<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, 1999
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 April 30,
1999.
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>
March 31 December 31
1999 1998*
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 6,132 $ 14,641
Finance and other receivables, net of
allowance for losses of $46,000 ($44,800 in 1998) 2,704,043 2,606,540
Loans to affiliate 17,049 13,493
Equipment on operating leases, net of
allowance for depreciation of $11,914 ($10,894 in 1998) 29,384 30,076
Other assets 18,302 15,070
---------- ----------
TOTAL ASSETS $2,774,910 $2,679,820
---------- ----------
---------- ----------
LIABILITIES
Accounts payable and accrued expenses $ 28,648 $ 38,590
Payable for finance receivables acquired 7,640 41,526
Commercial paper and other short-term borrowings 1,238,642 1,212,743
Medium-term notes 1,058,000 956,000
Income taxes - current and deferred 66,977 62,732
---------- ----------
TOTAL LIABILITIES 2,399,907 2,311,591
---------- ----------
---------- ----------
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 15,383 13,990
Retained earnings 314,120 308,739
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 375,003 368,229
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,774,910 $2,679,820
---------- ----------
---------- ----------
</TABLE>
*The December 31, 1998 Balance Sheet has been derived from audited financial
statements.
See accompanying notes.
-2-
<PAGE>
PACCAR Financial Corp.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
Interest and other income $ 52,201 $ 45,832
Rentals on operating leases 1,982 2,414
--------- ---------
TOTAL FINANCE INCOME 54,183 48,246
Interest expense 30,303 25,949
Other borrowing expense 595 529
Depreciation expense related
to operating leases 1,526 1,771
--------- ---------
TOTAL FINANCE EXPENSES 32,424 28,249
--------- ---------
FINANCE MARGIN 21,759 19,997
Insurance premiums earned 1,868 1,509
Insurance claims and underwriting expenses 1,462 1,097
--------- ---------
INSURANCE MARGIN 406 412
Selling, general &
administrative expenses 7,115 6,713
Provision for losses on receivables 2,505 1,905
--------- ---------
INCOME BEFORE INCOME TAXES 12,545 11,791
Federal and state income taxes 4,880 4,724
--------- ---------
NET INCOME 7,665 7,067
Retained earnings at beginning of period 308,739 286,198
Cash dividends paid (2,284) (2,093)
--------- ---------
RETAINED EARNINGS AT END OF PERIOD $ 314,120 $ 291,172
--------- ---------
--------- ---------
</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
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,665 $ 7,067
Items included in net income not
affecting cash:
Provision for losses on receivables 2,505 1,905
Decrease in deferred taxes payable (2,711) (3,626)
Depreciation and amortization 2,540 2,751
Decrease in payables,
income taxes and other (7,023) (6,491)
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,976 1,606
INVESTING ACTIVITIES:
Finance and other receivables acquired (380,308) (297,502)
Collections on finance and other receivables 279,067 222,743
Net increase in wholesale receivables (36,402) (21,753)
Acquisition of equipment (1,348) (2,567)
Proceeds from disposal of equipment 498 2,410
-------- --------
NET CASH USED IN
INVESTING ACTIVITIES (138,493) (96,669)
FINANCING ACTIVITIES:
Net increase in commercial paper
and other short-term borrowings 25,899 93,773
Proceeds from medium-term notes 215,000 115,000
Payments of medium-term notes (113,000) (119,000)
Additions to paid-in capital 1,393 1,779
Payment of cash dividend (2,284) (2,093)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 127,008 89,459
-------- --------
NET DECREASE IN CASH (8,509) (5,604)
CASH AT BEGINNING OF PERIOD 14,641 13,370
-------- --------
CASH AT END OF PERIOD $ 6,132 $ 7,766
-------- --------
-------- --------
</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, 1998.
Reclassifications: Certain prior year amounts have been reclassified to conform
to the 1999 presentation.
NOTE B--TRANSACTIONS WITH PACCAR INC AND AFFILIATES
The Company and PACCAR Inc ("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 earnings to fixed charges (as
defined) 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 for the three months
ended March 31, 1999 and 1998 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. In lieu of current year payment, PACCAR
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 for the paid-in capital invested in the prior
year. Cash dividends of $2,284 and $2,093 were paid to PACCAR in the quarters
ended March 31, 1999 and 1998, respectively.
Periodically, the Company borrows funds from PACCAR and makes loans to PACCAR.
At March 31, 1999 and 1998, there were no outstanding loans for the Company from
or to PACCAR.
