**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 June 30, 2005**

 

**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              |       | (I.R.S. Employer Identification No.) |
| incorporation or organization)               |       |                                 |
|                                         |       |                                 |
| **777 – 106th Ave. N.E., Bellevue, WA** | ** ** | **98004**                            |
| (Address of principal executive offices)     |       | (Zip code)                           |

 

**(425) 468-7100**

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange 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 June 30,2005

 

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

 

 

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**INDEX**

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

 

2

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**PART I – FINANCIALINFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS**

 

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

(Millions of Dollars)

 
| ** **                                                  | ** ** | **Three Months Ended  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Interest and fee income                                     | ** ** | **$**                                | **59.7**   |                               | $          | 49.1 | ** ** | **$** | **114.7** |   | $ | 96.5 |   |
| Operating lease and rental income                           | ** ** | **28.9**                             |       | 20.4                               | ** ** | **55.9** |   | 38.7 |   |
| Insurance premiums and other revenue                        | ** ** | **9.4**                              |       | 7.9                                | ** ** | **18.5** |   | 14.2 |   |
| **TOTAL INTEREST AND OTHER REVENUE**                        | ** ** | **98.0**                             |       | 77.4                               | ** ** | **189.1** |   | 149.4 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Interest and other borrowing expenses                       | ** ** | **24.4**                             |       | 16.7                               | ** ** | **45.7** |   | 33.5 |   |
| Depreciation and other operating lease and rental  expenses | ** ** | **23.4**                             |       | 16.6                               | ** ** | **46.0** |   | 31.7 |   |
| Insurance claims and other expenses                         | ** ** | **5.3**                              |       | 4.4                                | ** ** | **9.9** |   | 8.5 |   |
| Selling, general and administrative expenses                | ** ** | **11.5**                             |       | 10.6                               | ** ** | **23.4** |   | 21.7 |   |
| Provision for losses on receivables                         | ** ** | **4.6**                              |       | 1.1                                | ** ** | **5.7** |   | 1.6 |   |
| **TOTAL EXPENSES**                                          | ** ** | **69.2**                             |       | 49.4                               | ** ** | **130.7** |   | 97.0 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| **INCOME BEFORE INCOME TAXES**                              | ** ** | **28.8**                             |       | 28.0                               | ** ** | **58.4** |   | 52.4 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Income taxes                                                | ** ** | **11.1**                             |       | 10.6                               | ** ** | **22.4** |   | 19.9 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| **NET INCOME**                                              | ** ** | **17.7**                             |       | 17.4                               | ** ** | **36.0** |   | 32.5 |   |
| ** **                                                  | ** ** | ** **                           |       |                               | ** ** | ** ** |   |   |   |
| **RETAINED EARNINGS AT BEGINNING OF PERIOD**                | ** ** | **491.8**                            |       | 419.4                              | ** ** | **473.5** |   | 473.3 |   |
| Cash dividends paid                                         | ** ** | **20.0**                             |       | —                             | ** ** | **20.0** |   | 69.0 |   |
|                                                        | ** ** | ** **                           |       |                               | ** ** | ** ** |   |   |   |
| **RETAINED EARNINGS AT END OF PERIOD**                      | ** ** | **$**                                | **489.5**  |                               | $          | 436.8 | ** ** | **$** | **489.5** |   | $ | 436.8 |   |

 

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

 

See Notes to FinancialStatements.

 

3

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**Balance Sheets**

(Millions Except Shareand Per Share Amounts)

