**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý****Quarterly Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|------------------------------------------------------------------------------------------------------------------|
|                                                                                                             |
| **For the  quarterly period ended March 31, 2006**                                                          |
|                                                                                                             |
| **or**                                                                                                           |
|                                                                                                             |
| **o****Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**     |

 

**Fortransition period 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              |       | (I.R.S. Employer Identification No.) |
| incorporation or organization)               |       |                                 |
|                                         |       |                                 |
| **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 suchshorter period 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 a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

 

| Large  accelerated filer:o |   | Accelerated  filer:o |   | Non-accelerated  filer: ý |
|----------------------------|--------|----------------------|--------|--------------------------------|

 

Indicate by check markwhether registrant 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 April 30,2006

 

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.

 

 

----

 

**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**INDEX**

 
| PART I. FINANCIAL  INFORMATION:                         |                                                              |
|--------------------------------------------------------------|-------------------------------------------------------------------|
|                                                         |                                                              |   |
| ITEM 1.                                                      | FINANCIAL STATEMENTS:                                             |   |
|                                                         |                                                              |   |
| Statements of Income and  Retained Earnings—            |                                                              |
| Three Months Ended  March 31, 2006 and 2005 (Unaudited) |                                                              |
|                                                         |                                                              |   |
| Balance Sheets—                                         |                                                              |
| March 31, 2006 (Unaudited) and  December 31, 2005  |                                                              |
|                                                         |                                                              |
| Statements of Cash Flows—                               |                                                              |
| Three Months Ended  March 31, 2006 and 2005 (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

----

 

**PART I – FINANCIALINFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS**

 

##### **Statementsof Income and Retained Earnings (Unaudited)**

(Millions of Dollars)

 
| **Three Months Ended  March 31**                       | ** ** | **2006**   | ** ** | **2005** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|----------|------------|
|                                                        |       |       |       |     |       |
| Interest and fee income                                     | ** ** | **$**      | **72.5**   |     | $          | 55.0 |   |
| Operating lease and rental income                           | ** ** | **31.9**   |       | 27.0     |       |
| Insurance premiums and other revenue                        | ** ** | **11.6**   |       | 9.1      |       |
| **TOTAL INTEREST AND OTHER REVENUE**                        | ** ** | **116.0**  |       | 91.1     |       |
|                                                        |       |       |       |     |       |
| Interest and other borrowing expenses                       | ** ** | **35.8**   |       | 21.3     |       |
| Depreciation and other operating lease and rental  expenses | ** ** | **26.4**   |       | 22.6     |       |
| Insurance claims and other expenses                         | ** ** | **6.8**    |       | 4.6      |       |
| Selling, general and administrative expenses                | ** ** | **12.3**   |       | 11.9     |       |
| Provision for losses on receivables                         | ** ** | **2.6**    |       | 1.1      |       |
| **TOTAL EXPENSES**                                          | ** ** | **83.9**   |       | 61.5     |       |
|                                                        |       |       |       |     |       |
| **INCOME BEFORE INCOME TAXES**                              | ** ** | **32.1**   |       | 29.6     |       |
|                                                        |       |       |       |     |       |
| Income taxes                                                | ** ** | **12.3**   |       | 11.3     |       |
|                                                        |       |       |       |     |       |
| **NET INCOME**                                              | ** ** | **19.8**   |       | 18.3     |       |
| ** **                                                  | ** ** | ** ** |       |     |       |
| **RETAINED EARNINGS AT BEGINNING OF PERIOD**                | ** ** | **477.5**  |       | 473.5    |       |
| Cash dividends paid                                         | ** ** | **30.0**   |       | —   |       |
| **RETAINED EARNINGS AT END OF PERIOD**                      | ** ** | **$**      | **467.3**  |     | $          | 491.8 |   |

 

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

----

 

