**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

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

**For the quarterly period endedMarch 31, 2007**

**or**

**o****TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**For transition period from                           to                           **

**Commission File No. 001-11677**

**PACCAR FINANCIAL CORP.**

(Exact name of registrant as specified in itscharter)

| **Washington**                                             |   | **91-6029712**                        |
|------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of                           |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                            |   |                                  |
|                                                       |   |                                  |
| **777 –  106****th Ave. N.E., Bellevue, WA**     |   | **98004**                             |
| (Address of  principal executive offices)                  |   | (Zip code)                            |
|                                                       |   |                                  |
| **(425)  468-7100**                                        |
| (Registrant’s  telephone number, including area code) |

 

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

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

 

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

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

Common Stock, $100 parvalue—145,000 shares as of April 30, 2007

THE REGISTRANT IS A WHOLLYOWNED INDIRECT SUBSIDIARY OF PACCAR INC AND MEETS THE CONDITIONS SET FORTH INGENERAL INSTRUCTIONS (H)(1)(A) AND (B) OF FORM 10-Q AND IS, THEREFORE, FILINGTHIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

 

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**FORM 10-QPACCAR FINANCIAL CORP.**

**INDEX**
| PART I.  FINANCIAL INFORMATION: |                                                                                        |
|--------------------------------------|---------------------------------------------------------------------------------------------|
|                                 |                                                                                        |   |
| ITEM 1.                              | FINANCIAL  STATEMENTS:                                                                      |   |
|                                 |                                                                                        |   |
|                                 | Statements  of Income and Retained Earnings—                                           |   |
|                                 |                                                                                        | Three  Months Ended March 31, 2007 and 2006 (Unaudited) |   |
|                                 |                                                                                        |   |   |
|                                 | Balance  Sheets—                                                                       |   |
|                                 |                                                                                        | March 31,  2007 (Unaudited) and December 31, 2006 |   |
|                                 |                                                                                        |   |   |
|                                 | Statements  of Cash Flows —                                                            |   |
|                                 |                                                                                        | Three  Months Ended March 31, 2007 and 2006 (Unaudited) |   |
|                                 |                                                                                        |   |   |
|                                 | Notes to  Financial Statements (Unaudited)                                                  |   |
|                                 |                                                                                        |   |
| ITEM 2.                              | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   |
|                                 |                                                                                        |   |
| ITEM 3.                              | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 |   |
|                                 |                                                                                        |   |
| ITEM 4.                              | CONTROLS AND  PROCEDURES                                                                    |   |
|                                 |                                                                                        |   |
| PART II. OTHER  INFORMATION:         |                                                                                        |
|                                 |                                                                                        |   |
| ITEM 6.                              | EXHIBITS                                                                                    |   |
|                                 |                                                                                        |   |
| SIGNATURES                           |                                                                                        |
|                                 |                                                                                        |   |
| INDEX  TO EXHIBITS                   |                                                                                        |
|                                      |                                                                                             |  |  |  |

 

2

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**FORM 10-QPACCAR FINANCIAL CORP.**

**PART I – FINANCIALINFORMATION**

**ITEM 1.  FINANCIAL STATEMENTS**

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

| **Three Months Ended March 31**         | ** ** | **2007**   | ** ** | **2006** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|----------|------------|
|                                                        |       |       |       |     |       |
| Interest and fee income                                     | ** ** | **$**      | **90.2**   |     | $          | 72.5 |   |
| Operating lease and  rental income                          | ** ** | **35.5**   |       | 31.9     |       |
| Insurance premiums and  other revenue                       | ** ** | **13.6**   |       | 11.6     |       |
|                                                        | ** ** | ** ** |       |     |       |
| **TOTAL INTEREST AND OTHER  REVENUE**                       | ** ** | **139.3**  |       | 116.0    |       |
|                                                        |       |       |       |     |       |
| Interest and other  borrowing expenses                      | ** ** | **50.4**   |       | 35.8     |       |
| Depreciation and other  operating lease and rental expenses | ** ** | **29.4**   |       | 26.4     |       |
| Insurance claims and  other expenses                        | ** ** | **10.0**   |       | 6.8      |       |
| Selling, general and  administrative expenses               | ** ** | **12.4**   |       | 12.3     |       |
| Provision for losses on  receivables                        | ** ** | **4.0**    |       | 2.6      |       |
|                                                        | ** ** | ** ** |       |     |       |
| **TOTAL EXPENSES**                                          | ** ** | **106.2**  |       | 83.9     |       |
|                                                        |       |       |       |     |       |
| **INCOME BEFORE INCOME TAXES**                              | ** ** | **33.1**   |       | 32.1     |       |
|                                                        |       |       |       |     |       |
| Income taxes                                                | ** ** | **12.7**   |       | 12.3     |       |
|                                                        |       |       |       |     |       |
| **NET INCOME**                                              | ** ** | **20.4**   |       | 19.8     |       |
|                                                        | ** ** | ** ** |       |     |       |
| **RETAINED EARNINGS AT BEGINNING  OF PERIOD**               | ** ** | **532.0**  |       | 477.5    |       |
| Cash dividends paid                                         |       |       |       | 30.0     |       |
|                                                        |       |       |       |     |       |
| **RETAINED EARNINGS AT END OF PERIOD**                      | ** ** | **$**      | **552.4**  |     | $          | 467.3 |   |