 
| ** **                                                                                                                                    | ** ** | **June 30** | ** **  | **December 31** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|-------------|----------------------|------------|
| ** **                                                                                                                                    | ** ** | **2005**         | ** **  | **2004***            | ** ** |
| ** **                                                                                                                                    | ** ** | **(Unaudited)**  | ** **  | ** **           | ** ** |
| **ASSETS**                                                                                                                                    | ** ** | ** **       |        |                 |       |
|                                                                                                                                          |       |             |        |                 |       |
| Cash                                                                                                                                          | ** ** | **$**            | **30.1**    |                 | $          | 18.2 |   |
| Finance and other receivables, net of allowance for  losses (2005 - $71.5 and 2004 - $67.1)                                                   | ** ** | **3,724.7**      |        | 3,423.8              |       |
| Loans to PACCAR Inc and affiliates                                                                                                            | ** ** | **57.1**         |        | 129.1                |       |
| Equipment on operating leases, net of depreciation  (2005 - $97.8 and 2004 - $73.4)                                                           | ** ** | **373.8**        |        | 357.8                |       |
| Other assets                                                                                                                                  | ** ** | **88.4**         |        | 41.8                 |       |
|                                                                                                                                          |       |             |        |                 |       |
| **TOTAL ASSETS**                                                                                                                              | ** ** | **$**            | **4,274.1** |                 | $          | 3,970.7 |   |
|                                                                                                                                          |       |             |        |                 |       |
| **LIABILITIES**                                                                                                                               |       |             |        |                 |       |
|                                                                                                                                          |       |             |        |                 |       |
| Accounts payable, accrued expenses and other                                                                                                  | ** ** | **$**            | **148.7**   |                 | $          | 133.3 |   |
| Commercial paper                                                                                                                              | ** ** | **1,431.0**      |        | 1,050.8              |       |
| Medium-term notes                                                                                                                             | ** ** | **1,700.0**      |        | 1,830.0              |       |
| Income taxes – current and deferred                                                                                                      | ** ** | **289.0**        |        | 281.5                |       |
|                                                                                                                                          |       |             |        |                 |       |
| **TOTAL LIABILITIES**                                                                                                                         | ** ** | **$**            | **3,568.7** |                 | $          | 3,295.6 |   |
|                                                                                                                                          |       |             |        |                 |       |
| **STOCKHOLDER’S EQUITY**                                                                                                                 | ** ** | ** **       | ** **  | ** **           | ** ** |
|                                                                                                                                          |       |             |        |                 |       |
| Preferred stock, par value $100 per share, 6%  noncumulative and nonvoting, 450,000 shares authorized, 310,000 shares issued  and outstanding | ** ** | **$**            | **31.0**    |                 | $          | 31.0 |   |
| Common stock, par value $100 per share, 200,000  shares authorized, 145,000 shares issued and outstanding                                     | ** ** | **14.5**         |        | 14.5                 |       |
| Additional paid-in capital                                                                                                                    | ** ** | **161.5**        |        | 150.7                |       |
| Retained earnings                                                                                                                             | ** ** | **489.5**        |        | 473.5                |       |
| Accumulated other comprehensive  income                                                                                                       | ** ** | **8.9**          |        | 5.4                  |       |
|                                                                                                                                          |       |             |        |                 |       |
| **TOTAL STOCKHOLDER’S EQUITY**                                                                                                           | ** ** | **705.4**        |        | 675.1                |       |
|                                                                                                                                          |       |             |        |                 |       |
| **TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                           | ** ** | **$**            | **4,274.1** |                 | $          | 3,970.7 |   |

 

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

 

See Notes to FinancialStatements.

 

4

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

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

(Millions of Dollars)

