**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

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

 

**For thequarterly period ended September 30, 2004**

 

**or**

 

**o****Transition Report Pursuant to Section 13or 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  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 suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.   Yes  ý No  o

 

Indicate by check markwhether the registrant is an accelerated filer (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 31,2004

 

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, 2004 and 2003 (Unaudited) |                                                                                        |
|                                                                                                                        |                                                                                        |
| Balance Sheets —  September 30, 2004 (Unaudited), and December 31, 2003                                      |                                                                                        |
|                                                                                                                        |                                                                                        |
| Statements of Cash  Flows  Nine Months Ended September 30, 2004 and 2003 (Unaudited)                                   |                                                                                        |
|                                                                                                                        |                                                                                        |
| Notes to Financial  Statements (Unaudited)                                                                                  |                                                                                        |
|                                                                                                                        |                                                                                        |
| ITEM 2.                                                                                                                     | MANAGEMENT’S DISCUSSION  AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION |   |
|                                                                                                                        |                                                                                        |
| 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 ofIncome and Retained Earnings (Unaudited)**

(Millions of Dollars)

 
| ** **                                                  | ** ** | **Three Months Ended  September 30** | ** ** | **Nine Months Ended  September 30** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                  | ** ** | **2004**                                  | ** ** | **2003**                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                        |       |                                      |       |                                     |       |   |   |   |   |
| Interest and fee income                                     | ** ** | **$**                                     | **51.1**   |                                     | $          | 49.9 | ** ** | **$** | **147.6** |   | $ | 153.4 |   |
| Operating lease and rental income                           | ** ** | **22.7**                                  |       | 15.9                                     | ** ** | **61.4** |   | 43.1 |   |
| Insurance premiums and other revenue                        | ** ** | **8.4**                                   |       | 5.4                                      | ** ** | **22.6** |   | 16.3 |   |
| **TOTAL INTEREST AND OTHER REVENUE**                        | ** ** | **82.2**                                  |       | 71.2                                     | ** ** | **231.6** |   | 212.8 |   |
|                                                        |       |                                      |       |                                     |       |   |   |   |   |
| Interest and other borrowing expenses                       | ** ** | **18.3**                                  |       | 19.6                                     | ** ** | **51.8** |   | 65.9 |   |
| Depreciation and other operating lease and rental  expenses | ** ** | **18.5**                                  |       | 12.4                                     | ** ** | **50.2** |   | 33.4 |   |
| Insurance claims and other expenses                         | ** ** | **4.0**                                   |       | 2.8                                      | ** ** | **12.5** |   | 9.0 |   |
| Selling, general and administrative expenses                | ** ** | **11.2**                                  |       | 11.1                                     | ** ** | **32.9** |   | 31.9 |   |
| Provision for losses on receivables                         | ** ** | **1.1**                                   |       | 4.9                                      | ** ** | **2.7** |   | 16.9 |   |
| **TOTAL EXPENSES**                                          | ** ** | **53.1**                                  |       | 50.8                                     | ** ** | **150.1** |   | 157.1 |   |
|                                                        |       |                                      |       |                                     |       |   |   |   |   |
| **INCOME BEFORE INCOME TAXES**                              | ** ** | **29.1**                                  |       | 20.4                                     | ** ** | **81.5** |   | 55.7 |   |
|                                                        |       |                                      |       |                                     |       |   |   |   |   |
| Income taxes                                                | ** ** | **11.1**                                  |       | 7.9                                      | ** ** | **31.0** |   | 21.6 |   |
|                                                        |       |                                      |       |                                     |       |   |   |   |   |
| **NET INCOME**                                              | ** ** | **18.0**                                  |       | 12.5                                     | ** ** | **50.5** |   | 34.1 |   |
|                                                        | ** ** | ** **                                |       |                                     | ** ** | ** ** |   |   |   |
| **RETAINED EARNINGS AT BEGINNING OF PERIOD**                | ** ** | **436.8**                                 |       | 447.6                                    | ** ** | **473.3** |   | 426.0 |   |
| Cash dividends paid                                         | ** ** | **—**                                |       | —                                   | ** ** | **69.0** |   | — |   |
| **RETAINED EARNINGS AT END OF PERIOD**                      | ** ** | **$**                                     | **454.8**  |                                     | $          | 460.1 | ** ** | **$** | **454.8** |   | $ | 460.1 |   |

