<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, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For 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, WASHINGTON 98004
Address of Principal Executive Offices) (Zipcode)
Registrant's telephone number, including area code: (425) 468-7100
-------------------------------------------------------------
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 periods 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,
1998.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF PACCAR Inc AND MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (I)(1)(a) AND (b) OF FORM 10-Q AND
IS, THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
ITEM 1 FINANCIAL STATEMENTS
PACCAR Financial Corp.
BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997*
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 10,654 $ 13,370
Finance and other receivables, net of
allowance for losses of $40,500 ($37,350 in 1997) 2,325,530 2,136,315
Equipment on operating leases, net of
allowance for depreciation of $13,481 ($16,332 in 1997) 29,317 34,593
Other assets 19,991 16,786
---------- ----------
TOTAL ASSETS $2,385,492 $2,201,064
---------- ----------
---------- ----------
LIABILITIES
Accounts payable and accrued expenses $ 35,529 $ 36,580
Payable for finance receivables acquired 11,212 35,799
Commercial paper and other short-term borrowings 1,079,886 759,016
Medium-term notes 840,000 964,000
Income taxes - current and deferred 61,190 62,265
---------- ----------
TOTAL LIABILITIES 2,027,817 1,857,660
---------- ----------
---------- ----------
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 13,610 11,706
Retained earnings 298,565 286,198
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 357,675 343,404
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,385,492 $2,201,064
---------- ----------
---------- ----------
</TABLE>
*The December 31, 1997 Balance Sheet has been derived from audited financial
statements.
See accompanying notes.
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PACCAR Financial Corp.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest and other income $ 48,798 $ 44,637 $ 94,630 $ 89,039
Rentals on operating leases 2,211 2,314 4,625 4,834
-------- -------- -------- --------
TOTAL FINANCE INCOME 51,009 46,951 99,255 93,873
Interest expense 27,712 25,246 53,661 49,854
Other borrowing expense 427 479 956 926
Depreciation expense related
to operating leases 1,602 1,762 3,373 3,768
-------- -------- -------- --------
TOTAL FINANCE EXPENSES 29,741 27,487 57,990 54,548
FINANCE MARGIN 21,268 19,464 41,265 39,325
Insurance premiums earned 1,652 1,371 3,161 2,766
Insurance claims and underwriting expenses 1,260 987 2,357 2,021
-------- -------- -------- --------
INSURANCE MARGIN 392 384 804 745
Selling, general and
administrative expenses 6,839 6,087 13,552 12,081
Provision for losses on receivables 2,863 970 4,768 2,454
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 11,958 12,791 23,749 25,535
Federal and state income taxes 4,565 4,986 9,289 9,948
-------- -------- -------- --------
NET INCOME 7,393 7,805 14,460 15,587
Retaining earnings at beginning of period 291,172 263,068 286,198 257,941
Cash dividends paid - - (2,093) (2,655)
-------- -------- -------- --------
RETAINED EARNINGS AT END OF PERIOD $298,565 $270,873 $298,565 $270,873
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Earnings per share and dividends per share are not reported because the Company
is a wholly-owned subsidiary of PACCAR Inc.
See accompanying notes.
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PACCAR Financial Corp.
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 14,460 $ 15,587
Items included in net income not
affecting cash:
Provision for losses on receivables 4,768 2,454
Decrease in deferred taxes payable (5,582) (3,139)
Depreciation and amortization 5,783 6,144
Decrease in payables,
income taxes and other (226) (1,788)
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 19,203 19,258
INVESTING ACTIVITIES:
Finance and other receivables acquired (695,283) (547,054)
Collections on finance and other receivables 488,312 503,403
Net (increase) decrease in wholesale receivables (12,155) 32,101
Acquisition of equipment (4,591) (2,625)
Proceeds from disposal of equipment 5,117 4,273
--------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (218,600) (9,902)
FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper
and other short-term borrowings 320,870 (97,199)
Proceeds from medium-term notes 205,000 305,000
Payments of medium-term notes (329,000) (221,000)
Additions to paid in capital 1,904 2,155
Payment of cash dividend (2,093) (2,655)
--------- ---------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 196,681 (13,699)
--------- ---------
NET DECREASE IN CASH (2,716) (4,343)
CASH AT BEGINNING OF PERIOD 13,370 13,154
--------- ---------
CASH AT END OF PERIOD $ 10,654 $ 8,811
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
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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 Article 10 of Regulation
S-X. Accordingly, they 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. Operating results for the three- and
six-month periods ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For
further information, refer to the financial statements and footnotes included
in PACCAR Financial Corp.'s (the "Company") Annual Report on Form 10-K for
the year ended December 31, 1997.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the 1998 presentation.
