<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 March 31, 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
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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 April 30,
1998.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF PACCAR Inc AND MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H)(1)(a) AND (b) OF
FORM 10-Q AND IS, THEREFORE, FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
PACCAR Financial Corp.
BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31 December 31
1998 1997*
----------------------------
<S> <C> <C>
(Unaudited)
ASSETS
Cash $ 7,766 $ 13,370
Finance and other receivables, net of
allowance for losses of $38,440 ($37,350 in 1997) 2,206,260 2,136,315
Equipment on operating leases, net of
allowance for depreciation of $15,318 ($16,332 in 1997) 32,269 34,593
Other assets 19,219 16,786
--------------------------
TOTAL ASSETS $2,265,514 $2,201,064
--------------------------
--------------------------
LIABILITIES
Accounts payable and accrued expenses $ 23,983 $ 36,580
Payable for finance receivables acquired 11,240 35,799
Commercial paper and other short-term borrowings 852,790 759,016
Medium-term notes 960,000 964,000
Income taxes - current and deferred 67,344 62,265
--------------------------
TOTAL LIABILITIES 1,915,357 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 13,484 11,706
Retained earnings 291,173 286,198
--------------------------
TOTAL STOCKHOLDER'S EQUITY 350,157 343,404
--------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,265,514 $2,201,064
--------------------------
--------------------------
</TABLE>
* The December 31, 1997 Balance Sheet has been derived from audited financial
statements.
See accompanying notes.
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<PAGE>
Item 1 FINANCIAL STATEMENTS
PACCAR Financial Corp.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
----------------------
<S> <C> <C>
(Unaudited)
Interest and other income $ 45,832 $ 44,402
Rentals on operating leases 2,414 2,520
----------------------
TOTAL FINANCE INCOME 48,246 46,922
Interest expense 25,949 24,608
Other borrowing expense 529 447
Depreciation expense related
to operating leases 1,771 2,006
----------------------
TOTAL FINANCE EXPENSES 28,249 27,061
----------------------
FINANCE MARGIN 19,997 19,861
Insurance premiums earned 1,509 1,395
Insurance claims and underwriting expenses 1,097 1,034
----------------------
INSURANCE MARGIN 412 361
Selling, general &
administrative expenses 6,713 5,994
Provision for losses on receivables 1,905 1,484
----------------------
INCOME BEFORE INCOME TAXES 11,791 12,744
Federal and state income taxes 4,724 4,962
----------------------
NET INCOME 7,067 7,782
Retained earnings at beginning of period 286,198 257,941
Cash dividends paid (2,092) (2,654)
----------------------
RETAINED EARNINGS AT END OF PERIOD $291,173 $263,069
----------------------
----------------------
</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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<PAGE>
PACCAR Financial Corp.
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
-------------------------
<S> <C> <C>
(Unaudited)
OPERATING ACTIVITIES:
Net income $ 7,067 $ 7,782
Items included in net income not
affecting cash:
Provision for losses on receivables 1,905 1,484
Decrease in deferred taxes payable (3,626) (2,763)
Depreciation and amortization 2,957 3,202
Decrease in payables,
income taxes and other (6,697) (7,488)
--------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,606 2,217
INVESTING ACTIVITIES:
Finance and other receivables acquired (297,502) (280,560)
Collections on finance and other receivables 222,743 238,396
Net (increase)/decrease in wholesale receivables (21,753) 13,753
Acquisition of equipment (2,567) (544)
Proceeds from disposal of equipment 2,410 3,375
-------------------------
NET CASH USED IN
INVESTING ACTIVITIES (96,669) (25,580)
FINANCING ACTIVITIES:
Net increase in commercial paper
and other short-term borrowings 93,773 22,331
Proceeds from medium-term notes 115,000 105,000
Payments of medium-term notes (119,000) (106,000)
Additions to paid-in capital 1,778 2,114
Payment of cash dividend (2,092) (2,654)
--------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 89,459 20,791
-------------------------
NET DECREASE IN CASH (5,604) (2,572)
CASH AT BEGINNING OF PERIOD 13,370 13,154
-------------------------
CASH AT END OF PERIOD $ 7,766 $ 10,582
-------------------------
-------------------------
</TABLE>
See accompanying notes.
-4-
<PAGE>
PACCAR Financial Corp.
NOTES TO FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and 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. 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 has a Support Agreement with PACCAR Inc which requires, among
other provisions, that PACCAR Inc 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 Inc own all outstanding voting stock of the Company.
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 in the quarters ended March 31, 1998 and 1997,
respectively.
Periodically, the Company borrows funds from PACCAR Inc and makes market-rate
short and medium-term loans to PACCAR Inc. At March 31, 1998 and 1997, there
were no outstanding loans for the Company from or to PACCAR Inc.
The Company may periodically make market-rate 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 Sterling, Canadian
dollars, or Australian dollars, respectively. The Company will fully hedge
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 quarters ended March 31, 1998 and March 31, 1997,
was met without assistance. At March 31, 1998 and 1997, there were no
outstanding loans from the Company to any Affiliate.
