**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**ý****  QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

 

**For thequarterly period ended September 30, 2005**

 

**or**

 

**o****  TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

 

**For transitionperiod from                          to                           **

 

**CommissionFile No. 0-12553**

 

**PACCAR FINANCIAL CORP.**

(Exact name of registrant as specified in its charter)

 
| **Washington**                                                  |   | **91-6029712**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer Identification No.) |
|                                                            |   |                                 |
| **777 – 106th Ave. N.E., Bellevue, WA**                    |   | **98004**                            |
| (Address of principal executive offices)                        |   | (Zip code)                           |
|                                                            |   |                                 |
| **(425) 468-7100**                                              |
| (Registrant’s telephone number, including area code)       |

 

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes  ý  No  o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 ofthe Exchange Act).  Yes  o  No  ý

 

Indicate by check markwhether company is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes  o  No  ý

 

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

 

Common Stock, $100 par value—145,000 shares as of October 31,2005

 

THE REGISTRANT IS A WHOLLY-OWNED INDIRECT SUBSIDIARYOF 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 THEREDUCED DISCLOSURE FORMAT.

 

 

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**INDEX**

 
| PART I.  FINANCIAL INFORMATION: |     |
|--------------------------------------|----------|
|                                 |     |   |   |
|                                 | ITEM 1.  | FINANCIAL  STATEMENTS: |   |
|                                 |     |   |
|                                 |     | Statements of Income and  Retained Earnings —  Three and Nine Months Ended September 30, 2005 and 2004 (Unaudited) |   |
|                                 |     |   |   |
|                                 |     | Balance Sheets —  September 30, 2005 (Unaudited) and December 31, 2004 |   |
|                                 |     |   |   |
|                                 |     | Statements of Cash Flows —  Nine Months Ended September 30, 2005 and 2004 (Unaudited) |   |
|                                 |     |   |   |
|                                 |     | Notes  to Financial Statements (Unaudited) |   |
|                                 |     |   |   |
|                                 | ITEM  2. | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   |
|                                 |     |   |   |
|                                 | ITEM  3. | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |   |
|                                 |     |   |   |
|                                 | ITEM  4. | CONTROLS  AND PROCEDURES |   |
|                                 |     |   |
| PART II.  OTHER INFORMATION:    |     |
|                                 |     |   |   |
|                                 | ITEM 6.  | EXHIBITS |   |
|                                 |     |   |   |
| SIGNATURES                           |     |
|                                 |     |
| INDEX  TO EXHIBITS                   |     |
|                                      |          |  |  |  |

 

2

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**PART I – FINANCIALINFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS**

 

**Statements of Income and RetainedEarnings (Unaudited)**

(Millions of Dollars)

 
| ** **                                                  | ** ** | **Three Months Ended  September 30** | ** ** | **Nine Months Ended  September 30** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                                  | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                        |       |                                      |       |                                     |       |   |   |   |   |
| Interest and fee income                                     | ** ** | **$**                                     | **65.1**   |                                     | $          | 51.1 | ** ** | **$** | **179.8** |   | $ | 147.6 |   |
| Operating lease and rental income                           | ** ** | **31.1**                                  |       | 22.7                                     | ** ** | **87.2** |   | 61.4 |   |
| Insurance premiums and other revenue                        | ** ** | **10.2**                                  |       | 8.4                                      | ** ** | **28.7** |   | 22.6 |   |
| **TOTAL INTEREST AND OTHER REVENUE**                        | ** ** | **106.4**                                 |       | 82.2                                     | ** ** | **295.7** |   | 231.6 |   |
|                                                        |       |                                      |       |                                     |       |   |   |   |   |
| Interest and other borrowing expenses                       | ** ** | **28.5**                                  |       | 18.3                                     | ** ** | **74.2** |   | 51.8 |   |
| Depreciation and other operating lease and rental  expenses | ** ** | **25.5**                                  |       | 18.5                                     | ** ** | **71.7** |   | 50.2 |   |
| Insurance claims and other expenses                         | ** ** | **6.4**                                   |       | 4.0                                      | ** ** | **16.3** |   | 12.5 |   |
| Selling, general and administrative expenses                | ** ** | **11.9**                                  |       | 11.2                                     | ** ** | **35.2** |   | 32.9 |   |
| Provision for losses on receivables                         | ** ** | **3.5**                                   |       | 1.1                                      | ** ** | **9.3** |   | 2.7 |   |
| **TOTAL EXPENSES**                                          | ** ** | **75.8**                                  |       | 53.1                                     | ** ** | **206.7** |   | 150.1 |   |
|                                                        |       |                                      |       |                                     |       |   |   |   |   |
| **INCOME BEFORE INCOME TAXES**                              | ** ** | **30.6**                                  |       | 29.1                                     | ** ** | **89.0** |   | 81.5 |   |
|                                                        |       |                                      |       |                                     |       |   |   |   |   |
| Income taxes                                                | ** ** | **11.7**                                  |       | 11.1                                     | ** ** | **34.1** |   | 31.0 |   |
|                                                        |       |                                      |       |                                     |       |   |   |   |   |
| **NET INCOME**                                              | ** ** | **18.9**                                  |       | 18.0                                     | ** ** | **54.9** |   | 50.5 |   |
|                                                        | ** ** | ** **                                |       |                                     | ** ** | ** ** |   |   |   |
| **RETAINED EARNINGS AT BEGINNING OF PERIOD**                | ** ** | **489.5**                                 |       | 436.8                                    | ** ** | **473.5** |   | 473.3 |   |
| Cash dividends paid                                         |       | —                                    |       | —                                   | ** ** | **20.0** |   | 69.0 |   |
| **RETAINED EARNINGS AT END OF PERIOD**                      | ** ** | **$**                                     | **508.4**  |                                     | $          | 454.8 | ** ** | **$** | **508.4** |   | $ | 454.8 |   |