 

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 of Dollars)

 
| ** **                                                                                                                                    | ** ** | **September 30  2004** | ** **  | **December 31  2003*** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                                    | ** ** | ** **                  | ** **  |
| ** **                                                                                                                                    | ** ** | **(Unaudited)**             | ** **  | ** **                  | ** ** |
| **ASSETS**                                                                                                                                    | ** ** | ** **                  | ** **  |                        |       |
|                                                                                                                                          |       |                        | ** **  |                        |       |
| Cash                                                                                                                                          | ** ** | **$**                       | **14.8**    | ** **                  | $          | 5.5 |   |
| Finance and other receivables, net of allowance for  losses (2004 - $66.5 and 2003 - $67.4)                                                   | ** ** | **3,273.8**                 | ** **  | 2,976.7                     |       |
| Loans to PACCAR Inc and affiliates                                                                                                            | ** ** | **274.1**                   | ** **  | 265.0                       |       |
| Equipment on operating leases, net of depreciation  (2004 - $64.2 and 2003 - $44.3)                                                           | ** ** | **283.4**                   | ** **  | 198.7                       |       |
| Other assets                                                                                                                                  | ** ** | **34.2**                    | ** **  | 27.4                        |       |
| **TOTAL ASSETS**                                                                                                                              | ** ** | **$**                       | **3,880.3** | ** **                  | $          | 3,473.3 |   |
| **LIABILITIES**                                                                                                                               |       |                        | ** **  |                        |       |
|                                                                                                                                          |       |                        | ** **  |                        |       |
| Accounts payable, accrued expenses and other                                                                                                  | ** ** | **$**                       | **139.9**   | ** **                  | $          | 131.8 |   |
| Commercial paper                                                                                                                              | ** ** | **1,255.9**                 | ** **  | 1,014.5                     |       |
| Medium-term notes                                                                                                                             | ** ** | **1,580.0**                 | ** **  | 1,480.0                     |       |
| Income taxes – current and deferred                                                                                                      | ** ** | **258.6**                   | ** **  | 208.5                       |       |
| **TOTAL LIABILITIES**                                                                                                                         | ** ** | **$**                       | **3,234.4** | ** **                  | $          | 2,834.8 |   |
| **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 $100 per share, 200,000  shares authorized, 145,000 shares issued and outstanding                                     | ** ** | **14.5**                    | ** **  | 14.5                        |       |
| Additional paid-in capital                                                                                                                    | ** ** | **146.8**                   | ** **  | 131.9                       |       |
| Retained earnings                                                                                                                             | ** ** | **454.8**                   | ** **  | 473.3                       |       |
| Accumulated other comprehensive  loss                                                                                                         | ** ** | **(1.2**                    | **)**       | (12.2                       | )          |
| **TOTAL STOCKHOLDER’S EQUITY**                                                                                                           | ** ** | **645.9**                   | ** **  | 638.5                       |       |
|                                                                                                                                          |       |                        | ** **  |                        |       |
| **TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                           | ** ** | **$**                       | **3,880.3** | ** **                  | $          | 3,473.3 |   |
|                                                                                                                                               |            |                             |             |                             |            |  |  |  |  |

 

----

*The December 31,2003 balance 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 CashFlows (Unaudited)**

