding, $410.5 million of which was due within 12 months. See
"Note E--Borrowings" in the Notes to Financial Statements for medium-term
note maturities.
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 medium-term notes which are 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, borrow funds from
or lend money to PACCAR. Since the directors of the Company are all
executives of PACCAR or its affiliates 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, 1995, 1994, 1993, 1992 and
1991 was met without assistance.
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.
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<PAGE>
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.
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 Company's common stock.
The Company began in 1994 to pay a dividend to PACCAR for the paid-in
capital invested in the prior year. Cash dividends of $2.7 million and $1.3
million were paid in 1995 and 1994, respectively.
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<PAGE>
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, 1995 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 1995 1994 1993 1992 1991
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Assets $2,074,405 $1,770,769 $1,493,880 $1,169,139 $1,106,522
Total Liabilities 1,792,934 1,517,436 1,267,130 960,702 909,782
Stockholder's Equity 281,471 253,333 226,750 208,437 196,740
INCOME STATEMENT DATA Year Ended December 31
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Finance and Insurance Margin $ 74,975 $ 67,435 $ 58,518 $ 49,224 $ 46,754
Operating and Other Expenses 23,429 22,815 21,990 21,968 19,863
Provision for Losses 4,816 2,473 6,079 8,611 21,237
----------- ---------- ----------- ----------- -----------
Income Before Income Taxes and
Cumulative Effect of
Change in Accounting
Method 46,730 42,147 30,449 18,645 5,654
Income Taxes 18,809 16,968 13,446 6,948 2,089
----------- ---------- ----------- ----------- -----------
Income Before Cumulative
Effect of Change in
Accounting Method 27,921 25,179 17,003 11,697 3,565
Cumulative Effect of
Change in Accounting
Method (1) - - - - 11,323
----------- ---------- ----------- ----------- -----------
Net Income $ 27,921 $ 25,179 $ 17,003 $ 11,697 $ 14,888
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
Ratio of Earnings to Fixed
Charges (2) 1.52x 1.67x 1.66x 1.38x 1.09x
</TABLE>
(1) 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.
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<PAGE>
(2) 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 1.63x, 1.82x, 1.89x, 1.59x
and 1.26x for the years 1995-1991, respectively. See Exhibits 12.1 and
12.2.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, 1993-1995
RESULTS OF OPERATIONS
1995 Compared to 1994:
Pre-tax income increased to $46.7 million from $42.1 million in 1994
primarily as a result of a $7.3 million increase in the finance margin
attributable to the growth in receivables, partially offset by a decrease in
the average margin rate earned on those receivables. Average receivables
increased 18% to $1.9 billion in 1995 from $1.6 billion in 1994. The growth
resulted from $1.1 billion of new business volume related to strong domestic
heavy-duty truck sales by PACCAR. The average margin rate on those
receivables decreased in 1995 due to rate competition in the truck lending
market.
Ongoing expense controls helped keep the increase in selling, general
and administrative expenses under 3%. The provision for losses increased
$2.3 million to $4.8 million during 1995 bringing the year-end allowance for
losses to 1.72% of earning assets. At the end of 1994, the allowance for
losses was 1.69% of earning assets. The higher 1995 provision and allowance
for losses resulted from continued portfolio growth during 1995 and reflects
the risks inherent in the financing of heavy-duty trucks.
As a result of the foregoing factors, net income for 1995 improved to
$27.9 million from $25.2 million in 1994.
1994 Compared to 1993:
Pre-tax income increased to $42.1 million from $30.4 million in 1993.
The growth resulted primarily from an $8.4 million increase in the finance
margin attributable to the growth in receivables, partially offset by a
decrease in the average margin rate earned on those receivables. Average
receivables increased 21% to $1.6 billion in 1994 from $1.3 billion in 1993.
The growth resulted from $1 billion of new business volume related to strong
domestic heavy-duty truck sales by PACCAR. The average margin rate on those
receivables decreased in 1994 due to rate competition in the truck lending
market. In addition, the provision for losses decreased from $6.1 million to
$2.5 million due to high net recoveries in 1994. As a result, net income for
1994 was $25.2 million compared to $17.0 million in 1993.
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 1995, $55 million of such securities was available for
issuance. The Company registered $1 billion in senior debt securities in
early 1996 for offering to the public.
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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.