 

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.

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**FORM 10-QPACCAR FINANCIAL CORP.**

**Balance Sheets**(Millions Except Share Amounts)
| ** **                                                                                                                                    | ** ** | **March 31** | ** **  | **December 31** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|----------------------|------------|
| ** **                                                                                                                                    | ** ** | **2007**          | ** **  | **2006***            | ** ** |
| ** **                                                                                                                                    | ** ** | **(Unaudited)**   | ** **  | ** **           | ** ** |
| **ASSETS**                                                                                                                                    | ** ** | ** **        |        |                 |       |
| ** **                                                                                                                                    | ** ** | ** **        |        |                 |       |
| Cash                                                                                                                                          | ** ** | **$**             | **15.9**    |                 | $          | 13.9 |   |
| Finance and other receivables, net of allowance for  losses (2007 - $88.5 and 2006 - $86.9)                                                   | ** ** | **5,006.6**       |        | 4,933.3              |       |
| Loans to PACCAR Inc and affiliates                                                                                                            | ** ** | **22.3**          |        | 14.6                 |       |
| Equipment on operating leases, net of depreciation  (2007 - $163.3 and 2006 - $151.1)                                                         | ** ** | **445.8**         |        | 461.4                |       |
| Other assets                                                                                                                                  | ** ** | **84.7**          |        | 85.1                 |       |
|                                                                                                                                          | ** ** | ** **        |        |                 |       |
| **TOTAL  ASSETS**                                                                                                                             | ** ** | **$**             | **5,575.3** |                 | $          | 5,508.3 |   |
| ** **                                                                                                                                    | ** ** | ** **        |        |                 |       |
| **LIABILITIES**                                                                                                                               |       |              |        |                 |       |
| ** **                                                                                                                                    |       |              |        |                 |       |
| Accounts payable, accrued expenses and other                                                                                                  | ** ** | **$**             | **247.2**   |                 | $          | 264.9 |   |
| Commercial paper                                                                                                                              | ** ** | **2,284.7**       |        | 2,081.1              |       |
| Medium-term notes                                                                                                                             | ** ** | **1,900.0**       |        | 2,050.0              |       |
| Income taxes – current and deferred                                                                                                      | ** ** | **341.2**         |        | 331.3                |       |
|                                                                                                                                          | ** ** | ** **        |        |                 |       |
| **TOTAL  LIABILITIES**                                                                                                                        | ** ** | **$**             | **4,773.1** |                 | $          | 4,727.3 |   |
| ** **                                                                                                                                    | ** ** | ** **        |        |                 |       |
| **STOCKHOLDER’S  EQUITY**                                                                                                                |       |              |        |                 |       |
| ** **                                                                                                                                    |       |              |        |                 |       |
| Preferred stock, par value $100 per share, 6%  noncumulative and nonvoting, 450,000 shares authorized, 310,000 shares issued  and outstanding | ** ** | **$**             | **31.0**    |                 | $          | 31.0 |   |
| Common stock, par value $100 per share, 200,000  shares authorized, 145,000 shares issued and outstanding                                     | ** ** | **14.5**          |        | 14.5                 |       |
| Additional paid-in capital                                                                                                                    | ** ** | **199.9**         |        | 192.4                |       |
| Retained earnings                                                                                                                             | ** ** | **552.4**         |        | 532.0                |       |
| Accumulated other comprehensive income                                                                                                        | ** ** | **4.4**           |        | 11.1                 |       |
|                                                                                                                                          | ** ** | ** **        |        |                 |       |
| **TOTAL  STOCKHOLDER’S EQUITY**                                                                                                          | ** ** | **802.2**         |        | 781.0                |       |
| ** **                                                                                                                                    | ** ** | ** **        |        |                 |       |
| **TOTAL LIABILITIES AND  STOCKHOLDER’S EQUITY**                                                                                          | ** ** | **$**             | **5,575.3** |                 | $          | 5,508.3 |   |