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<PAGE>
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 1% to $20.0 million for first quarter 1998, from
$19.9 million for first quarter 1997, primarily due to growth in receivable
balances. Average receivables grew 5% to $2.2 billion in first quarter 1998,
from $2.1 billion in first quarter 1997, reflecting record first quarter
volume. Volume increased 10% to $274 million for 1998 from $249 million last
year. 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 $6.7 million were 12% higher
for first quarter 1998 than first quarter 1997 due to increased staffing and
related costs. The provision for losses increased 28% to $1.9 million,
despite lower credit losses, due to asset growth. The allowance for losses as
a percentage of earning assets remained unchanged from March 31, 1997 at
1.7%. 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 quarter of
1998 declined 9% to $7.1 million from $7.8 million for the first quarter of
1997.
LIQUIDITY AND CAPITAL RESOURCES
During first quarter 1998, the Company funded its portfolio growth primarily
through the issuance of commercial paper, which increased $94 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
March 31, 1998, $150 million of such securities were available for issuance.
The Company expects to register additional senior debt securities for offering
to the public by the end of June 1998.
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 March 31, 1998, the Company and PACCAR Inc maintained total unused bank
lines of credit of $500 million which are largely used to support the
Company's commercial paper borrowings.
Other information on liquidity and sources of capital as presented in the
Company's 1997 Annual Report on Form 10-K continues to be relevant.
-6-
<PAGE>
PART II--OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as part of this report are listed in the accompanying Exhibit
Index.
(b) There were no reports on Form 8-K for the quarter ended March 31, 1998.
-7-
<PAGE>
PACCAR Financial Corp.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACCAR Financial Corp.
(Registrant)
Date: May 8, 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
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
three-month periods ended March 31, 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 three-month periods ended March 31, 1998 and 1997.
-9-
<PAGE>
PACCAR Financial Corp.
EXHIBIT INDEX
12.3 Statement re computation of ratio of earnings to fixed charges of
PACCAR Inc and subsidiaries pursuant to SEC reporting requirements
for the three-month periods ended March 31, 1998 and 1997.
27 Financial Data Schedule for Article 5 of Regulation S-X, Item
601(c) for the three-month period ended March 31, 1998.
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
-10-
<PAGE>
EXHIBIT 12.1
PACCAR Financial Corp.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO SEC REPORTING REQUIREMENTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
-------------------------------------
<S> <C> <C>
FIXED CHARGES
Interest expense $ 25,949 $ 24,608
Portion of rentals deemed interest 76 59
-------------------------------------
TOTAL FIXED CHARGES $ 26,025 $ 24,667
-------------------------------------
-------------------------------------
EARNINGS
Income before taxes $ 11,791 $ 12,744
Fixed charges 26,025 24,667
-------------------------------------
EARNINGS AS DEFINED $ 37,816 $ 37,411
-------------------------------------
-------------------------------------
RATIO OF EARNINGS TO FIXED CHARGES 1.45x 1.52x
</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.
-11-
<PAGE>
EXHIBIT 12.2
PACCAR Financial Corp.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO THE SUPPORT AGREEMENT
BETWEEN THE COMPANY AND PACCAR INC
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
-------------------------------------
<S> <C> <C>
FIXED CHARGES
Interest expense $ 25,949 $ 24,608
Facility and equipment rental 227 178
-------------------------------------
TOTAL FIXED CHARGES $ 26,176 $ 24,786
-------------------------------------
-------------------------------------
EARNINGS
Income before taxes $ 11,791 $ 12,744
Depreciation 1,831 2,080
-------------------------------------
13,622 14,824
Fixed charges 26,176 24,786
-------------------------------------
EARNINGS AS DEFINED $ 39,798 $ 39,610
-------------------------------------
-------------------------------------
RATIO OF EARNINGS TO FIXED CHARGES 1.52x 1.60x
</TABLE>
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<PAGE>
EXHIBIT 12.3
PACCAR Inc
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO SEC REPORTING REQUIREMENTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
-------------------------------------
<S> <C> <C>
FIXED CHARGES
Interest expense
PACCAR Inc and Subsidiaries (1) $ 38,459 $ 35,318
Portion of rentals deemed interest 1,791 1,526
-------------------------------------
TOTAL FIXED CHARGES $ 40,250 $ 36,844
-------------------------------------
-------------------------------------
EARNINGS
Income before taxes -
PACCAR Inc and Subsidiaries $ 157,132 $ 88,690
Fixed charges 40,250 36,844
-------------------------------------
EARNINGS AS DEFINED $ 197,382 $ 125,534
-------------------------------------
-------------------------------------
RATIO OF EARNINGS TO FIXED CHARGES 4.90x 3.41x
</TABLE>
(1) Exclusive of interest, if any, paid to PACCAR Inc.
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31,
1998 AND 1997 AND FROM THE BALANCE SHEETS AT MARCH 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,766
<SECURITIES> 0
<RECEIVABLES> 2,244,700
<ALLOWANCES> 38,440
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 47,587
<DEPRECIATION> 15,318
<TOTAL-ASSETS> 2,265,514
<CURRENT-LIABILITIES> 0
<BONDS> 960,000
0
31,000
<COMMON> 14,500
<OTHER-SE> 304,657
<TOTAL-LIABILITY-AND-EQUITY> 2,265,514
<SALES> 0
<TOTAL-REVENUES> 49,755
<CGS> 0
<TOTAL-COSTS> 29,346
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,905
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,791
<INCOME-TAX> 4,724
<INCOME-CONTINUING> 7,067
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,067
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
