** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **x****Quarterly Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                         |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                |
| **For the quarterly period ended March 31, 2008**                                                                                                                                                         |
| ** **                                                                                                                                                                                                |
| **or**                                                                                                                                                                                                    |
| ** **                                                                                                                                                                                                |
| **o****Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                        |
| ** **                                                                                                                                                                                                |
| **For transition period from               to              ** |

 

**CommissionFile No. 001-11677**

 

**PACCARFINANCIAL CORP.**

(Exact name ofregistrant 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’stelephone 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   x    Noo

 

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 “acceleratedfiler and large accelerated filer” in Rule 12b-2 of 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).  Yeso   No  x

 

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

 

Common Stock, $100 parvalue—145,000 shares as of April 30, 2008

 

THE REGISTRANT ISA WHOLLY OWNED INDIRECT SUBSIDIARY OF PACCAR INC AND MEETS THE CONDITIONS SETFORTH IN GENERAL INSTRUCTIONS (H)(1)(A) AND (B) OF FORM 10-Q ANDIS, THEREFORE, FILING THIS FORM WITH THE REDUCED 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, 2008 and 2007 (Unaudited) | 3                                                                                           |
|                                                                                                          |                                                                                        |     |
| Balance Sheets—  March 31, 2008 (Unaudited) and December 31, 2007                              | 4                                                                                           |
|                                                                                                          |                                                                                        |     |
| Statements of Cash Flows —Three  Months Ended March 31, 2008 and 2007 (Unaudited)                   | 5                                                                                           |
|                                                                                                          |                                                                                        |     |
| Notes to  Financial Statements (Unaudited)                                                                    | 6                                                                                           |
|                                                                                                          |                                                                                        |     |
| ITEM 2.                                                                                                       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 9        |
|                                                                                                          |                                                                                        |     |
| ITEM  3.                                                                                                      | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 | 11       |
|                                                                                                          |                                                                                        |     |
| ITEMS 4 & 4T.                                                                                        | CONTROLS AND PROCEDURES                                                                     | 12       |
|                                                                                                          |                                                                                        |     |
| PART II. OTHER  INFORMATION:                                                                             |                                                                                        |
|                                                                                                          |                                                                                        |     |
| ITEM 6.                                                                                                       | EXHIBITS                                                                                    | 13       |
|                                                                                                          |                                                                                        |     |
| SIGNATURES                                                                                                    |                                                                                        | 14       |
|                                                                                                          |                                                                                        |     |
| EXHIBIT INDEX                                                                                                 | 15                                                                                          |

 

2

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**FORM 10-Q**

**PACCARFINANCIAL CORP.**

 

**PART I– FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS**

 

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

(Millions ofDollars)

 
| Three Months Ended March 31 | ** ** | **2008**   | ** ** | 2007   | ** ** |
|-------------------------------------------------|------------|------------|------------|--------|------------|
|                                            |       |       |       |   |       |
| Interest and  fees                              | ** ** | **$**      | **83.9**   |   | $          | 90.2 |   |
| Operating lease  and rental income              | ** ** | **40.3**   |       | 35.5   |       |
| Insurance  premiums and other                   | ** ** | **9.1**    |       | 13.6   |       |
|                                            | ** ** | ** ** |       |   |       |
| **TOTAL  INTEREST AND OTHER REVENUE**           | ** ** | **133.3**  |       | 139.3  |       |
|                                            |       |       |       |   |       |
| Interest and  other borrowing expenses          | ** ** | **45.8**   |       | 50.4   |       |
| Depreciation and  other rental expenses         | ** ** | **32.4**   |       | 29.4   |       |
| Insurance claims  and other expenses            | ** ** | **4.3**    |       | 10.0   |       |
| Selling, general  and administrative expenses   | ** ** | **13.4**   |       | 12.4   |       |
| Provision for  losses on receivables            | ** ** | **12.5**   |       | 4.0    |       |
|                                            | ** ** | ** ** |       |   |       |
| **TOTAL  EXPENSES**                             | ** ** | **108.4**  |       | 106.2  |       |
|                                            |       |       |       |   |       |
| **INCOME  BEFORE INCOME TAXES**                 | ** ** | **24.9**   |       | 33.1   |       |
|                                            |       |       |       |   |       |
| Income taxes                                    | ** ** | **9.5**    |       | 12.7   |       |
|                                            |       |       |       |   |       |
| **NET  INCOME**                                 | ** ** | **15.4**   |       | 20.4   |       |
| ** **                                      | ** ** | ** ** |       |   |       |
| **RETAINED  EARNINGS AT BEGINNING OF PERIOD**   | ** ** | **590.2**  |       | 532.0  |       |
| ** **                                      | ** ** | ** ** |       |   |       |
| **RETAINED  EARNINGS AT END OF PERIOD**         | ** ** | **$**      | **605.6**  |   | $          | 552.4 |   |

