**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

**x****        ****Quarterly Report Pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934**

**For thequarterly period ended June 30, 2007**

**or**

**o****           ****Transition Report Pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934**

**Fortransition period from                     to                     **

**CommissionFile No. 001-11677**

**PACCAR FINANCIAL CORP.**

(Exact name of registrant as specified in itscharter)

| **Washington**                                         | ** ** | **91-6029712**                        |
|--------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of                       |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                        |       |                                  |
|                                                   |       |                                  |
| **777 —  106****th 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)has filed 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  x    No  o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer:  o          Acceleratedfiler:  o          Non-acceleratedfiler:  x

Indicateby check mark whether registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes  o   No  x

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

Common Stock, $100 parvalue—145,000 shares as of July 31, 2007

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

 

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

**INDEX**
|                                                                                                              | ** ** | ** **                                                                                  | ** ** | **Page** |
|--------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|----------|
|                                                                                                         |       |                                                                                        |       |     |
| PART I. FINANCIAL INFORMATION:                                                                               |       |                                                                                        |
|                                                                                                         |       |                                                                                        |       |     |
| ITEM 1.                                                                                                      |       | FINANCIAL STATEMENTS:                                                                       |       |     |
|                                                                                                         |       |                                                                                        |       |     |
| Statements  of Income and Retained Earnings--  Three and Six Months Ended June 30, 2007 and 2006 (Unaudited) |       | 3                                                                                           |
|                                                                                                         |       |                                                                                        |       |     |
| Balance Sheets--  June 30, 2007 (Unaudited) and December 31, 2006                                            |       | 4                                                                                           |
|                                                                                                         |       |                                                                                        |       |     |
| Statements  of Cash Flows --  Six Months Ended June 30, 2007 and 2006 (Unaudited)                            |       | 5                                                                                           |
|                                                                                                         |       |                                                                                        |       |     |
| Notes to Financial Statements (Unaudited)                                                                    |       | 6                                                                                           |
|                                                                                                         |       |                                                                                        |       |     |
| ITEM 2.                                                                                                      |       | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS |       | 8        |
|                                                                                                         |       |                                                                                        |       |     |
| ITEM 3.                                                                                                      |       | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET  RISK                                 |       | 11       |
|                                                                                                         |       |                                                                                        |       |     |
| ITEMS 4 & 4T                                                                                             |       | CONTROLS AND PROCEDURES                                                                     |       | 11       |
|                                                                                                         |       |                                                                                        |       |     |
| PART  II. OTHER INFORMATION:                                                                                 |       |                                                                                        |
|                                                                                                         |       |                                                                                        |       |     |
| ITEM 6.                                                                                                      |       | EXHIBITS                                                                                    |       | 12       |
|                                                                                                         |       |                                                                                        |       |     |
| SIGNATURES                                                                                                   |       | 13                                                                                          |
|                                                                                                         |       |                                                                                        |       |     |
| INDEX TO EXHIBITS                                                                                            |       | 14                                                                                          |