The Company periodically loans funds to certain foreign and domestic finance
and leasing affiliates of PACCAR. These various affiliates have Support
Agreements with PACCAR, similar to the Company's Support Agreement. The
foreign affiliates operate in the United Kingdom, Canada and Australia, and
any resulting currency exposure is fully hedged. The domestic leasing
affiliate finances trucks and trailers under direct finance leases, operating
leases, and other financing agreements. The aggregate of any such loans not
guaranteed by PACCAR is limited to the equivalent of $50 million United States
dollars. The Company periodically reviews the funding alternatives for these
affiliates, and these limits may be revised in the future. At March 31, 1999,
there was a total of $17 million in loans outstanding to a foreign affiliate
operating in the United Kingdom. There were no loans at March 31, 1998.
-5-
<PAGE>
NOTE C--PREFERRED STOCK
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.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The finance margin improved 9% to $21.8 million for the first quarter of 1999,
from $20.0 million for first quarter 1998, primarily due to growth in
receivables. Average receivables grew 21% to $2.7 billion in the first quarter
of 1999, from $2.2 billion in the first quarter of 1998, reflecting record 1998
and first quarter 1999 volume. Volume increased 27% to $348 million for the
first quarter of 1999 from $274 million for the same period last year. The
average margin rate on receivables has continued to decline to 3.29% for the
first quarter of 1999 from 3.67% for the same period in 1998 due to intense rate
competition in the truck lending market.
Selling, general and administrative expenses of $7.1 million for the first
quarter of 1999 were 6% higher than the first quarter of 1998 due to increased
staffing and Year 2000 related costs. The provision for losses increased 31% to
$2.5 million for the first quarter of 1999 as compared to the first quarter of
1998, despite a decline in the reserve ratio to 1.66% versus 1.70% for the same
period in 1998, due to asset growth. 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 1999
increased 8% to $7.7 million from $7.1 million for the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1999, the Company funded its portfolio growth
primarily through the issuance of medium-term notes, which increased $102
million from December 31, 1998. In September 1998, the Company registered $1
billion of senior debt securities under the Securities Act of 1933 for offering
to the public. As of March 31, 1999, $590 million of such securities were
available for issuance.
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, 1999, the Company and PACCAR maintained total unused bank lines
of credit of $755 million which are largely used to support the Company's
commercial paper borrowings. Of this, $635 million are shared with PACCAR and
$120 million pertain to the Company alone.
Other information on liquidity and sources of capital as presented in the
Company's 1998 Annual Report on Form 10-K continues to be relevant.
-6-
<PAGE>
YEAR 2000 ISSUE
As a finance company, the Company relies upon computer processing to
originate and service loans and leases. The Company has identified and
evaluated its major internal systems for Year 2000 compliance. Internal
systems have already been modified to enable the Company to process loans and
leases with a termination date after the Year 2000. Some additional software
related changes for the systems to operate properly after the Year 2000 have
been identified by the Company. The Company has developed a detailed plan,
including anticipated completion dates for each significant system. All
systems are expected to be converted and installed by June 30, 1999. Overall
completion, including comprehensive testing of all systems working together,
is scheduled for completion by September 30, 1999. Management regularly
reviews the progress under this plan. A team consisting of full-time
employees supplemented with contract staff is working to make the necessary
changes. Total cost to the Company is expected to approximate $2.0 million,
of which $1.4 million has been incurred through March 31, 1999. Operating
funds will fund the cost of the project.
In the unlikely event that management concludes that there is a material risk
that a significant computer system will not be Year 2000 compliant by the end of
1999, a contingency plan utilizing manual processes and alternate systems will
be developed.
Since the Company is not a manufacturer, the Company's reliance on embedded
computer systems is limited to facilities related matters, such as office
security systems and telecommunications equipment. The Company is in the process
of confirming with its vendors that such systems will be, or are, Year 2000
compliant.
The Company also relies on the ability of banks and other financial institutions
participating in the public debt markets to fund its lending activity. If there
is a significant failure of banking systems or systems of other entities within
the public market structure due to the Year 2000 issue, the Company's ability to
access the credit markets and process payments could be adversely affected. The
Company has sent letters and has received responses indicating that banks and
other financial institutions with which it has relationships already are, or
will be, compliant by the Year 2000.
If the United States economy enters into a recession due to widespread
interruption in commercial activity or the effect of diverting substantial
resources to achieve Year 2000 compliance, the Company would likely experience
an increase in credit losses, a reduction in interest income and a drop in new
lending volume. Due to the cyclical nature of the trucking business, however,
the possibility of a general economic or a trucking industry downturn has long
been a factor in the Company's credit granting decisions.
Since the Company is a collateral based lender with hard copy documents to
enforce its loans and leases, the most reasonably likely worst case scenario if
all its systems are not Year 2000 compliant is that information and reports
would contain inaccuracies that would slow the efficient processing of payments,
result in increased administrative costs to the Company and generally reduce
customer service. The cumulative effect of these potential outcomes is unknown,
but could have a material effect on the Company's financial condition, the
results of operations and liquidity.
The Company has no single customer concentration greater than 2% of assets and
the impact on the Company from a single customer's non-compliance is not
expected to be material. However, if a large number of its major customers
encounter operating problems due to Year 2000 that cause them to default on
their obligations, there could be a material impact on the Company due to higher
credit losses and lower interest income.
