<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 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1999
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.
(Exact name of Registrant as specified in its charter)
WASHINGTON 91-6029712
(State of Incorporation) (I.R.S. Employer Identification No.)
777 - 106TH AVENUE N.E., BELLEVUE, WASHINGTON 98004
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (425) 468-7100
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Series H Medium-Term Notes
$5 MILLION DUE DECEMBER 15, 2000 NEW YORK STOCK EXCHANGE
- -------------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
(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, 2000:
None
The number of shares outstanding of the registrant's classes of common stock as
of March 1, 2000:
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 (I)(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 whose principal products are commercial
trucks and related service parts. This business accounted for 93% of PACCAR's
total revenues in 1999. PACCAR markets trucks in the heavy-duty diesel category
under the Kenworth, Peterbilt, DAF, and Foden nameplates primarily through its
dealers. These vehicles are manufactured in five plants in the U.S., three in
Europe and one each in Canada, Australia and Mexico. PACCAR also competes in the
North American Class 6/7 markets. These medium-duty trucks are assembled at
PACCAR's recently renovated Quebec plant and at a PACCAR factory in Mexico. This
line of business represents a small, but growing, percentage of PACCAR's North
American sales. PACCAR competes in the European medium commercial vehicle market
with a cab-over-engine truck manufactured in the Netherlands. Leyland
manufactures light commercial vehicles in the United Kingdom for sale throughout
Europe under the DAF and Leyland DAF nameplates. PACCAR competes in the truck
parts aftermarket primarily through its independent dealer networks. Other
PACCAR businesses include industrial winches. PACCAR sold its automotive parts
retail subsidiary during the fourth quarter of 1999.
In the United States, Kenworth and Peterbilt trucks are sold to an
independent dealer network for resale to retail purchasers. Trucks manufactured
in the United States for export are marketed by a division of PACCAR through an
independent 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
Mexico, Canada, Australia and the United Kingdom through five other wholly owned
finance companies. PACCAR also provides full service truck leasing through a
wholly owned subsidiary.
As of December 31, 1999, PACCAR and its subsidiaries had total assets of
$7.9 billion and stockholders' equity of $2.1 billion. For the year ended
December 31, 1999, PACCAR's consolidated revenues and net income were $9.0
billion and $583.6 million respectively.
There were four other principal competitors besides PACCAR in the U.S.
Class 8 truck market in 1999. Based on 1999 industry registration statistics,
PACCAR's Kenworth and Peterbilt combined truck sales accounted for approximately
21% of domestic Class 8 new truck registrations. There were seven other
principal competitors in the European medium and heavy commercial vehicle market
in 1999 including parent companies of three competitors of PACCAR in the United
States. PACCAR's subsidiary, DAF, had a 10% share of the western European
heavy-duty market. These markets are 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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<PAGE>
PACCAR's common stock, $1 par value, is traded on the NASDAQ National
Market under the symbol "PCAR". PACCAR and the Company are subject to the
informational requirements of the Securities Exchange Act of 1934 and in
accordance therewith file reports and other information with the Securities and
Exchange Commission (the "Commission"). All reports, proxy statements and other
information filed by PACCAR and the Company 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; at 7 World Trade
Center, 13th Floor, New York, New York 10048, or through the Commission's
internet site at www.sec.gov.
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 trucks.
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, 1999, the Company employed 280 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 from dealers and receives
assignments of the contracts and a first lien security interest in the vehicles
financed ("Retail Contracts"). 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 to the end users of the vehicles
financed that are secured by a first lien security interest in the vehicles
("Direct Loans"). Direct Loans have fixed or floating interest rates.
MASTER NOTE
These contracts are an alternative form of retail financing offered to
select 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.
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.
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<PAGE>
DEALER LOANS
The Company makes loans to selected Peterbilt and Kenworth dealers ("Dealer
Loans"). The purposes of these loans include the financing of real estate, fixed
asset, working capital and dealership acquisitions. Dealer loans may have fixed
or floating interest rates.
LEASES
The Company offers lease contracts where it is treated as the owner of the
equipment for tax purposes and generally retains the tax depreciation
("Leases"). 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
The Company sells physical damage insurance through PACCAR dealers who are
licensed insurance agents as well as through licensed agents of the Company. The
Company retains the premium revenues and loss exposure for the policies, which
are issued through an unrelated insurance carrier.
The Company also charges a fee to provide insurance coverage, through an
unrelated regulated insurance carrier, on new trucks, used trucks and trailer
inventory to dealers having Wholesale Contracts with the Company. The Company
retains annual loss exposure up to that year's fee revenues.
CUSTOMER CONCENTRATION, PAST DUE ACCOUNTS AND LOSS EXPERIENCE
CUSTOMER CONCENTRATION
At December 31, 1999, the largest single customer for Retail Contracts,
Direct Loans or Leases represented 1.1% of the Company's receivables, and the
five largest such accounts amounted to 4.2% of receivables.
At December 31, 1999, the Company had four Master Note dealers. Master Note
borrowings totaled 10.7% of the Company's receivables, while the largest Master
Note dealer's borrowing amounted to 8.6% of the Company's receivables. Master
Note receivables are secured by numerous retail installment contracts, which, in
effect, reduces the amount of dealer concentration.
With respect to wholesale financing, at December 31, 1999, the largest
single dealer group accounted for 2.3% of the Company's receivables, and the
five largest dealer groups collectively accounted for 5.6% of receivables.
