Annual Report (Form 10-K), fiscal year 1993

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 retail 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 Inc
PACCAR is a multi-national company which designs and manufactures various types of industrial equipment that are marketed primarily through its dealers. Class 8 heavy-duty diesel trucks (gross vehicle weight in excess of 33,000 pounds) and related service parts are the principal products of PACCAR and accounted for 88% of PACCAR's total revenues in 1993. PACCAR markets these trucks under the "Kenworth," "Peterbilt" and "Foden" nameplates. They are manufactured in five plants in the United States. Outside of the U.S., the Company manufactures and sells through wholly owned subsidiary companies in Canada and Australia, through a United Kingdom branch of a wholly owned U.S. subsidiary and through an affiliate in Mexico. PACCAR also manufactures medium-duty trucks in Canada which are distributed in the United States and Canada. Other PACCAR products include industrial winches and oilfield equipment. PACCAR competes in the truck parts aftermarket primarily through its dealer network and also sells general automotive parts and accessories through retail outlets.
In the United States, Kenworth and Peterbilt trucks are sold to an independent dealer network, consisting of 310 outlets, for resale to retail purchasers. Trucks manufactured in the United States for export are marketed by a division of PACCAR through an international dealer network.
In addition to the Company, which provides financing and leasing in the United States, four other subsidiaries of PACCAR offer similar financing programs for PACCAR products in Canada, Australia and the United Kingdom.
As of December 31, 1993, PACCAR and its subsidiaries had total assets of $3.3 billion and stockholders' equity of $1.1 billion. For the year ended December 31, 1993, PACCAR's consolidated revenues and net income were $3.6 billion and $142.2 million respectively.
There were six principal competitors, including PACCAR, in the United States Class 8 truck market in 1993. Based on 1993 industry registration statistics, PACCAR's Kenworth and Peterbilt combined truck sales accounted for approximately 22% of domestic Class 8 new truck registrations. The domestic heavy-duty truck market is highly competitive in price, quality and service. PACCAR is not dependent on any single customer for its sales.
PACCAR's common stock, $12 par value, is traded in the over-the- counter market under the NASDAQ symbol "PCAR." PACCAR is subject to the informational requirements of the Securities Exchange Act of 1934 and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). All reports, proxy statements and other information filed by PACCAR with the Commission may be inspected and copied at the Public Reference Section of the Commission at 450 Fifth Street NW, Washington, D.C. 20549.
BUSINESS OF THE COMPANY
The Company operates primarily in one industry segment, truck and related equipment financing. The Company provides retail, inventory and lease financing for dealers selling Kenworth and Peterbilt trucks in the United States. In addition, the Company provides financing for dealers for 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 the truck.
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, 1993, the Company employed 224 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
The receivables acquired in the Company's retail financing activities include retail installment obligations of purchasers of new and used trucks and related equipment (the "Retail Contracts") and loan obligations of dealers secured by retail installment contracts originated and owned by those dealers (the "Pledge Line Contracts"). The Company provides financing of dealer inventories for new and used trucks and related equipment (the "Wholesale Contracts"). The Company's leases to customers are classified as direct financing or operating leases (the "Leases").
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. Collateral for vehicles sold to leasing companies may also include an assignment of leases and rentals due thereunder. Retail Contracts purchased by the Company have fixed or floating interest rates. At December 31, 1993, approximately 80% in principal amount of the Retail Contracts outstanding had fixed interest rates. At December 31, 1993, approximately 82% of the Company's Retail Contracts outstanding were for sales of new equipment.
Pledge Line Contracts
These contracts are an alternative form of retail financing offered to selected 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, fixed or floating interest rate, full recourse loans by the Company to the dealer.
Wholesale Contracts
The Company currently provides wholesale financing for new and used truck and trailer inventories for dealers. 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. At December 31, 1993, approximately 81% of the Company's Wholesale Contracts were for the financing of new equipment. Interest under Wholesale Contracts is based upon floating 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. 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, to return it to the Company in good repair and to insure the equipment against casualty losses.
Most of the Company's lease contracts contain a Terminal Rental Adjustment Clause (TRAC) 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
In 1993, the Company initiated a property damage insurance program offered through PACCAR dealers who are licensed insurance agents. The Company retains the premium revenue and loss exposure for the policies which are issued by an unrelated insurance carrier. In 1993, these activities were immaterial to the Company's results.