 

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

 

See Notes toFinancial Statements.

 

3

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**FORM 10-Q**

**PACCARFINANCIAL CORP.**

 
| **Balance Sheets**                                                                                                                       | ** ** | **March 31** | ** **  | December 31 | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|------------------|------------|
| (Millions of Dollars)                                                                                                               | ** ** | **2008**          | ** **  | 2007*            | ** ** |
|                                                                                                                                          |       | **(Unaudited)**   |        |             |       |
| **ASSETS**                                                                                                                                    | ** ** | ** **        | ** **  | ** **       | ** ** |
|                                                                                                                                          |       |              |        |             |       |
| Cash                                                                                                                                          | ** ** | **$**             | **20.8**    |             | $          | 25.6 |   |
| Finance and  other receivables, net of allowance for losses (2008 - $92.6 and 2007 -  $92.6)                                                  |       | **4,326.9**       |        | 4,550.3          |       |
| Due from PACCAR  Inc and affiliates                                                                                                           | ** ** | **398.5**         |        | 402.8            |       |
| Equipment on  operating leases, net of depreciation (2008 - $200.3 and 2007 - $189.2)                                                         | ** ** | **474.0**         |        | 475.5            |       |
| Other assets                                                                                                                                  | ** ** | **74.7**          |        | 53.4             |       |
|                                                                                                                                          |       |              |        |             |       |
| **TOTAL  ASSETS**                                                                                                                             | ** ** | **$**             | **5,294.9** |             | $          | 5,507.6 |   |
|                                                                                                                                          |       |              |        |             |       |
| **LIABILITIES**                                                                                                                               | ** ** | ** **        | ** **  | ** **       | ** ** |
| ** **                                                                                                                                    | ** ** | ** **        | ** **  | ** **       | ** ** |
| Accounts  payable, accrued expenses and other                                                                                                 | ** ** | **$**             | **262.1**   |             | $          | 239.3 |   |
| Due to PACCAR  Inc and affiliates                                                                                                             | ** ** | **12.1**          |        | 10.1             |       |
| Commercial paper                                                                                                                              | ** ** | **1,283.9**       |        | 1,453.7          |       |
| Medium-term  notes                                                                                                                            | ** ** | **2,575.0**       |        | 2,625.0          |       |
| Income taxes –  current and deferred                                                                                                     | ** ** | **344.8**         |        | 354.9            |       |
|                                                                                                                                          |       |              |        |             |       |
| **TOTAL  LIABILITIES**                                                                                                                        | ** ** | **$**             | **4,477.9** |             |       | $ | 4,683.0 |   |
|                                                                                                                                          |       |              |        |             |       |
| **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 $100 per share, 200,000 shares authorized, 145,000 shares issued  and outstanding                                    | ** ** | **14.5**          |        | 14.5             |       |
| Additional  paid-in capital                                                                                                                   | ** ** | **223.5**         |        | 215.1            |       |
| Retained  earnings                                                                                                                            | ** ** | **605.7**         |        | 590.3            |       |
| Accumulated other comprehensive loss                                                                                                          | ** ** | **(57.7**         | **)**       | (26.3            | )          |
|                                                                                                                                          |       |              |        |             |       |
| **TOTAL  STOCKHOLDER’S EQUITY**                                                                                                          | ** ** | **817.0**         |        | 824.6            |       |
|                                                                                                                                          |       |              |        |             |       |
| **TOTAL  LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                          | ** ** | **$**             | **5,294.9** |             | $          | 5,507.6 |   |
|                                                                                                                                               |            |                   |             |                  |            |  |  |  |  |

 

*The December 31,2007 balance sheet has been derived from audited financial statements.