 

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

See Notes toFinancial Statements.

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**FORM 10-QPACCAR FINANCIAL CORP.**

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

| **Three Months Ended March 31**                      | ** ** | **2007**   | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|----------|------------|
|                                                                     |       |       |       |     |       |
| **OPERATING  ACTIVITIES**                                                |       |       |       |     |       |
| ** **                                                               |       |       |       |     |       |
| Net income                                                               | ** ** | **$**      | **20.4**   |     | $          | 19.8 |   |
| Items included in net income not affecting cash:                         |       |       |       |     |       |
| Depreciation and amortization                                            |       | **23.1**   |       | 20.5     |       |
| Provision for losses on receivables                                      |       | **4.0**    |       | 2.6      |       |
| Benefit for deferred taxes                                               | ** ** | **(.8**    | **)**      | (3.2     | )          |
| Administrative fees for services from PFSC                               |       | **7.5**    |       | 8.0      |       |
| (Decrease) increase in payables and other                                | ** ** | **(11.3**  | **)**      | 30.6     |       |
|                                                                     | ** ** | ** ** | ** ** |     |       |
| **NET  CASH PROVIDED BY OPERATING ACTIVITIES**                           | ** ** | **42.9**   |       | 78.3     |       |
| ** **                                                               | ** ** | ** ** |       |     |       |
| **INVESTING  ACTIVITIES**                                                |       |       |       |     |       |
| ** **                                                               |       |       |       |     |       |
| Finance and other receivables originated                                 | ** ** | **(494.7** | **)**      | (428.2   | )          |
| Collections on finance and other receivables                             |       | **390.3**  |       | 348.7    |       |
| Net decrease in wholesale receivables                                    |       | **20.0**   |       | 25.5     |       |
| Net increase in loans to PACCAR Inc and affiliates                       | ** ** | **(7.7**   | **)**      | (2.4     | )          |
| Acquisition of equipment on operating leases, primarily  from PACCAR Inc |       | **(20.5**  | **)**      | (17.0    | )          |
| Proceeds from disposal of equipment                                      | ** ** | **21.8**   |       | 20.3     |       |
| Other                                                                    | ** ** | **(8.6**   | **)**      | (50.7    | )          |
|                                                                     | ** ** | ** ** | ** ** |     |       |
| **NET  CASH USED IN INVESTING ACTIVITIES**                               | ** ** | **(99.4**  | **)**      | (103.8   | )          |
|                                                                     |       |       |       |     |       |
| **FINANCING  ACTIVITIES**                                                |       |       |       |     |       |
| ** **                                                               |       |       |       |     |       |
| Net increase in commercial paper                                         | ** ** | **203.6**  |       | 48.0     |       |
| Proceeds from medium-term notes                                          |       |       |       | 250.0    |       |
| Payments of medium-term notes                                            | ** ** | **(150.0** | **)**      | (250.0   | )          |
| Dividends paid                                                           |       |       |       | (30.0    | )          |
| Proceeds from advances from PACCAR Inc                                   | ** ** | **4.9**    |       | 4.4      |       |
|                                                                     | ** ** | ** ** |       |     |       |
| **NET  CASH PROVIDED BY FINANCING ACTIVITIES**                           | ** ** | **58.5**   |       | 22.4     |       |
| ** **                                                               | ** ** | ** ** |       |     |       |
| **NET  INCREASE (DECREASE) IN CASH**                                     | ** ** | **2.0**    |       | (3.1     | )          |
|                                                                     |       |       |       |     |       |
| **CASH AT  BEGINNING OF PERIOD**                                         | ** ** | **13.9**   |       | 19.0     |       |
| ** **                                                               | ** ** | ** ** |       |     |       |
| **CASH AT END OF PERIOD**                                                | ** ** | **$**      | **15.9**   |     | $          | 15.9 |   |

 

See Notes toFinancial Statements.

