Table of Contents

 

 

 

**FORM 10-Q**

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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

 

**For thequarterly period ended March 31, 2009**

 

CommissionFile No. 001-11677

 

**PACCAR FINANCIAL CORP.**

(Exact name of registrant as specified in its charter)

 

| Washington                                            |   | 91-6029712                            |
|-------------------------------------------------------|--------|---------------------------------------|
| (State of incorporation)                              |   | (I.R.S. Employer  Identification No.) |
|                                                  |   |                                  |
| 777 – 106th Ave. N.E., Bellevue, Washington |   | 98004                                 |
| (Address of principal executive offices)              |   | (Zip code)                            |

 

The Registrant’s telephone number, includingarea code is (425) 468-7100

 

Indicate by check mark whether theregistrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.   Yes  x   No  o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes  o   No  o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See definition of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 
| Large accelerated  filer: o | Accelerated filer: o | Non-accelerated filer: x | Smaller reporting  company: o |
|-----------------------------|----------------------|--------------------------|-------------------------------|

 

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 ofeach of the issuer’s classes of common stock, as of the latest practicabledate:

 

Common Stock, $100 parvalue—145,000 shares as of April 30, 2009

 

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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**INDEX**

 
|                                                                                                           |                                                                                        | Page   |
|----------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|--------|
|                                                                                                           |                                                                                        |   |
| PART I.  FINANCIAL INFORMATION:                                                                           |                                                                                        |
|                                                                                                           |                                                                                        |
| ITEM  1.                                                                                                       | FINANCIAL STATEMENTS:                                                                       |   |
|                                                                                                           |                                                                                        |   |
| Statements  of Income and Retained Earnings—  Three Months Ended March 31, 2009 and 2008 (Unaudited) | 3                                                                                           |
|                                                                                                           |                                                                                        |
| Balance  Sheets—  March 31, 2009 (Unaudited) and December 31, 2008                              | 4                                                                                           |
|                                                                                                           |                                                                                        |
| Statements of Cash Flows —  Three Months Ended March 31, 2009 and 2008 (Unaudited)                   | 5                                                                                           |
|                                                                                                           |                                                                                        |   |
| Notes to Financial Statements (Unaudited)                                                                      | 6                                                                                           |
|                                                                                                           |                                                                                        |   |
| ITEM 2.                                                                                                        | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 11     |
|                                                                                                           |                                                                                        |   |
| ITEM 3.                                                                                                        | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                                 | 15     |
|                                                                                                           |                                                                                        |   |
| ITEMS 4 & 4T                                                                                          | CONTROLS AND PROCEDURES                                                                     | 15     |
|                                                                                                           |                                                                                        |   |
| PART II.  OTHER INFORMATION:                                                                              |                                                                                        |
|                                                                                                           |                                                                                        |   |
| ITEM 6.                                                                                                        | EXHIBITS                                                                                    | 16     |
|                                                                                                           |                                                                                        |   |
| SIGNATURES                                                                                                     |                                                                                        | 17     |
|                                                                                                           |                                                                                        |   |
| EXHIBIT INDEX                                                                                                  | 18                                                                                          |

 

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**FORM 10-Q**

**PACCARFINANCIAL CORP.**

 

**PART I – FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS**

 

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

##### **(Millionsof Dollars)**

 
| ** **                                    | ** ** | Three Months Ended March 31 | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                    | ** ** | **2009**                                        | ** ** | 2008 | ** ** |
|                                          |       |                                            |       |   |   |
| Interest and  fees                            | ** ** | **$**                                           | **63.5**   |   | $ | 83.9 |   |
| Operating lease  and rental income            | ** ** | **40.4**                                        |       | 40.3 |   |
| Insurance  premiums and other                 | ** ** | **5.2**                                         |       | 9.1 |   |
|                                          | ** ** | ** **                                      |       |   |   |
| **TOTAL  INTEREST AND OTHER REVENUE**         | ** ** | **109.1**                                       |       | 133.3 |   |
|                                          |       |                                            |       |   |   |
| Interest and  other borrowing expenses        | ** ** | **37.1**                                        |       | 45.8 |   |
| Depreciation and  other rental expenses       | ** ** | **35.6**                                        |       | 32.4 |   |
| Insurance claims  and other expenses          | ** ** | **1.8**                                         |       | 4.3 |   |
| Selling, general  and administrative expenses | ** ** | **9.8**                                         |       | 13.4 |   |
| Provision for  losses on receivables          | ** ** | **7.5**                                         |       | 12.5 |   |
|                                          | ** ** | ** **                                      |       |   |   |
| **TOTAL  EXPENSES**                           | ** ** | **91.8**                                        |       | 108.4 |   |
|                                          |       |                                            |       |   |   |
| **INCOME  BEFORE INCOME TAXES**               | ** ** | **17.3**                                        |       | 24.9 |   |
|                                          |       |                                            |       |   |   |
| Income taxes                                  | ** ** | **6.6**                                         |       | 9.5 |   |
|                                          |       |                                            |       |   |   |
| **NET  INCOME**                               | ** ** | **10.7**                                        |       | 15.4 |   |
| ** **                                    | ** ** | ** **                                      |       |   |   |
| **RETAINED  EARNINGS AT BEGINNING OF PERIOD** | ** ** | **534.5**                                       |       | 590.2 |   |
| ** **                                    | ** ** | ** **                                      |       |   |   |
| **RETAINED  EARNINGS AT END OF PERIOD**       | ** ** | **$**                                           | **545.2**  |   | $ | 605.6 |   |

 

Earnings per share and dividends per share are not reported because theCompany is a wholly owned subsidiary of PACCAR Financial Services Corporation.