** **

2

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

**PART I — FINANCIALINFORMATION**

**ITEM 1.  FINANCIAL STATEMENTS**

##### **Statements of Income and Retained Earnings(Unaudited)**

(Millions ofDollars)
| ** **                                    | ** ** | **Three Months Ended  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                       | ** ** | **2006**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                          |       |                                           |       |                                         |       |   |   |   |   |
| Interest and fee income                       | ** ** | **$**                                          | **92.9**   |                                         | $          | 78.0 | ** ** | **$** | **183.1** |   | $ | 150.5 |   |
| Operating lease and  rental income            | ** ** | **36.8**                                       |       | 32.7                                         | ** ** | **72.3** |   | 64.6 |   |
| Insurance premiums and  other revenue         | ** ** | **14.5**                                       |       | 13.3                                         | ** ** | **28.1** |   | 24.9 |   |
|                                          | ** ** | ** **                                     |       |                                         | ** ** | ** ** |   |   |   |
| **TOTAL INTEREST AND OTHER  REVENUE**         | ** ** | **144.2**                                      |       | 124.0                                        | ** ** | **283.5** |   | 240.0 |   |
|                                          |       |                                           |       |                                         |       |   |   |   |   |
| Interest and other  borrowing expenses        | ** ** | **51.5**                                       |       | 40.0                                         | ** ** | **101.9** |   | 75.8 |   |
| Depreciation and other  rental expenses       | ** ** | **29.9**                                       |       | 26.3                                         | ** ** | **59.3** |   | 52.7 |   |
| Insurance claims and  other expenses          | ** ** | **10.7**                                       |       | 7.0                                          | ** ** | **20.7** |   | 13.8 |   |
| Selling, general and  administrative expenses | ** ** | **13.4**                                       |       | 12.4                                         | ** ** | **25.8** |   | 24.7 |   |
| Provision for losses on  receivables          | ** ** | **5.2**                                        |       | 3.8                                          | ** ** | **9.2** |   | 6.4 |   |
|                                          | ** ** | ** **                                     |       |                                         | ** ** | ** ** |   |   |   |
| **TOTAL EXPENSES**                            | ** ** | **110.7**                                      |       | 89.5                                         | ** ** | **216.9** |   | 173.4 |   |
|                                          |       |                                           |       |                                         |       |   |   |   |   |
| **INCOME BEFORE INCOME TAXES**                | ** ** | **33.5**                                       |       | 34.5                                         | ** ** | **66.6** |   | 66.6 |   |
|                                          |       |                                           |       |                                         |       |   |   |   |   |
| **Income taxes**                              | ** ** | **12.8**                                       |       | 13.2                                         | ** ** | **25.5** |   | 25.5 |   |
|                                          |       |                                           |       |                                         |       |   |   |   |   |
| **NET INCOME**                                | ** ** | **20.7**                                       |       | 21.3                                         | ** ** | **41.1** |   | 41.1 |   |
| ** **                                    | ** ** | ** **                                     |       |                                         | ** ** | ** ** |   |   |   |
| **RETAINED EARNINGS AT BEGINNING  OF PERIOD** | ** ** | **552.4**                                      |       | 467.3                                        | ** ** | **532.0** |   | 477.5 |   |
| Cash dividends paid                           | ** ** | ** **                                     |       |                                         | ** ** | ** ** |   | 30.0 |   |
|                                          | ** ** | ** **                                     |       |                                         | ** ** | ** ** |   |   |   |
| **RETAINED EARNINGS AT END OF PERIOD**        | ** ** | **$**                                          | **573.1**  |                                         | $          | 488.6 | ** ** | **$** | **573.1** |   | $ | 488.6 |   |

 

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

See Notes toFinancial Statements.

3

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

 
| **Balance  Sheets**                                                                                                                           | ** ** | **June 30** | ** **  | **December 31** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|-------------|----------------------|------------|
| **(Millions  Except Share Amounts)**                                                                                                          | ** ** | **2007**         | ** **  | **2006***            | ** ** |
| ** **                                                                                                                                    | ** ** | **(Unaudited)**  | ** **  | ** **           | ** ** |
| **ASSETS**                                                                                                                                    |       |             |        |                 |       |
| ** **                                                                                                                                    |       |             |        |                 |       |
| Cash                                                                                                                                          | ** ** | **$**            | **9.7**     |                 | $          | 13.9 |   |
| Finance and  other receivables, net of allowance for losses (2007 - $90.1 and 2006 -  $86.9)                                                  | ** ** | **4,988.4**      |        | 4,933.3              |       |
| Due from PACCAR  Inc                                                                                                                          | ** ** | **35.5**         |        | 14.6                 |       |
| Equipment on  operating leases, net of depreciation (2007 - $172.6 and 2006 - $151.1)                                                         | ** ** | **454.8**        |        | 461.4                |       |
| Other assets                                                                                                                                  | ** ** | **92.9**         |        | 85.1                 |       |
|                                                                                                                                          | ** ** | ** **       |        |                 |       |
| **TOTAL ASSETS**                                                                                                                              | ** ** | **$**            | **5,581.3** |                 | $          | 5,508.3 |   |
| ** **                                                                                                                                    |       |             |        |                 |       |
| **LIABILITIES**                                                                                                                               |       |             |        |                 |       |
| ** **                                                                                                                                    |       |             |        |                 |       |
| Accounts  payable, accrued expenses and other                                                                                                 | ** ** | **$**            | **198.4**   |                 | $          | 218.5 |   |
| Due to PACCAR  Inc                                                                                                                            | ** ** | **30.2**         |        | 46.4                 |       |
| Commercial paper                                                                                                                              | ** ** | **2,039.5**      |        | 2,081.1              |       |
| Medium-term  notes                                                                                                                            | ** ** | **2,125.0**      |        | 2,050.0              |       |
| Income taxes —  current and deferred                                                                                                     | ** ** | **351.6**        |        | 331.3                |       |
|                                                                                                                                          | ** ** | ** **       |        |                 |       |
| **TOTAL LIABILITIES**                                                                                                                         | ** ** | **$**            | **4,744.7** |                 | $          | 4,727.3 |   |
| ** **                                                                                                                                    |       |             |        |                 |       |
| **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 $100 per share, 200,000 shares authorized, 145,000 shares issued  and outstanding                                    | ** ** | **14.5**         |        | 14.5                 |       |
| Additional  paid-in capital                                                                                                                   | ** ** | **204.8**        |        | 192.4                |       |
| Retained  earnings                                                                                                                            | ** ** | **573.1**        |        | 532.0                |       |
| Accumulated  other comprehensive income                                                                                                       | ** ** | **13.2**         |        | 11.1                 |       |
|                                                                                                                                          | ** ** | ** **       |        |                 |       |
| **TOTAL STOCKHOLDER’S EQUITY**                                                                                                           | ** ** | **836.6**        |        | 781.0                |       |
| ** **                                                                                                                                    | ** ** | ** **       |        |                 |       |
| **TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                           | ** ** | **$**            | **5,581.3** |                 | $          | 5,508.3 |   |