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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<PAGE>
Report of Ernst & Young, LLP, Independent Auditors
Board of Directors
PACCAR Inc and PACCAR Financial Corp.
We have audited the accompanying balance sheets of PACCAR Financial Corp. (a
wholly owned subsidiary of PACCAR Inc) as of December 31, 1995 and 1994, and
the related statements of income and retained earnings and cash flows for
each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/S/ Ernst & Young, LLP
Seattle, Washington
February 2, 1996
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BALANCE SHEETS
PACCAR Financial Corp.
<TABLE>
<CAPTION>
December 31
1995 1994
- -----------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Cash $ 5,967 $ 8,956
Net finance and other receivables 2,051,135 1,733,253
Allowance for losses (35,790) (29,900)
- -----------------------------------------------------------------------------
2,015,345 1,703,353
- -----------------------------------------------------------------------------
Equipment on operating leases, net of
allowance for depreciation of $20,889
(1994--$15,351) 40,905 43,500
Other assets 12,188 14,960
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TOTAL ASSETS $2,074,405 $1,770,769
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LIABILITIES
Accounts payable and accrued expenses $ 36,461 $ 30,237
Payable for finance receivables acquired 34,504 39,817
Commercial paper and other short term
borrowings 657,856 461,175
Advance payable to PACCAR Inc - 46,000
Medium-term notes 999,500 870,300
Income taxes - current and deferred 64,613 69,907
- -----------------------------------------------------------------------------
TOTAL LIABILITIES 1,792,934 1,517,436
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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 6,956 4,024
Retained earnings 229,015 203,809
- -----------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 281,471 253,333
- -----------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,074,405 $1,770,769
- -----------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
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STATEMENTS OF INCOME AND RETAINED EARNINGS
PACCAR Financial Corp.
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
- ----------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Interest and other income $162,956 $ 128,841 $102,919
Rentals on operating leases 13,008 12,323 13,039
- ----------------------------------------------------------------------------
TOTAL FINANCE INCOME 175,964 141,164 115,958
Interest expense 89,796 62,851 45,815
Other borrowing expense 1,575 1,453 1,257
Depreciation expense related
to operating leases 10,379 9,953 10,432
- ----------------------------------------------------------------------------
TOTAL FINANCE EXPENSES 101,750 74,257 57,504
FINANCE MARGIN 74,214 66,907 58,454
Insurance premiums earned 4,349 2,869 287
Insurance claims and underwriting
expenses 3,588 2,341 223
- ----------------------------------------------------------------------------
INSURANCE MARGIN 761 528 64
Selling, general &
administrative expenses 23,429 22,815 21,990
PROVISION FOR LOSSES 4,816 2,473 6,079
- ----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 46,730 42,147 30,449
- ----------------------------------------------------------------------------
Federal and state income taxes 18,809 16,968 13,446
- ----------------------------------------------------------------------------
NET INCOME 27,921 25,179 17,003
- ----------------------------------------------------------------------------
Retained earnings at beginning of year 203,809 179,940 162,937
Cash dividends paid (2,715) (1,310) -
- ----------------------------------------------------------------------------
RETAINED EARNINGS AT END OF YEAR $ 229,015 $ 203,809 $ 179,940
- ----------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
-14-
<PAGE>
STATEMENTS OF CASH FLOWS
PACCAR Financial Corp.
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
- ----------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 27,921 $25,179 $17,003
Items included in net income not
affecting cash:
Provision for losses on receivables 4,816 2,473 6,079
Decrease in deferred taxes payable (5,326) (5,935) (13,250)
Depreciation and amortization 13,546 12,843 12,286
Increase (decrease) in payables,
income taxes and other 4,626 (551) 10,061
- ----------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 45,583 34,009 32,179
- ----------------------------------------------------------------------------
INVESTING ACTIVITIES:
Finance and other receivables
acquired (1,045,186) (954,272) (840,519)
Collections on finance and other
receivables 824,307 684,011 563,597
Net decrease (increase) in wholesale
receivables (97,943) 27,892 (49,747)
Acquisition of equipment for
operating leases (10,391) (19,858) (20,462)
Disposal of equipment 544 1,052 5,255
- ----------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (328,669) (261,175) (341,876)
- ----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in commercial
paper and other short term
borrowings 196,681 (14,037) 49,677
Net increase (decrease)
in bank loans - (49,000) 19,000
Increase (decrease) in advances
payable to PACCAR Inc (46,000) 46,000 -
Proceeds from medium-term notes 458,000 467,000 359,500
Payments of medium-term notes (328,800) (220,800) (119,900)
Additions to paid in capital 2,931 2,715 1,310
Payment of cash dividend (2,715) (1,310) -
- ----------------------------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 280,097 230,568 309,587
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (2,989) 3,402 (110)
CASH AT BEGINNING OF YEAR 8,956 5,554 5,664
- ----------------------------------------------------------------------------
CASH AT END OF YEAR $ 5,967 $ 8,956 $ 5,554
- ----------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
-15-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1995
(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. 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.