5

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**FORM 10-QPACCAR FINANCIAL CORP.**
| **Notes to Financial Statements (Unaudited)** | (Millions of Dollars) |
|-----------------------------------------------|-----------------------|

 

**NOTE A – Basis of Presentation**

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

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

**NewAccounting Standard**

The adoption of FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes* (FIN 48) effective January 1, 2007,had no effect on the Company’s financial statements.  As of the date of adoption, theCompany had less than $1.0 of unrecognized tax benefits which would impact theeffective tax rate if recognized.  TheCompany is not currently under examination by the IRS and has completedexaminations for all years through 2003. Tax interest and penalties are classified as income taxes inthe accompanying statements of income and were not significant in any periodpresented.  The Company does notcurrently anticipate that any significant increase or decrease to theunrecognized tax benefit will be recorded during the next 12 months.

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

The Company and PACCAR Inc (“PACCAR”) are parties to a Support Agreementthat obligates PACCAR to provide, when required, financial assistance to theCompany to ensure that the Company maintains a ratio of net earnings availablefor fixed charges to fixed charges (as defined in the Agreement) of at least1.25 to 1 for any year. The required ratio for the three months ended March 31,2007 and full year 2006 was met without assistance. The Company determines theamount of PACCAR assistance, if any, at the end of each year. The SupportAgreement also requires PACCAR to own, directly or indirectly, all outstandingvoting stock of the Company.

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

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

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

The Company’s employees are covered by a defined benefit pension plan,an unfunded post-retirement medical and life insurance plan, and a definedcontribution plan sponsored by PACCAR. The Company is

6

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charged for its share of costs under these plans. Separate allocationsof defined benefit plan assets and obligations relating to the Company have notbeen made.

Periodically, the Company borrows funds from PACCAR and makes loans toPACCAR. Loans outstanding to PACCAR were $22.3 and $14.6 at March 31, 2007 andDecember 31, 2006, respectively. Loans outstanding from PACCAR were $16.4 and$11.5 at March 31, 2007 and December 31, 2006, respectively.

PACCAR has issued letters of credit as of March 31, 2007 in the amountof $5.9 on behalf of the Company to guarantee funds for payment to insuredfranchisees and customers for any future insurance losses.

The Company periodically loans funds to certain foreign finance andleasing affiliates of PACCAR. These various affiliates have Support Agreementswith PACCAR, similar to the Company’s Support Agreement. The foreign affiliatesoperate in the United Kingdom, The Netherlands, Mexico, Canada and Australia,and any resulting currency exposure is fully hedged. The foreign affiliatesprimarily provide financing and leasing of PACCAR-manufactured trucks andrelated equipment sold through PACCAR’s independent dealer networks in Europe,Mexico, Canada and Australia. The Company will not make loans to the foreignaffiliates in excess of the equivalent of $375.0 United States dollars, unlessthe amount in excess of such limit is guaranteed by PACCAR. The Company periodicallyreviews the funding alternatives for theseaffiliates, and these limits may be revised in the future. Therewere no loans outstanding to foreign affiliates at March 31, 2007 and December31, 2006.

Included inaccounts payable, accrued expenses and other is $13.1 and $34.9 payable toPACCAR’s truck divisions at March 31, 2007 and December 31, 2006, respectively.

**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.

**Comprehensive Income**

The components ofcomprehensive income, net of related tax, were as follows:
| ** **                                          | ** ** | **Three Months Ended  March 31** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                          | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
| Net income                                          | ** ** | **$**                                           | **20.4**   |   | $ | 19.8 |   |
| Other comprehensive  income:                        | ** ** | ** **                                      |       |   |   |
| Unrealized net  (loss) gain on derivative contracts | ** ** | **(6.7**                                        | **)**      | 6.1 |   |
| Total comprehensive income                          | ** ** | **$**                                           | **13.7**   |   | $ | 25.9 |   |

 

The unrealized net loss on derivative contracts in the three monthsended March 31, 2007 was due to a decrease in long term market interest ratescausing a reduction in the fair value of the Company’s floating to fixed ratecontracts.

