UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

ý

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2002

 

or

 

o

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)

 

 

 

(425) 468-7100
(Registrant’s telephone number, including area code)

 

 

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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ý    No  o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Common Stock, $100 par value—145,000 shares as of July 31, 2002

 

 

THE REGISTRANT IS A WHOLLY-OWNED INDIRECT SUBSIDIARY OF PACCAR INC AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H)(1)(A) AND (B) OF FORM 10-Q AND IS, THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

 

 

FORM 10-Q
PACCAR FINANCIAL CORP.

PART I—FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS
Statements of Income (Unaudited)
(Millions of Dollars)

		Three Months Ended June 30						Six Months Ended June 30
		2002			2001			2002			2001
INTEREST AND OTHER REVENUE		$	70.0		$	85.7		$	140.3		$	176.0
Interest and other borrowing expenses		30.4			46.1			63.3			97.5
Depreciation related to operating leases		3.3			3.2			6.1			6.0
Insurance claims and underwriting expenses		3.0			2.5			6.0			5.2
Vehicle operating expenses		1.8			1.5			3.4			2.7
Selling general and administrative expenses		10.5			10.3			21.1			20.9
Provision for losses on receivables		12.2			20.3			28.0			37.2
TOTAL EXPENSES		61.2			83.9			127.9			169.5
INCOME BEFORE INCOME TAXES		8.8			1.8			12.4			6.5
Federal and state income taxes		3.4			.8			4.9			2.7
INCOME  BEFORE ACCOUNTING CHANGE		5.4			1.0			7.5			3.8
Cumulative effect of accounting change (net of tax)		—			—			—			.4
NET INCOME		5.4			1.0			7.5			4.2
RETAINED EARNINGS AT BEGINNING OF PERIOD		411.8			397.3			409.7			394.1
Cash dividends paid		11.0			—			11.0			—
RETAINED EARNINGS AT END OF PERIOD		$	406.2		$	398.3		$	406.2		$	398.3

 

 

Earnings per share and dividends per share are not reported because the Company is a wholly owned subsidiary of PACCAR Financial Services Corporation.

 

See Notes to Financial Statements.

 

2

 

 

Balance Sheets		June 30			December 31
(Millions of Dollars)		2002			2001
ASSETS:		(Unaudited)
Cash		$	10.9		$	18.5
Finance and other receivables, net of allowance for losses of $66.8 ($66.2 in 2001)		3,154.8			3,289.1
Loans to PACCAR Inc and affiliates		119.4			163.2
Equipment on operating leases, net of allowance for depreciation of $23.4 ($21.9 in 2001)		69.6			52.0
Equipment held for sale		8.6			17.1
Other assets		24.0			22.7
TOTAL ASSETS		$	3,387.3		$	3,562.6
LIABILITIES:
Accounts payable and accrued expenses		$	71.5		$	55.8
Payable for finance receivables acquired		40.3			30.5
Derivative liability		42.5			52.0
Commercial paper		1,313.3			1,274.5
Medium-term notes and other borrowings		1,209.9			1,465.6
Income taxes - current and deferred		175.3			161.2
TOTAL LIABILITIES		2,852.8			3,039.6
STOCKHOLDER’S EQUITY:
Preferred stock, $100 par value per share 6% noncumulative and nonvoting, 450,000 shares authorized, 310,000 shares issued and outstanding		31.0			31.0
Common stock, par value $100 per share 200,000 shares authorized, 145,000 shares issued and outstanding		14.5			14.5
Paid-in capital		108.6			99.5
Retained earnings		406.2			409.7
Accumulated other comprehensive loss		(25.8		)	(31.7		)
TOTAL STOCKHOLDER’S EQUITY		534.5			523.0
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY		$	3,387.3		$	3,562.6

 

See Notes to Financial Statements.

 

3

 

Statements of Cash Flows (Unaudited)

(Millions of Dollars)

 