 

Earnings per share anddividends per share are not reported because the Company is a wholly-ownedsubsidiary of PACCAR Financial Services Corporation.

 

See Notes to FinancialStatements.

 

3

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**Balance Sheets**

(Millions Except Shareand Per Share Amounts)

 
| ** **                                                                                                                                     |       | **September 30  2005** | ** **  | **December 31  2004*** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|--------|
|                                                                                                                                           |       | **(Unaudited)**             |        |                        |   |
| **ASSETS**                                                                                                                                     | ** ** | ** **                  |        |                        |   |
|                                                                                                                                           |       |                        |        |                        |   |
| Cash                                                                                                                                           | ** ** | **$**                       | **13.5**    |                        | $      | 18.2 |   |
| Finance and  other receivables, net of allowance for losses (2005 - $74.2 and 2004 -  $67.1)                                                   | ** ** | **3,906.3**                 |        | 3,422.8                     |   |
| Loans to PACCAR  Inc and affiliates                                                                                                            | ** ** | **61.3**                    |        | 130.1                       |   |
| Equipment on  operating leases, net of depreciation (2005 - $109.8 and 2004 - $73.4)                                                           | ** ** | **392.9**                   |        | 357.8                       |   |
| Other assets                                                                                                                                   | ** ** | **102.0**                   |        | 41.8                        |   |
|                                                                                                                                           |       |                        |        |                        |   |
| **TOTAL ASSETS**                                                                                                                               | ** ** | **$**                       | **4,476.0** |                        | $      | 3,970.7 |   |
|                                                                                                                                           |       |                        |        |                        |   |
| **LIABILITIES**                                                                                                                                |       |                        |        |                        |   |
|                                                                                                                                           |       |                        |        |                        |   |
| Accounts  payable, accrued expenses and other                                                                                                  | ** ** | **$**                       | **133.4**   |                        | $      | 133.3 |   |
| Commercial paper                                                                                                                               | ** ** | **1,577.1**                 |        | 1,050.8                     |   |
| Medium-term  notes                                                                                                                             |       | **1,720.0**                 |        | 1,830.0                     |   |
| Income taxes –  current and deferred                                                                                                      | ** ** | **308.1**                   |        | 281.5                       |   |
|                                                                                                                                           |       |                        |        |                        |   |
| **TOTAL LIABILITIES**                                                                                                                          | ** ** | **$**                       | **3,738.6** |                        | $      | 3,295.6 |   |
|                                                                                                                                           |       |                        |        |                        |   |
| **STOCKHOLDER’S EQUITY**                                                                                                                  |       |                        |        |                        |   |
|                                                                                                                                           |       |                        |        |                        |   |
| Preferred stock,  par value $100 per share,  6% noncumulative and nonvoting, 450,000 shares authorized, 310,000 shares  issued and outstanding | ** ** | **$**                       | **31.0**    |                        | $      | 31.0 |   |
| Common stock,  par value $100 per share, 200,000 shares authorized, 145,000 shares issued  and outstanding                                     | ** ** | **14.5**                    |        | 14.5                        |   |
| Additional  paid-in capital                                                                                                                    |       | **165.9**                   |        | 150.7                       |   |
| Retained  earnings                                                                                                                             | ** ** | **508.4**                   |        | 473.5                       |   |
| Accumulated other comprehensive income                                                                                                         |       | **17.6**                    |        | 5.4                         |   |
| **TOTAL STOCKHOLDER’S EQUITY**                                                                                                            | ** ** | **737.4**                   |        | 675.1                       |   |
|                                                                                                                                           |       |                        |        |                        |   |
| **TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                            | ** ** | **$**                       | **4,476.0** |                        | $      | 3,970.7 |   |

 

----

*The December 31, 2004balance sheet has been derived from audited financial statements.