 
| **Six Months Ended June 30**                                        | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                     |       |       | ** ** |       |       |
| **OPERATING ACTIVITIES**                                                 |       |       | ** ** |       |       |
|                                                                     |       |       | ** ** |       |       |
| Net income                                                               | ** ** | **$**      | **36.0**   | ** ** | $          | 32.5 |   |
| Items included in net income not affecting cash:                         | ** ** | ** ** | ** ** |       |       |
| Depreciation and amortization                                            | ** ** | **35.3**   | ** ** | 22.6       |       |
| Benefit for deferred taxes                                               | ** ** | **(20.8**  | **)**      | (14.1      | )          |
| Provision for losses on receivables                                      | ** ** | **5.7**    | ** ** | 1.6        |       |
| Increase in payables and other                                           | ** ** | **20.0**   | ** ** | 39.6       |       |
|                                                                     |       |       | ** ** |       |       |
| **NET CASH PROVIDED BY OPERATING ACTIVITIES**                            | ** ** | **76.2**   | ** ** | 82.2       |       |
|                                                                     |       |       | ** ** |       |       |
| **INVESTING ACTIVITIES**                                                 |       |       | ** ** |       |       |
|                                                                     |       |       | ** ** |       |       |
| Finance and other receivables originated                                 | ** ** | **(885.1** | **)**      | (746.6     | )          |
| Collections on finance and other receivables                             | ** ** | **680.0**  | ** ** | 624.7      |       |
| Net increase in wholesale receivables                                    | ** ** | **(93.0**  | **)**      | (34.2      | )          |
| Net decrease in loans to PACCAR Inc and affiliates                       | ** ** | **72.0**   | ** ** | 33.1       |       |
| Acquisition of equipment on operating leases,  primarily from PACCAR Inc | ** ** | **(58.0**  | **)**      | (71.2      | )          |
| Proceeds from disposal of equipment                                      | ** ** | **10.0**   | ** ** | 7.8        |       |
| Other                                                                    | ** ** | **(38.6**  | **)**      | (19.6      | )          |
|                                                                     |       |       | ** ** |       |       |
| **NET CASH USED IN INVESTING ACTIVITIES**                                | ** ** | **(312.7** | **)**      | (206.0     | )          |
|                                                                     |       |       | ** ** |       |       |
| **FINANCING ACTIVITIES**                                                 | ** ** | ** ** | ** ** |       |       |
| ** **                                                               | ** ** | ** ** | ** ** |       |       |
| Net increase in commercial paper                                         | ** ** | **380.2**  | ** ** | 36.2       |       |
| Proceeds from medium-term notes                                          | ** ** | **200.0**  | ** ** | 600.0      |       |
| Payments of medium-term notes                                            | ** ** | **(330.0** | **)**      | (450.0     | )          |
| Dividends paid                                                           | ** ** | **(20.0**  | **)**      | (69.0      | )          |
| Proceeds of loans from  PACCAR Inc                                       | ** ** | **7.4**    | ** ** | .7         |       |
| Capital contributions                                                    | ** ** | **10.8**   | ** ** | 10.9       |       |
|                                                                     |       |       | ** ** |       |       |
| **NET CASH PROVIDED BY FINANCING ACTIVITIES**                            | ** ** | **248.4**  | ** ** | 128.8      |       |
|                                                                     |       |       | ** ** |       |       |
| **NET INCREASE IN CASH**                                                 | ** ** | **11.9**   | ** ** | 5.0        |       |
|                                                                     |       |       | ** ** |       |       |
| **CASH AT BEGINNING OF PERIOD**                                          | ** ** | **18.2**   | ** ** | 5.5        |       |
|                                                                     |       |       | ** ** |       |       |
| **CASH AT END OF PERIOD**                                                | ** ** | **$**      | **30.1**   | ** ** | $          | 10.5 |   |

 

See Notes to FinancialStatements.

 

5

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

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

 

**NOTE A – Basisof Presentation**

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Periodically, the Companyborrows funds from PACCAR and makes loans to PACCAR. Loans outstanding toPACCAR were $7.0 and $13.8 at June 30, 2005 and December 31, 2004,respectively. Loans outstanding from PACCAR were $8.3 and $.9 at June 30,2005 and December 31, 2004, respectively.

 

PACCAR has issued lettersof credit as of June 30, 2005 in the amount of $6.7 on behalf of theCompany to guarantee funds for payment to insured franchisees and customers forany future insurance losses.

 

The Company periodicallyloans funds to certain foreign finance and leasing affiliates of PACCAR. Thesevarious affiliates have Support Agreements with PACCAR, similar to the Company’sSupport Agreement. The

 

6

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foreign affiliatesoperate in the United Kingdom, The Netherlands, Mexico, Canada and Australia,and any resulting currency exposure is fully hedged. The foreign affiliatesprovide financing and leasing of PACCAR-manufactured trucks and relatedequipment sold through PACCAR’s independent dealer networks in Europe, Mexico,Canada and Australia. The Company will not make loans to the foreign affiliatesin excess of the equivalent of $375.0 United States dollars, unless the amountin excess of such limits 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 $50.1 and $115.3 in loansoutstanding to foreign affiliates operating in the United Kingdom and TheNetherlands at June 30, 2005 and December 31, 2004, respectively.