 

See Notes toFinancial Statements.

 

4

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##### ** **

**FORM 10-Q**

**PACCARFINANCIAL CORP.**

 

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

(Millions ofDollars)

 
| Three Months Ended March 31                             | ** ** | **2008**   | ** ** | 2007       | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                  |       |       | ** ** |       |       |
| **OPERATING  ACTIVITIES**                                                   |       |       | ** ** |       |       |
| ** **                                                                  |       |       | ** ** |       |       |
| Net income                                                                  | ** ** | **$**      | **15.4**   | ** ** | $          | 20.4 |   |
| Items included  in net income not affecting cash:                           |       |       | ** ** |       |       |
| Depreciation and  amortization                                              | ** ** | **24.7**   | ** ** | 23.1       |       |
| Provision for  losses on receivables                                        | ** ** | **12.5**   | ** ** | 4.0        |       |
| Decrease in  deferred tax liability                                         | ** ** | **(3.1**   | **)**      | (.8        | )          |
| Administrative  fees for services from PFSC                                 | ** ** | **8.4**    | ** ** | 7.5        |       |
| Decrease in  payables and other                                             | ** ** | **(18.5**  | **)**      | (11.3      | )          |
|                                                                        | ** ** | ** ** | ** ** |       |       |
| **NET  CASH PROVIDED BY OPERATING ACTIVITIES**                              | ** ** | **39.4**   | ** ** | 42.9       |       |
| ** **                                                                  | ** ** | ** ** | ** ** |       |       |
| **INVESTING  ACTIVITIES**                                                   |       |       | ** ** |       |       |
| ** **                                                                  |       |       | ** ** |       |       |
| Finance and  other receivables originated                                   | ** ** | **(261.1** | **)**      | (494.7     | )          |
| Collections on  finance and other receivables                               | ** ** | **431.6**  | ** ** | 390.3      |       |
| Net decrease in  wholesale receivables                                      | ** ** | **30.6**   | ** ** | 20.0       |       |
| Net decrease  (increase) in loans and leases from PACCAR Inc and affiliates | ** ** | **4.2**    | ** ** | (7.7       | )          |
| Acquisition of  equipment on operating leases, primarily from PACCAR Inc    | ** ** | **(33.1**  | **)**      | (20.5      | )          |
| Proceeds from  disposal of equipment                                        | ** ** | **15.4**   | ** ** | 21.8       |       |
| Other                                                                       | ** ** | **(12.7**  | **)**      | (8.6       | )          |
|                                                                        | ** ** | ** ** | ** ** |       |       |
| **NET  CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES**                    | ** ** | **174.9**  | ** ** | (99.4      | )          |
| ** **                                                                  | ** ** | ** ** | ** ** |       |       |
| **FINANCING  ACTIVITIES**                                                   |       |       | ** ** |       |       |
| ** **                                                                  |       |       | ** ** |       |       |
| Net (decrease)  increase in commercial paper                                | ** ** | **(169.8** | **)**      | 203.6      |       |
| Payments of  medium-term notes                                              | ** ** | **(50.0**  | **)**      | (150.0     | )          |
| Advances from PACCAR Inc                                                    | ** ** | **.7**     | ** ** | 4.9        |       |
|                                                                        | ** ** | ** ** | ** ** |       |       |
| **NET  CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES**                    | ** ** | **(219.1** | **)**      | 58.5       |       |
| ** **                                                                  | ** ** | ** ** | ** ** |       |       |
| **NET  (DECREASE) INCREASE IN CASH**                                        | ** ** | **(4.8**   | **)**      | 2.0        |       |
| ** **                                                                  | ** ** | ** ** | ** ** |       |       |
| **CASH AT  BEGINNING OF PERIOD**                                            | ** ** | **25.6**   | ** ** | 13.9       |       |
| ** **                                                                  | ** ** | ** ** | ** ** |       |       |
| **CASH AT  END OF PERIOD**                                                  | ** ** | **$**      | **20.8**   | ** ** | $          | 15.9 |   |

 

See Notes toFinancial Statements.