 

See Notes to Financial Statements.

 

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**FORM 10-Q**

**PACCARFINANCIAL CORP.**

 
| **Balance Sheets**                                                                                                                            | ** ** | **March 31** | ** **  | December 31 | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|------------------|------------|
| (Millions of Dollars)                                                                                                                         | ** ** | **2009**          | ** **  | 2008*            | ** ** |
| ** **                                                                                                                                    | ** ** | **(Unaudited)**   | ** **  | ** **       | ** ** |
| **ASSETS**                                                                                                                                    |       |              |        |             |       |
|                                                                                                                                          |       |              |        |             |       |
| Cash                                                                                                                                          | ** ** | **$**             | **48.0**    |             | $          | 19.9 |   |
| Finance and  other receivables, net of allowance for losses (2009 - $81.7 and 2008 -  $87.6)                                                  | ** ** | **3,469.0**       |        | 3,783.8          |       |
| Due from PACCAR  Inc and affiliates                                                                                                           | ** ** | **693.9**         |        | 1,211.6          |       |
| Equipment on  operating leases, net of accumulated depreciation (2009 - $212.4 and 2008 -  $203.8)                                            | ** ** | **593.9**         |        | 637.7            |       |
| Other assets                                                                                                                                  | ** ** | **97.9**          |        | 86.4             |       |
|                                                                                                                                          |       |              |        |             |       |
| **TOTAL  ASSETS**                                                                                                                             | ** ** | **$**             | **4,902.7** |             | $          | 5,739.4 |   |
|                                                                                                                                          |       |              |        |             |       |
| **LIABILITIES**                                                                                                                               |       |              |        |             |       |
|                                                                                                                                          |       |              |        |             |       |
| Accounts  payable, accrued expenses and other                                                                                                 | ** ** | **$**             | **190.7**   |             | $          | 242.0 |   |
| Due to PACCAR  Inc and affiliates                                                                                                             | ** ** | **378.9**         |        | 47.3             |       |
| Commercial paper                                                                                                                              | ** ** | **912.1**         |        | 2,063.6          |       |
| Medium-term  notes                                                                                                                            | ** ** | **2,198.5**       |        | 2,270.0          |       |
| Income taxes –  current and deferred                                                                                                     | ** ** | **431.7**         |        | 353.3            |       |
|                                                                                                                                          |       |              |        |             |       |
| **TOTAL  LIABILITIES**                                                                                                                        | ** ** | **$**             | **4,111.9** |             | $          | 4,976.2 |   |
|                                                                                                                                          |       |              |        |             |       |
| **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 $100 per share, 200,000 shares authorized, 145,000 shares issued  and outstanding                                    | ** ** | **14.5**          |        | 14.5             |       |
| Additional  paid-in capital                                                                                                                   | ** ** | **245.0**         |        | 237.8            |       |
| Retained  earnings                                                                                                                            | ** ** | **545.2**         |        | 534.5            |       |
| Accumulated  other comprehensive loss                                                                                                         | ** ** | **(44.9**         | **)**       | (54.6            | )          |
|                                                                                                                                          |       |              |        |             |       |
| **TOTAL  STOCKHOLDER’S EQUITY**                                                                                                          | ** ** | **$**             | **790.8**   |             | $          | 763.2 |   |
|                                                                                                                                          |       |              |        |             |       |
| **TOTAL  LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                          | ** ** | **$**             | **4,902.7** |             | $          | 5,739.4 |   |

 

*The December 31, 2008 balance sheet has been derived from auditedfinancial statements.

 

See Notes to Financial Statements.

 

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**FORM 10-Q**

**PACCARFINANCIAL CORP.**

 

**STATEMENTSOF CASH FLOWS**(Unaudited)

(Millions of Dollars)