 

**NOTE C – Stockholder’sEquity**

 

**PreferredStock**

 

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

 

**ComprehensiveIncome**

 

The components of comprehensive income, net of related tax,were as follows:

 
| ** **                                         | ** ** | **Three Months Ended   June 30** | ** ** | **Six Months Ended   June 30** | ** ** |
|----------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                         | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                               |       |                                  |       |                                |       |   |   |   |   |
| Net income                                         | ** ** | **$**                                 | **17.7**   | ** **                          | $          | 17.4 | ** ** | **$** | **36.0** |   | $ | 32.5 |   |
| Other comprehensive income:                        |       |                                  | ** ** |                                |       |   |   |   |   |
| Unrealized net (loss) gain on derivative contracts | ** ** | **(7.2**                              | **)**      | 16.9                                | ** ** | **3.5** |   | 15.8 |   |
| Total comprehensive income                         | ** ** | **$**                                 | **10.5**   | ** **                          | $          | 34.3 | ** ** | **$** | **39.5** |   | $ | 48.3 |   |

 

The unrealized net losson derivative contracts for the three months ended June 30, 2005 was dueto a decrease in long term market interest rates causing a decrease in the fairmarket value in the Company’s floating to fixed rate contracts.

 

Accumulated othercomprehensive income of $8.9 and $5.4 at June 30, 2005 and December 31,2004, respectively, is comprised of the unrealized net gain on derivativecontracts.

 

7

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

 

**Results of Operations**

 

The Company’s net income of $17.7 forthe second quarter of 2005 increased 2% from the $17.4 for the second quarterof 2004.  Net income of $36.0 for thefirst six months of 2005 increased $3.5 or 11% higher than the $32.5 earned inthe first six months of 2004.  The profitimprovement in the second quarter and for the first six months primarily resultedfrom a higher finance margin (revenues minus borrowing, lease, and insuranceexpenses), partially offset by an increase in the provision for losses on receivables. Finance margin increased in the secondquarter of 2005 and for the first six months of 2005, benefiting from anincrease in average earning assets of approximately 20% and 19%, respectively,from the comparable periods in the prior year. The increase in average earning assets was due to higher new loan andlease volume resulting from higher PACCAR truck production.  Interest income and expense for the secondquarter and the first six months of 2005 were higher from growth in theportfolio and higher market interest rates. Operating lease revenue and related depreciation have increased due toan increase in equipment on operating leases in the past year.  The provision for losses increased by $3.5 to$4.6 in the second quarter of 2005 and increased by $4.1 to $5.7 in the firstsix months of 2005, reflecting the impact of a growing portfolio.

 

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

 

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

 
| ** **                                                                                                                                                 | ** ** | **Six Months  Ended** | ** ** | **Year Ended**       | ** ** | **Six Months  Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                 | ** ** | **June 30**      | ** ** | **December 31** | ** ** | **June 30**      | ** ** |
| ** **                                                                                                                                                 | ** ** | **2005**              | ** ** | **2004**             | ** ** | **2004**              | ** ** |
| Balance at beginning of period                                                                                                                             | ** ** | **$**                 | **67.1**   | ** **           | $          | 67.4                  |       | $ | 67.4 |   |
| Provision for losses                                                                                                                                       | ** ** | **5.7**               | ** ** | 4.3                  |       | 1.6                   |       |
| Credit losses, net of recoveries                                                                                                                           |       | **(1.3**              | **)**      | (4.6                 | )          | (2.2                  | )          |
| Balance at end of period                                                                                                                                   | ** ** | **$**                 | **71.5**   | ** **           | $          | 67.1                  |       | $ | 66.8 |   |
| Ratios:                                                                                                                                                    |       | ** **            | ** ** |                 |       |                  |       |
|                                                                                                                                                       |       | ** **            | ** ** |                 |       |                  |       |
| Credit losses net of recoveries ($1.3 in 2005) to  average net receivables ($3,462.6 in 2005) annualized at June 30, 2005  and 2004                   | ** ** | **.07**               | **%**      | .15                  | %          | .15                   | %          |
|                                                                                                                                                       | ** ** | ** **            | ** ** |                 |       |                  |       |
| Allowance for losses ($71.5 in 2005) to period-end  net receivables ($3,682.0 in 2005)                                                                     | ** ** | **1.94**              | **%**      | 1.98                 | %          | 2.14                  | %          |
|                                                                                                                                                       | ** ** | ** **            | ** ** |                 |       |                  |       |
| Period-end finance and lease receivables past due,  over 60 days, ($13.0 in 2005) to period-end retail contracts and lease  receivables ($3,376.3 in 2005) | ** ** | **.39**               | **%**      | .52                  | %          | .80                   | %          |