 

5

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**FORM 10-Q**

**PACCARFINANCIAL CORP.**

 

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

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

 

**NOTE A – Basis of Presentation**

 

The accompanying unaudited financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the information andfootnotes required by generally accepted accounting principles for completefinancial statements. In the opinion of management, all adjustments (consistingof normal recurring accruals) considered necessary for a fair presentation havebeen included. 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, 2007.

 

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

 

The Company and PACCAR Inc (“PACCAR”) are parties to a Support Agreementthat obligates PACCAR to provide, when required, financial assistance to theCompany to ensure that the Company maintains a ratio of net earnings availablefor fixed charges to fixed charges (as defined in the Agreement) of at least1.25 to 1 for any fiscal year. The required ratio for the three months ended March 31,2008 and full year 2007 was met without assistance. The Company determines theamount of PACCAR assistance, if any, at the end of each year. The Support Agreementalso requires PACCAR to own, directly or indirectly, all outstanding votingstock of the Company.

 

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

 

There were no cash dividends declared or paid during the first quarterof 2008 and 2007.

 

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

 

Company employees and PACCAR employees are covered by a defined benefitpension plan and an unfunded post-retirement medical and life insurance plan,both sponsored by PACCAR. The assets and liabilities of these plans arereflected on the balance sheets of PACCAR. PACCAR contributes to the plans andallocates the expenses to the Company based principally on the number ofeligible plan participants.

 

Company employees and PACCAR employees are also covered by a definedcontribution plan, sponsored by PACCAR. Expenses incurred by the Company forthe defined contribution plan benefits are based on the actual contributionmade on behalf of participating employees.

 

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

 

Periodically, theCompany makes loans to, borrows from and has intercompany transactions withPACCAR. In addition, the Companyperiodically loans funds to certain foreign finance and leasing affiliates ofPACCAR. These various affiliates have Support Agreements with PACCAR, similarto the Company’s Support Agreement. The foreign affiliates operate in theUnited Kingdom, The Netherlands, Mexico, Canada and Australia, and anyresulting currency exposure is fully hedged.

 

6

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The foreign affiliates primarily provide financing and leasing ofPACCAR-manufactured trucks and related equipment sold through PACCAR’s independentdealer networks in Europe, Mexico, Canada and Australia. The Company will notmake loans to the foreign affiliates in excess of the equivalent of $500.0United States dollars, unless the amount in excess of such limit is guaranteedby PACCAR. The Company periodically reviews the funding alternatives for theseaffiliates, and these limits may be revisedin the future.

 

Amountsoutstanding at March 31, 2008, including foreign finance affiliatesoperating in The Netherlands, Mexico, Canadaand Australia, are summarized below:

 
| ** **                                                  | ** ** | **March 31  2008** | ** ** | December 31  2007 | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| Due from PACCAR Inc and affiliates | ** ** | ** **              |       |                   |       |
| Loans due from  PACCAR Inc                                  | ** ** | **$**                   | **18.5**   |                   | $          | 11.5 |   |
| Loans due from  foreign finance affiliates                  | ** ** | **361.2**               |       | 371.2                  |       |
| Direct financing  leases due from affiliate                 | ** ** | **15.0**                |       | 16.2                   |       |
| Receivables                                                 | ** ** | **3.8**                 |       | 3.9                    |       |
| Total                                                       | ** ** | **$**                   | **398.5**  |                   | $          | 402.8 |   |
|                                                        |       |                    |       |                   |       |
| Due to PACCAR  Inc and affiliates                           |       |                    |       |                   |       |
| Loans due to  PACCAR Inc                                    | ** ** | **$**                   | **.7**     |                   | $          |   |   |
| Payables                                                    | ** ** | **11.4**                |       | 10.1                   |       |
| Total                                                       | ** ** | **$**                   | **12.1**   |                   | $          | 10.1 |   |
|                                                             |            |                         |            |                        |            |  |  |  |

 

Amountsoutstanding at December 31, 2007 include loans outstanding to foreignaffiliates operating in The Netherlands, Mexico and Canada. The Companyprovides direct financing leases to a certain dealer location owned directly byan affiliate of PACCAR.