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 credit losses related to this
concentration has been considered in establishing the allowance for losses.
USE OF ESTIMATES: The preparation of financial statements in conformity with
Generally Accepted Accounting Principles requires management to make
estimates and assumptions that affect amounts reported and disclosed in the
financial statements. Actual results could differ from the amounts estimated
by management.
ESTIMATED 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 estimated
losses. Receivables are charged to this allowance when, in the judgement of
management, they are deemed uncollectible (usually upon repossession of the
collateral).
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. For operating leases, income is recognized on a straight line basis
over the lease term.
Recognition of income is suspended when management determines that collection
of future income is not probable (generally after 90 days past due).
Recognition is resumed if the receivable becomes contractually current and
collection doubts are removed.
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 related tax benefit is paid by PACCAR to the Company.
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. It is the Company's intent to hold the contracts to maturity. Net
amounts paid or received are reflected as adjustments to interest expense.
-16-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
IMPACT OF NEW ACCOUNTING RULES: The Company adopted 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,"
effective January 1, 1995. The adoption of these statements did not have a
material impact on the Company.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to the 1995 presentations.
-17-
<PAGE>
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
1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Notes and contracts due within:
One year $ 677,182 $ 503,289
Two years 467,342 420,384
Three years 312,835 297,551
Four years 149,355 141,995
Five years and beyond 39,913 28,703
- ----------------------------------------------------------------------------
1,646,627 1,391,922
Wholesale financing 209,404 111,386
Direct financing leases (Including estimated residual
values of $15,010 and $23,420) 315,092 340,950
Interest and other receivables 9,876 11,151
- ----------------------------------------------------------------------------
2,180,999 1,855,409
Unearned interest:
Notes and contracts (93,654) (79,008)
Direct financing leases (36,210) (39,084)
- ----------------------------------------------------------------------------
(129,864) (118,092)
- ----------------------------------------------------------------------------
Net finance and other receivables $2,051,135 $1,737,317
- ----------------------------------------------------------------------------
</TABLE>
Future minimum lease payments on direct financing leases totaled $300,082 at
December 31, 1995 and are due as follows: $101,960 in 1996; $82,220 in 1997;
$64,993 in 1998; $41,014 in 1999; and $9,895 in 2000 and beyond.
The allowance for losses on receivables is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $29,900 $24,000 $21,840
Provision for losses 4,816 2,473 6,079
Net (losses) recoveries 1,074 3,427 (3,919)
- ------------------------------------------------------------------------------
Balance at end of year $35,790 $29,900 $24,000
- ------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
At December 31, 1995, the recorded investment in notes and contracts that are
considered to be impaired was $12,555. Included in the allowance for losses
was a specific reserve of $2,100 on these impaired notes and contracts. The
average recorded investment in impaired notes and contracts during the year
ended December 31, 1995 was $9,623. For the year ended December 31, 1995,
the Company recognized interest income of $294 on those impaired loans, all
of which was recognized using the cash basis method of income recognition.
NOTE C--OPERATING LEASES
Terms of operating leases range up to 44 months. Future annual minimum
rental payments to be received for transportation equipment on operating
leases beginning January 1, 1996 are: $11,529 in 1996; $6,736 in 1997;
$2,606 in 1998; and $524 in 1999.
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, 1995, 1994 and 1993 was met
without assistance.
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
$3,144, $3,134 and $3,628 for 1995, 1994 and 1993, respectively, were charged
to the Company. Beginning July 1993, in lieu of payment, PACCAR began
recognizing certain of these administrative services as an additional
investment in the Company. The Company records the investment as paid-in
capital. Beginning in 1994, the Company pays a dividend to PACCAR for the
paid-in capital invested in the prior year. Cash dividends of $2.7 million
and $1.3 million were paid in 1995 and 1994, respectively.