 

See Notes to FinancialStatements.

 

4

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**Statements of Cash Flows(Unaudited)**

(Millions of Dollars)

 
| **Nine Months Ended September 30**                                       | ** ** | **2005**     | ** ** | **2004**   | ** ** |
|--------------------------------------------------------------------------|------------|--------------|------------|------------|------------|
|                                                                     |       |         | ** ** |       |       |
| **OPERATING ACTIVITIES**                                                 |       |         | ** ** |       |       |
|                                                                     |       |         | ** ** |       |       |
| Net income                                                               | ** ** | **$**        | **54.9**   | ** ** | $          | 50.5 |   |
| Items included  in net income not affecting cash:                        | ** ** | ** **   | ** ** |       |       |
| Depreciation and  amortization                                           | ** ** | **54.4**     | ** ** | 36.1       |       |
| Benefit for  deferred taxes                                              |       | **(24.4**    | **)**      | (3.4       | )          |
| Provision for  losses on receivables                                     | ** ** | **9.3**      | ** ** | 2.7        |       |
| Increase in  payables and other                                          | ** ** | **42.6**     | ** ** | 45.1       |       |
|                                                                     |       |         | ** ** |       |       |
| **NET CASH PROVIDED BY OPERATING ACTIVITIES**                            | ** ** | **136.8**    | ** ** | 131.0      |       |
|                                                                     |       |         | ** ** |       |       |
| **INVESTING ACTIVITIES**                                                 |       |         | ** ** |       |       |
|                                                                     |       |         | ** ** |       |       |
| Finance and  other receivables originated                                | ** ** | **(1,414.8** | **)**      | (1,148.7   | )          |
| Collections on  finance and other receivables                            | ** ** | **1,060.1**  | ** ** | 939.6      |       |
| Net increase in  wholesale receivables                                   | ** ** | **(141.6**   | **)**      | (36.1      | )          |
| Net decrease  (increase) in loans to PACCAR Inc and affiliates           | ** ** | **68.8**     | ** ** | (9.0       | )          |
| Acquisition of  equipment on operating leases, primarily from PACCAR Inc | ** ** | **(99.2**    | **)**      | (126.3     | )          |
| Proceeds from  disposal of equipment                                     | ** ** | **14.6**     | ** ** | 10.2       |       |
| Other                                                                    | ** ** | **(40.3**    | **)**      | (39.9      | )          |
|                                                                     |       |         | ** ** |       |       |
| **NET CASH USED IN INVESTING ACTIVITIES**                                | ** ** | **(552.4**   | **)**      | (410.2     | )          |
|                                                                     |       |         | ** ** |       |       |
| **FINANCING ACTIVITIES**                                                 |       |         | ** ** |       |       |
|                                                                     |       |         | ** ** |       |       |
| Net increase in  commercial paper                                        | ** ** | **526.3**    | ** ** | 241.4      |       |
| Proceeds from  medium-term notes                                         | ** ** | **400.0**    | ** ** | 700.0      |       |
| Payments of  medium-term notes                                           |       | **(510.0**   | **)**      | (600.0     | )          |
| Dividends paid                                                           | ** ** | **(20.0**    | **)**      | (69.0      | )          |
| Payments of advances (to) from PACCAR Inc                                | ** ** | **(.6**      | **)**      | 1.2        |       |
| Capital  contributions                                                   | ** ** | **15.2**     | ** ** | 14.9       |       |
|                                                                     |       |         | ** ** |       |       |
| **NET CASH PROVIDED BY FINANCING ACTIVITIES**                            | ** ** | **410.9**    | ** ** | 288.5      |       |
|                                                                     |       |         | ** ** |       |       |
| **NET (DECREASE) INCREASE IN CASH**                                      | ** ** | **(4.7**     | **)**      | 9.3        |       |
|                                                                     |       |         | ** ** |       |       |
| **CASH AT BEGINNING OF PERIOD**                                          | ** ** | **18.2**     | ** ** | 5.5        |       |
|                                                                     |       |         | ** ** |       |       |
| **CASH AT END OF PERIOD**                                                | ** ** | **$**        | **13.5**   | ** ** | $          | 14.8 |   |

 

See Notes to FinancialStatements.