 
| ** **                                                               | ** ** | Three Months Ended March 31 | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                               | ** ** | **2009**                                        | ** ** | 2008 | ** ** |
|                                                                     |       |                                            | ** ** |   |   |
| **OPERATING  ACTIVITIES**                                                |       |                                            | ** ** |   |   |
|                                                                     |       |                                            | ** ** |   |   |
| Net income                                                               | ** ** | **$**                                           | **10.7**   | ** ** | $ | 15.4 |   |
| Items included  in net income not affecting cash:                        |       |                                            | ** ** |   |   |
| Depreciation and  amortization                                           | ** ** | **30.3**                                        | ** ** | 24.7 |   |
| Provision for  losses on receivables                                     | ** ** | **7.5**                                         | ** ** | 12.5 |   |
| Decrease in  deferred tax liability                                      | ** ** | **(17.0**                                       | **)**      | (3.1 | ) |
| Administrative  fees for services from PFSC                              | ** ** | **7.2**                                         | ** ** | 8.4 |   |
| Increase  (decrease) in payables and other                               | ** ** | **13.5**                                        | ** ** | (18.5 | ) |
|                                                                     |       |                                            | ** ** |   |   |
| **NET  CASH PROVIDED BY OPERATING ACTIVITIES**                           | ** ** | **52.2**                                        | ** ** | 39.4 |   |
|                                                                     |       |                                            | ** ** |   |   |
| **INVESTING  ACTIVITIES**                                                |       |                                            | ** ** |   |   |
|                                                                     |       |                                            | ** ** |   |   |
| Finance and  other receivables originated                                | ** ** | **(89.2**                                       | **)**      | (261.1 | ) |
| Collections on  finance and other receivables                            | ** ** | **368.1**                                       | ** ** | 431.6 |   |
| Net decrease in  wholesale receivables                                   | ** ** | **25.8**                                        | ** ** | 30.6 |   |
| Net decrease in  loans and leases to PACCAR Inc and affiliates           | ** ** | **516.8**                                       | ** ** | 4.2 |   |
| Acquisition of  equipment on operating leases, primarily from PACCAR Inc | ** ** | **(30.2**                                       | **)**      | (33.1 | ) |
| Proceeds from  disposal of equipment                                     | ** ** | **43.4**                                        | ** ** | 15.4 |   |
| Other                                                                    | ** ** | **(5.8**                                        | **)**      | (12.7 | ) |
|                                                                     |       |                                            | ** ** |   |   |
| **NET  CASH PROVIDED BY INVESTING ACTIVITIES**                           | ** ** | **828.9**                                       | ** ** | 174.9 |   |
|                                                                     |       |                                            | ** ** |   |   |
| **FINANCING  ACTIVITIES**                                                |       |                                            | ** ** |   |   |
| ** **                                                               |       |                                            | ** ** |   |   |
| Net decrease in  commercial paper                                        | ** ** | **(1,151.5**                                    | **)**      | (169.8 | ) |
| Proceeds from  medium-term notes                                         | ** ** | **178.5**                                       | ** ** |   |   |
| Payments of  medium-term notes                                           | ** ** | **(250.0**                                      | **)**      | (50.0 | ) |
| Advances from  PACCAR Inc                                                | ** ** | **370.0**                                       | ** ** | .7 |   |
|                                                                     |       |                                            | ** ** |   |   |
| **NET  CASH USED IN FINANCING ACTIVITIES**                               | ** ** | **(853.0**                                      | **)**      | (219.1 | ) |
|                                                                     |       |                                            | ** ** |   |   |
| **NET  INCREASE (DECREASE) IN CASH**                                     | ** ** | **28.1**                                        | ** ** | (4.8 | ) |
|                                                                     |       |                                            | ** ** |   |   |
| **CASH AT  BEGINNING OF PERIOD**                                         | ** ** | **19.9**                                        | ** ** | 25.6 |   |
|                                                                     |       |                                            | ** ** |   |   |
| **CASH AT  END OF PERIOD**                                               | ** ** | **$**                                           | **48.0**   | ** ** | $ | 20.8 |   |

 

See Notes to Financial Statements.

 

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**FORM 10-Q**

**PACCARFINANCIAL CORP.**

 

##### **Notes to FinancialStatements**(Unaudited)

##### **(Millions of Dollars)**

##### ** **

**NOTE A –Basis of Presentation**

 

The accompanyingunaudited financial statements have been prepared in accordance with generallyaccepted accounting principles for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor 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, 2008.

 

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

 

The Company andPACCAR Inc (“PACCAR”) are parties to a Support Agreement that obligates PACCARto provide, when required, financial assistance to the Company to ensure thatthe Company maintains a ratio of net earnings available for fixed charges tofixed charges (as defined in the Agreement) of at least 1.25 to 1 for anyfiscal year. The required ratio for the three months ended March 31, 2009and full year 2008 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 FinancialServices Corporation (“PFSC”), the Company’s parent, charges the Company forcertain administrative services it provides and certain services the Companyreceives indirectly from PACCAR. The costs are charged to the Company basedupon the Company’s specific use of the services at PFSC’s or PACCAR’s cost.Management considers these charges similar to the costs that would be incurredif the Company 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.

 

During the first quarter of 2009 PACCAR loaned theCompany $370.0 from the proceeds of PACCAR’s $750.0 fixed rate medium-term noteissuance in February 2009.  TheCompany’s loans mature in 2012 and 2014.

 

There were nodividends declared or paid during the first quarter of 2009 or the firstquarter of 2008.  The Company declaredand paid a dividend of $100.0 in the fourth quarter of 2008.

 

The Company’sprincipal office is located in the corporate headquarters building of PACCAR(owned by PACCAR). The Company also leases office space from three additionalfacilities owned by PACCAR and five facilities leased by PACCAR.