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 $683, $626 and $482 for years 1995,
1994 and 1993, 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. Commencing January 1,
1996, the Company may occasionally make market-rate, short-term loans to
PACCAR to assist in PACCAR's cash management.
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.
-19-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
NOTE E--BORROWINGS
Borrowings are summarized as follows:
<TABLE>
<CAPTION>
Effective
Rate* 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial paper 5.9% $ 632,857 $ 461,175
Other short-term borrowings 5.7% 25,000 -
Advance payable to PACCAR Inc - - 46,000
Fixed rate medium-term notes 6.8% 879,500 645,300
Floating rate medium-term notes 5.8% 120,000 225,000
- ----------------------------------------------------------------------------
$1,657,357 $1,377,475
- ----------------------------------------------------------------------------
</TABLE>
*The effective rate is the weighted average rate as of December 31, 1995 and
includes the effects of interest rate agreements.
Principal amounts of medium-term notes due over the next five years beginning
January 1, 1996 are $410,500 in 1996, $280,000 in 1997, $221,000 in 1998, and
$88,000 in 1999.
Cash paid for interest expense was $84,208 in 1995, $55,349 in 1994 and
$45,734 in 1993.
At December 31, 1995, the Company had outstanding 46 interest rate contracts
with various financial institutions, having a total notional principal amount
of $683.3 million. The notional principal declines as follows: $539.9
million in 1996, $133.4 million in 1997, and $10.0 million in 1998. 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.
For interest rate swaps, the following table presents the notional principal
amounts, weighted average interest rates, and contractual maturities by class
of interest rate swap at December 31, 1995.
<TABLE>
<CAPTION>
Year Ending Pay: Floating Pay: Floating Pay: Fixed
December 31 Receive: Fixed Receive: Floating Receive:Floating Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $95,000 $120,000 $300,300 $515,300
1997 - - 103,100 103,100
1998 - - 3,000 3,000
- -----------------------------------------------------------------------------------
$95,000 $120,000 $406,400 $621,400
- -----------------------------------------------------------------------------------
Wtd average
pay rate 5.8% 5.8% 6.1%
- -----------------------------------------------------------------------------------
Wtd average
receive rate 6.6% 4.6% 5.9%
- -----------------------------------------------------------------------------------
</TABLE>
The weighted average pay rate substantially represents the Company's net cost
of funds rate after the effect of the interest rate swaps as the weighted
average receive rate offsets the pay rate on associated debt obligations.
-20-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
Pay floating, receive fixed swaps effectively convert fixed rate debt to a money
market index.
Pay floating, receive floating swaps effectively convert the floating rate
medium-term notes to a commercial paper index. The low receive rate offsets
a low pay rate on an associated variable rate medium-term note.
Pay fixed, receive floating swaps effectively convert an equivalent amount of
commercial paper and other variable rate debt to fixed rates.
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, 1995, the unused portion of these credit lines was $345 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. There were no notes outstanding at December
31, 1995 and 1994.
NOTE G--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision
Federal $20,149 $19,285 $23,516
State 3,986 3,618 3,180
- ------------------------------------------------------------------------------
24,135 22,903 26,696
Deferred benefit (5,326) (5,935) (13,250)
- ------------------------------------------------------------------------------
$18,809 $16,968 $13,446
- ------------------------------------------------------------------------------
</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
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at the statutory rate of 35% $16,355 $14,752 $10,657
Effect of:
Rate increases on deferred taxes - 364 2,302
State income taxes and other 2,454 1,852 487
- ------------------------------------------------------------------------------
$18,809 $16,968 $13,446
- ------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
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 $18,032 in 1995, $26,583 in 1994 and $20,960
in 1993.
Deferred income tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
As of December 31
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities
Depreciation $72,457 $74,599
State income tax 8,851 9,098
- --------------------------------------------------------------------------
81,308 83,697
Deferred tax (assets)
Allowance for doubtful accounts (12,527) (10,465)
Other (4,200) (3,325)
- --------------------------------------------------------------------------
(16,727) (13,790)
- --------------------------------------------------------------------------
Net deferred tax liability $64,581 $69,907
- --------------------------------------------------------------------------
</TABLE>
NOTE H--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: The carrying amount reported in the balance sheets approximates fair
value.