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 credit losses generally
increase.
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The Company maintains an allowance for losses on receivables at a level,
which it considers to be adequate to cover management's estimates of 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
----------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $44,800 $37,350 $ 36,000
Provision for losses 15,637 11,485 6,245
Net losses (6,837) (4,035) (4,895)
---------- ---------- ----------
Balance at end of year $53,600 $44,800 $ 37,350
========= ========= =========
Ratios:
Net losses to average net .23% .16% .23%
receivables and equipment on operating leases
Allowance for losses to year-end net 1.65% 1.68% 1.70%
contracts and equipment on operating leases
Year-end retail contracts and leases past .88% .65% 1.05%
due (over 60 days) to year-end retail
contracts and lease receivables
</TABLE>
For discussion of the allowance for losses, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations, 1997-1999."
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 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, demand for credit, inflation
and governmental policies. Seasonality is not a significant factor in the
Company's business.
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<PAGE>
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 are 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 PACCAR equity investments. 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, terms 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 and commercial paper combined with interest
rate swaps. Floating rate assets are funded primarily with commercial paper with
maturities of three months or less. As a result, the Company's interest margin
on existing business does not change significantly as interest rates change.
The Company enters into 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. 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, 1999, the total
notional principal amount of interest rate swap contracts outstanding was $1,058
million, all of which result in a fixed rate payment obligation. 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.
As of December 31, 1999, the Company had $815 million of unused, confirmed
bank lines of credit, $760 million of which are shared with PACCAR, 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.
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<PAGE>
As of December 31, 1999, the Company had $1,198 million of medium-term
notes outstanding, $523 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, 1983, 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
and pays dividends to PACCAR, and may occasionally borrow funds from or lend
money to PACCAR or it's affiliates. Since the directors of the Company are all
executives of PACCAR or its affiliated companies 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 and Affiliates"
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 each of the
years ended December 31, 1995 - 1999 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.
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.
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<PAGE>
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 additional
paid-in capital invested in the prior year. Cash dividends of $2.3 million, $2.1
million and $2.7 million were paid in 1999, 1998 and 1997, 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, 1999 has
been derived from the Company's audited financial statements.
BALANCE SHEET DATA AND INCOME STATEMENT DATA
(Thousands of Dollars)
<TABLE>
<CAPTION>
BALANCE SHEET DATA As of December 31
- ------------------ ----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $ 3,325,598 $ 2,680,112 $ 2,201,064 $ 2,120,612 $ 2,074,405
Total Liabilities 2,899,691 2,311,883 1,857,660 1,807,559 1,792,934
Total Stockholder's Equity 425,907 368,229 343,404 313,053 281,471
</TABLE>
<TABLE>
<CAPTION>
INCOME STATEMENT DATA Year ended December 31
- --------------------- ----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Finance and Insurance Margin $ 97,066 $ 86,930 $ 82,214 $ 79,543 $ 74,975
Selling, General and
Administrative Expenses 27,422 35,067 25,272 24,084 23,429
Provision for Losses
on Receivables 15,637 11,485 6,245 3,279 4,816
------------ ------------ ------------ ------------ -----------
Income Before Income Taxes 54,007 40,378 50,697 52,180 46,730
Income Taxes 20,722 15,744 19,785 20,321 18,809
------------ ------------ ------------ ------------ -----------
Net Income $ 33,285 $ 24,634 $ 30,912 $ 31,859 $ 27,921
============ ============ ============ ============ ===========
Ratio of Earnings to Fixed 1.39x 1.36x 1.50x 1.53x 1.52x
Charges (1)
</TABLE>
(1) For purposes of this ratio, earnings consist of income before income
taxes plus fixed charges. Fixed charges consist of interest expense plus
a portion 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
1.44x, 1.41x, 1.57x, 1.62x and 1.63x for the years 1999 - 1995,
respectively. See Exhibits 12.1 and 12.2.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, 1997 - 1999
RESULTS OF OPERATIONS
1999 Compared to 1998:
1999 new business volume was $1.8 billion, increasing 20% over 1998's
record volume of $1.5 billion. As a result, average receivables grew 21% to $2.9
billion from $2.4 billion in 1998. The finance margin of $94.5 million for 1999
increased 11% from $85.0 million in 1998. However, the average margin rate on
receivables declined for the fifth consecutive year from 3.57% for 1998 to 3.23%
for 1999 due to higher leverage and intense rate competition in the truck
lending market. The insurance margin improved $.6 million due to higher premiums
and improved loss experience.
Selling, general and administrative expenses of $27.4 million were 22%
lower in 1999 primarily because 1998's expenses included a $7.5 million one-time
charge-off of an investment in a new loan system. 1999 operating expenses were
favorably impacted in the amount of $1.4 million by a settlement with a vendor
related to the same project. Excluding the impact of these items, 1999 operating
expenses were 4% higher than in 1998 due primarily to higher salaries and
related costs and Year 2000 compliance efforts. The provision for losses
increased 36% to $15.6 million in 1999 from $11.5 million in 1998. This increase
is consistent with the Company's rapid asset growth. Credit losses increased to
$6.8 million in 1999 from $4.0 million in 1998 due partly to higher fuel prices
that have reduced operating margins for many truck operators. Management expects
this near-term trend to continue until fuel prices decline or operators
successfully pass those costs on to their customers. Despite recent trends, the
overall portfolio quality remains good. The level of the allowance for credit
losses reflects the risks inherent in the financing of commercial highway
transportation equipment.