 

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.  Continuedasset growth is dependent upon the level of truck sales financed and the impactof competition.  Some economic weakness,as well as continuing high fuel and insurance costs and higher interest rates,could exert pressure on the profit margins of truck operators and cause higherpast-due accounts and repossessions, which could result in higher creditlosses.

 

**Funding and Liquidity**

 

The Company manages its capital structure consistentwith industry standards. Since 1983, the Company has registered debtsecurities under the Securities Act of 1933 for offering to the public. In December 2003,the Company filed a shelf registration statement under which $3,000 ofmedium-term notes could be issued as needed. As of June 30, 2005, $1,650of such securities were available for issuance.

 

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

 

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

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

 

The Company participates with PACCAR and certain otherPACCAR affiliates in syndicated credit facilities of $1,500 at June 30,2005.  In July 2005, the $1,500 syndicated credit facilities were replaced with$1,500 in new facilities.  Of this amount,$500 expires in July 2006 and $1,000 expires in July 2010.  PACCAR intends to replace these credit facilitiesas they expire with facilities of similar amounts.

 

Of the new facilities, $1,120 is available for use bythe Company and/or PACCAR and certain other PACCAR affiliates.  For theremaining $380, $300 is only available for use by PACCAR’s Canadiansubsidiaries and $80 is only available for use by PACCAR’s Australian financialsubsidiary.  These credit facilities areused to provide backup liquidity for the Company’s commercial paper andmaturing medium-term notes. The Company is liable only for its own borrowingsunder these credit facilities. There were no borrowings under these creditfacilities in the six months ended June 30, 2005 and the year ended December 31, 2004.

 

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

 

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**Forward Looking Statements**

 

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

 

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

 

Therehas been no material changes in the Company’s market risk during the six monthsended June 30, 2005. For additional information, refer to the market riskdisclosure in Item 7a as presented in the Company’s 2004 annual report on Form 10-K.

 

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

 

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

 

**PART II– OTHER INFORMATION**

 

For items 1, 2, 3, 4 and 5, there was no reportable information during thesix months ended June 30, 2005.

 

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

 

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

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   | **PACCAR  Financial Corp.**                       |                                   |
|--------|---------------------------------------------------|----------------------------------------|
|   |                                              | (Registrant)                           |
|   |                                              |                                   |
|   |                                              |                                   |
| Date   |      July 29,  2005 |                                   | By | /s/ Timothy M.  Henebry |   |
|   |                                              | Timothy M.  Henebry                    |
|   |                                              | President  (Authorized Officer)        |
|   |                                              |                                   |
|   |                                              |                                   |
|   | By                                                | /s/ Brice J.  Poplawski                |   |
|   |                                              | Brice J.  Poplawski                    |
|   |                                              | Controller  (Chief Accounting Officer) |
|        |                                                   |                                        |  |  |  |

 

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**INDEX TOEXHIBITS**

 

Exhibits (in orderof assigned index numbers)

 

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

 

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

 

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

 

4.5           Forms ofMedium-Term Note, Series J (incorporated by reference to Exhibits 4.2A and4.2B to the Company’s Registration Statement on Form S-3 dated March 2,2000, Registration Number 333-31502).

 

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

 

4.6           Forms ofMedium-Term Note, Series K (incorporated by reference to Exhibits 4.2A and4.2B to the Company’s Registration Statement on Form S-3 dated December 23,2003, Registration Number 333-111504).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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