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 applying 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.
COMMERCIAL PAPER, BANK LOANS AND MEDIUM-TERM NOTES: The carrying amount of
the Company's commercial paper, bank loans and floating rate medium-term
notes approximates their fair value. The fair value of the Company's fixed
rate medium-term notes is estimated using discounted cash flow analyses,
based on the Company's current incremental borrowing rates for similar types
of borrowing arrangements.
-22-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
PACCAR Financial Corp.
(Thousands of Dollars)
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, 1995 are as follows:
<TABLE>
<CAPTION>
As of December 31
1995 1994
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash $ 5,967 $ 5,967 $ 8,956 $ 8,956
Net receivables 1,742,419 1,755,196 1,407,670 1,383,881
Commercial paper, bank loans and
advance to PACCAR 657,857 657,857 507,175 507,175
Medium-term notes 999,500 1,009,343 870,300 845,784
</TABLE>
The Company's intent is to hold interest rate contracts until maturity. If
recorded at fair value at December 31, 1995, the Company's off-balance-sheet
financial instruments (interest rate contracts) would represent gross assets
of $445 and offsetting gross liabilities of $2,013, resulting in a net
liability of $1,568. If recorded at fair value at December 31, 1994, the
Company's off-balance-sheet financial instruments would have reflected a net
asset balance of $3,044.
NOTE I--QUARTERLY RESULTS (Unaudited)
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------
First Second Third Fourth
------- -------- -------- --------
<S> <C> <C> <C> <C>
1995
- ----
Gross income $41,565 $43,976 $45,781 $48,991
Income before income taxes 10,319 11,456 12,080 12,875
Net income 6,168 6,839 7,221 7,693
1994
- ----
Gross income $32,279 $34,843 $37,145 $39,766
Income before income taxes 9,294 10,696 11,588 10,569
Net income 5,673 6,451 6,867 6,188
</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>
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, 1996,
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 (66) 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, a
director of the Company.
T. Ronald Morton (49) President and Director. President of the
Company since August 1988. Senior Vice
President of PACCAR since June 1995.
G. Don Hatchel (51) Vice President and Director. Vice President-
Controller of PACCAR since January 1991.
David J. Hovind (55) Director. President and Director of PACCAR
since January 1992. Executive Vice President of
PACCAR from July 1987 to January 1992.
Mark C. Pigott (41) 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. Mark C. Pigott is the son of
Charles M. Pigott, a director of the Company.
James L. Shiplet (57) Director. President of PACCAR Leasing
Corporation since September 1987.
Michael A. Tembreull (49) 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.
John J. Waggoner (47) Director. Treasurer of PACCAR since May 1991.
Director of Strategic Analysis of PACCAR from
July 1989 to May 1991.
</TABLE>
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 the Chairman to serve at the pleasure of the Board or
until their successors are elected or appointed.
-24-
<PAGE>
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, 1995 AND 1994 AND FOR THE YEARS ENDED DECEMBER 31,
1995, 1994, AND 1993
Balance Sheets -- December 31, 1995 and 1994
Statements of Income and Retained Earnings -- Years Ended December
31, 1995, 1994 and 1993
Statements of Cash Flows -- Years Ended December 31, 1995, 1994 and
1993
Notes to Financial Statements -- December 31, 1995
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 1995
There were no reports on Form 8-K for the quarter ended December 31, 1995.
-25-
<PAGE>
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 18, 1996
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.
(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/ Michael T. Barkley Controller
---------------------------
Michael T. Barkley
(4) A Majority of the Board of Directors:
/S/ T. Ronald Morton
---------------------------
T. Ronald Morton
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
-26-
<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 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).
-27-
<PAGE>
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, 1995 and 1994.
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, 1995 and 1994.
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, 1995 and 1994.
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, 1995.