 

Company employeesand PACCAR employees are covered by a defined benefit pension plan and anunfunded post-retirement medical and life insurance plan, both sponsored byPACCAR.  The assets and liabilities ofthese 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 employeesand PACCAR employees are also covered by a defined contribution plan, sponsoredby PACCAR.  Expenses incurred by theCompany for the defined contribution plan benefits are based on the actualcontribution made on the behalf of participating employees and are included inselling, general and administrative expenses.

 

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Expenses for thedefined benefit pension plan, the unfunded post-retirement medical and lifeinsurance plan and the defined contribution plan are included in selling,general and administrative expenses.

 

Periodically, theCompany makes loans to, borrows from and has intercompany transactions withPACCAR. In addition, the Company periodically loans funds to certain foreignfinance and leasing affiliates of PACCAR. These various affiliates have SupportAgreements with PACCAR, similar to the Company’s Support Agreement. The foreignaffiliates operate in the United Kingdom, The Netherlands, Mexico, Canada andAustralia, and any resulting currency exposure is fully hedged. The foreignaffiliates primarily provide financing and leasing of PACCAR-manufacturedtrucks and related equipment sold through PACCAR’s independent dealer networksin Europe, Mexico, Canada and Australia. The Company will not make loans to theforeign affiliates in excess of the equivalent of $500.0 United States dollars,unless the amount in excess of such limit is guaranteed by PACCAR. The Companyperiodically reviews the funding alternatives for these affiliates, and theselimits may be revised in the future.

 

Amountsoutstanding at March 31, 2009 and December 31, 2008, includingforeign finance affiliates operating in The Netherlands, Mexico, Australia andCanada, are summarized below:

 
| ** **                                  | ** ** | **March 31  2009** | ** ** | December 31  2008 | ** ** |
|---------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| Due from PACCAR  Inc and affiliates         | ** ** | ** **              |       |                   |       |
| Loans due from  PACCAR Inc                  | ** ** | **$**                   | **300.7**  |                   | $          | 814.5 |   |
| Loans due from  foreign finance affiliates  | ** ** | **377.9**               |       | 378.9                  |       |
| Direct financing  leases due from affiliate | ** ** | **13.2**                |       | 15.2                   |       |
| Receivables                                 | ** ** | **2.1**                 |       | 3.0                    |       |
| Total                                       | ** ** | **$**                   | **693.9**  |                   | $          | 1,211.6 |   |
|                                        |       |                    |       |                   |       |
| Due to PACCAR  Inc and affiliates           |       |                    |       |                   |       |
| Loans due to  PACCAR Inc                    | ** ** | **$**                   | **370.6**  |                   | $          | .6 |   |
| Payables                                    | ** ** | **8.3**                 |       | 46.7                   |       |
| Total                                       | ** ** | **$**                   | **378.9**  |                   | $          | 47.3 |   |

 

The Companyprovides direct financing leases to a dealer location operated by an affiliateof PACCAR.

 

PACCAR has issuedletters of credit as of March 31, 2009 in the amount of $5.1 on behalf ofthe Company to guarantee funds for payment to insured franchisees and customersfor any future insurance losses.

 

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**NOTE C –Stockholder’s Equity**

 

**PreferredStock**

 

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

 

**OtherComprehensive Income**

 

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

 
| ** **                                          | ** ** | Three Months Ended | ** ** |
|-----------------------------------------------------|------------|------------------------------|------------|
| ** **                                          | ** ** | March 31                | ** ** |
| ** **                                          | ** ** | **2009**                     | ** ** | 2008 | ** ** |
| Net income                                          | ** ** | **$**                        | **10.7**   |   | $ | 15.4 |   |
| Other  comprehensive income:                        |       |                         |       |   |   |
| Unrealized net  gain (loss) on derivative contracts | ** ** | **9.7**                      |       | (31.4 | ) |
| Total  comprehensive income (loss)                  | ** ** | **$**                        | **20.4**   |   | $ | (16.0 | ) |

 

The unrealized netgain on derivative contracts in the three months ended March 31, 2009 wasdue to an increase in the fair value of the Company’s floating to fixedinterest rate swap contracts.

 

Accumulated othercomprehensive loss of $(44.9) and $(54.6) at March 31, 2009 and December 31,2008, respectively, is comprised of the unrealized net loss on derivativecontracts.

 

**NOTE D –Fair Value Measurements**

 

The Companyadopted Statement No. 157, Fair Value Measurements (FAS 157) effective January 1,2008 with no effect on the financial statements. FAS 157 defines fair value andestablishes a three-level hierarchy for measuring fair value of certainfinancial instruments based on the source of information used to determine fairvalue. FAS 157 also expands disclosures about fair value measurements. Thehierarchy of fair value measurements is described below:

 

Level 1 –Valuations are based on quoted prices that the Company has the ability toobtain in actively traded markets for identical assets or liabilities. Sincevaluations are based on quoted prices that are readily and regularly availablein an active market or exchange traded market, valuation of these instrumentsdoes not require a significant degree of judgment.

 

Level 2 –Valuations are based on quoted prices for similar instruments in activemarkets, quoted prices for identical or similar instruments in markets that arenot active, and model-based valuation techniques for which all significantassumptions are observable in the market.