CUSTOMER CONCENTRATION, PAST DUE ACCOUNTS AND LOSS EXPERIENCE
Customer Concentration
At December 31, 1993, the largest single retail or lease customer represented 1.7% of the Company's net receivables, and the five largest such accounts amounted to 6.4% of net receivables.
With respect to wholesale financing, at December 31, 1993, the largest single dealer accounted for .8% of the Company's net receivables and the five largest dealers collectively accounted for 2.2% of net receivables.
At December 31, 1993, the largest Pledge Line dealer borrowing amounted to 6.5% of the Company's net receivables and the five largest dealer notes under Pledge Line Contracts amounted to 11.1% of net receivables. Pledge Line Contracts are secured by numerous retail installment contracts which offset the amount of dealer concentration.
Past Due Retail Contract 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 losses generally increase.
The Company maintains an allowance for losses on receivables at a level which it considers to be adequate based on management's estimates of future 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)
For discussion of the allowance for losses and past due receivables, see "Management's Discussion and Analysis of Financial Condition and Results of Operations, 1991-1993."
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 occasionally 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 retail 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.
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 is 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 have been financed by short-term indebtedness (including commercial paper and bank loans), term indebtedness (primarily publicly offered medium-term notes), retained earnings plus equity investments from PACCAR. The Company's profitable acquisition of additional receivables is dependent upon its ability to raise funds at competitive rates in the private and public debt markets.
In order to minimize its exposure to fluctuations in interest rates, the Company generally seeks to borrow funds with interest rate characteristics similar to the characteristics of its receivables and leases. The Company also reduces its interest rate risk and cost by entering into interest rate contracts. See "Note E--Term Debt" in the Notes to Financial Statements for information regarding interest rate contracts. Other considerations which affect the Company's funding operations include the amount of fixed and variable rate receivables, the maturity schedule of existing debt, the availability of desired debt maturities and the level of interest rates.
As of December 31, 1993, PACCAR and the Company together had $265.0 million of unused, confirmed bank lines of credit 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 the borrowings of the other.
As of December 31, 1993, the Company had $624.1 million of term debt outstanding, $220.8 million of which was due within 12 months. See "Note E--Term Debt" in the Notes to Financial Statements for term debt 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 term debt which is 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 also receives administrative support and may occasionally borrow funds from PACCAR. Since the majority of the directors of the Company are executives of PACCAR 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" 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 the years ended December 31, 1993, 1992, 1991 and 1989 was met without assistance. In order to maintain the ratio of 1.25 to 1 in 1990, PACCAR provided earnings support of $7.3 million by assuming $4.5 million of the Company's interest expense and forgiving $2.8 million in administrative service charges.
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.
ITEM 2.



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.

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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.

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 common stock.
To date, the Company has never declared or paid cash dividends on its common or preferred stock.
ITEM 6.

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, 1993 has been derived from the Company's audited financial statements.
Balance Sheet Data and Income Statement Data (Thousands of Dollars)
(1) In 1990, PACCAR provided earnings support of $7.3 million through the assumption of $4.5 million of the Company's interest expense and the forgiveness of $2.8 million in administrative service charges. (See "Relationship with PACCAR.")
(2) Effective January 1, 1991, the Company adopted Financial Accounting Standards Board Statement (FASB) No. 96, "Accounting for Income Taxes." The most significant impact of this Statement was to change the tax rate at which deferred taxes were recognized on the balance sheet to the lower rate then specified by federal tax laws. The change resulted in a one-time increase in net income of $11,323 in the first quarter of 1991.
(3) For purposes of this ratio, earnings consist of income from operations plus fixed charges. Fixed charges consist of interest expense plus one-third 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 1.89x, 1.59x, 1.26x, 1.25x and 1.40x for the years 1993-1989, respectively. See Exhibits 12.1 and 12.2.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, 1991-1993
Results of Operations
1993 Compared to 1992:
Pre-tax earnings increased to $30.4 million from $18.6 million in 1992 primarily as a result of higher income attributable to the growth in receivables as well as a lower provision for losses. Average receivables increased $185 million (16%) to $1.3 billion from $1.1 billion in 1992. The growth resulted from record high new business volume of $850 million in 1993 related to increased heavy-duty truck sales by PACCAR. While total debt increased to fund the growth in assets, interest expense decreased due to the general decline in interest rates during 1993. Operating and other expenses remained relatively stable.