NOTE B--TRANSACTIONS WITH PACCAR INC AND AFFILIATES
The Company and PACCAR Inc are parties to a Support Agreement which obligates
PACCAR Inc 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 Inc to own, directly or
indirectly, all outstanding voting stock of the Company. The required ratio
for the 6 months ended June 30, 1998 and June 30, 1997, was met without
assistance.
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
current year 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. The Company pays a dividend to PACCAR Inc for
the paid-in capital invested in the prior year. Cash dividends of $2.1
million and $2.7 million were paid to PACCAR Inc during the first half of
1998 and 1997, respectively.
Periodically, the Company borrows funds from PACCAR Inc and makes short and
medium-term loans to PACCAR Inc. At June 30, 1998 and 1997, there were no
outstanding loans for the Company from or to PACCAR Inc.
The Company periodically makes short and medium-term loans to other PACCAR
Inc finance subsidiaries (the "Affiliates"), the repayment of which may
sometimes be guaranteed by PACCAR Inc. The aggregate of all loans to the
Affiliates which are not guaranteed by PACCAR Inc will not exceed the
equivalent of $50 million United States dollars. These Affiliates are PACCAR
Financial Limited ("PFL", operating in the United Kingdom), PACCAR Financial
Services Ltd. ("PFS", operating in Canada), and PACCAR Financial Pty. Ltd.
("PFPL", operating in Australia), and the loans will be in Pounds Sterling,
Canadian dollars, or Australian dollars, respectively. The Company fully
hedges any currency exposure resulting from these loans. Each of these
Affiliates has a support agreement with PACCAR Inc which obligates PACCAR Inc
to provide, when required, financial assistance to such Affiliate to insure
that the ratio of net earnings available for fixed charges to fixed charges
(as defined in the agreement) is at least 1.25 to 1, in the case of PFS and
PFL, or 1.20 to 1, in the case of PFPL, for any fiscal year. The required
ratio for each Affiliate for the 6 months ended June 30, 1998 and June 30,
1997, was met without assistance. At June 30, 1998 an advance from PFC to
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PFL existed in the amount of $3.4 million United States dollars. At June 30,
1997, there were no outstanding loans from the Company to any Affiliate.
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.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The finance margin improved 5% to $41.3 million for the first half of 1998,
from $39.3 million for the first half of 1997, primarily due to growth in
receivable balances. Average receivables grew 8% to $2.3 billion for the six
months ended June 30, 1998, from $2.1 billion for the same period in 1997,
reflecting record volume. New lending volume increased 32% to $673 million
for the first half of 1998 from $510 million for the first half of 1997. The
average margin rate on receivables has continued to decline due to intense
rate competition in the truck lending market.
Selling, general and administrative expenses of $13.6 million were 12% higher
for first half 1998 than first half 1997 due to increased staffing and
related costs. The provision for losses increased 94% to $4.8 million from
$2.5 million, despite lower credit losses, due to asset growth. The
allowance for losses as a percentage of earning assets was 1.70% at June 30,
1998 compared with 1.71% at June 30, 1997. The level of the allowance
reflects the risks inherent in the financing of commercial highway
transportation equipment.
As a result of the foregoing factors, net income for the first half of 1998
declined 7% to $14.5 million from $15.6 million for the first half of 1997.
LIQUIDITY AND CAPITAL RESOURCES
During first half 1998, the Company funded its portfolio growth primarily
through the issuance of commercial paper, which increased $321 million from
December 31, 1997. In 1996, the Company registered $1 billion of senior debt
securities under the Securities Act of 1933 for offering to the public. As
of June 30, 1998, $60 million of such securities were available for issuance.
The Company intends to file a registration statement for additional debt
securities in the near future.