----

*The December 31, 2006 balance sheet has been derivedfrom audited financial statements.

See Notes toFinancial Statements.

4

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

##### **Statements of Cash Flows (Unaudited)**

(Millions ofDollars)
| **Six Months Ended June 30**                         | ** ** | **2007**   | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| ** **                                                               |       |       |       |     |       |
| **OPERATING ACTIVITIES**                                                 |       |       |       |     |       |
| ** **                                                               |       |       |       |     |       |
| Net income                                                               | ** ** | **$**      | **41.1**   |     | $          | 41.1 |   |
| Items included  in net income not affecting cash:                        |       |       |       |     |       |
| Depreciation and  amortization                                           | ** ** | **46.3**   |       | 40.7     |       |
| Provision for  losses on receivables                                     | ** ** | **9.2**    |       | 6.4      |       |
| Increase  (decrease) in deferred tax liability                           | ** ** | **4.3**    |       | (4.8     | )          |
| Administrative  fees for services from PFSC                              | ** ** | **12.4**   |       | 12.6     |       |
| (Decrease)  increase in payables and other                               | ** ** | **(16.4**  | **)**      | 29.8     |       |
|                                                                     | ** ** | ** ** | ** ** |     |       |
| **NET CASH PROVIDED BY OPERATING  ACTIVITIES**                           | ** ** | **96.9**   |       | 125.8    |       |
| ** **                                                               | ** ** | ** ** |       |     |       |
| **INVESTING ACTIVITIES**                                                 |       |       |       |     |       |
| ** **                                                               |       |       |       |     |       |
| Finance and  other receivables originated                                | ** ** | **(969.2** | **)**      | (1,048.3 | )          |
| Collections on  finance and other receivables                            | ** ** | **800.1**  |       | 809.6    |       |
| Net decrease in  wholesale receivables                                   | ** ** | **84.8**   |       | 18.0     |       |
| Net (increase)  decrease due from PACCAR Inc and affiliates              | ** ** | **(20.9**  | **)**      | 42.2     |       |
| Acquisition of  equipment on operating leases, primarily from PACCAR Inc | ** ** | **(63.9**  | **)**      | (42.6    | )          |
| Proceeds from  disposal of equipment                                     | ** ** | **37.6**   |       | 36.8     |       |
| Other                                                                    | ** ** | **(9.3**   | **)**      | (47.2    | )          |
|                                                                     | ** ** | ** ** | ** ** |     |       |
| **NET CASH USED IN INVESTING  ACTIVITIES**                               | ** ** | **(140.8** | **)**      | (231.5   | )          |
| ** **                                                               | ** ** | ** ** | ** ** |     |       |
| **FINANCING ACTIVITIES**                                                 |       |       |       |     |       |
| ** **                                                               |       |       |       |     |       |
| Net decrease in  commercial paper                                        | ** ** | **(41.6**  | **)**      | (19.3    | )          |
| Proceeds from  medium-term notes                                         | ** ** | **225.0**  |       | 800.0    |       |
| Payments of  medium-term notes                                           | ** ** | **(150.0** | **)**      | (650.0   | )          |
| Dividends paid                                                           |       |       |       | (30.0    | )          |
| Proceeds from  loans from PACCAR Inc                                     | ** ** | **6.3**    |       | 6.5      |       |
|                                                                     | ** ** | ** ** |       |     |       |
| **NET CASH PROVIDED BY FINANCING  ACTIVITIES**                           | ** ** | **39.7**   |       | 107.2    |       |
| ** **                                                               | ** ** | ** ** |       |     |       |
| **NET (DECREASE) INCREASE IN CASH**                                      | ** ** | **(4.2**   | **)**      | 1.5      |       |
| ** **                                                               | ** ** | ** ** | ** ** |     |       |
| **CASH AT BEGINNING OF PERIOD**                                          | ** ** | **13.9**   |       | 19.0     |       |
| ** **                                                               | ** ** | ** ** |       |     |       |
| **CASH AT END OF PERIOD**                                                | ** ** | **$**      | **9.7**    |     | $          | 20.5 |   |