As a result of the foregoing factors, 1999 net income increased 35% to
$33.3 million from $24.6 million in 1998. Excluding the impact of the 1999
vendor settlement and the 1998 charge-off, net income for 1999 would have been
$32.4 million, representing an 11% increase from 1998 net income.
1998 Compared to 1997:
Net income decreased 20% to $24.6 million in 1998 from $30.9 million in
1997. New business volume increased 31% to $1.5 billion from $1.2 billion in
1997. The provision for losses of $11.5 million in 1998 increased 84% compared
to 1997, despite lower credit losses, due to asset growth. Selling, general and
administrative expenses were 39% higher in 1998 than 1997 as a result of higher
staffing costs and the $7.5 million loan system investment charge-off.
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. At the end of 1999, there
were $195 million of such securities available for issuance. The Company is in
the process of filing a new shelf registration statement, which is expected to
be completed by the end of the first quarter of 2000.
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.
PACCAR made an additional $25 million investment in the Company through
paid-in capital in the third quarter of 1999.
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<PAGE>
YEAR 2000 ISSUE
The Company's total cost of identifying, evaluating, converting and testing its
major internal systems for Year 2000 compliance was $2.0 million and was funded
with operating funds. Management believes the Company's systems to be Year 2000
compliant and is not aware of the existence of any Year 2000 issues related to
its systems or the systems of its major vendors or the banks and financial
institutions with which it has relationships.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company's primary market risk exposure is to fluctuations in interest rates.
To manage the risks, the Company uses derivative financial instruments,
primarily interest rate swaps, in accordance with established policies and
procedures. The objectives are to reduce existing interest rate risk arising
from the financing of receivables, change interest rate characteristics of debt
to more closely reflect the interest rate characteristics of the receivables
being funded, and to reduce funding costs. Derivative usage is limited to
hedging strategies, which match the interest rate characteristics of debt to
those of the receivables being funded. The Company does not use derivatives for
trading purposes. Following is a tabular presentation of items, which are
subject to market risk exposure and the derivatives, which are used to manage
the exposure risk.
Principal (Notional) Amount by Expected Maturity
Average Interest Rate (Swap) Strike Price
1999
<TABLE>
<CAPTION>
FAIR
THERE- VALUE
(DOLLARS IN MILLIONS) 2000 2001 2002 2003 2004 AFTER TOTAL 1999
- --------------------------------------------------------------------------------------------------------------
ASSETS
Retail Notes, Contracts and
Wholesale
Financing, net of Unearned
Interest
and Allowance for Losses:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate 727.5 620.9 476.0 254.0 81.9 15.2 2,175.5 2,130.0
--------- ------------------ --------- ------------------- ------------------
Average Interest Rate 8.50% 8.45% 8.47% 8.37% 8.37% 8.37% 8.46%
--------- ------------------ --------- ------------------- ----------
Variable Rate 510.3 24.4 18.4 10.8 8.7 6.3 578.9 578.9
--------- ------------------ --------- ------------------- ------------------
Average Interest Rate 7.59% 7.04% 7.04% 7.04% 7.04% 7.04% 7.52%
--------- ------------------ --------- ------------------- ----------
LIABILITIES
Commercial Paper 1,510.6 - - - - - 1,510.6 1,510.6
--------- ------------------ --------- ------------------- ------------------
Average Interest Rate 5.99% - - - - - 5.99%
--------- ------------------ --------- ------------------- ----------
Medium-term Notes
Fixed Rate 413.0 370.0 195.0 75.0 5.0 - 1,058.0 1,045.9
--------- ------------------ --------- ------------------- ------------------
Average Interest Rate 5.85% 6.02% 6.03% 6.16% 5.74% - 5.96%
--------- ------------------ --------- ------------------- ----------
Variable Rate 110.0 30.0 - - - - 140.0 140.0
--------- ------------------ --------- ------------------- ------------------
Average Interest Rate 5.87% 6.33% - - - - 5.97%
--------- ------------------ --------- ------------------- ----------
INTEREST RATE DERIVATIVE
FINANCIAL INSTRUMENTS RELATED TO
DEBT
Interest Rate Swaps
Pay Fixed/Receive Variable 549.4 307.1 149.9 44.2 7.2 - 1,057.8 11.3
--------- ------------------ --------- ------------------- ------------------
Average Interest Pay Rate 5.65% 5.68% 5.90% 6.20% 5.94% - 5.72%
--------- ------------------ --------- ------------------- ----------
Average Interest Receive Rate 6.23% 6.14% 6.14% 6.14% 6.10% - 6.19%
--------- ------------------ --------- ------------------- ----------
</TABLE>
-11-
<PAGE>
Principal (Notional) Amount by Expected Maturity
Average Interest Rate (Swap) Strike Price
<TABLE>
<CAPTION>
1998
FAIR
THERE- VALUE
(DOLLARS IN MILLIONS) 1999 2000 2001 2002 2003 AFTER TOTAL 1998
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Retail Notes, Contracts and
Wholesale