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
-28-
<PAGE>
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
-----------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES
Interest expense $89,796 $62,851 $45,815 $48,914 $62,520
Portion of rentals
deemed interest 238 226 218 217 278
------- ------- ------- ------- -------
TOTAL FIXED CHARGES $90,034 $63,077 $46,033 $49,131 $62,798
------- ------- ------- ------- -------
------- ------- ------- ------- -------
EARNINGS
Income before taxes $46,730 $42,147 $30,449 $18,645 $5,654
FIXED CHARGES 90,034 63,077 46,033 49,131 62,798
------- ------- ------- ------- -------
EARNINGS AS DEFINED $136,764 $105,224 $76,482 $67,776 $68,452
------- ------- ------- ------- -------
------- ------- ------- ------- -------
RATIO OF EARNINGS
TO FIXED CHARGES (1) 1.52x 1.67x 1.66x 1.38x 1.09x
</TABLE>
(1) 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>
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
-----------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES
Interest expense $89,796 $62,851 $45,815 $48,914 $62,520
Facility and equipment
rental 714 678 655 650 834
------- ------- ------- ------- -------
TOTAL FIXED CHARGES $90,510 $63,529 $46,470 $49,564 $63,354
------- ------- ------- ------- -------
------- ------- ------- ------- -------
EARNINGS
Income before taxes $46,730 $42,147 $30,449 $18,645 $5,654
Depreciation 10,605 10,168 10,701 10,524 11,057
------- ------- ------- ------- -------
57,335 52,315 41,150 29,169 16,711
FIXED CHARGES 90,510 63,529 46,470 49,564 63,354
------- ------- ------- ------- -------
EARNINGS AS DEFINED $147,845 $115,844 $87,620 $78,733 $80,065
------- ------- ------- ------- -------
------- ------- ------- ------- -------
RATIO OF EARNINGS
TO FIXED CHARGES 1.63x 1.82x 1.89x 1.59x 1.26x
</TABLE>
-30-
<PAGE>
EXHIBIT 12.3
PACCAR AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES
Interest expense
PACCAR and
Subsidiaries (1) $123,480 $ 87,465 $ 64,000 $ 71,912 $ 94,264
Portion of rentals
deemed interest 5,727 5,494 6,001 6,870 6,785
-------- -------- -------- -------- --------
TOTAL FIXED CHARGES $129,207 $ 92,959 $ 70,001 $ 78,782 $101,049
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
EARNINGS
Income before taxes - PACCAR
and Subsidiaries (2) $399,562 $320,098 $219,757 $ 91,613 $ 48,344
FIXED CHARGES 129,207 92,959 70,001 78,782 101,049
-------- -------- -------- -------- --------
EARNINGS AS DEFINED $528,769 $413,057 $289,758 $170,395 $149,393
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIO OF EARNINGS
TO FIXED CHARGES 4.09x 4.44x 4.14x 2.16x 1.48x
</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>
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 2, 1996 with respect to the financial
statements of PACCAR Financial Corp. included in this Annual Report (Form
10-K) for the year ended December 31, 1995.
/S/ Ernst & Young, LLP
Seattle, Washington
March 18, 1996
-32-
<PAGE>
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, 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 1995 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 1996.
/S/ T. R. Morton President /S/ D. J. Hovind Director
- -------------------- and Director -------------------
T. R. Morton D. J. Hovind
/S/ R. E. Ranheim Treasurer /S/ M. C. Pigott Director
- -------------------- -------------------
R. E. Ranheim M. C. Pigott
/S/ M. T. Barkley Controller /S/ J. L. Shiplet Director
- -------------------- -------------------
M. T. Barkley J. L. Shiplet
/S/ C. M. Pigott Chairman of /S/ M. A. Tembreull Director
- -------------------- the Board -------------------
C. M. Pigott and Director M. A. Tembreull
/S/ G. D. Hatchel Vice President /S/ J. J. Wagonner Director
- -------------------- and Director -------------------
G. D. Hatchel J. J. Waggoner
-33-
<TABLE> <S> <C>
<PAGE>
<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, 1995, 1994, and 1993 and from the Balance Sheets at December
31, 1995 and 1994 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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,967
<SECURITIES> 0
<RECEIVABLES> 2,051,135
<ALLOWANCES> 35,790
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 61,794
<DEPRECIATION> 20,889
<TOTAL-ASSETS> 2,074,405
<CURRENT-LIABILITIES> 0
<BONDS> 999,500
0
31,000
<COMMON> 14,500
<OTHER-SE> 235,971
<TOTAL-LIABILITY-AND-EQUITY> 2,074,405
<SALES> 0
<TOTAL-REVENUES> 180,313
<CGS> 0
<TOTAL-COSTS> 105,338
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,816
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 46,730
<INCOME-TAX> 18,809
<INCOME-CONTINUING> 27,921
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,921
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