 

5

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 
| **Notes  to Financial Statements (Unaudited)** | ** ** | (Millions of Dollars) |
|------------------------------------------------|------------|-----------------------|

 

**NOTE A – Basisof Presentation**

 

The accompanyingunaudited financial statements have been prepared in accordance with theinstructions to Form 10-Q and Article 10 of Regulation S-X.Accordingly, they do not include all of the information and footnotes requiredby generally accepted accounting principles for complete financial statements.However, in the opinion of management, all adjustments (consisting of normalrecurring accruals) considered necessary for a fair presentation have beenincluded. For further information, refer to the financial statements andfootnotes included in PACCAR Financial Corp.’s (the “Company”) Annual Report onForm 10-K for the year ended December 31, 2004.

 

*Reclassifications*:Certain prior year amounts have been reclassified to conform to the 2005presentation.

 

**NOTE B – Transactionswith PACCAR Inc and Affiliates**

 

The Company and PACCARInc (“PACCAR”) are parties to a Support Agreement that obligates PACCAR toprovide, when required, financial assistance to the Company to ensure that theCompany maintains a ratio of net earnings available for fixed charges to fixedcharges (as defined) of at least 1.25 to 1 for any year. The required ratio forthe nine months ended September 30, 2005 and full year 2004 was metwithout assistance. The Company determines the amount of PACCAR assistance, ifany, at the end of each year. The Support Agreement also requires PACCAR toown, directly or indirectly, all outstanding voting stock of the Company.

 

PACCAR Financial ServicesCorporation (“PFSC”), the Company’s parent, charges the Company for certainadministrative services it provides and certain services the Company receivesindirectly from PACCAR. The costs are charged to the Company based upon theCompany’s specific use of the services at PFSC’s or PACCAR’s cost. Managementconsiders these charges similar to the costs that would be incurred if theCompany were on a stand-alone basis. PFSC recognizes certain of theseadministrative services as an additional investment in the Company. The Companyrecords the investment as additional paid-in capital. A cash dividend in theamount of $20.0 was declared and paid during the second quarter of 2005 and $69.0was declared and paid during the first quarter 2004.

 

The Company’s principaloffice is located in the corporate headquarters building of PACCAR (owned byPACCAR). The Company also leases office space from two additional facilitiesowned by PACCAR and two facilities leased by PACCAR.

 

The Company’s employeesare covered by a defined benefit pension plan, an unfunded post-retirementmedical and life insurance plan, and a defined contribution plan sponsored byPACCAR. Separate allocations of defined benefit plan assets and obligationsrelating to the Company have not been made.

 

Periodically, the Companyborrows funds from PACCAR and makes loans to PACCAR. Loans outstanding toPACCAR were $11.2 and $14.8 at September 30, 2005 and December 31,2004, respectively. Loans outstanding from PACCAR were $.3 and $.9 at September 30,2005 and December 31, 2004, respectively.

 

PACCAR has issued lettersof credit as of September 30, 2005 in the amount of $5.4 on behalf of theCompany to guarantee funds for payment to insured franchisees and customers forany future insurance losses.

 

The Company periodicallyloans funds to certain foreign finance and leasing affiliates of PACCAR. Thesevarious affiliates have Support Agreements with PACCAR, similar to the Company’sSupport Agreement. The foreign affiliates operate in the United Kingdom, TheNetherlands, Mexico, Canada and Australia, and any resulting currency exposureis fully hedged. The foreign affiliates provide financing and leasing ofPACCAR-manufactured trucks and related equipment sold through PACCAR’sindependent dealer networks in Europe, Mexico, Canada and Australia. TheCompany will not make loans to the foreign affiliates in excess of theequivalent of $375.0 United States dollars, unless the amount in excess of suchlimit is guaranteed by PACCAR. The Company periodically reviews the fundingalternatives for these affiliates, and these limits may be revised in thefuture. There was a total of $50.1 and $115.3 in loans outstanding to foreignaffiliates operating in the United Kingdom and The Netherlands at September 30,2005 and December 31, 2004, respectively.