**Balance Sheets**

(Millions Except Share and Per Share Amounts)

 
| ** **                                                                                                                                    | ** ** | **March 31** | ** **  | **December 31** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|----------------------|------------|
| ** **                                                                                                                                    | ** ** | **2006**          | ** **  | **2005***            | ** ** |
| ** **                                                                                                                                    | ** ** | **(Unaudited)**   | ** **  | ** **           | ** ** |
| **ASSETS**                                                                                                                                    | ** ** | ** **        | ** **  |                 |       |
|                                                                                                                                          |       |              |        |                 |       |
| Cash                                                                                                                                          | ** ** | **$**             | **15.9**    |                 | $          | 19.0 |   |
| Finance and  other receivables, net of allowance for losses (2006 - $78.8 and 2005 -  $77.3)                                                  |       | **4,266.6**       |        | 4,214.7              |       |
| Loans to PACCAR  Inc and affiliates                                                                                                           | ** ** | **53.1**          |        | 50.7                 |       |
| Equipment on  operating leases, net of depreciation (2006 - $124.6 and 2005 - $119.1)                                                         |       | **400.3**         |        | 421.3                |       |
| Other assets                                                                                                                                  | ** ** | **135.4**         |        | 73.0                 |       |
|                                                                                                                                          |       |              |        |                 |       |
| **TOTAL  ASSETS**                                                                                                                             | ** ** | **$**             | **4,871.3** |                 | $          | 4,778.7 |   |
|                                                                                                                                          |       |              |        |                 |       |
| **LIABILITIES**                                                                                                                               |       |              |        |                 |       |
|                                                                                                                                          |       |              |        |                 |       |
| Accounts  payable, accrued expenses and other                                                                                                 | ** ** | **$**             | **185.5**   |                 | $          | 156.9 |   |
| Commercial paper                                                                                                                              | ** ** | **1,853.6**       |        | 1,805.6              |       |
| Medium-term  notes                                                                                                                            |       | **1,800.0**       |        | 1,800.0              |       |
| Income taxes –  current and deferred                                                                                                     | ** ** | **315.7**         |        | 303.6                |       |
|                                                                                                                                          |       |              |        |                 |       |
| **TOTAL  LIABILITIES**                                                                                                                        | ** ** | **$**             | **4,154.8** |                 | $          | 4,066.1 |   |
|                                                                                                                                          |       |              |        |                 |       |
| **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 $100 per share, 200,000 shares authorized, 145,000 shares issued  and outstanding                                    | ** ** | **14.5**          |        | 14.5                 |       |
| Additional  paid-in capital                                                                                                                   |       | **178.0**         |        | 170.0                |       |
| Retained  earnings                                                                                                                            | ** ** | **467.3**         |        | 477.5                |       |
| Accumulated other comprehensive income                                                                                                        |       | **25.7**          |        | 19.6                 |       |
| **TOTAL  STOCKHOLDER’S EQUITY**                                                                                                          | ** ** | **716.5**         |        | 712.6                |       |
|                                                                                                                                          |       |              |        |                 |       |
| **TOTAL  LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                          | ** ** | **$**             | **4,871.3** |                 | $          | 4,778.7 |   |

 

----

*The December 31,2005 balance sheet has been derived from audited financial statements.

 

See Notes to FinancialStatements.

 

4

----

 

##### **Statementsof Cash Flows (Unaudited)**

(Millions of Dollars)