 

PACCAR has issued letters of credit as of March 31, 2008 in theamount of $4.9 on behalf of the Company to guarantee funds for payment toinsured franchisees and customers for any future insurance losses.

 

**NOTE C – Stockholder’s Equity**

 

**Preferred Stock**

 

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

 

**Other Comprehensive Income**

 

The components ofother comprehensive (loss) income, net of related tax, were as follows:

 
| ** **                                   | ** ** | Three Months Ended | ** ** |
|----------------------------------------------|------------|------------------------------|------------|
| ** **                                   | ** ** | March 31                | ** ** |
| ** **                                   | ** ** | **2008**                     | ** ** | 2007 | ** ** |
| Net income                                   | ** ** | **$**                        | **15.4**   | ** ** | $ | 20.4 |   |
| Other  comprehensive income:                 |       |                         | ** ** |   |   |
| Unrealized net  loss on derivative contracts | ** ** | **(31.4**                    | **)**      | (6.7 | ) |
| Total  comprehensive (loss) income           | ** ** | **$**                        | **(16.0**  | **)** | $ | 13.7 |   |

 

7

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The unrealized net loss on derivative contracts in the three monthsended March 31, 2008 was due to a decrease in market interest ratescausing a decrease in the fair value of the Company’s floating to fixedinterest rate swap contracts.

 

Accumulated other comprehensive loss of $(57.7) and $(26.3) at March 31,2008 and December 31, 2007, respectively, is comprised of the unrealizednet loss on derivative contracts.

 

**NOTE D –Fair Value Measurements**

 

The Company adopted Statement No.157, Fair Value Measurements (FAS 157)effective January 1, 2008 with no effect on the financial statements. FAS157 defines fair value and establishes a three-level hierarchy for measuringfair value of certain financial instruments based on the source of informationused to determine fair value. FAS 157 also expands disclosures about fair valuemeasurements. The hierarchy of fair value measurements is described below:

 

Level 1 – Valuations are based on quoted prices that the Company has theability to obtain in actively traded markets for identical assets orliabilities. Since valuations are based on quoted prices that are readily andregularly available in an active market or exchange traded market, valuation ofthese instruments does not require a significant degree of judgment.

 

Level 2 – Valuations are based on quoted prices for similar instrumentsin active markets, quoted prices for identical or similar instruments inmarkets that are not active, and model-based valuation techniques for which allsignificant assumptions are observable in the market.

 

Level 3 – Valuations are based on model-based techniques for which someor all of the assumptions are obtained from indirect market information that issignificant to the overall fair value measurement and which require asignificant degree of management judgment.

 

At March 31, 2008 the Company’s net liability related to interestrate derivatives totaled $93.4 and were the only instruments categorized asLevel 2. There were no Level 1 or 3 assets or liabilities.

 

The Company’s derivative contracts consist of interest rate contracts.These derivative contracts are over the counter and their fair value isdetermined using modeling techniques that include market inputs such asinterest rates and yield curves. These contracts are categorized as Level 2.

 

8

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

 

**Results of Operations**

 

TheCompany’s net income of $15.4 for the first quarter of 2008 decreased from$20.4 for the first quarter of 2007. Income before income taxes decreased $8.2from $33.1 from the first quarter of 2007 to $24.9 in 2008 primarily as aresult of an increase in the provision for losses on receivables due to highercredit losses. Interest and fees in the first quarter of 2008 decreased $6.3 to$83.9 from $90.2 in the first quarter of 2007. Lower earning assets, due to adecline in truck sales, contributed $9.7 to the first quarter decrease,partially offset by higher interest rates which contributed $3.4. Operatinglease and rental income, and the related depreciation and other rental expensesfor the first quarter of 2008 increased due to higher average operating leaseassets. Insurance premiums and other decreased in the first quarter of 2008 dueto fewer contracts in force.