 

See Notes toFinancial Statements.

5

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

##### **Notesto Financial Statements (Unaudited)**

##### (Millions of Dollars)

**NOTE A — Basis of Presentation**

The accompanying unaudited financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-Q and Article 10 of RegulationS-X.  Accordingly, they do not includeall of the information and footnotes required by generally accepted accountingprinciples for complete financial statements. In the opinion of management, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation have been included. For further information, refer to thefinancial statements and footnotes included in PACCAR Financial Corp.’s (the “Company”)Annual Report on Form 10-K for the year ended December 31, 2006.

*Reclassifications*:Certain prior year amounts have been reclassified to conform to the 2007presentation.

**NewAccounting Standard**

The Company adopted FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes* (FIN 48) effective January 1, 2007with no effect on the Company’s financial statements.  As of the date of adoption, theCompany had less than $1.0 of unrecognized tax benefits which would impact theeffective tax rate if recognized.  TheCompany is not currently under examination by the Internal Revenue Service andhas completed examinations for all years through 2003.  Tax interest and penalties areclassified as income taxes in the accompanying statements of income and werenot significant in any period presented. The Company does not currently anticipate that any significant increaseor decrease to the unrecognized tax benefit will be recorded during the next 12months.

**NOTE B — Transactions with PACCAR Inc and Affiliates**

The Company and PACCAR Inc (“PACCAR”) are parties to a Support Agreementthat obligates PACCAR to provide, when required, financial assistance to theCompany to ensure that the Company maintains a ratio of net earnings availablefor fixed charges to fixed charges (as defined in the Agreement) of at least1.25 to 1 for any year. The required ratio for the six months ended June 30,2007 and full year 2006 was met without assistance. The Company determines theamount of PACCAR assistance, if any, at the end of each year. The SupportAgreement also requires PACCAR to own, directly or indirectly, all outstandingvoting stock of the Company.

PACCAR Financial Services Corporation (“PFSC”), the Company’s parent,charges the Company for certain administrative services it provides and certainservices the Company receives indirectly from PACCAR. The costs are charged tothe Company based upon the Company’s specific use of the services at PFSC’s orPACCAR’s cost. Management considers these charges similar to the costs thatwould be incurred if the Company were on a stand-alone basis. PFSC recognizescertain of these administrative services as an additional investment in theCompany. The Company records the investment as additional paid-in capital.

There were no cash dividends declared or paid during the second quarterof 2007. A cash dividend in the amount of $30.0 was declared and paid duringthe first quarter of 2006.

The Company’s principal office is located in the corporate headquartersbuilding of PACCAR (owned by PACCAR). The Company also leases office space fromtwo additional facilities owned by PACCAR and four facilities leased by PACCAR.