Management believes it is taking the necessary steps regarding Year 2000
compliance with respect to matters within its control to ensure that the Year
2000 issue will not materially impact the Company.
-7-
<PAGE>
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the
three months ended March 31, 1999. For additional information, refer to Item 7a
of the Company's December 31, 1998 Report 10-K.
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, 1999.
-8-
<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 13, 1999 BY: /S/A. J. Wold
------------------------------
A. J. Wold
President
(Authorized Officer)
BY: /S/M. T. Barkley
------------------------------
M. T. Barkley
Controller
(Chief Accounting Officer)
-9-
<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 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).
4.3 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).
4.4 Forms of Medium-Term Note, Series I (incorporated by reference to
Exhibits 4.2A and 4.2B to the Company's Registration Statement on Form
S-3 dated September 10, 1998, Registration Number 333-63153).
Form of Letter of Representation among the Company, Citibank, N.A. and
the Depository Trust Company, Series I (incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on Form S-3 dated
September 10, 1998, Registration Number 333-63153).
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 three-month
periods ended March 31, 1999 and 1998.
12.2 Statement re computation of ratio of earnings to fixed charges of the
Company pursuant to the Support Agreement with PACCAR for the
three-month periods ended March 31, 1999 and 1998.
-10-
<PAGE>
PACCAR Financial Corp.
EXHIBIT INDEX
12.3 Statement re computation of ratio of earnings to fixed charges of
PACCAR and subsidiaries pursuant to SEC reporting requirements for the
three-month periods ended March 31, 1999 and 1998.
27 Financial Data Schedule for Article 5 of Regulation S-X, Item 601(c)
for the three-month period ended March 31, 1999.
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
-11-
<PAGE>
EXHIBIT 12.1
PACCAR Financial Corp.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PURSUANT TO SEC REPORTING REQUIREMENTS
(Thousands of Dollars)
<TABLE>
Three Months Ended
March 31
1999 1998
------- -------
<S> <C> <C>
FIXED CHARGES
Interest expense $30,303 $25,949
Portion of rentals deemed interest 207 76
------- -------
TOTAL FIXED CHARGES $30,510 $26,025
------- -------
------- -------
EARNINGS
Income before taxes $12,545 $11,791
Fixed charges 30,510 26,025
------- -------
EARNINGS AS DEFINED $43,055 $37,816
------- -------
------- -------
RATIO OF EARNINGS TO FIXED CHARGES 1.41x 1.45x
</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. See Exhibit 12.2.
-12-
<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>
Three Months Ended
March 31
1999 1998
------- -------
<S> <C> <C>
FIXED CHARGES
Interest expense $30,303 $25,949
Facility and equipment rental 232 227
------- -------
TOTAL FIXED CHARGES $30,535 $26,176
------- -------
------- -------
EARNINGS
Income before taxes $12,545 $11,791
Depreciation 1,596 1,831
------- -------
$14,141 $13,622
Fixed charges 30,535 26,176
------- -------
EARNINGS AS DEFINED $44,676 $39,798
------- -------
------- -------
RATIO OF EARNINGS TO FIXED CHARGES 1.46x 1.52x
</TABLE>
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<PAGE>
EXHIBIT 12.3
PACCAR AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
-------- --------
<S> <C> <C>
FIXED CHARGES
Interest expense -
PACCAR and subsidiaries (1) $ 42,660 $ 38,459
Portion of rentals deemed interest 4,437 1,791
-------- --------
TOTAL FIXED CHARGES $ 47,097 $ 40,250
-------- --------
-------- --------
EARNINGS
Income before taxes -
PACCAR and subsidiaries $187,450 $157,132
Fixed charges 47,097 40,250
-------- --------
EARNINGS AS DEFINED $234,547 $197,382
-------- --------
-------- --------
RATIO OF EARNINGS TO FIXED CHARGES 4.98x 4.90x
</TABLE>
(1) Exclusive of interest, if any, paid to PACCAR.
-14-
<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,
1999 and 1998 and from the Balance Sheets at March 31, 1999 and December 31,
1998 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,132
<SECURITIES> 0
<RECEIVABLES> 2,750,043
<ALLOWANCES> 46,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 41,298
<DEPRECIATION> 11,914
<TOTAL-ASSETS> 2,774,910
<CURRENT-LIABILITIES> 0
<BONDS> 1,058,000
0
31,000
<COMMON> 14,500
<OTHER-SE> 329,503
<TOTAL-LIABILITY-AND-EQUITY> 2,774,910
<SALES> 0
<TOTAL-REVENUES> 56,051
<CGS> 0
<TOTAL-COSTS> 33,886
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,505
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,545
<INCOME-TAX> 4,880
<INCOME-CONTINUING> 7,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,665
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