(Millions of Dollars)

 
| **Nine Months Ended September 30**                                  | ** ** | **2004**     | ** ** | **2003**   | ** ** |
|--------------------------------------------------------------------------|------------|--------------|------------|------------|------------|
|                                                                     |       |         | ** ** |       |       |
| **OPERATING ACTIVITIES**                                                 |       |         | ** ** |       |       |
|                                                                     |       |         | ** ** |       |       |
| Net income                                                               | ** ** | **$**        | **50.5**   | ** ** | $          | 34.1 |   |
| Items included in net income not affecting cash:                         |       |         | ** ** |       |       |
| Depreciation and amortization                                            | ** ** | **36.1**     | ** ** | 24.4       |       |
| Benefit for deferred income taxes                                        | ** ** | **(3.4**     | **)**      | (16.3      | )          |
| Provision for losses on receivables                                      | ** ** | **2.7**      | ** ** | 16.9       |       |
| Increase in payables and other                                           | ** ** | **45.2**     | ** ** | 13.7       |       |
|                                                                     |       |         | ** ** |       |       |
| **NET CASH PROVIDED BY OPERATING ACTIVITIES**                            | ** ** | **131.1**    | ** ** | 72.8       |       |
|                                                                     |       |         | ** ** |       |       |
| **INVESTING ACTIVITIES**                                                 |       |         | ** ** |       |       |
|                                                                     |       |         | ** ** |       |       |
| Finance and other receivables originated                                 | ** ** | **(1,188.0** | **)**      | (852.6     | )          |
| Collections on finance and other receivables                             | ** ** | **939.6**    | ** ** | 1,014.2    |       |
| Net (increase) decrease in wholesale receivables                         | ** ** | **(36.1**    | **)**      | 21.8       |       |
| Net increase in loans to PACCAR Inc and affiliates                       | ** ** | **(9.1**     | **)**      | (72.9      | )          |
| Acquisition of equipment on operating leases,  primarily from PACCAR Inc | ** ** | **(126.3**   | **)**      | (58.8      | )          |
| Acquisition of equipment                                                 | ** ** | **(.6**      | **)**      | (.2        | )          |
| Proceeds from disposal of equipment                                      | ** ** | **10.2**     | ** ** | 4.4        |       |
|                                                                     |       |         | ** ** |       |       |
| **NET CASH (USED IN) PROVIDED BY INVESTING  ACTIVITIES**                 | ** ** | **(410.3**   | **)**      | 55.9       |       |
|                                                                     |       |         | ** ** |       |       |
| **FINANCING ACTIVITIES**                                                 | ** ** | ** **   | ** ** | ** ** | ** ** |
| ** **                                                               | ** ** | ** **   | ** ** | ** ** | ** ** |
| Net increase (decrease) in commercial paper                              | ** ** | **241.4**    | ** ** | (432.2     | )          |
| Proceeds from medium-term notes                                          | ** ** | **700.0**    | ** ** | 560.0      |       |
| Payments of medium-term notes                                            | ** ** | **(600.0**   | **)**      | (259.0     | )          |
| Dividends paid                                                           | ** ** | **(69.0**    | **)**      | **—** | ** ** |
| Payment of advances from (to)  PACCAR Inc                                | ** ** | **1.2**      | ** ** | (1.6       | )          |
| Capital contributions                                                    | ** ** | **14.9**     | ** ** | 11.9       |       |
|                                                                     |       |         | ** ** |       |       |
| **NET CASH PROVIDED BY (USED IN) FINANCING  ACTIVITIES**                 | ** ** | **288.5**    | ** ** | (120.9     | )          |
|                                                                     |       |         | ** ** |       |       |
| **NET INCREASE IN CASH**                                                 | ** ** | **9.3**      | ** ** | 7.8        |       |
|                                                                     |       |         | ** ** |       |       |
| **CASH AT BEGINNING OF PERIOD**                                          | ** ** | **5.5**      | ** ** | 9.9        |       |
|                                                                     |       |         | ** ** |       |       |
| **CASH AT END OF PERIOD**                                                | ** ** | **$**        | **14.8**   | ** ** | $          | 17.7 |   |

 

See Notes to FinancialStatements.

 

5

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 
| **Notes to Financial Statements** | **(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 required by generallyaccepted accounting principles for complete financial statements. However, inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included. Forfurther information, refer to the financial statements and footnotes includedin PACCAR Financial Corp.’s (the “Company”) Annual Report on Form 10-K for theyear ended December 31, 2003.

 

*Reclassifications*:Certain prior year amounts have been reclassified to conform to the 2004presentation.