 

Level 3 –Valuations are based on model-based techniques for which some or all of theassumptions are obtained from indirect market information that is significantto the overall fair value measurement and which require a significant degree ofmanagement judgment.

 

The Company’sderivative contracts consist of interest rate contracts. These derivativecontracts are over the counter and their fair value is determined usingmodeling techniques that include market inputs such as interest rates and yieldcurves.  At March 31, 2009, theCompany’s liability related to these interest rate derivatives totaled $73.0and were the only instruments categorized as Level 2. There were no Level 1 or3 assets or liabilities.

 

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**NOTE E – DERIVATIVE FINANCIAL INSTRUMENTS**

 

TheCompany adopted Statement No. 161, Disclosures about DerivativeInstruments and Hedging Activities effective January 1, 2009. Derivativefinancial instruments are used as hedges to manage exposures to fluctuations ininterest rates. They are designated as cash flow hedges and may qualify forhedge accounting. Derivative instruments that do not qualify for hedge accountingare held as economic hedges. The Company’s policies prohibit the use ofderivatives for speculation or trading. At inception of each hedgerelationship, the Company documents its risk management objectives, proceduresand accounting treatment. Exposure limits and minimum credit rating are used tominimize the risks of counterparty default. The Company had no materialexposures to default at March 31, 2009.

 

TheCompany enters into interest rate contracts, including cap agreements. Interestrate contracts generally involve the exchange of fixed and floating rateinterest payments. These contracts are used to manage exposures to fluctuationin interest rates. Net amounts paid or received are reflected as adjustments tointerest expense. The notional amount of these contracts totaled $2,200.3 withamounts expiring annually over the next five years. The notional amount is usedto measure the volume of these contracts and does not represent exposure tocredit loss. In the event of default by counterparty, the risk in thesetransactions is the cost of replacing the interest rate contract at currentmarket rates.

 

Notionalmaturities for all interest rate contracts over the next five yearsare $749.3 for the remainder of 2009, $814.0 for 2010, $425.0 for 2011, $204.0for 2012 and $8.0 for 2013. These contracts are floating to fixed swaps thateffectively convert an equivalent amount of commercial paper and other variablerate debt to fixed rates.

 

Derivative assets are included in the consolidated balance sheets in “Otherassets.” Derivative liabilities are included in “Accounts payable, accruedexpenses and other.”

 

The following table presents the locations and fair values of derivativefinancial instruments designated under hedge accounting at March 31, 2009:

 
| ** **                                      | ** ** | Liabilities | ** ** |
|-------------------------------------------------|------------|-------------|------------|
| Derivatives  designated under hedge accounting: |       |        |       |
| *Interest  rate contracts:*                     |       |        |       |
| Accounts  payable, accrued expenses and other   |       | $           | 73.0       |   |
| Total                                           |       | $           | 73.0       |   |

 

Changes in the fair valueof derivatives designated as cash flow hedges are recorded in accumulated othercomprehensive income to the extent such hedges are considered effective.

 

Amounts in accumulatedother comprehensive income are reclassified into net income in the same periodin which the hedged transaction affects earnings. Net realized gains and lossesfor interest rate contracts are recognized as an adjustment to interestexpense.  Of the accumulatednet loss included in other comprehensive income as of March 31, 2009,$22.8, net of tax, is expected to be reclassified to interest expense inthe following 12 months. The fixed interest earned on finance receivables willoffset the amount recognized in interest expense, resulting in a stableinterest margin consistent with the Company’s interest rate risk managementstrategy.

 

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All of the Company’s interest rate contracts have been designated as cashflow hedges. The Company uses regression and the change in variable cash flowsmethod to assess and measure effectiveness of interest rate contracts. Gains orlosses on the effective portion of derivatives designated and qualifying ascash flow hedges that arise from changes in fair value are initially reportedin other comprehensive income. Gains or losses on the ineffective portion ofcash flow hedges are recognized currently in earnings.

 

The following table presents the effects of derivative instrumentsdesignated as cash flow hedges on the statement of income and retained earningsand on other comprehensive income (OCI) for the three months ended March 31,2009:

 
|                                         |     | Pretax Loss on  Derivative  Contracts  Recognized in  OCI |     | Expense  Reclassified  from  Accumulated  OCI into Income |     | Loss  Recognized in  Income on  Derivative  (ineffective  portion) |     |
|----------------------------------------------|----------|--------------------------------------------------------------------------|----------|---------------------------------------------------------------------|----------|------------------------------------------------------------------------------|----------|
| Derivatives designated as cash flow  hedges: | * * | * *                                                                 | * * | * *                                                            | * * | * *                                                                     | * * |
| *Interest  rate contracts:*                  | * * | * *                                                                 | * * | * *                                                            | * * | * *                                                                     | * * |
| Interest and  other borrowing expenses       | * * | * *                                                                 | * * | $                                                                   | (16.8    | )                                                                            | $        | (.3 | ) |
| Other  Comprehensive Income                  |     | $                                                                        | (1.6     | )                                                                   |     |                                                                         |     |   |   |   |
| Total                                        |     | $                                                                        | (1.6     | )                                                                   | $        | (16.8                                                                        | )        | $ | (.3 | ) |
|                                              |          |                                                                          |          |                                                                     |          |                                                                              |          |  |  |  |  |  |  |

 

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

 

**Resultsof Operations**

 

**Netincome**

 

The Company’s net income was $10.7 for the first quarter of 2009 comparedto $15.4 for the first quarter of 2008. The decrease in net income wasprimarily the result of lower finance margin from lower portfolio balances andlower interest rates somewhat offset by lower selling, general andadministrative expenses and a lower provision for losses.