6

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Company employees and PACCAR employees are covered by a defined benefitpension plan and an unfunded post-retirement medical and life insurance plan,both sponsored by PACCAR.  The assets andliabilities of these plans are reflected on the balance sheets of PACCAR.  PACCAR contributes to the plans and allocatesthe expenses to the Company based principally on the number of eligible planparticipants.

Company employees and PACCAR employees are also covered by a definedcontribution plan, sponsored by PACCAR. Costs incurred by the Company for defined contribution plan benefits arebased on the actual contribution made on behalf of participating employees.

Expenses for the defined benefit pension plan, the unfundedpost-retirement medical and life insurance plan and the defined contributionplan are included as selling, general and administrative expenses.

Periodically, theCompany makes loans to, borrows from and has intercompany transactions withPACCAR, amounts outstanding at June 30, 2007 are summarized below:
|                      | ** ** | **June 30  2007** | ** ** | **December 31  2006** | ** ** |
|----------------------|------------|------------------------|------------|----------------------------|------------|
| Due from PACCAR  Inc |       |                   |       |                       |       |
| Loans                | ** ** | **$**                  | **34.3**   |                       | $          | 14.4 |   |
| Receivables          | ** ** | **1.2**                |       | .2                         |       |
| Total                | ** ** | **$**                  | **35.5**   |                       | $          | 14.6 |   |
|                 |       |                   |       |                       |       |
| Due to PACCAR  Inc   |       |                   |       |                       |       |
| Loans                | ** ** | **$**                  | **17.8**   |                       | $          | 11.5 |   |
| Payables             | ** ** | **12.4**               |       | 34.9                       |       |
| Total                | ** ** | **$**                  | **30.2**   |                       | $          | 46.4 |   |

 

PACCAR has issued letters of credit as of June 30, 2007 in the amount of$5.9 on behalf of the Company to guarantee funds for payment to insuredfranchisees and customers for any future insurance losses.

The Company periodically loans funds to certain foreign finance andleasing affiliates of PACCAR. These various affiliates have Support Agreementswith PACCAR, similar to the Company’s Support Agreement. The foreign affiliatesoperate in the United Kingdom, The Netherlands, Mexico, Canada and Australia,and any resulting currency exposure is fully hedged. The foreign affiliatesprimarily provide financing and leasing of PACCAR-manufactured trucks andrelated equipment sold through PACCAR’s independent 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 theseaffiliates, and these limits may be revised in thefuture. There were no loans outstanding to foreign affiliates at June30, 2007 and December 31, 2006.

**NOTE C — Stockholder’s Equity**

**Preferred Stock**

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

7

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**Comprehensive Income**

The components ofcomprehensive income, net of related tax, were as follows:
|                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **June 30**                 | ** ** | **June 30**               | ** ** |
| ** **                                  | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net income                                  | ** ** | **$**                            | **20.7**   |                           | $          | 21.3 | ** ** | **$** | **41.1** |   | $ | 41.1 |   |
| Other  comprehensive income:                |       |                             |       |                           |       |   |   |   |   |
| Unrealized net gain on derivative contracts | ** ** | **8.8**                          |       | 4.7                            | ** ** | **2.1** |   | 10.9 |   |
| Total comprehensive  income                 | ** ** | **$**                            | **29.5**   |                           | $          | 26.0 | ** ** | **$** | **43.2** |   | $ | 52.0 |   |

 

The unrealized net gain on derivative contracts in the three and sixmonths ended June 30, 2007 was due to a rise in long term market interest ratescausing an increase in the fair value of the Company’s floating to fixed ratecontracts.

Accumulated other comprehensive income of $13.2 and $11.1 at June 30,2007 and December 31, 2006, respectively, is comprised of the unrealized netgain on derivative contracts.

**ITEM 2.****        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**(Millions of Dollars)

**Results of Operations**

The Company’s net incomeof $20.7 for the second quarter of 2007 decreased 3% from $21.3 for the secondquarter of 2006. Net income for the first six months of 2007 was equal to the$41.1 earned in the first six months of 2006. Interest and fee income in the second quarter and first six months of2007 increased $14.9 and $32.6, respectively, compared to 2006 levels.  Higher earning assets contributed $11.1 and$24.1 to the respective increases in the second quarter and first six months of2007.  Higher interest rates for thesecond quarter and first six months of 2007 contributed $3.8 and $8.5,respectively, to the increase.  Operatinglease and rental income, and the related depreciation and other rental expensesfor the second quarter and first six months of 2007 increased due to higheraverage balances of operating lease assets.