 

6

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**NOTE C – Stockholder’sEquity**

 

**PreferredStock**

 

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

 

**ComprehensiveIncome**

 

The components of comprehensive income, net of related tax, were asfollows:

 
| ** **                                          | ** ** | **Three Months Ended  September 30** | ** ** | **Nine Months Ended  September 30** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                          | ** ** | **2005**                                  | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income                                          | ** ** | **$**                                     | **18.9**   |                                     | $          | 18.0 | ** ** | **$** | **54.9** |   | $ | 50.5 |   |
| Other comprehensive income:                         |       |                                      |       |                                     |       |   |   |   |   |
| Unrealized net  gain (loss) on derivative contracts | ** ** | **8.7**                                   |       | (4.8                                     | )          | **12.2** |   | 11.0 |   |
| Total comprehensive income                          | ** ** | **$**                                     | **27.6**   |                                     | $          | 13.2 | ** ** | **$** | **67.1** |   | $ | 61.5 |   |

 

The unrealized net gainon derivative contracts in the three and nine months ended September 30,2005 was due to the increase in short term market interest rates causing anincrease in the fair market value in the Company’s floating to fixed ratecontracts.

 

Accumulated othercomprehensive income of $17.6 and $5.4 at September 30, 2005 and December 31,2004, respectively, is comprised of the unrealized net gain on derivativecontracts.

 

7

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| **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 $18.9 forthe third quarter of 2005 increased 5% from the $18.0 for the third quarter of 2004.  Net income of $54.9 for the first nine monthsof 2005 increased $4.4 or 9% from the $50.5 earned in the first nine months of 2004.  The profit improvement in the third quarterand for the first nine months primarily resulted from a higher finance margin(revenues minus borrowing, lease, and insurance expenses), partially offset byan increase in selling, general and administrative expenses and an increase inthe provision for losses on receivables which is discussed further below.  Finance margin increased in the third quarterof 2005 and for the first nine months of 2005, benefiting from an increase inaverage earning assets of approximately 22% and 20%, respectively, from thecomparable periods in the prior year.  Theincrease in average earning assets was due to higher new loan and lease volume resultingfrom higher PACCAR truck production.  Interestincome and expense for the third quarter and the first nine months of 2005 werehigher from growth in the portfolio and higher market interest rates.  Operating lease revenue and relateddepreciation have increased due to an increase in equipment on operating leasesin the past year.

 

The following table summarizes informationon the Company’s allowance for losses on receivables and asset portfolio andpresents related ratios:

 

**Allowance for Losses**

 
| ** **                                                                                                                                                 | ** ** | **Nine Months  Ended  September 30** | ** ** | **Year Ended  December 31** | ** ** | **Nine Months  Ended  September 30** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|----------------------------------|------------|-------------------------------------------|------------|
|                                                                                                                                                       |       | **2005**                                  | ** ** | **2004**                         | ** ** | **2004**                                  |       |
| Balance at beginning of period                                                                                                                             | ** ** | **$**                                     | **67.1**   | ** **                       | $          | 67.4                                      |       | $ | 67.4 |   |
| Provision for losses                                                                                                                                       | ** ** | **9.3**                                   | ** ** | 4.3                              |       | 2.7                                       |       |
| Credit losses                                                                                                                                              |       | **(4.8**                                  | **)**      | (8.9                             | )          | (6.7                                      | )          |
| Recoveries                                                                                                                                                 |       | **2.6**                                   | ** ** | 4.3                              |       | 3.1                                       |       |
| Balance at end of period                                                                                                                                   | ** ** | **$**                                     | **74.2**   | ** **                       | $          | 67.1                                      |       | $ | 66.5 |   |
| Ratios:                                                                                                                                                    |       | ** **                                | ** ** |                             |       |                                      |       |
|                                                                                                                                                       |       | ** **                                | ** ** |                             |       |                                      |       |
| Credit losses  net of recoveries ($2.2 in 2005) to average net receivables ($3,567.9 in  2005) annualized at September 30, 2005 and 2004              | ** ** | **.08**                                   | **%**      | .15                              | %          | .16                                       | %          |
|                                                                                                                                                       | ** ** | ** **                                | ** ** |                             |       |                                      |       |
| Allowance for  losses ($74.2 in 2005) to period-end net receivables ($3,876.7 in 2005)                                                                     | ** ** | **1.91**                                  | **%**      | 1.98                             | %          | 2.07                                      | %          |
|                                                                                                                                                       | ** ** | ** **                                | ** ** |                             |       |                                      |       |
| Period-end  finance and lease receivables past due, over 60 days, ($12.7 in 2005) to  period-end retail contracts and lease receivables ($3,528.9 in 2005) | ** ** | **.36**                                   | **%**      | .52                              | %          | .66                                       | %          |