Financing, net of Unearned
Interest
and Allowance for Losses:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate 679.3 570.0 411.2 234.1 72.9 2.2 1,969.7 1,971.9
--------- ------------------ --------- ------------------- ------------------
Average Interest Rate 8.58% 8.44% 8.32% 8.09% 8.09% 8.09% 8.41%
--------- ------------------ --------- ------------------- ----------
Variable Rate 226.0 27.8 24.2 16.4 4.2 .9 299.5 299.5
--------- ------------------ --------- ------------------- ------------------
Average Interest Rate 6.81% 6.81% 6.81% 6.81% 6.81% 6.81% 6.81%
--------- ------------------ --------- ------------------- ----------
LIABILITIES
Commercial Paper 1,212.7 - - - - - 1,212.7 1,212.7
--------- ------------------ --------- ------------------- ------------------
Average Interest Rate 5.10% - - - - - 5.10%
--------- ------------------ --------- ------------------- ----------
Medium-term Notes
Fixed Rate 233.0 253.0 235.0 100.0 - - 821.0 832.6
--------- ------------------ --------- ------------------- ------------------
Average Interest Rate 6.06% 6.11% 6.08% 5.89% - - 6.06%
--------- ------------------ --------- ------------------- ----------
Variable Rate 135.0 - - - - - 135.0 135.0
--------- ------------------ --------- ------------------- ------------------
Average Interest Rate 5.21% - - - - - 5.21%
--------- ------------------ --------- ------------------- ----------
INTEREST RATE DERIVATIVE
FINANCIAL INSTRUMENTS RELATED TO
DEBT
Interest Rate Swaps
Pay Fixed/Receive Variable 530.1 327.1 76.9 21.8 9.2 4.0 969.1 (4.6)
--------- ------------------ --------- ------------------- ------------------
Average Interest Pay Rate 5.82% 5.59% 5.03% 5.42% 5.97% 5.37% 5.67%
--------- ------------------ --------- ------------------- ----------
Average Interest Receive Rate 5.48% 5.40% 5.26% 5.26% 5.28% 5.00% 5.43%
--------- ------------------ --------- ------------------- ----------
</TABLE>
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.
-12-
<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, 1999 and 1998, and the
related statements of income and retained earnings and cash flows for each of
the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
/S/ Ernst & Young LLP
Seattle, Washington
February 16, 2000
-13-
<PAGE>
BALANCE SHEETS
PACCAR Financial Corp.
<TABLE>
<CAPTION>
December 31
1999 1998
-------------------- --------------------
(Thousands of Dollars)
ASSETS
<S> <C> <C>
Cash $ 6,340 $ 14,641
Finance and other receivables net of
allowance for losses of $53,600 in 1999 ($44,800 in 1998) 3,243,005 2,606,540
Loans to affiliate 24,054 13,493
Equipment on operating leases net of
depreciation of $11,017 in 1999 ($10,894 in 1998) 26,620 30,076
Other assets 25,579 15,362
-------------------- --------------------
TOTAL ASSETS $ 3,325,598 $ 2,680,112
-------------------- --------------------
LIABILITIES
Accounts payable and accrued expenses $ 46,915 $ 37,655
Payable to dealers and others 68,032 41,526
Commercial paper and other short-term borrowings 1,510,550 1,212,743
Medium-term notes 1,198,000 956,000
Deferred income taxes 76,194 63,959
-------------------- --------------------
TOTAL LIABILITIES 2,899,691 2,311,883
-------------------- --------------------
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 40,667 13,990
Retained earnings 339,740 308,739
-------------------- --------------------
TOTAL STOCKHOLDER'S EQUITY 425,907 368,229
-------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,325,598 $ 2,680,112
-------------------- --------------------
</TABLE>
See accompanying notes.
-14-
<PAGE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
PACCAR Financial Corp.
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------ ----------------- -----------------
(Thousands of Dollars)
<S> <C> <C> <C>
Interest and other income $ 231,453 $ 197,819 $ 181,152
Rentals on operating leases 7,526 8,525 9,801
------------------ ----------------- -----------------
TOTAL FINANCE INCOME 238,979 206,344 190,953
Interest expense 136,055 112,958 101,440
Other borrowing expense 2,715 2,051 1,810
Depreciation expense related
to operating leases 5,684 6,310 7,319
------------------ ----------------- -----------------
TOTAL FINANCE EXPENSES 144,454 121,319 110,569
------------------ ----------------- -----------------
FINANCE MARGIN 94,525 85,025 80,384
Insurance premiums earned 8,168 6,694 5,726
Insurance claims and underwriting expenses 5,627 4,789 3,896
------------------ ----------------- -----------------
INSURANCE MARGIN 2,541 1,905 1,830
Selling, general and
administrative expenses 27,422 35,067 25,272
Provision for losses on receivables 15,637 11,485 6,245
------------------ ----------------- -----------------
INCOME BEFORE INCOME TAXES 54,007 40,378 50,697
Federal and state income taxes 20,722 15,744 19,785
------------------ ----------------- -----------------
NET INCOME 33,285 24,634 30,912
Retained earnings at beginning of year 308,739 286,198 257,941
Cash dividends paid (2,284) (2,093) (2,655)
------------------ ----------------- -----------------
RETAINED EARNINGS AT END OF YEAR $ 339,740 $ 308,739 $ 286,198
------------------ ----------------- -----------------
</TABLE>
See accompanying notes.
-15-
<PAGE>
STATEMENTS OF CASH FLOWS
PACCAR Financial Corp.