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, 1998, the Company and PACCAR Inc maintained total unused bank
lines of credit of $700 million which are largely used to support the
Company's commercial paper borrowings.
As of June 30, 1998, the Company has recorded cumulative capital additions of
$5.5 million for software and related hardware that, when implemented, is
designed to improve the market acceptance and quality of its products and
services. Spending for these systems improvements is expected to continue
for the next few years. Due to the complexity of such software development
projects, there is a risk that the development effort will exceed original
estimates or that the systems will not provide the expected benefits.
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<PAGE>
Other information on liquidity and sources of capital as presented in the
Company's 1997 Annual Report on Form 10-K continues to be relevant.
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, 1998.
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<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 13, 1998 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
<TABLE>
<S> <C>
3.1 Restated Articles of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's 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 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).
4.3 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).
4.4 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).
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, 1998 and 1997.
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, 1998 and 1997.
</TABLE>
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PACCAR Financial Corp.
EXHIBIT INDEX
<TABLE>
<S> <C>
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, 1998 and 1997.
27 Financial Data Schedule for Article 5 of Regulation S-X, Item 601(c)
for the six-month period ended June 30, 1998.
</TABLE>
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
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EXHIBIT 12.1
PACCAR Financial Corp.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO SEC REPORTING REQUIREMENTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
-------- --------
<S> <C> <C>
FIXED CHARGES
Interest expense $ 53,661 $ 49,854
Portion of rentals deemed interest 352 119
-------- --------
TOTAL FIXED CHARGES $ 54,013 $ 49,973
-------- --------
-------- --------
EARNINGS
Income before taxes $ 23,749 $ 25,535
Fixed charges 54,013 49,973
-------- --------
EARNINGS AS DEFINED $ 77,762 $ 75,508
-------- --------
-------- --------
RATIO OF EARNINGS TO FIXED CHARGES 1.44x 1.51x
</TABLE>
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.
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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)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
-------- --------
<S> <C> <C>
FIXED CHARGES
Interest expense $ 53,661 $ 49,854
Facility and equipment rental 453 359
-------- --------
TOTAL FIXED CHARGES $ 54,114 $ 50,213
-------- --------
-------- --------
EARNINGS
Income before taxes $ 23,749 $ 25,535
Depreciation 3,508 3,906
-------- --------
27,257 29,441
Fixed charges 54,114 50,213
-------- --------
EARNINGS AS DEFINED $ 81,371 $ 79,654
-------- --------
-------- --------
RATIO OF EARNINGS TO FIXED CHARGES 1.50x 1.59x
</TABLE>
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EXHIBIT 12.3
PACCAR Inc
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO SEC REPORTING REQUIREMENTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
-------- --------
<S> <C> <C>
FIXED CHARGES
Interest expense
PACCAR Inc and Subsidiaries (1) $ 79,656 $ 71,500
Portion of rentals deemed interest 7,277 3,053
-------- --------
TOTAL FIXED CHARGES $ 86,933 $ 74,553
-------- --------
-------- --------
EARNINGS
Income before taxes -
PACCAR Inc and Subsidiaries $321,313 $199,485
Fixed charges 86,933 74,553
-------- --------
EARNINGS AS DEFINED $408,246 $274,038
-------- --------
-------- --------
RATIO OF EARNINGS TO FIXED CHARGES 4.70x 3.68x
</TABLE>
(1) Exclusive of interest, if any, paid to PACCAR Inc.
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<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,
1998 AND 1997 AND FROM THE BALANCE SHEETS AT JUNE 30, 1998 AND DECEMBER 31, 1997
OF PACCAR FINANCIAL CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,654
<SECURITIES> 0
<RECEIVABLES> 2,366,030
<ALLOWANCES> 40,500
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 42,798
<DEPRECIATION> 13,481
<TOTAL-ASSETS> 2,385,492
<CURRENT-LIABILITIES> 0
<BONDS> 840,000
0
31,000
<COMMON> 14,500
<OTHER-SE> 312,175
<TOTAL-LIABILITY-AND-EQUITY> 2,385,492
<SALES> 0
<TOTAL-REVENUES> 102,416
<CGS> 0
<TOTAL-COSTS> 60,347
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,768
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,749
<INCOME-TAX> 9,289
<INCOME-CONTINUING> 14,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,460
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