 

Interestand other borrowing expenses decreased $4.6 for the first quarter of 2008 fromthe comparable period in 2007. Lower average debt balances contributed $3.1 andlower borrowing rates contributed $1.5 to the first quarter decrease. Insuranceclaims and other expenses decreased in the first quarter of 2008, from thecomparable period in 2007, due to lower claims. The Company’s effective incometax rate of 38.2% for the first quarter of 2008 was comparable to the firstquarter of 2007.

 

The followingtable summarizes information on the Company’s allowance for losses onreceivables and asset portfolio and presents related ratios:

 

##### **Allowance forLosses**

 
| ** **                                                                                                                                                | ** ** | **Three Months  Ended** | ** ** | Three Months  Ended |   | Year Ended  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------|--------|------------------|------------|
| ** **                                                                                                                                                | ** ** | **March 31**            | ** ** | March 31            |   | December 31 | ** ** |
| ** **                                                                                                                                                | ** ** | **2008**                     | ** ** | 2007                     |   | 2007             | ** ** |
| Balance at  beginning of period                                                                                                                           | ** ** | **$**                        | **92.6**   | ** **               | $      | 86.9             |       | $ | 86.9 |   |
| Provision for  losses                                                                                                                                     | ** ** | **12.5**                     | ** ** | 4.0                      |   | 24.4             |       |
| Credit losses                                                                                                                                             | ** ** | **(12.9**                    | **)**      | (2.9                     | )      | (20.7            | )          |
| Recoveries                                                                                                                                                | ** ** | **.4**                       | ** ** | .5                       |   | 2.0              |       |
| Balance at end  of period                                                                                                                                 | ** ** | **$**                        | **92.6**   | ** **               | $      | 88.5             |       | $ | 92.6 |   |
|                                                                                                                                                      | ** ** | ** **                   | ** ** |                     |   |             |       |
| Ratios:                                                                                                                                                   |       |                         | ** ** |                     |   |             |       |
|                                                                                                                                                      |       |                         | ** ** |                     |   |             |       |
| Credit losses  net of recoveries ($12.5 in 2008) to average total portfolio ($4,378.8 in  2008) annualized at March 31, 2008 and 2007                | ** ** | **1.15%**                    | ** ** | .20%                     |   | .39%             |       |
|                                                                                                                                                      | ** ** | ** **                   | ** ** |                     |   |             |       |
| Allowance for  losses ($92.6 in 2008) to period-end total portfolio ($4,419.5 in 2008)                                                                    | ** ** | **2.10%**                    | ** ** | 1.74%                    |   | 1.99%            |       |
|                                                                                                                                                      | ** ** | ** **                   | ** ** |                     |   |             |       |
| Period-end  retail loan and lease receivables past due, over 30 days, ($93.1 in 2008) to  period-end retail loan and lease receivables ($3,717.3 in 2008) | ** ** | **2.50%**                    | ** ** | 1.03%                    |   | 2.80%            |       |

 

9

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The Company’sportfolio is concentrated with customers in the heavy and medium duty trucktransportation industry.  The portfoliois comprised of retail loans and leases, dealer wholesale financing and dealermaster notes as follows:

 
|                        | ** ** | **March 31** |        | March 31 |     | December 31 |   |
|-----------------------------|------------|-------------------|-------------|---------------|----------|------------------|--------|
|                        | ** ** | **2008**          |        | 2007          |     | 2007             |   |
| Retail loans                | ** ** | **$**             | **2,542.9** | ** **    | **58%**  |             | $      | 2,892.4 |   | 57% |   | $ | 2,667.8 |   | 57% |   |
| Retail leases               | ** ** | **1,174.4**       | ** **  | **26%**       |     | 1,216.3          |   | 24% |   | 1,219.5 |   | 27% |   |
| Dealer wholesale  financing | ** ** | **423.4**         | ** **  | **10%**       |     | 696.4            |   | 14% |   | 454.0 |   | 10% |   |
| Dealer master  notes        | ** ** | **278.8**         | ** **  | **6%**        |     | 290.0            |   | 5% |   | 301.6 |   | 6% |   |
| Total portfolio             | ** ** | **$**             | **4,419.5** | ** **    | **100%** |             | $      | 5,095.1 |   | 100% |   | $ | 4,642.9 |   | 100% |   |