 

**Revenue**

 

Interestand other revenue in the first quarter of 2009 decreased $24.2 to $109.1 from$133.3 in the first quarter of 2008. The decrease was primarily due to declinesin interest and fee revenue of $20.4 and lower insurance premiums. The Companydiscontinued originating physical damage insurance on new retail loan businessas it was not integral to its finance business. The existing physical damage contracts will remain in effect untilmaturity.

 

The following table summarizes the changes in interest and fee income:

 
| ** **                           | ** ** | Three months  ended March 31 | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|
|                                 |       |                                        |       |
| Interest and fee  income – 2008 |       | $                                           | 83.9       |   |
|                                 |       |                                        |       |
| Lower average  balances              |       | (15.5                                       | )          |
| Change in yield                      |       | (4.9                                        | )          |
|                                 |       |                                        |       |
| Interest and fee  income – 2009 |       | $                                           | 63.5       |   |

 

Finance and other receivables declined due to lower new loan volume. Thereduction in average loan yields in the first quarter of 2009 was due to lowermarket interest rates.  Operating leaseand rental revenue was comparable to the first quarter of 2008, as the effectof higher operating lease assets was offset by lower market interest rates.

 

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**Expenses**

 

Interestand other borrowing expenses in the first quarter of 2009 decreased $8.7 to$37.1 from $45.8 in the first quarter of 2008, as summarized in the tablebelow:

 
| ** **                                   | ** ** | Three months  ended March 31 | ** ** |
|----------------------------------------------|------------|---------------------------------------------|------------|
|                                         |       |                                        |       |
| Interest and  borrowing expenses – 2008 |       | $                                           | 45.8       |   |
|                                         |       |                                        |       |
| Lower average  balances                      |       | (6.5                                        | )          |
| Lower borrowing  rates                       |       | (2.2                                        | )          |
|                                         |       |                                        |       |
| Interest and  borrowing expenses – 2009 |       | $                                           | 37.1       |   |

 

The decline in average debt balances was due to a reduction in the averageasset portfolio resulting in lower funding requirements and the reduction inborrowing rates was due to lower market interest rates.  Depreciation and other rental expensesincreased in the first quarter of 2009 from the first quarter in 2008 due to anincrease in operating lease assets. Insurance claims and other expenses decreased in the first quarter of2009 from the first quarter in 2008 as a result of fewer contractsoutstanding.   The provision for losseson receivables for the first quarter of 2009 decreased $5.0 from the firstquarter of 2008 primarily due to lower finance receivables.

 

The Company’s effective income tax rate was 38.2% for the first quarter of2009 and the first quarter of 2008.

 

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The following table summarizes information on the Company’sallowance for losses on receivables and asset portfolio and presents relatedratios:

 

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

 
| ** **                                                                                                                                                | ** ** | **Three Months  Ended** | ** ** | Three Months  Ended | ** ** | Year Ended  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------|------------|------------------|------------|
| ** **                                                                                                                                                | ** ** | **March 31**            | ** ** | March 31            | ** ** | December 31 | ** ** |
| ** **                                                                                                                                                | ** ** | **2009**                     | ** ** | 2008                     | ** ** | 2008             | ** ** |
| Balance at  beginning of period                                                                                                                           | ** ** | **$**                        | **87.6**   |                     | $          | 92.6             |       | $ | 92.6 |   |
| Provision for  losses                                                                                                                                     | ** ** | **7.5**                      |       | 12.5                     |       | 68.2             |       |
| Credit losses                                                                                                                                             | ** ** | **(14.3**                    | **)**      | (12.9                    | )          | (75.2            | )          |
| Recoveries                                                                                                                                                | ** ** | **.9**                       |       | .4                       |       | 2.0              |       |
| Balance at end  of period                                                                                                                                 | ** ** | **$**                        | **81.7**   |                     | $          | 92.6             |       | $ | 87.6 |   |
|                                                                                                                                                      |       |                         |       |                     |       |             |       |
| Ratios:                                                                                                                                                   |       |                         |       |                     |       |             |       |
|                                                                                                                                                      |       |                         |       |                     |       |             |       |
| Credit losses  net of recoveries ($13.4 in 2009) to average total portfolio ($3,564.3 in  2009) annualized at March 31, 2009 and 2008                | ** ** | **1.52%**                    |       | 1.15%                    |       | 1.77%            |       |
|                                                                                                                                                      | ** ** | ** **                   | ** ** |                     |       |             |       |
| Allowance for  losses ($81.7 in 2009) to period-end total portfolio ($3,550.7 in 2009)                                                                    | ** ** | **2.30%**                    |       | 2.10%                    |       | 2.26%            |       |
|                                                                                                                                                      | ** ** | ** **                   | ** ** |                     |       |             |       |
| Period-end  retail loan and lease receivables past due, over 30 days, ($71.0 in 2009) to  period-end retail loan and lease receivables ($3,090.9 in 2009) | ** ** | **2.30%**                    |       | 2.50%                    |       | 2.27%            |       |