 
| **Three Months Ended March 31**                      | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                     |       |       | ** ** |       |       |
| **OPERATING  ACTIVITIES**                                                |       |       | ** ** |       |       |
|                                                                     |       |       | ** ** |       |       |
| Net income                                                               | ** ** | **$**      | **19.8**   | ** ** | $          | 18.3 |   |
| Items included  in net income not affecting cash:                        | ** ** | ** ** | ** ** |       |       |
| Depreciation and  amortization                                           | ** ** | **20.5**   | ** ** | 17.3       |       |
| Benefit for  deferred taxes                                              | ** ** | **(3.2**   | **)**      | (9.1       | )          |
| Provision for  losses on receivables                                     | ** ** | **2.6**    | ** ** | 1.1        |       |
| Increase in  payables and other                                          | ** ** | **30.6**   | ** ** | 26.9       |       |
|                                                                     |       |       | ** ** |       |       |
| **NET  CASH PROVIDED BY OPERATING ACTIVITIES**                           | ** ** | **70.3**   | ** ** | 54.5       |       |
|                                                                     |       |       | ** ** |       |       |
| **INVESTING  ACTIVITIES**                                                |       |       | ** ** |       |       |
|                                                                     |       |       | ** ** |       |       |
| Finance and  other receivables originated                                | ** ** | **(428.2** | **)**      | (358.0     | )          |
| Collections on  finance and other receivables                            | ** ** | **348.7**  | ** ** | 325.6      |       |
| Net decrease  (increase) in wholesale receivables                        | ** ** | **25.5**   | ** ** | (34.1      | )          |
| Net increase in  loans to PACCAR Inc and affiliates                      | ** ** | **(2.4**   | **)**      | (6.2       | )          |
| Acquisition of  equipment on operating leases, primarily from PACCAR Inc | ** ** | **(17.0**  | **)**      | (9.2       | )          |
| Proceeds from  disposal of equipment                                     | ** ** | **20.3**   | ** ** | 5.5        |       |
| Other                                                                    | ** ** | **(50.7**  | **)**      | (18.2      | )          |
|                                                                     |       |       | ** ** |       |       |
| **NET  CASH USED IN INVESTING ACTIVITIES**                               | ** ** | **(103.8** | **)**      | (94.6      | )          |
|                                                                     |       |       | ** ** |       |       |
| **FINANCING  ACTIVITIES**                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                     |       |       | ** ** |       |       |
| Net increase in  commercial paper                                        | ** ** | **48.0**   | ** ** | 21.9       |       |
| Proceeds from  medium-term notes                                         | ** ** | **250.0**  | ** ** | 200.0      |       |
| Payments of  medium-term notes                                           | ** ** | **(250.0** | **)**      | (190.0     | )          |
| Dividends paid                                                           | ** ** | **(30.0**  | **)**      | —     |       |
| Payments of advances (to) from PACCAR Inc                                | ** ** | **4.4**    | ** ** | (.9        | )          |
| Capital  contributions                                                   | ** ** | **8.0**    | ** ** | 7.0        |       |
|                                                                     |       |       | ** ** |       |       |
| **NET  CASH PROVIDED BY FINANCING ACTIVITIES**                           | ** ** | **30.4**   | ** ** | 38.0       |       |
|                                                                     |       |       | ** ** |       |       |
| **NET  DECREASE IN CASH**                                                | ** ** | **(3.1**   | **)**      | (2.1       | )          |
|                                                                     |       |       | ** ** |       |       |
| **CASH AT  BEGINNING OF PERIOD**                                         | ** ** | **19.0**   | ** ** | 18.2       |       |
|                                                                     |       |       | ** ** |       |       |
| **CASH AT  END OF PERIOD**                                               | ** ** | **$**      | **15.9**   | ** ** | $          | 16.1 |   |

 

See Notes to FinancialStatements.

 

5

----

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

 

**NOTE A –Basis of 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, 2005.

 

*Reclassifications*:Certain prior year amounts have been reclassified to conform to the 2006presentation.

 

**NOTE B –Transactions with 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 in the Agreement) of at least 1.25 to 1 for any year. Therequired ratio for the three months ended March 31, 2006 and full year2005 was met without assistance. The Company determines the amount of PACCARassistance, if any, at the end of each year. The Support Agreement alsorequires PACCAR to own, directly or indirectly, all outstanding voting stock ofthe 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 these administrativeservices as an additional investment in the Company. The Company records theinvestment as additional paid-in capital.

 

A cash dividend in theamount of $30.0 was declared and paid during the first quarter of 2006. Therewere no cash dividends declared or paid during the first quarter of 2005.

 

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 $3.0 and $.6 at March 31, 2006 and December 31, 2005,respectively. Loans outstanding from PACCAR were $4.6 and $.2 at March 31,2006 and December 31, 2005, respectively.

 

PACCAR has issued lettersof credit as of March 31, 2006 in the amount of $5.9 on behalf of theCompany to guarantee funds for payment to insured franchisees and customers forany future insurance losses.