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------------------- -------------------- -------------------
(Thousands of Dollars)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 33,285 $ 24,634 $ 30,912
Items included in net income not
affecting cash:
Provision for losses on receivables 15,637 11,485 6,245
Charge-off of loan system investment - 7,453 -
Increase in deferred taxes payable 12,235 1,446 1,573
Depreciation and amortization 10,214 10,187 11,294
(Increase) in payables and other (17,533) (18,880) (4,259)
-------------------- -------------------- -------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 53,838 36,325 45,765
INVESTING ACTIVITIES
Finance and other receivables acquired (1,758,154) (1,507,276) (1,155,213)
Collections on finance and other receivables 1,310,340 1,076,788 1,017,798
Net (increase) decrease in wholesale
receivables (176,208) (45,908) 40,857
Acquisition of equipment (9,564) (13,609) (17,132)
Proceeds from disposal of equipment 7,247 9,033 9,303
-------------------- -------------------- -------------------
NET CASH USED IN
INVESTING ACTIVITIES (626,339) (480,972) (104,387)
FINANCING ACTIVITIES
Net increase in commercial paper
and other short-term borrowings 297,807 453,727 59,400
Proceeds from medium-term notes 610,000 460,000 415,000
Payments of medium-term notes (368,000) (468,000) (415,000)
Capital contributions 26,677 2,284 2,093
Payment of cash dividend (2,284) (2,093) (2,655)
-------------------- -------------------- -------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 564,200 445,918 58,838
-------------------- -------------------- -------------------
NET (DECREASE) INCREASE IN CASH (8,301) 1,271 216
CASH AT BEGINNING OF YEAR 14,641 13,370 13,154
-------------------- -------------------- -------------------
CASH AT END OF YEAR $ 6,340 $ 14,641 $ 13,370
-------------------- -------------------- -------------------
</TABLE>
See accompanying notes.
-16-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1999
(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
accounting principles generally accepted in the United States 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 LOSSES ON RECEIVABLES: The provision for losses on 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 judgment of management,
they are deemed uncollectible (usually upon repossession of the collateral). On
certain retail contracts acquired from the dealers, the dealer retains
liability, up to specified limits, for the credit loss on the sale of a
repossessed vehicle. The amount and collectibility of dealer recourse provisions
have been considered in establishing the allowance for losses on receivables.
REVENUE RECOGNITION: Revenue from finance receivables and other receivables is
recognized using the interest method. Certain loan origination costs are
deferred and amortized to interest and other 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 contract term of each operating lease to an
estimated residual value.
INCOME TAXES: The Company is included in the consolidated federal income tax
return of PACCAR. Income taxes for the Company are determined on a separate
return basis, and any related tax liability is paid by the Company to PACCAR and
any related tax benefit is paid by PACCAR to the Company.
-17-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1999
(Thousands of Dollars)
DERIVATIVE FINANCIAL INSTRUMENTS: The Company enters into interest rate
contracts and cap agreements to manage certain exposures to fluctuations in
interest rates. The Company uses interest rate swap contracts to match the
interest rate characteristics of the Company's finance receivables with the
borrowings used to fund those receivables and to limit the Company's exposure to
rising interest rates. Interest rate swap contracts involve the exchange of
fixed and floating rate interest payments without the exchange of the underlying
principal. Net amounts paid or received are reflected as adjustments to interest
expense. Interest rate cap premiums paid are amortized to interest expense
ratably during the life of the agreement. The fair values of interest rate swap
and cap agreements are not recognized in the financial statements. Realized
gains or losses at the time of maturity, termination or repayment of an interest
rate contract or cap agreement are recorded in a manner consistent with the
original designation of the interest rate contract or cap agreement. The Company
does not engage in derivatives trading, market-making or other speculative
activities.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform
to the 1999 presentation.
NEW ACCOUNTING PRONOUNCEMENTS:
In June 1999, the Financial Accounting Standards Board issued Statement No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133--AN AMENDMENT OF FASB STATEMENT NO.
133. This pronouncement postponed the required adoption of FASB statement No.
133 from first quarter 2000 to first quarter 2001. Based on review of FASB
Statement No. 133, management believes its current use of derivatives for
hedging purposes will be considered cash flow hedges under the pronouncement.
Management does not anticipate that the adoption will have a significant effect
on earnings or the financial position of the Company. However, given the complex
nature of the new Standard and the dependence on market values, the impact will
not be known until adoption.
-18-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1999
(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>
Year ended December 31
1999 1998
------------------- -------------------
Notes and contracts due within:
<S> <C> <C>
One year $ 993,716 $ 794,837
Two years 685,901 634,223
Three years 520,035 458,233
Four years 277,026 262,634
Five years and beyond 117,453 87,410
------------------- -------------------
2,594,131 2,237,337
Wholesale financing 353,602 161,051
Direct financing leases (including estimated residual
values of $17,471) 503,572 385,484
Interest and other receivables 12,627 8,554
------------------- -------------------
3,463,932 2,792,426
Unearned interest:
Notes and contracts (101,580) (94,515)
Direct financing leases (65,747) (46,571)
------------------- -------------------
(167,327) (141,086)
------------------- -------------------
Finance and other receivables $ 3,296,605 $ 2,651,340
------------------- -------------------
</TABLE>
Future minimum lease payments on direct financing leases totaled $486,101 at
December 31, 1999 and are due as follows: $143,255 in 2000; $126,963 in 2001;
$105,233 in 2002; $74,933 in 2003; and $35,717 in 2004 and beyond.