 

The Company’s portfolio is concentrated with customers in the heavy andmedium duty truck transportation industry. The portfolio is comprised of retail loans and leases, dealer wholesalefinancing and dealer master notes as follows:

 
|                        | ** ** | **March 31** |        | March 31 |     | December 31 |   |
|-----------------------------|------------|-------------------|-------------|---------------|----------|------------------|--------|
|                        | ** ** | **2009**          |        | 2008          |     | 2008             |   |
| Retail loans                | ** ** | **$**             | **2,016.0** |          | **57%**  |             | $      | 2,542.9 |   | 58% |   | $ | 2,193.1 |   | 57% |   |
| Retail leases               | ** ** | **1,074.9**       |        | **30%**       |     | 1,174.4          |   | 26% |   | 1,133.5 |   | 29% |   |
| Dealer wholesale  financing | ** ** | **327.1**         |        | **9%**        |     | 423.4            |   | 10% |   | 352.9 |   | 9% |   |
| Dealer master  notes        | ** ** | **132.7**         |        | **4%**        |     | 278.8            |   | 6% |   | 191.9 |   | 5% |   |
| Total portfolio             | ** ** | **$**             | **3,550.7** |          | **100%** |             | $      | 4,419.5 |   | 100% |   | $ | 3,871.4 |   | 100% |   |

 

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In the first quarter of 2009, a continued economicslowdown has resulted in credit losses of $14.3 compared to $12.9 in the firstquarter of 2008, as some truck owners have experienced lower operating profitsand cashflows which have affected their ability to make timely payments. Creditlosses decreased in the first quarter of 2009 when compared to credit losses of$18.8 in the fourth quarter of 2008. The percentage of retail loan and leasereceivables past due over 30 days has increased to 2.30% as of March 31,2009 compared to 2.27% at December 31, 2008. The retail loan and leasereceivables past due over 30 days ratio was 2.50% at March 31, 2008. Theallowance for losses as a percentage of the total portfolio increased to 2.30%at March 31, 2009 from 2.26% as of December 31, 2008.

 

The estimation methods and factors considered fordetermining the allowance during the periods included in this filing have beenconsistently applied. There have been no significant changes in customercontract terms during the periods.

 

**Company Outlook**

 

Company results are principallydependent on the generation of loans and leases and the related spread betweenthe yields on loans and leases and borrowing costs and the level of creditlosses. A reduction in average earning assets is expected as lower forecastedPACCAR truck sales will likely result in lower new business volume in2009.  The Company continues to be exposed to the risk that economicweakness may continue to exert pressure on the profit margins of truckoperators and result in higher past-due accounts and repossessions.

 

**Fundingand Liquidity**

 

Duringthe first three months of 2009, the Company maintained its Moody’s and Standard &Poor’s short-and long-term debt ratings.

 

The Company’s debt ratingsat March 31,2009****are as follows:

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

 

The Company’s strongcredit ratings are primarily based on PACCAR’s credit rating.

 

The Company periodically registers debt securitiesunder the Securities Act of 1933 for offering to the public. In 2006, the Company filed a shelfregistration statement to issue medium-term notes. The registration expires in November 2009and does not limit the principal amount of debt securities that may be issuedduring the period.  The Company intendsto file a new shelf registration statement under the Securities Act of 1933 in November 2009.

 

On October 20, 2008,the Company was approved to participate in the Commercial Paper FundingFacility offered by the Federal Reserve Bank of New York.  Under this funding facility, the Company mayissue 90-day commercial paper through October 30, 2009.  The maximum amount of commercial paper thatthe Company may have outstanding under this program is $1,456.8.  As of March 31,2009, the Company had no commercial paper outstanding under this program.

 

During the first quarterof 2009 PACCAR loaned the Company $370.0 from the proceeds of PACCAR’s $750.0fixed rate medium-term note issuance in February 2009.  The Company’s loans mature in 2012 and 2014.

 

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The Company believes it willbe able to fund receivables, service debt and meet its other paymentobligations through internally generated funds, access to public and privatedebt markets, and advances from PACCAR Inc.

 

TheCompany participates with PACCAR and certain other PACCAR affiliates insyndicated credit facilities of $3,000 at March 31, 2009. Of thisamount, $2,000 expires in June 2009 and $1,000 expires in 2012.PACCAR intends to replace these credit facilities as they expire withfacilities of similar amounts.