 

In the firstquarter of 2008, an economic slowdown together with higher fuel costs haveresulted in increases in past due receivables and credit losses as certaintruck owners have experienced diminished operating profits and cashflows whichhave decreased their ability to make timely payments. Credit losses net ofrecoveries for the first quarter of 2008 increased to $12.5 compared to $2.4for the first quarter of 2007 as a result of an increase in repossessionactivity.  The percentage of retail loanand lease receivables past due over 30 days was 2.50% as of March 31, 2008compared to 1.03% for the same period end in 2007. The allowance for losses asa percentage of the total portfolio increased to 2.10% at March 31, 2008from 1.99% at year-end 2007 and 1.74% at March 31, 2007.

 

The estimationmethods and factors considered for determining the allowance during the periodsincluded in this filing have been consistently applied. There have been nosignificant changes in customer contract terms during the periods.

 

**CompanyOutlook**

 

The profitability of the Company is principally dependent on thegeneration of new business volume and the related spread between the assetyields and the borrowing costs, as well as the level of credit lossesexperienced. Assets are not likely to increase until the new truck retail salesmarket recovers. The Company has the potential of being exposed to reducedliquidity in the capital markets but does not anticipate the impact of reducedliquidity to materially impact its ability to generate new business volume (seeFunding and Liquidity below). The Company continues to be impacted by a slowereconomy. Higher fuel costs may continue to exert negative pressure on theprofit margins of truck operators and result in higher past-due accounts andincreased repossessions.

 

**Funding and Liquidity**

 

The Companyperiodically registers debt securities under the Securities Act of 1933 foroffering to the public. In 2006, theCompany filed a new shelf registration statement. The registration expires in2009 and does not limit the principal amount of debt securities that may beissued during the period.

 

10

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The Company’s investment grade credit ratings continue to provideaccess to capital markets at competitive interest rates. The Company’scredit ratings enabled it to meet its funding requirements despite continueddisturbance in certain credit markets during the first quarter of 2008. The Company believes it will be able to fundreceivables, service debt and pay dividends through internally generatedfunds, and access to public and private debt markets.

 

The Company’s debt ratings at March 31, 2008****are as follows:

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

 

The Company’s strong credit ratings are primarily based on PACCAR’soperating cash flow, demand for its quality products and substantial financialassets.

 

TheCompany participates with PACCAR and certain other PACCAR affiliates insyndicated credit facilities of $2,700 at March 31, 2008. Of thisamount, $1,700 expires in June 2008 and $1,000 expires in 2012.PACCAR intends to replace these credit facilities as they expire withfacilities of similar amounts.

 

Creditfacilities of $1,780.5 are available for use by the Company and/or PACCAR andcertain other PACCAR affiliates. The remaining $919.5 is allocated to the followingsubsidiaries: $432.0 is only available for use by PACCAR’s Canadianfinancial subsidiary, $350.0 is only available for use by PACCAR’s Mexicansubsidiary, and $137.5 is only available for use by PACCAR’s Australianfinancial subsidiary. These credit facilities are used to provide backupliquidity for the Company’s commercial paper and maturing medium-term notes.The Company is liable only for its own borrowings under these creditfacilities. There were no borrowings under these credit facilities in the threemonths ended March 31, 2008 and the year ended December 31, 2007.

 

Otherinformation on liquidity, sources of capital, and contractual cash commitmentsas presented in the Company’s 2007 Annual Report on Form 10-K continues tobe relevant.

 

**Forward Looking Statements**

 

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

 

**ITEM3.  **** QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

There have been nomaterial changes in the Company’s market risk during the three months ended March 31,2008. For additional information, refer to the market risk disclosure in Item7A as presented in the Company’s 2007 Annual Report on Form 10-K.