The allowance for losses on receivables is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Balance at beginning of year $ 44,800 $ 37,350 $ 36,000
Provision for losses 15,637 11,485 6,245
Net losses (6,837) (4,035) (4,895)
------------------ ------------------ -----------------
</TABLE>
-19-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1999
(Thousands of Dollars)
<TABLE>
<S> <C> <C> <C>
Balance at end of year $ 53,600 $ 44,800 $ 37,350
------------------ ------------------ -----------------
</TABLE>
At December 31, 1999 and 1998, the recorded investments in notes and contracts
that were considered to be impaired were $22,101 and $16,146, respectively.
Included in the allowance for losses were specific reserves of $7,978 and $5,073
on these impaired notes and contracts. The average recorded investment in
impaired notes and contracts during the years ended December 31, 1999 and 1998,
was $27,466 and $18,659, respectively. For the years ended December 31, 1999 and
1998, the Company recognized interest income of $1,466 and $888 respectively, 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, 2000 were: $5,864 in 2000; $3,464 in 2001; $1,906 in 2002
and $218 in 2003.
NOTE D--TRANSACTIONS WITH PACCAR AND AFFILIATES
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, 1999, 1998 and 1997, 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
$1,772, $2,451 and $1,976 in 1999, 1998 and 1997, respectively, were charged
to the Company. 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, $2,093, and $2,655 were paid in 1999, 1998 and 1997,
respectively. PACCAR made an additional $25 million investment in the Company
through paid-in capital in 1999.
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 $1,238, $1,039, and $820 for years
1999, 1998 and 1997, respectively.
Periodically, the Company borrows funds from PACCAR and makes loans to PACCAR.
At December 31, 1999, 1998 and 1997, there were no outstanding loans for the
Company from or to PACCAR.
-20-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1999
(Thousands of Dollars)
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 foreign finance affiliates provide financing and
leasing of trucks and related equipment manufactured primarily by PACCAR and
sold through PACCAR's independent dealer networks in the United Kingdom, Canada
and Australia. The domestic leasing affiliate finances trucks and trailers under
direct finance leases, operating leases and other financing agreements for terms
of one to ten years. The Company will not make loans to the foreign affiliates
in excess of the equivalent of $50 million United States dollars, or loans to
its domestic leasing affiliate in excess of $200 million, unless the amount in
excess of such limits is guaranteed by PACCAR. The Company periodically reviews
the funding alternatives for these affiliates, and these limits may be revised
in the future. There was a total of $24 million and $13 million in loans
outstanding to a foreign affiliate operating in the United Kingdom at December
31, 1999 and 1998, respectively, and no loans outstanding to other foreign or
the domestic affiliates for either period. There were no loans at December 31,
1997.
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.
NOTE E--BORROWINGS
Borrowings are summarized as follows:
<TABLE>
<CAPTION>
As of December 31,
-------------------- -----------------------------------------
Effective
Rate* 1999 1998
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Commercial paper 5.78% $ 1,435,550 $ 1,212,743
Other short-term borrowings 4.88% 75,000 -
Fixed rate medium-term notes 5.96% 1,058,000 821,000
Floating rate medium-term notes 5.28% 140,000 135,000
-------------------- -------------------- --------------------
Total 5.80% $ 2,708,550 $ 2,168,743
-------------------- -------------------- --------------------
</TABLE>
*The effective rate is the weighted average rate as of December 31, 1999 and
includes the effects of interest rate agreements.
Principal amounts of medium-term notes due over the next five years beginning
January 1, 2000 are $523,000 in 2000, $400,000 in 2001, $195,000 in 2002,
$75,000 in 2003 and $5,000 in 2004.
At December 31, 1999, there was $195 million of medium-term debt available for
issuance under a currently outstanding shelf registration statement.
Cash paid for interest (net of swap interest received) was $136,037 in 1999,
$118,032 in 1998, and $101,845 in 1997.
-21-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1999
(Thousands of Dollars)
At December 31, 1999, the Company had outstanding 59 interest rate swaps with
various financial institutions with a total notional balance of $1,058 million.
The notional principal of these contracts matures as follows: $549 million in
2000, $307 million in 2001, $150 million in 2002, $44 million in 2003, and $8
million thereafter. 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.
At December 31, 1999, the interest rate swap weighted average pay rate was
5.72%. The weighted average interest rate swap receive rate of 6.19% offsets the
pay rate on associated debt obligations.
NOTE F-- CREDIT ARRANGEMENTS
The Company and PACCAR 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, 1999,
the unused portion of these credit lines was $815 million of which $760 million
are shared with PACCAR. The Company compensates the banks for providing lines of
credit with fees that are immaterial.
The Company has entered into facility agreements with various lending
institutions, under which the lending institutions may sell a participation or
assign all or a portion of the note to other institutions. These notes generally
mature within 90 days. There were no notes outstanding at December 31, 1999 or
December 31, 1998.