 

**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 fiscal year. The requiredratio for the nine months ended September 30, 2004 and full year 2003 wasmet without assistance. The Company determines the amount of PACCAR assistance,if any, at the end of each fiscal year. The Support Agreement also requiresPACCAR to own, directly or indirectly, all outstanding voting stock of theCompany.

 

PACCAR Financial ServicesCorporation (“PFSC”) charges the Company for certain administrative services itprovides and certain services the Company receives indirectly from PACCAR. Thecosts are charged to the Company based upon the Company’s specific use of theservices at PFSC’s or PACCAR’s cost. Management considers these charges similarto the costs that would be incurred if the Company were on a stand-alone basis.PFSC recognizes certain of these administrative services as an additionalinvestment in the Company. The Company records the investment as additional paid-incapital. A cash dividend in the amount of $69.0 was declared and paid duringthe first quarter 2004. There were no cash dividends declared or paid during thesecond and third quarter of 2004 or the full year 2003.

 

Periodically, the Companyborrows funds from PACCAR and makes loans to PACCAR. Loans outstanding toPACCAR were $10.5 and $54.5 at September 30, 2004 and December 31,2003, respectively. Loans outstanding from PACCAR were $1.2 at September 30,2004. There were no loans outstanding from PACCAR at December 31, 2003.

 

The Company’s principaloffice is located in the corporate headquarters building of PACCAR (owned byPACCAR). The Company also leases office space from two other facilities ownedby 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.

 

PACCAR has issued lettersof credit as of September 30, 2004 in the amount of $7.9 on behalf of theCompany to guarantee funds for payment to insured franchisees and theircustomers for any future insurance losses.

 

6

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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 trucksand related equipment manufactured primarily by PACCAR and sold through PACCAR’sindependent dealer networks in the United Kingdom, Continental Europe, Mexico,Canada and Australia. The Company will not make loans to the foreign affiliatesin excess of the equivalent of $300.0 United States dollars, unless the amountin excess of such limit is guaranteed by PACCAR. The Company periodicallyreviews the funding alternatives for these affiliates, and these limits may berevised in the future. There was a total of $263.6 and $210.5 in loansoutstanding to foreign affiliates operating in the United Kingdom and theNetherlands at September 30, 2004 and December 31, 2003,respectively.  In October 2004, thecompany received a loan repayment of $100.0 from the Netherlands affiliate.

 

**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  September 30** | ** ** | **Nine Months Ended  September 30** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                         | ** ** | **2004**                                  | ** ** | **2003**                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net income                                         | ** ** | **$**                                     | **18.0**   |                                     | $          | 12.5 | ** ** | **$** | **50.5** |   | $ | 34.1 |   |
| Other comprehensive income:                        |       |                                      |       |                                     |       |   |   |   |   |
| Unrealized net (loss) gain on derivative contracts | ** ** | **(4.8**                                  | **)**      | 6.7                                      | ** ** | **11.0** |   | 12.4 |   |
| Total comprehensive income                         | ** ** | **$**                                     | **13.2**   |                                     | $          | 19.2 | ** ** | **$** | **61.5** |   | $ | 46.5 |   |

 

Thechange in unrealized net (loss) gain on derivative contracts primarily relatesto the fluctuations in market interest rates causing a change in the value ofthe Company’s floating to fixed rate contracts.

 

Accumulated othercomprehensive loss of $1.2 and $12.2 at September 30, 2004 and December 31,2003, respectively, is comprised of the unrealized net loss on derivativecontracts.

 

7

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| **ITEM 2.** | **MANAGEMENT’S  DISCUSSION****AND ANALYSIS OF RESULTS  OF OPERATIONS AND FINANCIAL CONDITION**(Millions of Dollars) |
|-------------|--------------------------------------------------------------------------------------------------------------------------|

 

**Results of Operations**

 