 

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**ITEM 4 &4T.**

 

**CONTROLSAND PROCEDURES**

 

An evaluation was performed under the supervision and with theparticipation of the Company’s management, including the principal executiveofficer and principal financial officer, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined in rules 13a-15(e) and15d-15(e) promulgated under the Securities Exchange Act of 1934, asamended) as of March 31, 2008 (“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 nochanges in the Company’s internal controls over financial reporting during thefirst quarter of 2008 that have materially affected, or are reasonably likelyto materially affect, the Company’s internal control over financial reporting.

 

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**PART II – OTHERINFORMATION**

 

For items 1 and 5, there was no reportable information during the threemonths ended March 31, 2008.

 

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

 

**ITEM 1A.RISK FACTORS**

 

Forinformation regarding risk factors, refer to Part I, Item 1A as presentedin the 2007 Annual Report on Form 10-K. There have been no materialchanges in the Company’s risk factors during the three months ended March 31,2008.

 

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

 

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

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|   | **PACCAR  Financial Corp.** |
|--------|-----------------------------|
|   |                        | (Registrant) |
|   |                        |   |
|   |                        |   |
| Date   | May 2, 2008            |   | 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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**EXHIBITINDEX**

 

3              Articles of incorporation and bylaws:

 
|   | (a)    | Restated Articles of Incorporation of the Company, as amended  (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report  on Form 10-K dated  March 26, 1985. Amendment incorporated by reference to Exhibit 19.1  to the Company’s Quarterly Report on Form 10-Q dated August 13,  1985, File Number 0-12553). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                   |
|   | (b)    | By-laws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the  Company’s Registration Statement on Form 10 dated October 20, 1983,  File Number 0-12553).                                                                                                                                                                    |

 

4              Instruments defining the rights of securityholders, including indentures:

 
|   | (a)    | Indenture for Senior Debt Securities dated as of December 1, 1983  and first Supplemental Indenture dated as of June 19, 1989 between the Company and Wilmington Trust Company  (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report  on Form 10-K dated March 26, 1984, File Number 001-11677 and  Exhibit 4.2 to the Company’s Registration Statement on Form S-3  dated June 23, 1989, Registration Number 33-29434), and the Agreement of  Resignation, Appointment and Acceptance, dated as of October 31, 2006  (incorporated by reference to the Company’s Form 8-K dated  November 3, 2006). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | (b)    | Forms of Medium-Term  Note, Series K (incorporated by reference to Exhibits 4.2A and 4.2B to  the Company’s Registration Statement on Form S-3 dated December 23,  2003, Registration Number 333-111504).                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | Form of  Letter of Representation among the Company, Citibank, N.A. and The Depository  Trust Company, Series K (incorporated by reference to Exhibit 4.3  to the Company’s Registration Statement on Form S-3 dated  December 23, 2003, Registration Number 333-111504).                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | (c)    | Forms of  Medium-Term Note, Series L (incorporated by reference to Exhibits 4.2A  and 4.2B to the Company’s Registration  Statement on Form S-3 dated November 7, 2006, Registration Number  333-138464).                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | Form of Letter of Representation among the Company, Citibank,  N.A. and The Depository Trust Company, Series L (incorporated by  reference to Exhibit 4.3 to the Company’s Registration Statement on  Form S-3 dated November 7, 2006, Registration Number 333-138464).                                                                                                                                                                                                                                                                                                                                                                                          |

 

10            Material contracts:

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

 

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12            Statements re computation of ratios:

 
|   | (a)    | Computation of ratio of earnings to fixed charges of the Company pursuant to SEC reporting requirements for the three  month periods ended March 31, 2008 and 2007.                             |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                 |
|   | (b)    | Computation of ratio of earnings to fixed charges of the Company  pursuant to the Support Agreement  between the Company and PACCAR for the three month periods ended  March 31, 2008 and 2007. |
|   |   |                                                                                                                                                                                                 |
|   | (c)    | Computation of ratio of earnings to fixed charges of PACCAR and  subsidiaries pursuant to SEC  reporting requirements for the three month periods ended March 31,  2008 and 2007.               |

 

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

 
|   | (a)    | Certification of  Principal Executive Officer. |
|--------|--------|------------------------------------------------|
|   |   |                                           |
|   | (b)    | Certification of  Principal Financial Officer. |

 

32            Section 1350Certifications:

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

 

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