 

6

----

 

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 of PACCAR-manufacturedtrucks and related equipment sold through PACCAR’s dealer networks in Europe,Mexico, Canada and Australia. The Company will not make loans to the foreignaffiliates in excess of the equivalent of $375.0 United States dollars, unlessthe amount in excess of such limit is guaranteed by PACCAR. The Companyperiodically reviews the funding alternatives for these affiliates, and theselimits may be revised in the future. There was a total of $50.1 in loansoutstanding to foreign affiliates operating in the United Kingdom and TheNetherlands at March 31, 2006 and December 31, 2005.

 

Included in accountspayable, accrued expenses and other is $13.4 and $17.9 payable to PACCAR’struck divisions at March 31, 2006 and December 31, 2005,respectively.

 

**NOTE C –Stockholder’s Equity**

 

**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 as follows:

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|
| ** **                                   | ** ** | **March 31**                | ** ** |
| ** **                                   | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Net income                                   | ** ** | **$**                            | **19.8**   |   | $ | 18.3 |   |
| Other  comprehensive income:                 |       |                             |       |   |   |
| Unrealized net  gain on derivative contracts | ** ** | **6.1**                          |       | 10.7 |   |
| Total  comprehensive income                  | ** ** | **$**                            | **25.9**   |   | $ | 29.0 |   |

 

The unrealized net gainon derivative contracts in the three months ended March 31, 2006 and March 31,2005 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 $25.7 and $19.6 at March 31, 2006 and December 31,2005, respectively, is comprised of the unrealized net gain on derivativecontracts.

 

7

----

 

**ITEM 2.****                 MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**(Millionsof Dollars)

 

**Results of Operations**

 

The Company’s net income of $19.8for the first quarter of 2006 increased 8% from $18.3 for the first quarter of2005.  The profit improvement for thefirst quarter primarily resulted from a higher finance margin (revenues minusborrowing, lease, and insurance expenses), partially offset by an increase inthe provision for losses on receivables from a growing portfolio which isdiscussed further below.  Interest andfee income in the first quarter of 2006 increased $17.5 to $72.5 in the firstquarter of 2005 from higher earning assets and higher interest rates.  Average earning assets increased 22% due tohigher new loan and lease volume resulting from higher PACCAR truckproduction.  Interest and other borrowingexpenses for the first quarter of 2006 were $14.5 higher due to a 26% increasein average debt balances and higher market interest rates.  Operating lease revenue and relateddepreciation increased due to an increase in equipment on operating leases inthe past year.

 

The following table summarizesinformation on the Company’s allowance for losses on receivables and asset portfolioand presents related ratios:

 

##### **Allowance for Losses**

##### ** **

| ** **                                                                                                                                                 | ** ** | **Three Months  Ended** | ** ** | **Three Months  Ended** | ** ** | **Year Ended**  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|----------------------|------------|
| ** **                                                                                                                                                 | ** ** | **March 31**            | ** ** | **March 31**            | ** ** | **December 31** | ** ** |
| ** **                                                                                                                                                 | ** ** | **2006**                     | ** ** | **2005**                     | ** ** | **2005**             | ** ** |
| Balance at  beginning of period                                                                                                                            | ** ** | **$**                        | **77.3**   |                         | $          | 67.1                 |       | $ | 67.1 |   |
| Provision for  losses                                                                                                                                      | ** ** | **2.6**                      |       | 1.1                          |       | 14.2                 |       |
| Credit losses                                                                                                                                              |       | **(2.1**                     | **)**      | (1.2                         | )          | (7.3                 | )          |
| Recoveries                                                                                                                                                 |       | **1.0**                      |       | .8                           |       | 3.3                  |       |
| Balance at end  of period                                                                                                                                  | ** ** | **$**                        | **78.8**   |                         | $          | 67.8                 |       | $ | 77.3 |   |
| Ratios:                                                                                                                                                    |       |                         |       |                         |       |                 |       |
| Credit losses  net of recoveries ($1.1 in 2006) to average net receivables ($4,222.0 in  2006) annualized at March 31, 2006 and 2005                  | ** ** | **.10%**                     |       | .04                          | %          | .11                  | %          |
| Allowance for  losses ($78.8 in 2006) to period-end net receivables ($4,197.7 in 2006)                                                                     | ** ** | **1.88%**                    |       | 1.96                         | %          | 1.85                 | %          |
| Period-end  finance and lease receivables past due, over 30 days, ($27.2 in 2006) to  period-end retail contracts and lease receivables ($3,791.7 in 2006) | ** ** | **.72%**                     |       | .90                          | %          | .79                  | %          |