 

8

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The Company’s portfolio isconcentrated with customers in the heavy and medium duty truck transportationindustry.  The portfolio is comprised ofretail loans and leases, dealer wholesale financing and dealer master notes asfollows:

 
| ** **                  | ** ** | **September 30  2005** | ** **  | **December 31  2004** | ** ** | **September 30  2004** | ** ** |
|-----------------------------|------------|-----------------------------|-------------|----------------------------|------------|-----------------------------|------------|
| Retail loans                | ** ** | **$**                       | **2,425.0** | ** **                 | **61**     | **%**                       | $          | 2,157.8 |   | 62 | % | $ | 2,053.6 |   | 62 | % |
| Retail leases               | ** ** | **$**                       | **846.8**   | ** **                 | **21**     | **%**                       | $          | 787.2 |   | 22 | % | $ | 754.8 |   | 22 | % |
| Dealer wholesale  financing | ** ** | **$**                       | **515.3**   | ** **                 | **13**     | **%**                       | $          | 373.7 |   | 11 | % | $ | 348.4 |   | 11 | % |
| Dealer master notes         | ** ** | **$**                       | **193.4**   | ** **                 | **5**      | **%**                       | $          | 171.2 |   | 5 | % | $ | 182.8 |   | 5 | % |
| Total portfolio             | ** ** | **$**                       | **3,980.5** | ** **                 | **100**    | **%**                       | $          | 3,489.9 |   | 100 | % | $ | 3,339.6 |   | 100 | % |

 

The provision for losses in thefirst nine months of 2005 of $9.3 increased compared to the $2.7 for the firstnine months of 2004 and $4.3 for the year ended 2004, respectively, reflectingthe impact of a growing portfolio.  The September 30,2005 portfolio increased 19% and 14% compared to September 30, 2004 and December 31,2004, respectively.

 

In the first nine months of 2005, creditlosses of $4.8 decreased by $1.9 compared to the $6.7 of credit losses duringthe first nine months of 2004 and are occurring at a favorable rate compared tothe $8.9 for the 2004 year.  Strongertruck market conditions have contributed to customers’ ability to make timelypayments on their obligations to the Company. Increased demand for transportation services allowed the Company’scustomers to earn greater profits and generally pass higher fuel costs throughto their customers in the form of surcharges. Industry conditions also helped maintain used truck values supportingthe collateral underlying the Company’s receivables.

 

In the first nine months of 2005,recoveries of accounts previously written off of $2.6 decreased $.5 from $3.1during the first nine months of 2004.  Thisis due to lower credit losses experienced in the past three years.

 

Improved portfolio conditions,including lower past dues accounts, have also contributed to the lowerallowance as a percentage of outstanding receivables, which has decreased to 1.91%in September 2005 from 2.07% at September 2004 and 1.98% at December 2004,respectively.

 

**Company Outlook**

 

The future profitability of theCompany is primarily dependent on the generation of new business and on thelevel of credit losses experienced.  Continuedasset growth is dependent upon the level of truck sales financed and the impactof competition.  Current high dieselprices and successive interest rate increases are negative factors potentiallyimpacting future truck sales financed as well as existing customers’ ability tomake timely payments which increases the risk of loss inherent in theportfolio.  The Company has reviewed theimpact to its business from the recent hurricanes in the southern part of theUnited States and believes they will not have a material impact on businessoperations or its financial statements.

 

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**Funding and Liquidity**

 

The Company manages its capital structure consistentwith industry standards. Since 1983, the Company has registered debtsecurities under the Securities Act of 1933 for offering to the public. In December 2003,the Company filed a shelf registration statement under which $3,000 ofmedium-term notes could be issued as needed. As of September 30, 2005,$1,450 of such securities were available for issuance.

 

The Company believes that it has sufficientfinancial capabilities to continue funding receivables, servicing debt andpaying dividends through internally generated funds, access to public andprivate debt markets, lines of credit and other financial resources.

 

The Company’s investment grade credit ratingscontinue to provide access to capital markets at competitive interest rates.The Company’s credit ratings at September 30, 2005 are as follows:

 
| ** **            | ** ** | **Moody’s** | ** ** | **Standard  and Poor’s** | ** ** |
|-----------------------|------------|------------------|------------|-------------------------------|------------|
| Commercial paper      |       | P-1              |       | A-1                           | +          |
| Senior unsecured debt |       | A1               |       | AA                            | -          |

 

The company participates with PACCAR and certain otherPACCAR affiliates in syndicated credit facilities of $1,500 at September 30,2005.  Of this amount, $500 expires in July 2006and $1,000 expires in July 2010.  PACCAR intends toreplace these credit facilities as they expire with facilities of similaramounts.