-22-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1999
(Thousands of Dollars)
NOTE G--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------------------- ------------------- ---------------
Current
<S> <C> <C> <C>
Federal $ 7,187 $ 12,809 $ 15,278
State 1,300 1,489 2,934
-------------------- ------------------- ---------------
8,487 14,298 18,212
Deferred 12,235 1,446 1,573
-------------------- ------------------- ---------------
$ 20,722 $ 15,744 $ 19,785
-------------------- ------------------- ---------------
</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
1999 1998 1997
-------------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Tax at the statutory rate of 35% $ 18,902 $ 14,132 $ 17,743
Effect of state income taxes 1,820 1,612 2,042
-------------------- ------------------- ---------------
$ 20,722 $ 15,744 $ 19,785
-------------------- ------------------- ---------------
</TABLE>
Cash paid for income taxes was $14,125 in 1999, $15,885 in 1998, and $17,386 in
1997.
Deferred income tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
As of December 31
1999 1998
------------------- -------------------
Deferred tax liabilities:
<S> <C> <C>
Depreciation $ 90,505 $ 75,509
State income tax 11,141 9,514
------------------- -------------------
101,646 85,023
Deferred tax assets:
Allowance for doubtful accounts (18,802) (15,721)
Other (6,650) (5,343)
------------------- -------------------
(25,452) (21,064)
------------------- -------------------
Net deferred tax liability $ 76,194 $ 63,959
------------------- -------------------
</TABLE>
-23-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1999
(Thousands of Dollars)
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 is stated at fair
value.
NET RECEIVABLES: For floating rate loans and wholesale financings, fair values
are stated at 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 allowance for losses are not
included in net receivables for purposes of fair value disclosures herein.
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 standings at current market interest rates or
currency exchange rates.
COMMERCIAL PAPER, SHORT-TERM BANK LOANS AND MEDIUM-TERM NOTES: The carrying
amounts of the Company's commercial paper, bank loans and floating rate
medium-term notes approximate 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.
The carrying amounts 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 are
as follows:
<TABLE>
<CAPTION>
As of December 31
1999 1998
----- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash $ 6,340 $ 6,340 $ 14,641 $ 14,641
Net receivables 2,843,466 2,797,956 2,291,403 2,293,528
Commercial paper and short-term bank loans 1,510,550 1,510,550 1,212,743 1,212,743
Medium-term notes 1,198,000 1,185,881 956,000 967,568
</TABLE>
The Company's intent is to hold interest rate contracts until maturity. If
recorded at fair value at December 31, 1999, the Company's off-balance-sheet
financial instruments (interest rate contracts) would represent gross assets of
$11,341 and offsetting gross liabilities of $0, resulting in a net asset of
$11,341. If recorded at fair value at December 31, 1998, the Company's
off-balance-sheet financial instruments would have reflected a net liability of
$4,562.
-24-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1999
(Thousands of Dollars)
NOTE I--QUARTERLY RESULTS (Unaudited)
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
1999
<S> <C> <C> <C> <C>
Gross income $ 56,051 $ 59,932 $ 63,891 $ 67,273
Income before income taxes 12,545 13,097 14,449* 13,916
Net income 7,665 8,000 8,973 8,647
1998
Gross income $ 49,755 $ 52,661 $ 54,465 $ 56,157
Income before income taxes 11,791 11,958 12,195 4,434**
Net income 7,067 7,393 7,487 2,687
</TABLE>
*Third quarter 1999 pre-tax income was favorably impacted in the amount of $1.4
million by a settlement with a vendor related to the above project.
** The Company recorded a one-time pre-tax charge-off of an investment in a new
loan system in the amount of $7.5 million during fourth quarter 1998.
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.
PART III
ITEMS 10, 11, 12 AND 13
These items omitted pursuant to Form 10-K General Instruction (I)(1)(a) and
(b).
-25-
<PAGE>
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, 1999 AND 1998 AND FOR THE YEARS ENDED DECEMBER 31, 1999,
1998, AND 1997
Balance Sheets -- December 31, 1999 and 1998
Statements of Income and Retained Earnings -- Years Ended December
31, 1999, 1998 and 1997
Statements of Cash Flows -- Years Ended December 31, 1999, 1998 and
1997
Notes to Financial Statements -- December 31, 1999
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 1999
There were no reports on Form 8-K for the quarter ended December 31, 1999.
-26-
<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/ Andrew J. Wold
-----------------------
Andrew J. Wold
President
Date: March 17, 2000
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/ Andrew J. Wold President
-----------------------
Andrew J. Wold
(2) Principal Financial Officer
/s/ Patricia A. Donohoe Treasurer
-----------------------
Patricia A. Donohoe
(3) Principal Accounting Officer
/s/ Michael T. Barkley Controller
-----------------------
Michael T. Barkley
(4) A Majority of the Board of Directors:
/s/ Andrew J. Wold
-----------------------
Andrew J. Wold
Kenneth R. Gangl*
David J. Hovind*
Mark C. Pigott*
Michael A. Tembreull*
*By /s/ Andrew J. Wold
---------------------------------
Andrew J. Wold
Attorney-in-Fact
-27-
<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 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 each of the
five years in the period ended December 31, 1999.
12.2 Statement re computation of ratio of earnings to fixed charges of
the Company pursuant to the Support Agreement with PACCAR for each
of the five years in the period ended December 31, 1999.
-28-
<PAGE>
12.3 Statement re computation of ratio of earnings to fixed charges of
PACCAR and subsidiaries pursuant to SEC reporting requirements for
each of the five years in the period ended December 31, 1999.
23 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, 1999.