The Company’s net income of $18.0for the third quarter of 2004 increased 44% from the $12.5 for the thirdquarter of 2003. Net income of $50.5 for the first nine months of 2004increased $16.4 or 48% from the $34.1 earned in the first nine months of2003.  The profit improvement resulted fromboth a lower provision for losses and a higher finance margin. The provisionfor losses decreased $3.8 to $1.1 in the third quarter of 2004 and decreased by$14.2 to $2.7 in the first nine months of 2004. This improvement was mainly dueto lower credit losses from a significant reduction in repossessed units,reflecting improvements in the portfolio. In addition, finance margin (revenuesminus borrowing, lease and insurance expenses) increased $5.0 in the thirdquarter of 2004 and $12.6 for the first nine months of 2004, benefiting from agrowing portfolio and continuing enhancements made to pricing and creditpolicies.  For the third quarter and forthe first nine months of 2004, average earning assets increased approximately 10%and 4%, respectively from the comparable periods in the prior year.  The increase in average earning assets wasdue to higher new business volume and lower contract terminations fromrepossessions due to more favorable market conditions.  Interest income and expense in the third quarterand for the first nine months of 2004 reflect the impact of growth in theportfolio offset by lower market interest rates. Operating lease revenue andrelated depreciation have increased due to an increase in equipment onoperating leases.

 

The following table summarizes theactivity in the Company’s allowance for losses on receivables and presentsrelated ratios:

 

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

 
| ** **                                                                                                                                                 | ** ** | **Nine Months  Ended  September 30** | ** ** | **Year Ended  December 31** | ** ** | **Nine Months Ended  September 30** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|----------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                                                                                 | ** ** | ** **                                | ** ** | ** **                       |
| ** **                                                                                                                                                 | ** ** | **2004**                                  | ** ** | **2003**                         | ** ** | **2003**                                 | ** ** |
| Balance at beginning of period                                                                                                                             | ** ** | **$**                                     | **67.4**   | ** **                       | $          | 66.9                                     |       | $ | 66.9 |   |
|                                                                                                                                                       | ** ** | ** **                                | ** ** |                             |       |                                     |       |
| Provision for losses                                                                                                                                       | ** ** | **2.7**                                   | ** ** | 19.6                             |       | 16.9                                     |       |
|                                                                                                                                                       | ** ** | ** **                                | ** ** |                             |       |                                     |       |
| Credit losses, net of recoveries                                                                                                                           |       | **(3.6**                                  | **)**      | (19.1                            | )          | (16.6                                    | )          |
| Balance at end of period                                                                                                                                   | ** ** | **$**                                     | **66.5**   | ** **                       | $          | 67.4                                     |       | $ | 67.2 |   |
| Ratios:                                                                                                                                                    |       |                                      | ** ** |                             |       |                                     |       |
|                                                                                                                                                       |       |                                      | ** ** |                             |       |                                     |       |
| Credit losses, net of recoveries ($3.6 in 2004) to  average net receivables ($3,046.3 in 2004) annualized at September 30,  2004 and 2003             | ** ** | **.16**                                   | **%**      | .64                              | %          | .74                                      | %          |
|                                                                                                                                                       | ** ** | ** **                                | ** ** |                             |       |                                     |       |
| Allowance for losses ($66.5 in 2004) to period-end  net receivables ($3,204.7 in 2004)                                                                     | ** ** | **2.07**                                  | **%**      | 2.27                             | %          | 2.29                                     | %          |
|                                                                                                                                                       | ** ** | ** **                                | ** ** |                             |       |                                     |       |
| Period-end finance and lease receivables past due,  over 60 days, ($19.4 in 2004) to period-end retail contracts and lease  receivables ($2,938.6 in 2004) | ** ** | **.66**                                   | **%**      | 1.15                             | %          | 1.29                                     | %          |

 

8

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**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 in the fourth quarter of 2004 is contingentupon continued improvement in the general economy and the resulting increase intruck sales and the impact of increased competition.  Some economic weakness, as well as high fueland insurance costs and higher interest rates, could exert pressure on theprofit margins of truck operators and cause a return to a higher level of past-dueaccounts and repossessions, which could result in higher credit losses.