		Six Months Ended June 30
		2002			2001
OPERATING ACTIVITIES:
Net income		$	7.5		$	4.2
Items included in net income not affecting cash:
Provision for losses on receivables		28.0			37.2
Deferred tax provision		(1.1		)	(1.9		)
Depreciation and amortization		9.2			8.9
Increase (decrease) in payables and other		24.7			(13.2		)
NET CASH PROVIDED BY OPERATING ACTIVITIES		68.3			35.2
INVESTING ACTIVITIES:
Finance and other receivables originated		(518.9		)	(530.0		)
Collections on finance and other receivables		690.0			705.4
Net (increase) decrease in wholesale receivables		(45.7		)	132.5
Net decrease in loans to PACCAR Inc and affiliates		43.8			3.0
Acquisition of equipment		(30.4		)	(9.0		)
Proceeds from disposal of equipment		4.1			6.3
NET CASH PROVIDED BY INVESTING ACTIVITIES		142.9			308.2
FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper and other short-term borrowings		38.8			(44.0		)
Proceeds from medium-term notes and other borrowings		495.0			—
Payments of medium-term notes and other borrowings		(750.7		)	(300.0		)
Dividends paid		(11.0		)	—
Payment of advances from PACCAR Inc		—			(9.0		)
Capital contributions		9.1			9.0
NET CASH USED IN FINANCING ACTIVITIES		(218.8		)	(344.0		)
NET DECREASE IN CASH		(7.6		)	(.6		)
CASH AT BEGINNING OF PERIOD		18.5			12.6
CASH AT END OF PERIOD		$	10.9		$	12.0

 

See Notes to Financial Statements.

 

4

 

 

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, 2001.

 

Derivative Financial Instruments: Effective January 1, 2001, the Company adopted Financial Accounting Standard (FAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The adoption of FAS 133 on January 1, 2001 resulted in a cumulative increase to net income of $.4, net of related income tax effects of $.3, and a cumulative reduction to Other Comprehensive Income (“OCI”) of $14.6 which is net of related income tax effects of $9.2 in the first quarter of 2001.

 

Reclassifications: Certain prior year amounts have been reclassified to conform to the 2002 presentation.

 

 

NOTE B—Transactions with PACCAR Inc and Affiliates (Unaudited)

 

The Company and PACCAR Inc (“PACCAR”) are parties to a Support Agreement that obligates PACCAR to provide, when required, financial assistance to the Company to ensure 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. For the six months ended June 30, 2002 the Company has met the required ratio of earnings to fixed charges. The Company will determine the amount of PACCAR assistance, if any, at the end of the fiscal year. In order to maintain the ratio of earnings to fixed charges in 2001, PACCAR provided earnings support by assuming $17.0 of the Company’s interest expense in the fourth quarter of 2001.

 

PACCAR Financial Services Corporation (“PFSC”) charges the Company for certain administrative services it provides and certain services the Company receives indirectly from PACCAR. These costs are charged to the Company based upon the Company’s specific use of the services at PFSC’s or 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. PFSC recognizes certain of these administrative services as an additional investment in the Company. The Company records the investment as paid-in capital. The Company may elect to pay a dividend to PFSC for the paid-in capital invested in prior years.

 

A cash dividend in the amount of $11.0 was declared and paid during the first six months of 2002. There were no cash dividends declared or paid during the first six months of 2001.

 

Periodically, the Company borrows funds from PACCAR and makes loans to PACCAR. Loans outstanding to PACCAR were $26.7 and $20.3 at June 30, 2002 and December 31, 2001, respectively. There were no loans outstanding from PACCAR at June 30, 2002 or December 31, 2001.

 

PACCAR has issued letters of credit as of June 30, 2002 in the amount of $6.1 on behalf of the Company to guarantee funds for payment to insured franchisees and their customers for any future insurance losses.

 

 

5

 

The Company periodically loans funds to certain foreign finance and leasing affiliates of PACCAR. The foreign affiliates operate in the United Kingdom, the Netherlands, Mexico, Canada and Australia, and any resulting currency exposure is fully hedged. These various affiliates have Support Agreements with PACCAR, similar to the Company’s Support Agreement. The foreign affiliates provide financing and leasing of trucks and related equipment manufactured primarily by PACCAR and sold through PACCAR’s independent dealer networks in Europe, Mexico, Canada and Australia. The Company will not make loans to the foreign affiliates in excess of the equivalent of $300.0 United States dollars, unless the amount in excess of such limit is guaranteed by PACCAR. The Company periodically reviews the funding alternatives for these affiliates, and this limit may be revised in the future. There was a total of $92.7 in loans outstanding to foreign affiliates operating in the United Kingdom and Mexico at June 30, 2002. There was a total of $142.9 in loans outstanding to foreign affiliates operating in the United Kingdom, the Netherlands and Mexico at December 31, 2001.

 

NOTE C—Preferred Stock

 

The Company’s Articles of Incorporation provide that the 6% noncumulative, nonvoting preferred stock (100% owned by PFSC) is redeemable only at the option of the Company’s Board of Directors.