Interest and otherborrowing expenses increased $11.5 for the second quarter of 2007 and $26.1 forthe first six months of 2007 from the comparable periods in 2006.  Average debt balances contributed $5.3 and$11.5 to the increase for the second quarter and first six months of 2007,respectively.  Higher interest rates forthe second quarter and first six months of 2007 contributed $6.2 and $14.6,respectively.  Insurance claims and otherexpenses increased for the second quarter and first six months of 2007. TheCompany’s effective income tax rate of 38% in 2007 was comparable to the priorperiods.

8

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The following table summarizes information on the Company’s allowancefor losses on receivables and asset portfolio and presents related ratios:

**Allowance for Losses**
|                                                                                                                                                           | ** ** | **Six Months  Ended** | ** ** | **Six Months  Ended** | ** ** | **Year Ended**  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------|------------|
| ** **                                                                                                                                                | ** ** | **June 30**           | ** ** | **June 30**           | ** ** | **December 31** | ** ** |
| ** **                                                                                                                                                | ** ** | **2007**                   | ** ** | **2006**                   | ** ** | **2006**             | ** ** |
| Balance at  beginning of period                                                                                                                           | ** ** | **$**                      | **86.9**   |                       | $          | 77.3                 |       | $ | 77.3 |   |
| Provision for  losses                                                                                                                                     | ** ** | **9.2**                    |       | 6.4                        |       | 14.9                 |       |
| Credit losses                                                                                                                                             | ** ** | **(7.1**                   | **)**      | (3.9                       | )          | (8.4                 | )          |
| Recoveries                                                                                                                                                | ** ** | **1.1**                    |       | 1.9                        |       | 3.1                  |       |
| Balance at end  of period                                                                                                                                 | ** ** | **$**                      | **90.1**   |                       | $          | 81.7                 |       | $ | 86.9 |   |
|                                                                                                                                                      |       |                       |       |                       |       |                 |       |
| Ratios:                                                                                                                                                   |       |                       |       |                       |       |                 |       |
|                                                                                                                                                      | ** ** | ** **                 | ** ** |                       |       |                 |       |
| Credit losses  net of recoveries ($6.0 in 2007) to average total portfolio ($5,001.4 in  2007) annualized at June 30, 2007 and 2006                       | ** ** | **.24**                    | **%**      | .09                        | %          | .12                  | %          |
|                                                                                                                                                      | ** ** | ** **                 | ** ** |                       |       |                 |       |
| Allowance for  losses ($90.1 in 2007) to period-end total portfolio ($5,078.5 in 2007)                                                                    | ** ** | **1.77**                   | **%**      | 1.81                       | %          | 1.73                 | %          |
|                                                                                                                                                      | ** ** | ** **                 | ** ** |                       |       |                 |       |
| Period-end retail loan  and lease receivables past due, over 30 days, ($45.6 in 2007) to period-end  retail loan and lease receivables ($4,141.0 in 2007) | ** ** | **1.10**                   | **%**      | .72                        | %          | .91                  | %          |

 

The Company’s portfolio is concentrated with customers in the heavy andmedium duty truck transportation industry.  The portfolio is comprised of retail loans andleases, dealer wholesale financing and dealer master notes as follows:
|                             | ** ** | **June 30** | ** **  | **June 30** | ** ** | **December 31** | ** ** |
|-----------------------------|------------|------------------|-------------|------------------|------------|----------------------|------------|
| ** **                  | ** ** | **2007**         | ** **  | **2006**         | ** ** | **2006**             | ** ** |
| Retail loans                | ** ** | **$**            | **2,895.0** | ** **       | **57%**    |                 | $          | 2,648.8 |   | 59% |   | $ | 2,798.4 |   | 56% |   |
| Retail leases               | ** ** | **1,246.0**      | ** **  | **25%**          |       | 1,027.9              |       | 23% |   | 1,203.9 |   | 24% |   |
| Dealer wholesale  financing | ** ** | **631.6**        | ** **  | **12%**          |       | 608.9                |       | 13% |   | 716.4 |   | 14% |   |
| Dealer master  notes        | ** ** | **305.9**        | ** **  | **6%**           |       | 230.6                |       | 5% |   | 301.5 |   | 6% |   |
| Total portfolio             | ** ** | **5,078.5**      | ** **  | **100%**         |       | $                    | 4,516.2    |   | 100% |   | $ | 5,020.2 |   | 100% |   |