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
-29-
<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
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
FIXED CHARGES
<S> <C> <C> <C> <C> <C>
Interest expense $ 136,055 $ 112,958 $ 101,440 $ 98,536 $ 89,796
Portion of rentals
Deemed interest 828 704 257 244 238
----------- ----------- ----------- ----------- -----------
TOTAL FIXED CHARGES $ 136,883 $ 113,662 $ 101,697 $ 98,780 $ 90,034
=========== =========== =========== =========== ===========
EARNINGS
Income before taxes $ 54,007 $ 40,378 $ 50,697 $ 52,180 $ 46,730
FIXED CHARGES 136,883 113,662 101,697 98,780 90,034
----------- ----------- ----------- ----------- -----------
EARNINGS AS DEFINED $ 190,890 $ 154,040 $ 152,394 $ 150,960 $ 136,764
=========== =========== =========== =========== ===========
RATIO OF EARNINGS
TO FIXED CHARGES (1) 1.39x 1.36x 1.50x 1.53x 1.52x
</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.
-30-
<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
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
FIXED CHARGES
<S> <C> <C> <C> <C> <C>
Interest expense $136,055 $112,958 $ 101,440 $ 98,536 $ 89,796
Facility and equipment
rental 943 930 772 730 714
----------- ----------- ----------- ----------- -----------
TOTAL FIXED CHARGES $136,998 $113,888 $ 102,212 $ 99,266 $ 90,510
======== ======== =========== =========== ===========
EARNINGS
Income before taxes $ 54,007 $ 40,378 $ 50,697 $ 52,180 $ 46,730
Depreciation 6,132 6,631 7,618 9,579 10,605
----------- ----------- ----------- ----------- -----------
60,139 47,009 58,315 61,759 57,335
FIXED CHARGES 136,998 113,888 102,212 99,266 90,510
----------- ----------- ----------- ----------- -----------
EARNINGS AS DEFINED $197,137 $160,897 $ 160,527 $ 161,025 $ 147,845
=========== =========== =========== =========== ===========
RATIO OF EARNINGS
TO FIXED CHARGES 1.44x 1.41x 1.57x 1.62x 1.63x
</TABLE>
-31-
<PAGE>
EXHIBIT 12.3
PACCAR AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
FIXED CHARGES
Interest expense
PACCAR and
<S> <C> <C> <C> <C> <C> <C>
Subsidiaries (1) $ 188,290 $ 165,047 $ 146,913 $ 131,807 $ 123,480
Portion of rentals
Deemed interest 17,749 14,554 7,138 5,928 5,727
----------- ----------- ----------- ----------- ----------
TOTAL FIXED CHARGES $ 206,039 $ 179,601 $ 154,051 $ 137,735 $ 129,207
=========== =========== =========== =========== ==========
EARNINGS
Income before taxes - PACCAR
and Subsidiaries (2) $ 923,137 $ 653,037 $ 534,723 $ 312,925 $ 399,562
FIXED CHARGES 206,039 179,601 154,051 137,735 129,207
----------- ----------- ----------- ----------- ----------
EARNINGS AS DEFINED $ 1,129,176 $ 832,638 $ 688,774 $ 450,660 $ 528,769
============ =========== =========== =========== ==========
RATIO OF EARNINGS
TO FIXED CHARGES 5.48x 4.64x 4.47x 3.27x 4.09x
</TABLE>
(1) Exclusive of interest paid to PACCAR.
(2) Includes before-tax earnings of wholly owned subsidiaries.
-32-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-51335, Form S-3 No. 333-01623, Form S-3 No. 333-63153, and
Form S-3 No. 333-31502) of PACCAR Financial Corp. and in the related
Prospectus of our report dated February 16, 2000 with respect to the
financial statements of PACCAR Financial Corp. included in this Annual Report
(Form 10-K) for the year ended December 31, 1999.
/S/ Ernst & Young LLP
Seattle, Washington
March 17, 2000
-33-
<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 A. J. Wold our
true and lawful attorney-in-fact, with full power to him to sign for us, and
in our names in the capacities indicated below, a Form 10-K of this
corporation for fiscal year 1999 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 attorney-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 9th of March 2000.
<TABLE>
<S> <C> <C> <C>
President Chairman of
- ---------------------------- ------------------------------- the Board
A. J. Wold M. C. Pigott and Director
Treasurer Vice Chairman
- ---------------------------- ------------------------------- and Director
P. A. Donohoe K. R. Gangl
Controller Director
- ---------------------------- -------------------------------
M. T. Barkley D. J. Hovind
Director
-------------------------------
M. A. Tembreull
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1999
AND 1998 AND FROM THE BALANCE SHEETS AT DECEMBER 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> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,340
<SECURITIES> 0
<RECEIVABLES> 3,296,605
<ALLOWANCES> 53,600
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 37,637
<DEPRECIATION> 11,017
<TOTAL-ASSETS> 3,325,598
<CURRENT-LIABILITIES> 0
<BONDS> 1,198,000
0
31,000
<COMMON> 14,500
<OTHER-SE> 380,407
<TOTAL-LIABILITY-AND-EQUITY> 3,325,598
<SALES> 0
<TOTAL-REVENUES> 247,147
<CGS> 0
<TOTAL-COSTS> 150,081
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,637
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 54,007
<INCOME-TAX> 20,722
<INCOME-CONTINUING> 33,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,285
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