 

8

----

 

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:

 
|                        | ** ** | **Three Months  Ended   March 31  2006** |        | **Three Months  Ended  March 31  2005** |    | **Year Ended  December 31  2005** |       |
|-----------------------------|------------|---------------------------------------------------------|-------------|---------------------------------------------------|---------|---------------------------------------------|------------|
| Retail loans                | ** ** | **$**                                                   | **2,536.2** | ** **                                        | **58**  | %                                           | $          | 2,215.5 | ** ** | 62 | % | $ | 2,481.8 |   | 58 | % |
| Retail leases               | ** ** | **978.3**                                               | ** **  | **23**                                            | %       | 771.2                                       | ** ** | 22 | % | 977.3 |   | 23 | % |
| Dealer wholesale  financing | ** ** | **601.5**                                               | ** **  | **14**                                            | %       | 407.8                                       | ** ** | 11 | % | 626.9 |   | 14 | % |
| Dealer master  notes        | ** ** | **229.4**                                               | ** **  | **5**                                             | %       | 174.1                                       | ** ** | 5 | % | 206.0 |   | 5 | % |
| Total portfolio             | ** ** | **$**                                                   | **4,345.4** | ** **                                        | **100** | %                                           | $          | 3,568.6 | ** ** | 100 | % | $ | 4,292.0 |   | 100 | % |

 

The provision for losses in thefirst quarter of 2006 of $2.6 increased by $1.5 from the $1.1 in the firstquarter of 2005, from the impact of a 22% increase in the portfolio compared toMarch 31, 2005.

 

In the first quarter of 2006, creditlosses of $2.1, or .10%, increased by $.9 compared to the $1.2, or .04%, ofcredit losses during the first quarter of 2005. Credit losses in 2005 and during the first quarter of 2006 were athistorically low levels.  This reflectscustomers’ ability to make timely payments as they have benefited from strongdemand for transportation services. Also, current industry conditions have had a positive impact on usedtruck values supporting the collateral underlying the Company’s receivables.

 

Dealer wholesale financing, whichhas a lower allowance for losses than retail accounts, increased to 14% of thetotal portfolio at March 31, 2006, reducing the ratio of the allowance forlosses to net receivables (1.88% at March 2006 versus 1.96% at March 2005).

 

The estimation methods and factorsconsidered for determining the allowance during the periods included in thisfiling have been consistently applied. There have been no significant changes in customer contract terms duringthe periods.

 

**Company Outlook**

 

The future profitability of theCompany is primarily dependent on the generation of new business and on thelevel of credit losses experienced. Asset growth is dependent upon the level of truck sales financed and theimpact of competition.  Continued strengthin the general economy and the related demand for freight transportation, andsome accelerated truck buying in advance of engine emission requirements in2007, may positively impact the level of truck sales financed.  However, continued high diesel prices andinterest rate increases could negatively impact future truck sales financed aswell as existing customers’ ability to make timely payments which increases therisk of loss inherent in the portfolio.

 

9

----

 

**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 March 31, 2006, $1,050of 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 March 31, 2006 are as follows:

 

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

 

TheCompany’s strong credit ratings are primarily based on PACCAR’s operating cashflow, demand for its quality products and substantial financial assets.  Access to financing at competitive rateswould be negatively impacted by a downgrade in these credit ratings.

 

The Company participates with PACCAR and certain otherPACCAR affiliates in syndicated credit facilities of $1,500 at March 31,2006.  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, $1,120 is available for use by theCompany and/or PACCAR and certain other PACCAR affiliates.  Of theremaining $380, $300 is only available for use by PACCAR’s Canadiansubsidiaries and $80 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 three months ended March 31, 2006 and the year ended December 31, 2005.

 

Otherinformation on liquidity, sources of capital, and contractual cash commitmentsas presented in the Company’s 2005 Annual Report on Form 10-K continues tobe relevant.