The 1993 loss provision of $6.1 million, compared to $8.6 million in 1992, reflected significantly lower net credit losses and an improvement in past due balances. The lower credit losses resulted from an improving economy, the Company's implementation of procedural and organizational changes to achieve stronger credit controls, and a greater emphasis on portfolio quality. The number and magnitude of problem accounts continued to decline from the levels in earlier years. At year end 1993, contracts over 60 days past due declined to 0.40% of period end gross retail and lease receivables compared to 1.49% and 2.39% at year ends 1992 and 1991, respectively. The reserve for credit losses was increased to $24.0 million to reflect the growth in the portfolio and risks inherent in the financing of heavy-duty trucks.
The August 1993 tax law, which increased corporate income tax rates from 34% to 35% effective January 1, 1993, had a $2.6 million adverse impact on net income. The Company recorded a one-time increase to the income tax provision of $2.3 million to adjust deferred tax liabilities to the higher rate; in addition, income taxes on current year earnings increased by $.3 million.
As the result of these foregoing factors, net income for 1993 improved to $17.0 million from $11.7 million in 1992.
1992 Compared to 1991:
Income before taxes for 1992 improved to $18.6 millon from $5.7 million in 1991 due primarily to a lower provision for credit losses. Net income for 1992 was $11.7 million compared to $14.9 million in 1991. Included in the 1991 net income was a one-time adjustment of $11.3 million for the Company's adoption of FASB 96, "Accounting for Income Taxes." Net income for 1991 would have been $3.6 million without the adjustment. Gross income and interest expense in 1992 declined from 1991 as a result of lower market interest rates.
Funding and Liquidity
The Company manages its capital structure consistent with industry standards. Since 1983, the Company has made available registered senior debt securities for offering to the public. In 1993, the Company registered $1 billion of senior debt securities for offering to the public under the Securities Act of 1933. At the end of 1993, $980 million of such securities had not been issued.
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.
Impact of New Accounting Rules
FASB No. 114, "Accounting by Creditors for Impairment of a Loan," was issued in May 1993 and is effective for fiscal years beginning December 15, 1994. The Company does not expect the adoption of FASB No. 114 to have a material impact on the Company.
ITEM 8.


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.
Report of Independent Auditors
Board of Directors PACCAR Inc and PACCAR Financial Corp.
We have audited the accompanying balance sheets of PACCAR Financial Corp. as of December 31, 1993 and 1992, and the related statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedule listed in the Index at Item 14a. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note A to the Financial Statements, in 1991 the Company changed its method of accounting for income taxes.
/S/ Ernst & Young
Seattle, Washington February 4, 1994
BALANCE SHEETS PACCAR Financial Corp.
See notes to financial statements.
STATEMENTS OF INCOME AND RETAINED EARNINGS PACCAR Financial Corp.
See notes to financial statements.
STATEMENTS OF CASH FLOWS PACCAR Financial Corp.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS PACCAR Financial Corp. December 31, 1993 (Thousands of Dollars)
NOTE A--SUMMARY OF ACCOUNTING POLICIES
Industry: PACCAR Financial Corp. (the "Company"), a wholly owned subsidiary of PACCAR Inc ("PACCAR"), provides retail financing and leasing of trucks and related equipment manufactured primarily by PACCAR and sold by authorized dealers. The Company also finances dealer inventories of transportation equipment.
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 bad debt losses related to this concentration has been considered in establishing the allowance for losses.
Revenue Recognition: Revenue from net receivables and direct financing leases is recognized using the interest method. Certain loan origination costs are deferred and amortized to interest income.
Equipment: Equipment on operating leases is recorded at cost and depreciated on a straight-line basis over the term of each operating lease based upon its estimated useful life of five years to an estimated residual value.
Income Taxes: The Company is included in the consolidated federal income tax return of PACCAR. Any related tax liability is paid by the Company to PACCAR and any current related tax benefit is paid by PACCAR to the Company exclusive of the effect of Alternative Minimum Tax.