 

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The provision forlosses remained at low levels for the first six months of 2007 and was $9.2compared to $6.4 for the first six months of 2006.

Dealer wholesalefinancing and master notes, which have lower allowance for losses than retailaccounts, increased to $937.5 at June 30, 2007 compared to $839.5 at June 30,2006.  The ratio of the allowance forlosses to period-end total portfolio was 1.77% at June 30, 2007 versus 1.81% atJune 30, 2006.

The estimationmethods and factors considered for determining the allowance during the periodsincluded in this filing have been consistently applied.  There have been no significant changes incustomer contract terms during the periods.

**CompanyOutlook**

The futureprofitability of the Company is principally dependent on the generation of newbusiness volume, the related spread between the asset yields and the borrowingcosts on new business and the level of credit losses experienced.  Portfolio balances for 2007 are not expectedto be significantly different from 2006 levels, as new business originated isforecast to approximate collections on the portfolio.  The Company continues to be exposed to risksaffecting freight demand, including economic weakness, changes in governmentalregulations and volatile interest rates and diesel prices, that couldnegatively impact future truck sales financed and existing customers’ abilityto make timely payments, which could increase the level of credit lossesexperienced.

**Funding and Liquidity**

The Company periodicallyregisters debt securities under the Securities Act of 1933 for offering to thepublic.  In November 2006, the Companyfiled a new shelf registration statement. The registration expires in 2009 and does not limit the principal amountof debt securities that may be issued during the period.

The Company believes that ithas sufficient financial capabilities to continue funding receivables,servicing debt and paying dividends through internally generated funds, accessto public and private debt markets, lines of credit and other financialresources.

The Company’s investmentgrade credit ratings continue to provide access to capital markets atcompetitive interest rates. The Company’s credit ratings at June 30, 2007 areas 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 excellent overall financialcondition.  Access to financing at competitive rates would be negativelyimpacted by a downgrade in these credit ratings.

The Company participateswith PACCAR and certain other PACCAR affiliates in syndicated credit facilitiesof $2,200.  Of this amount, $1,200expires in June 2008 and $1,000 expires in June 2012.  PACCAR intends to replace these creditfacilities as they expire with facilities of similar amounts.

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Of the creditfacilities, $1,375.0 is available for use by the Company and/or PACCAR andcertain other PACCAR affiliates.  Of theremaining $825.0, $360.0 is only available for use by PACCAR’s Canadiansubsidiaries, $350.0 is only available for use by PACCAR’s Mexican subsidiaryand $115.0 is only available for use by PACCAR’s Australian financialsubsidiary.  These credit facilities are used to provide backup liquidityfor the Company’s commercial paper and maturing medium-term notes. The Companyis liable only for its own borrowings under these credit facilities. There wereno borrowings under these credit facilities in the six months ended June 30,2007 and the year ended December 31, 2006.

Other information onliquidity, sources of capital, and contractual cash commitments as presented inthe Company’s 2006 Annual Report on Form 10-K continues to be relevant.

**Forward LookingStatements**

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

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

There have been nomaterial changes in the Company’s market risk during the six months ended June30, 2007. For additional information, refer to the market risk disclosure inItem 7A as presented in the Company’s 2006 Annual Report on Form 10-K.