 

Of the facilities, $1,125 is available for use by theCompany and/or PACCAR and certain other PACCAR affiliates.  Of theremaining $375, $300 is only available for use by PACCAR’s Canadiansubsidiaries and $75 is only available for use by PACCAR’s Australian financialsubsidiary.  These credit facilities areused to provide backup liquidity for the Company’s commercial paper andmaturing medium-term notes. The Company is liable only for its own borrowingsunder these credit facilities. There were no borrowings under these creditfacilities in the nine months ended September 30, 2005 and the year ended December 31, 2004.

 

Otherinformation on liquidity, sources of capital, and contractual cash commitmentsas presented in the Company’s 2004 Annual Report on Form 10-K continues tobe relevant.

 

**Critical Accounting Policies**

 

Allowancefor Credit Losses

 

TheCompany determines the allowance for credit losses on its retail loan andlease, wholesale and master note portfolios based on a combination ofhistorical information and current market conditions.  This analysis is dependent on estimates,including assumptions regarding collectibility of past-due accounts,repossession rates and the recovery rate on the underlying collateral.  Loss estimates have been established from historicalcollection and loss information using past due account data which hasdemonstrated a stronger correlation to future credit losses than credit gradesof customers.

 

TheCompany individually evaluates bankrupt accounts, accounts which have significantamounts past due and other large accounts with higher risk ($64.8 million at September 30,2005 or 1.8% of the total outstanding receivables).  It evaluates all other customers as a groupbased on past due categories (i.e., 90+, 60-90, 30-59 and less than 30 dayspast due), as well as current account balances. The Company has developed a range of specific loss estimates for each ofits retail, wholesale and dealer master note portfolios based on historical experience,taking into account loss frequency and severity in both strong and weak truckmarket conditions.  Loss estimates at September 30,2005 range from less than 1% on current accounts to 35% on certain accountsover 90 days past due.  A projection ismade of the range of estimated credit losses inherent in the portfolio fromwhich an amount is determined as probable based on current market conditions,including diesel prices, interest rates and other factors representing leadingindicators impacting our borrowers.  Wefurther consider the impact of dealer recourse, cash recoveries and usedequipment collateral recoveries.  Theprojected amount is then compared to the balance in the allowance andappropriate adjustments are made.

 

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Althoughcertain retail contracts acquired from dealers include full or partial dealerrecourse for the credit loss, this is a minor and decreasing component of theportfolio (8% of the retail portfolio at September 30, 2005).  For wholesale and dealer master note portfolios,dealer recourse (including personal guarantees and pledging of dealershipassets) is present in substantially all the loan arrangements.  Cash recoveries and used equipment collateralrecoveries generally vary with market conditions.

 

**Forward Looking Statements**

 

Certain information presented in this Form 10-Qcontains forward-looking statements made pursuant to the Private SecuritiesLitigation Reform Act of 1995, which are subject to risks and uncertaintiesthat may affect actual results. Risks and uncertainties include, but are notlimited to: national and local economic, political and industry conditions;changes in the levels of new business volume due to unit fluctuations in newPACCAR truck sales; changes in competitive factors; changes affecting theprofitability of truck owners and operators; price changes impacting equipmentcosts and residual values; changes in costs and availability of externalfunding sources; and legislation and governmental regulation.

 

**ITEM 3.****      QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Therehave been no material changes in the Company’s market risk during the ninemonths ended September 30, 2005. For additional information, refer to themarket risk disclosure in Item 7a as presented in the Company’s 2004 annualreport on Form 10-K.

 

**ITEM 4.****     ****CONTROLS AND PROCEDURES**

 

An evaluation was performed under the supervisionand with the participation of the Company’s management, including the principalexecutive officer and principal financial officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedures (asdefined in rules 13a-15(e) and 15d-15(e) promulgated under theSecurities Exchange Act of 1934, as amended) as of September 30, 2005 (“EvaluationDate”). Based on that evaluation, the principal executive officer and principalfinancial officer of the Company concluded that the disclosure controls andprocedures in place at the Company were adequate to ensure that informationrequired to be disclosed by the Company, including its consolidatedsubsidiaries (the Company has no subsidiaries), in reports that the Companyfiles or submits under the Exchange Act, is recorded, processed, summarized andreported on a timely basis in accordance with applicable rules and regulations.There have been no significant changes in the Company’s internal control overfinancial reporting during the third quarter of 2005 that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

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**PART II– OTHER INFORMATION**

 

For items 1, 2, 3, 4 and5, there was no reportable information during the nine months ended September 30,2005.