Effective January 1, 1991, the Company adopted Financial Accounting Standards Board Statement No. 96, "Accounting for Income Taxes." The most significant impact of FASB Statement No. 96 was to change the tax rate at which deferred taxes were recognized on the balance sheet to the lower rate then specified by federal tax laws. The change resulted in a one-time increase in net income of $11,323 in the first quarter of 1991. There was no material effect on the Company from the 1993 adoption of FASB No. 109 (an amendment to FASB No. 96), "Accounting for Taxes."
During 1993, the federal income tax rate was increased effective January 1, 1993. The effect on operations was a one-time increase in income tax expense of $2,302 recorded in the third quarter of 1993.
Credit Losses: The provision for losses on receivables is charged to income in an amount sufficient to maintain the allowance for losses at a level considered adequate to cover anticipated losses. Receivables are charged to this allowance when, in the judgement of management, they are deemed uncollectible.
Interest Rate Contracts: The Company enters into interest rate contracts which generally involve the exchange of fixed or floating rate interest payment obligations without the exchange of the underlying principal amounts. These contracts are used to effectively change the terms of debt to better match the interest rate characteristics of the Company's receivables and thereby reduce the effect of interest rate fluctuation on the Company's income.
NOTES TO FINANCIAL STATEMENTS (Continued) PACCAR Financial Corp. (Thousands of Dollars)
NOTE B--RECEIVABLES
Terms for retail notes, contracts and direct financing leases range up to 84 months. Wholesale financing terms are generally for less than one year. 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 receivables are as follows:
The Company's net investment in direct financing leases is as follows:
NOTES TO FINANCIAL STATEMENTS (Continued) PACCAR Financial Corp. (Thousands of Dollars)
Future minimum lease payments on direct financing leases at December 31, 1993 are due as follows:
The allowance for losses on receivables is summarized as follows:
NOTE C--OPERATING LEASES
Terms of operating leases range up to 44 months. Future minimum rental payments for transportation equipment on operating leases at December 31, 1993 are due as follows:
NOTE D--TRANSACTIONS WITH PACCAR INC
The Company has a Support Agreement with PACCAR that requires, among other provisions, that PACCAR maintain a ratio of earnings to fixed charges, as defined, for the Company of at least 1.25 to 1 for any fiscal year, and that PACCAR own all outstanding voting stock of the Company.
The required ratio of 1.25 to 1 for the years ended December 31, 1993 - 1991 was met without assistance.
NOTES TO FINANCIAL STATEMENTS (Continued) PACCAR Financial Corp. (Thousands of Dollars)
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 $3,628, $3,093 and $3,824 for 1993, 1992 and 1991, respectively, were charged to the Company. Beginning July 1993, in lieu of payment, PACCAR Inc began recognizing certain of these administrative services as an additional investment in the Company. The Company records the investment as paid-in capital.
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 $482, $326 and $255 for years 1993, 1992 and 1991, respectively.
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--TERM DEBT
Term debt is summarized as follows:
Interest rates on the floating interest rate medium-term notes are based on various indices such as LIBOR and the prime rate.
Principal amounts due over the next five years at December 31, 1993 are $220,800 in 1994, $203,800 in 1995, $130,500 in 1996, $59,000 in 1997 and $10,000 in 1998.
At December 31, 1993, the Company had outstanding 40 interest rate contracts with various financial institutions, having a total notional principal amount of $599.5 million. These agreements expire as follows: $300.0 million in 1994, $195.5 million in 1995, $104.0 million in 1996. 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.
NOTES TO FINANCIAL STATEMENTS (Continued) PACCAR Financial Corp. (Thousands of Dollars)
NOTE F-- CREDIT ARRANGEMENTS
The Company and PACCAR together 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, 1993, the unused portion of these credit lines was $265 million. The Company compensates banks with fees which are immaterial in amount.
The Company has entered into loan participation programs with various lending institutions under which notes, between the Company and the lending institutions, are sold by the lending institutions to investors on the open market. These notes generally mature within 30 days. At December 31, 1993, there was $49 million borrowed under these terms.
NOTE G--INTEREST EXPENSE
The following is a summary of interest expense:
Cash paid for interest was $45,734 in 1993, $49,667 in 1992 and $65,835 in 1991.
NOTE H--INCOME TAXES
The provision for income taxes consists of the following:
NOTES TO FINANCIAL STATEMENTS (Continued) PACCAR Financial Corp. (Thousands of Dollars)
Deferred income tax assets and liabilities consisted of the following:
A reconciliation between the statutory federal income tax rate and the actual provision for income taxes is shown below:
The change in the federal income tax rate from 34% to 35%, effective January 1, 1993, increased the 1993 provision for income tax by $2,302.