**ITEM 4& 4T.**

**CONTROLS AND PROCEDURES**

An evaluation was performed under the supervision and with theparticipation of the Company’s management, including the principal executiveofficer and principal financial officer, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined inrules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of1934, as amended) as of June 30, 2007. Based on that evaluation, the principalexecutive officer and principal financial officer of the Company concluded thatthe disclosure controls and procedures in place at the Company are effective toensure that information required to be disclosed by the Company, includingits consolidated subsidiaries, in reports that the Company files orsubmits under the Exchange Act, is recorded, processed, summarized and reportedon a timely basis in accordance with applicable rules and regulations. TheCompany is implementing a new global treasury system which supports debt, cashand risk management processes and was used to produce certain informationcontained in this quarterly report. There have been no significant changesin the Company’s internal controls over financial reporting that occurredduring the fiscal quarter covered by this quarterly report that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

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**PART II — OTHER INFORMATION**

For items 1, 1A, and 5, there was no reportable information during thesix months ended June 30, 2007.

Items 2, 3 and 4 are omitted pursuant to Form 10-Q General Instructions(H)(1)(A) and (B).

**ITEM 6.   EXHIBITS**

Any exhibits filed herewith arelisted in the accompanying index to exhibits.

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**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|        | ** ** |           | **PACCAR Financial Corp.** |
|--------|------------|----------------|----------------------------|
|   |       |           | (Registrant)               |
|   |       |           |                       |   |
|   | Date       | August 3, 2007 |                       | By | /s/ Timothy M. Henebry |
|   |       |           |                       | Timothy M. Henebry |
|   |       |           |                       | President |
|   |       |           |                       | (Authorized Officer) |
|   |       |           |                       |   |
|   |       |           | By                         | /s/ Cathy A. MacLeod |
|   |       |           |                       | Cathy A. MacLeod |
|   |       |           |                       | Controller |
|   |       |           |                       | (Chief Accounting Officer) |
|        |            |                |                            |  |  |

 

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**INDEX TOEXHIBITS**

Exhibits (in order of assignedindex numbers)

3                              Articles of incorporation and bylaws:

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

(b)                                 By-laws of the Company, as amended (incorporatedby reference to Exhibit 3.2 to the Company’s Registration Statement on Form 10dated October 20, 1983, File Number 0-12553).

4          Instruments defining therights of security holders, including indentures:

(a)                                  Indenture for Senior Debt Securities dated as ofDecember 1, 1983 and first Supplemental Indenture dated as of June 19, 1989between the Company and Wilmington Trust Company (incorporated by reference toExhibit 4.1 to the Company’s Annual Report on Form 10-K dated March 26, 1984,File Number 001-11677 and Exhibit 4.2 to the Company’s Registration Statement onForm S-3 dated June 23, 1989, Registration Number 33-29434), and the Agreementof Resignation, Appointment and Acceptance, dated as of October 31, 2006(incorporated by reference to the Company’s Form 8-K dated November 3, 2006).

(b)                                 Formsof Medium-Term Note, Series K (incorporated by reference to Exhibits 4.2A and 4.2B to the Company’sRegistration Statement on Form S-3 dated December 23, 2003, Registration Number333-111504).

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

(c)                                  Formsof Medium-Term Note, Series L (incorporated by reference to Exhibits 4.2A and4.2B to the Company’s Registration Statementon Form S-3 dated November 7, 2006, Registration Number 333-138464).

                                                Form of Letter of Representation among theCompany, Citibank, N.A. and The Depository Trust Company, Series L (incorporatedby reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-3dated November 7, 2006, Registration Number 333-138464).

10        Material contracts:

(a)                                  Support Agreement between the Company and PACCARdated as of June 19, 1989  (incorporated byreference to Exhibit 28.1 to the Company’s Registration Statement on Form S-3dated June 23, 1989, Registration Number 33-29434).

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12        Statements re computationof ratios:

(a)                                  Computation of ratio of earnings to fixed chargesof the Company pursuant to SEC reporting requirements for the six month periodsended June 30, 2007 and 2006.

(b)                                 Computation of ratio of earnings to fixed chargesof the Company pursuant to the Support Agreement between the Company and PACCARfor the six month periods ended June 30, 2007 and 2006.

(c)                                  Computation of ratio of earnings to fixed chargesof PACCAR and subsidiaries pursuant to SEC reporting requirements for the sixmonth periods ended June 30, 2007 and2006.

31        Rule 13a-14(a)/15d-14(a)Certifications:

(a)                                  Certificationof Principal Executive Officer.

(b)                                 Certificationof Principal Financial Officer.

32        Section 1350 Certifications:

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

 

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