 

**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.

 

10

----

 

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

 

Therehave been no material changes in the Company’s market risk during the threemonths ended March 31, 2006. For additional information, refer to themarket risk disclosure in Item 7a as presented in the Company’s 2005 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 March 31, 2006 (“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 are effective 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 andregulations. There have been no changes in the Company’s internal control overfinancial reporting during the first quarter of 2006 that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**PART II– OTHER INFORMATION**

 

For items 1, 1A, 2, 3, 4and 5, there was no reportable information during the three months ended March 31,2006.

 

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

 

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

 

 

11

----

 

**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   |   May 5,  2006                                   |                    | By | /s/ Timothy M.  Henebry |   |
|   | Timothy  M. Henebry 

President  

(Authorized  Officer)        |
|   |                                                            |
|   |                                                            |
|   | By                                                              | /s/ Brice J.  Poplawski |   |
|   | Brice  J. Poplawski 

Controller  

(Chief  Accounting Officer) |
|        |                                                                 |                         |  |  |  |

 

12

----

** **

**INDEX TOEXHIBITS**

 

Exhibits (in order of assigned index numbers)

 
| 3.1    |   | Restated  Articles of Incorporation of the Company, as amended (incorporated by  reference to Exhibit 3.1 to the Company’s Annual Report on  Form 10-K dated March 26, 1985. Amendment incorporated by reference  to Exhibit 19.1 to the Company’s Quarterly Report on Form 10-Q  dated August 13, 1985, File Number 0-12553).                                                                                                              |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.2    |   | By-laws of the  Company, as amended (incorporated by reference to Exhibit 3.2 to the  Company’s Registration Statement on Form 10 dated October 20, 1983,  File Number 0-12553).                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.1    |   | Indenture for  Senior Debt Securities dated as of December 1, 1983 and first  Supplemental Indenture dated as of June 19, 1989 between the Company and  Citibank, N.A. (incorporated by reference to Exhibit 4.1 to the  Company’s Annual Report on Form 10-K dated March 26, 1984, File  Number 0-12553 and Exhibit 4.2 to the Company’s Registration Statement  on Form S-3 dated June 23, 1989, Registration Number 33-29434). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.5    |   | Forms of  Medium-Term Note, Series J (incorporated by reference to Exhibits 4.2A  and 4.2B to the Company’s Registration Statement on Form S-3 dated  March 2, 2000, Registration Number 333-31502).                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   | Form of  Letter of Representation among the Company, Citibank, N.A. and The Depository  Trust Company, Series J (incorporated by reference to Exhibit 4.3 to  the Company’s Registration Statement on Form S-3 dated March 2,  2000, Registration Number 333-31502).                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.6    |   | Forms of  Medium-Term Note, Series K (incorporated by reference to Exhibits 4.2A  and 4.2B to the Company’s Registration Statement on Form S-3 dated  December 23, 2003, Registration Number 333-111504).                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   | Form of  Letter of Representation among the Company, Citibank, N.A. and The Depository  Trust Company, Series K (incorporated by reference to Exhibit 4.3  to the Company’s Registration Statement on Form S-3 dated  December 23, 2003, Registration Number 333-111504).                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.1   |   | Support  Agreement between the Company and PACCAR dated as of June 19, 1989  (incorporated by reference to Exhibit 28.1 to the Company’s Registration  Statement on Form S-3 dated June 23, 1989, Registration Number  33-29434).                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 12.1   |   | Statement re:  computation of ratio of earnings to fixed charges of the Company pursuant to  SEC reporting requirements for the three-month periods ended March 31,  2006 and 2005.                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 12.2   |   | Statement re:  computation of ratio of earnings to fixed charges of the Company pursuant to  the Support Agreement between the Company and PACCAR for the three-month  periods ended March 31, 2006 and 2005.                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 12.3   |   | Statement re:  computation of ratio of earnings to fixed charges of PACCAR and subsidiaries  pursuant to SEC reporting requirements for the three-month periods ended  March 31, 2006 and 2005.                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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.                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 32.1   |   | Section 1350  Certifications - Certification pursuant to Rule 13a-14(b) and  Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.  section 1350).                                                                                                                                                                                                                                                                                                      |

 

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

 

13

----