Cash paid for income taxes was $20,960 in 1993, $11,173 in 1992 and $2,715 in 1991.
NOTE I--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 and equivalents: The carrying amount reported in the balance sheets approximates fair value.
Net Receivables: For floating rate loans including wholesale financings that reprice frequently with no significant change in credit risk, fair values are based on carrying values. For fixed rate loans, fair values are estimated using discounted cash flow analyses using 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 loss provision are not included in net receivables.
NOTES TO FINANCIAL STATEMENTS (Continued) PACCAR Financial Corp. (Thousands of Dollars)
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 standing, but at current market interest rates.
Bank Loans and Term Debt: The carrying amount of the Company's commercial paper and bank loans and floating rate term debt approximates their fair value. The fair value of the Company's fixed rate term debt is estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amount 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 at December 31, 1993 are as follows:
The Company's off-balance-sheet financial instruments (interest rate contracts) represented an additional liability of $2,000 if recorded at fair value as of December 31, 1993.
NOTE J--QUARTERLY RESULTS (Unaudited)
NOTES TO FINANCIAL STATEMENTS (Continued) PACCAR Financial Corp. (Thousands of Dollars)
PACCAR Financial Corp.
SCHEDULE IX--SHORT-TERM BORROWINGS ---------------------------------- (Thousands of Dollars)
(1) Commercial paper maturities can range from 1-270 days, and bank loans can range from 1-364 days. There are no provisions for the extension of maturities. (2) Average amount outstanding for commercial paper and bank loans is the average daily balance for the year. (3) The weighted average interest rate during the period was computed by dividing the actual interest expense by average short-term debt outstanding.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company at February 1, 1994, their ages, current positions with the Company and principal occupations during the past five years are set forth in the following table. The table also shows directorships held by a director in public corporations.
Directors and Executive Officers
The directors of the Company are elected annually by PACCAR. All officers are elected annually by the Board of Directors or appointed by the Board of Directors or Chairman to serve at the pleasure of the Board or until their successors are elected or appointed. There is no family relationship between any of the directors or officers.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
This item is omitted pursuant to Form 10-K General Instruction J(1) and (2)(c).
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Securities of the Company
PACCAR owns beneficially and of record 100% of the outstanding preferred stock (310,000 shares, $100 par value) and common stock (145,000 shares, $100 par value) of the Company.
Securities of PACCAR
This item is omitted pursuant to Form 10-K General Instruction J(1) and (2)(c).
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See generally "Relationship with PACCAR," "Selected Financial Data" and "NOTE D--Transactions with PACCAR Inc" in the Notes to Financial Statements.
PART IV
ITEM 14.

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, 1993 and 1992 and for the Years Ended December 31, 1993, 1992, and 1991
Balance Sheets -- December 31, 1993 and 1992
Statements of Income and Retained Earnings -- Years Ended December 31, 1993, 1992 and 1991
Statements of Cash Flows -- Years Ended December 31, 1993, 1992 and 1991
Notes to Financial Statements -- December 31, 1993
The following financial statement schedule of the Company is also included in Item 8.
Schedule IX -- Short-Term Borrowings
All other 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 1993
There were no reports on Form 8-K for the quarter ended December 31, 1993.
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/ T. Ronald Morton ---------------------------------- T. Ronald Morton President Date: March 28, 1994
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/ T. Ronald Morton President ------------------------------------- T. Ronald Morton
(2) Principal Financial Officer
/S/ Ron E. Ranheim Treasurer ------------------------------------- Ron E. Ranheim
(3) Principal Accounting Officer
/S/ Brian J. Kimble Controller ------------------------------------- Brian J. Kimble
(4) A Majority of the Board of Directors:
/S/ T. Ronald Morton ------------------------------------- T. Ronald Morton
William E. Boisvert* G. Don Hatchel* David J. Hovind* Charles M. Pigott* Michael A. Tembreull* James L. Shiplet* John J. Waggoner*
*By /S/ T. Ronald Morton ------------------------------------- T. Ronald Morton Attorney-in-Fact
EXHIBIT INDEX
EXHIBIT INDEX (Cont.)
__________________
Other exhibits listed in Item 601 of Regulation S-K are not applicable.