 

 

NOTE D—Other Comprehensive Income (Unaudited)

 

The components of other comprehensive income, net of related tax, were as follows:

 

		Three months ended June 30						Six months ended June 30
		2002			2001			2002			2001
Net income		$	5.4		$	1.0		$	7.5		$	4.2
Other comprehensive income (loss):
Cumulative effect of accounting change for derivative contracts		—			—			—			(14.6		)
Unrealized net (loss) gain on derivative contracts		(5.2		)	3.8			5.9			(10.9		)
Net other comprehensive (loss) income		(5.2		)	3.8			5.9			(25.5		)
Total comprehensive income (loss)		$	.2		$	4.8		$	13.4		$	(21.3	)

 

Accumulated other comprehensive loss of $25.8 and $31.7 at June 30, 2002 and December 31, 2001, respectively, is comprised of the unrealized net loss on derivative contracts.

 

 

6

 

Item 2.                             MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Millions of Dollars)

 

Results of Operations:

 

The Company’s net income of $7.5 for the first half of 2002 was $3.3 higher than the first half of 2001. Interest and other revenue declined $35.7 or 20% to $140.3 over the same period due to lower average earning assets and interest rates. Average earning assets decreased 15% to $3,211.9 in the first half of 2002 compared to $3,781.6 in the comparable period of 2001. Interest and other borrowing expense decreased 35% to $63.3 in the first half of 2002 from $97.5 in the first half of 2001 due to lower debt balances and interest rates. The provision for losses decreased 25% to $28.0 in the first half of 2002 from $37.2 in the first half of 2001 primarily due to lower credit losses. Credit losses have improved due to fewer repossessions and higher used truck prices resulting in a lower loss per repossession.

 

The Company’s net income of $5.4 for the second quarter 2002 was $4.4 higher than the second quarter of 2001. Interest and other revenue declined $15.7 or 18% to $70.0 in the second quarter of 2002 due to lower earning assets and interest rates. Interest and other borrowing expense decreased 34% to $30.4 in the second quarter of 2002 from $46.1 in the second quarter of 2001 due to lower debt balances and interest rates. The provision for losses decreased 40% to $12.2 in the second quarter of 2002 from $20.3 in the second quarter of 2001 primarily due to lower credit losses.

 

7

 

The following table summarizes the activity in the Company’s allowance for losses on receivables and presents related ratios:

 

Allowance for Losses (Unaudited)

(Millions of Dollars)

 

In the second half of 2002, the Company expects credit losses to continue at or slightly improve from year-to-date June 30, 2002 levels.  Although interest rates have decreased and used truck prices stabilized, higher insurance costs and uncertain freight volumes continue to affect truck operators’ profit margins.

 

Funding and Liquidity:

 

Since 1983, the Company has registered debt securities under the Securities Act of 1933 for offering to the public.  In 2000, the Company filed a shelf registration statement under which $2,500.0 of medium-term notes could be issued as needed. As of June 30, 2002, $980.0 of such securities were available for issuance.

 

The Company believes that it has sufficient financial capabilities to continue funding receivables and servicing debt through internally generated funds, lines of credit, access to public and private debt markets, and other financial resources.  The decrease in net borrowings to $2,523.2 at June 30, 2002 from $2,740.1 at December 31, 2001 is due to collections exceeding the origination of finance and other receivables. The net increase in commercial paper and other short-term borrowings of $38.8 for year-to-date June 30, 2002 is primarily due to timing differences between the maturities and new issuances of medium-term notes.

 

Other information on liquidity, sources of capital, and contractual cash commitments as presented in the Company’s 2001 Annual Report on Form 10-K continues to be relevant.

 

 

8

 

Forward Looking Statements:

 

Certain information presented in this Form 10-Q contains forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that may affect actual results. The risks and uncertainties include, but are not limited to global and local economic, political and industry conditions; changes in competitive factors; changes affecting the profitability of truck owners and operators; price changes impacting equipment costs and residual values; changes in costs and availability of external funding sources; and legislation and governmental regulation.

 

 

9

 

 

Item 3.                             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes in the Company’s market risk during the six months ended June 30, 2002.  For additional information, refer to Item 7a of the Company’s December 31, 2001 Annual Report on Form 10-K.

 

Item 6.                             EXHIBITS AND REPORTS ON FORM 8-K

 

                        (a)                            Exhibits filed as part of this report are listed in the accompanying Exhibit Index.

 

                        (b)                           There were no reports on Form 8-K for the quarter ended June 30, 2002.

 

 

10

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

			PACCAR Financial Corp.
			(Registrant)
Date	August 9, 2002		By	/s/ J. Michael Rankin
			J. Michael Rankin
			Acting President
			(Authorized Officer)
			By	/s/ Barry E. Prather
			Barry E. Prather
			Controller
			(Chief Accounting Officer)

 

 

11

EXHIBIT INDEX

 

Exhibit (in order of assigned index numbers)

 

 

 

12

 

 

Other exhibits listed in Item 601 of Regulation S-K are not applicable.

 

 

13