 

**ITEM 6.****     EXHIBITS**

 

Anyexhibits filed herewith as part of this report are listed in the accompanyingIndex of Exhibits.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|       | **PACCAR  Financial Corp.** |                               |
|------------|-----------------------------|------------------------------------|
| ** ** | (Registrant)                |
| ** ** |                        |
|       |                        |
| Date       | November 4,  2005      |                               | By | /s/  Timothy  M. Henebry |   |
|       |                        | Timothy M.  Henebry                |
|       |                        | President                          |
|       |                        | (Authorized  Officer)              |
|       |                        |
|       |                        |
|       | By                          | /s/  Brice  J. Poplawski |   |
|       |                        | Brice J.  Poplawski                |
|       |                        | Controller                         |
|       |                        | (Chief  Accounting Officer)        |
|            |                             |                                    |  |  |  |  |

 

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Exhibits (in order ofassigned index numbers)

 

3.1                                        RestatedArticles of Incorporation of the Company, as amended (incorporated by referenceto Exhibit 3.1 to the Company’s Annual Report on Form 10-K dated March 26,1985. Amendment incorporated by reference to Exhibit 19.1 to the Company’sQuarterly Report on Form 10-Q dated August 13, 1985, File Number 0-12553).

 

3.2                                        By-lawsof the Company, as amended (incorporated by reference to Exhibit 3.2 tothe Company’s Registration Statement on Form 10 dated October 20,1983, File Number 0-12553).

 

4.1                                        Indenturefor Senior Debt Securities dated as of December 1, 1983 and firstSupplemental Indenture dated as of September 19, 1989 between the Companyand Citibank, N.A. (incorporated by reference to Exhibit 4.1 to theCompany’s Annual Report on Form 10-K dated March 26, 1984, FileNumber 0-12553 and Exhibit 4.2 to the Company’s Registration Statement on Form S-3dated September 23, 1989, Registration Number 33-29434).

 

4.5                                        Formsof Medium-Term Note, Series J (incorporated by reference to Exhibits 4.2Aand 4.2B to the Company’s Registration Statement on Form S-3 dated March 2,2000, Registration Number 333-31502).

 

Form ofLetter of Representation among the Company, Citibank, N.A. and The DepositoryTrust Company, Series J (incorporated by reference to Exhibit 4.3 tothe Company’s Registration Statement on Form S-3 dated March 2, 2000,Registration Number 333-31502).

 

4.6                                        Formsof Medium-Term Note, Series K (incorporated by reference to Exhibits 4.2Aand 4.2B to the Company’s Registration Statement on Form S-3 dated December 23,2003, Registration Number 333-111504).

 

Form ofLetter of Representation among the Company, Citibank, N.A. and The DepositoryTrust Company, Series K (incorporated by reference to Exhibit 4.3 tothe Company’s Registration Statement on Form S-3 dated December 23, 2003,Registration Number 333-111504).

 

10.1                                  SupportAgreement between the Company and PACCAR dated as of September 19,1989  (incorporated by reference to Exhibit 28.1to the Company’s Registration Statement on Form S-3 dated September 23,1989, Registration Number 33-29434).

 

12.1                                  Statementre: computation of ratio of earnings to fixed charges of the Company pursuantto SEC reporting requirements for the nine-month periods ended September 30,2005 and 2004.

 

12.2                                  Statementre: computation of ratio of earnings to fixed charges of the Company pursuantto the Support Agreement between the Company and PACCAR for the nine-monthperiods ended September 30, 2005 and 2004.

 

12.3                                  Statementre: computation of ratio of earnings to fixed charges of PACCAR andsubsidiaries pursuant to SEC reporting requirements for the nine-month periodsended September 30, 2005 and 2004.

 

31.1                                  Rule 13a-14(a)/15d-14(a) Certification- Certification of Principal Executive Officer.

 

31.2                                  Rule 13a-14(a)/15d-14(a) Certification- Certification of Principal Financial Officer.

 

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32.1                                  Section 1350Certifications - Certification pursuant to Rule 13a-14(b) and Section 906of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350).

 

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

 

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