 

**Funding and Liquidity**

 

The Company manages its capital structure consistentwith industry standards. The Company believes that it has sufficient financialcapabilities to continue funding receivables and servicing debt throughinternally generated funds, access to public and private debt markets, lines ofcredit and other financial resources.  TheCompany’s ability to obtain funds is partly affected by its credit ratings,which are closely related to the outlook for, and the financial condition of,PACCAR as well as its syndicated credit facilities.  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, 2004 are as follows:

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

 

A mixof short-term and long-term debt is used to fund the Company along withstockholder’s equity.  At September 30,2004, the Company had $1,255.9 of commercial paper and $1,580.0 of senior unsecuredterm debt outstanding and $645.9 of stockholder’s equity.

 

Since1983, the Company has registered debt securities under the Securities Act of1933 for offering to the public. In December 2003, the Company filed ashelf registration statement which became effective on January 16, 2004,under which $3,000.0 of medium-term notes could be issued as needed. As of September 30,2004, $2,300.0 of such securities were available for issuance.

 

The Company participates with PACCAR and certain otherPACCAR affiliates in syndicated credit facilities of $1,500.0 at September 30,2004.  Of this amount, $750.0 will expirein July 2005 and the remaining $750.0 willexpire in July 2006. PACCAR intends to replace these credit facilities asthey expire with facilities of similar amounts. Of the $1,500.0 in syndicated credit facilities, $1,350.0is available for use by the Company and/or PACCAR and certain other PACCARaffiliates. The remaining $150.0 is only available for use by PACCAR’s Canadiansubsidiaries.  These credit facilities alongwith cash and marketable securities of PACCAR are used to provide backup liquidity for the Company’s commercial paperand maturing medium-term notes. The Company is liable only for its ownborrowings under these credit facilities. There were no borrowings under thesecredit facilities in the nine months ended September 30, 2004 and the year ended December 31, 2003.

 

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Otherinformation on liquidity, sources of capital, and contractual cash commitmentsas presented in the Company’s 2003 Annual Report on Form 10-K continues to berelevant.

 

**Forward Looking Statements**

 

Certain information presented in this Form 10-Q containsforward-looking statements made pursuant to the Private Securities LitigationReform Act of 1995, which are subject to risks and uncertainties that mayaffect actual results. Risks and uncertainties include, but are not limited to:national and local economic, political and industry conditions; changes in thelevels of new business volume due to unit fluctuations in new PACCAR trucksales; changes in competitive factors; changes affecting the profitability oftruck owners and operators, including fuel and insurance costs; price changesimpacting equipment costs and residual values; changes in costs andavailability of external funding sources; and legislation and governmentalregulation.

 

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

 

Therewas no reportable information during the nine months ended September 30,2004.

 

**ITEM 4.****                 CONTROLSAND 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 the SecuritiesExchange Act of 1934, as amended) as of September 30, 2004 (“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 controls overfinancial reporting during the third quarter of 2004 that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**PART II—OTHERINFORMATION**

 

For items 1, 2, 3, 4 and5, there was no reportable information during the nine months ended September 30,2004.

 

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

 

Any exhibitsfiled herewith as part of this report are listed in the accompanying Index to 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 5,  2004 |                        | 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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**INDEX TOEXHIBITS**

 

Exhibits (in orderof 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-Q 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). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.4    |   | Forms of  Medium-Term Note, Series I (incorporated by reference to Exhibits 4.2A and  4.2B to the Company’s Registration Statement on Form S-3 dated September 10,  1998, Registration Number 333-63153).                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | Form of Letter  of Representation among the Company, Citibank, N.A. and The Depository Trust  Company, Series I (incorporated by reference to Exhibit 4.3 to the Company’s  Registration Statement on Form S-3 dated September 10, 1998,  Registration Number 333-63153).                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 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 nine-month periods ended September 30,  2004 and 2003.                                                                                                                                                                                                                                                                     |

 

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| 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 nine-month  periods ended September 30, 2004 and 2003. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                  |
| 12.3   |   | Statement re:  computation of ratio of earnings to fixed charges of PACCAR and subsidiaries  pursuant to SEC reporting requirements for the nine-month periods ended September 30,  2004 and 2003.               |
|   |   |                                                                                                                                                                                                                  |
| 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.

 

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