 

Creditfacilities of $2,040 are available for use by the Company and/or PACCAR andcertain other PACCAR affiliates. The remaining $960 is allocated to thefollowing subsidiaries: $455 is available for use by PACCAR’s Canadianfinancial subsidiary, $400 is available for use by PACCAR’s Mexican subsidiary,and $105 is available for use by PACCAR’s Australian financial subsidiary.These credit facilities are used to provide backup liquidity for the Company’scommercial paper and maturing medium-term notes. The Company is liable only forits own borrowings under these credit facilities. There were no borrowingsunder these credit facilities in the three months ended March 31, 2009 andthe year ended December 31, 2008.

 

Otherinformation on liquidity, sources of capital, and contractual cash commitmentsas presented in the Company’s 2008 Annual Report on Form 10-K continues tobe relevant.

 

**ForwardLooking Statements**

 

Certaininformation presented in this Form 10-Q contains forward-lookingstatements made pursuant to the Private Securities Litigation Reform Act of1995, which are subject to risks and uncertainties that may affect actualresults. Risks and uncertainties include, but are not limited to: national andlocal economic, political and industry conditions; changes in the levels of newbusiness volume due to unit fluctuations in new PACCAR truck sales; changes incompetitive factors; changes affecting the profitability of truck owners andoperators; price changes impacting equipment costs and residual values; changesin costs, insufficient liquidity in the capital markets and availability ofother funding sources; and legislation and governmental regulation.

 

**ITEM 3.   QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Therehave been no material changes in the Company’s market risk during the threemonths ended March 31, 2009. For additional information, refer to themarket risk disclosure in Item 7A as presented in the Company’s 2008 AnnualReport on Form 10-K.

 

**ITEM 4 &4T.**

 

**CONTROLS AND PROCEDURES**

 

Anevaluation was performed under the supervision and with the participation ofthe Company’s management, including the principal executive officer andprincipal financial officer, of the effectiveness of the design and operationof the Company’s disclosure controls and procedures (as defined in rules 13a-15(e) and15d-15(e) promulgated under the Securities Exchange Act of 1934, asamended) as of March 31, 2009 (“Evaluation Date”). Based on thatevaluation, the principal executive officer and principal financial officer ofthe Company concluded that the disclosure controls and procedures in place atthe Company are effective to ensure that information required to be disclosedby the Company, including its consolidated subsidiaries (the Company has nosubsidiaries), in reports that the Company files or submits under the ExchangeAct, is recorded, processed, summarized and reported on a timely basis inaccordance with applicable rules and regulations. There have been nosignificant changes in the Company’s internal control over financial reportingthat occurred during the fiscal quarter covered by this quarterly report thathave materially affected, or are reasonably likely to materially affect,internal control over financial reporting.

 

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**PART II – OTHER INFORMATION**

 

Foritems 1 and 5, there was no reportable information during the three monthsended March 31, 2009.

 

Items2, 3 and 4 are omitted pursuant to Form 10-Q General Instructions (H)(1)(A) and(B).

 
| **ITEM 1A.** | **RISK  FACTORS**                                                                                                                                                                                                                                         |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                      |
|         | For information regarding  risk factors, refer to Part I, Item 1A as presented in the 2008 Annual  Report Form 10-K. There have been no material changes in the Company’s  risk factors during the three months ended March 31, 2009. |
|         |                                                                                                                                                                                                                                                      |
| **ITEM 6.**  | **EXHIBITS**                                                                                                                                                                                                                                              |
|         |                                                                                                                                                                                                                                                      |
|         | Any  exhibits filed herewith are listed in the accompanying index to 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   | May 6, 2009 |                       | By | /s/ Timothy M. Henebry |
|   |             |                       | Timothy M. Henebry  President  (Authorized Officer) |
|   |             |                       |   |
|   |             |                       |   |
|   |             | By                         | /s/ Nanette C. Anderson |
|   |             |                       | Nanette C. Anderson  Controller  (Chief Accounting Officer) |
|        |                  |                            |  |  |

 

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**EXHIBIT INDEX**

 

Exhibits (in order of assigned index numbers)

 

3                                                            Articles of incorporation and bylaws:

 

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

 

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

 

4                                                            Instruments defining the rights ofsecurity holders, including indentures:

 

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

 

(b)         Forms of 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 Number 333-111504).

 

(c)          Forms of Medium-Term Note, Series L(incorporated by reference to Exhibits 4.2A and 4.2B to the Company’sRegistration Statement on Form S-3 dated November 7, 2006,Registration Number 333-138464).

 

10                                                      Material contracts:

 

(a)          Support Agreement between the Company andPACCAR dated as of June 19, 1989 (incorporated by reference to Exhibit 28.1 to the Company’sRegistration Statement on Form S-3 dated June 23, 1989, RegistrationNumber 33-29434).

 

12                                                      Statements re computation of ratios:

 

(a)          Computation of ratio of earnings to fixedcharges of the Company pursuant to SEC reporting requirements for the threemonth periods ended March 31, 2009 and 2008.

 

(b)         Computation of ratio of earnings to fixedcharges of the Company pursuant to the Support Agreement between the Companyand PACCAR for the three month periods ended March 31, 2009 and 2008.

 

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

 

(a)          Certification of Principal ExecutiveOfficer.

 

(b)         Certification of Principal FinancialOfficer.

 

32                                                      Section 1350 Certifications:

 

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

 

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

 

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