Accumulated other comprehensive income of $4.4 and $11.1 at March 31,2007 and December 31, 2006, respectively, is comprised of the unrealized netgain on derivative contracts.

7

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

 

**Results ofOperations**

The Company’s net income of $20.4 for the first quarter of 2007increased 3% from $19.8 for the first quarter of 2006.  The profit improvement primarily resultedfrom a higher finance gross profit (revenues minus borrowing, lease, andinsurance expenses), partially offset by an increase in the provision forlosses on receivables which is discussed further below.  Interest and other revenue in the firstquarter of 2007 increased $23.3 to $139.3 from $116.0 in the first quarter of2006 due to higher earning assets and higher interest rates.  Average earning assets in the first quarterof 2007 increased 17% compared to the first quarter of 2006 due to higher newloan and lease volume resulting from increased PACCAR truck production during2006.  Interest and other borrowingexpenses increased $14.6 to $50.4 in the first quarter of 2007 due to a 16%increase in average debt balances and higher interest rates. Depreciation andother operating lease and rental expenses increased 11% to $29.4 primarily dueto higher average balances of operating lease assets.  The Company’s effective income tax rate of38% for the first quarter of 2007 was comparable to the first quarter of 2006.

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

##### **Allowancefor Losses**

|                                                                                                                                                           | ** ** | **Three Months  Ended** | ** ** | **Three Months  Ended** | ** ** | **Year Ended**  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|----------------------|------------|
| ** **                                                                                                                                                | ** ** | **March 31**            | ** ** | **March 31**            | ** ** | **December 31** | ** ** |
| ** **                                                                                                                                                | ** ** | **2007**                     | ** ** | **2006**                     | ** ** | **2006**             | ** ** |
| Balance at  beginning of period                                                                                                                           | ** ** | **$**                        | **86.9**   |                         | $          | 77.3                 |       | $ | 77.3 |   |
| Provision for losses                                                                                                                                      | ** ** | **4.0**                      |       | 2.6                          |       | 14.9                 |       |
| Credit losses                                                                                                                                             | ** ** | **(2.9**                     | **)**      | (2.1                         | )          | (8.4                 | )          |
| Recoveries                                                                                                                                                | ** ** | **.5**                       |       | 1.0                          |       | 3.1                  |       |
| Balance at end  of period                                                                                                                                 | ** ** | **$**                        | **88.5**   |                         | $          | 78.8                 |       | $ | 86.9 |   |
|                                                                                                                                                      | ** ** | ** **                   |       |                         |       |                 |       |
| Ratios:                                                                                                                                                   |       |                         |       |                         |       |                 |       |
|                                                                                                                                                      |       |                         |       |                         |       |                 |       |
| Credit losses  net of recoveries ($2.4 in 2007) to average total portfolio ($4,976.9 in  2007) annualized at March 31, 2007 and 2006                      | ** ** | **.20**                      | **%**      | .10                          | %          | .12                  | %          |
|                                                                                                                                                      | ** ** | ** **                   | ** ** |                         |       |                 |       |
| Allowance for  losses ($88.5 in 2007) to period-end total portfolio ($5,095.1 in 2007)                                                                    | ** ** | **1.74**                     | **%**      | 1.81                         | %          | 1.73                 | %          |
|                                                                                                                                                      | ** ** | ** **                   | ** ** |                         |       |                 |       |
| Period-end retail loan  and lease receivables past due, over 30 days, ($42.3 in 2007) to period-end  retail loan and lease receivables ($4,108.7 in 2007) | ** ** | **1.03**                     | **%**      | .77                          | %          | .91                  | %          |

 

8

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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  2007** | ** **  | **March 31  2006** | ** ** | **December 31  2006** | ** ** |
|-----------------------------|------------|-------------------------|-------------|-------------------------|------------|----------------------------|------------|
| Retail loans                | ** ** | **$**                   | **2,892.4** | ** **              | **57**     | **%**                      | $          | 2,536.2 |   | 58 | % | $ | 2,798.4 |   | 56 | % |
| Retail leases               | ** ** | **1,216.3**             | ** **  | **24**                  | **%**      | 978.3                      |       | 23 | % | 1,203.9 |   | 24 | % |
| Dealer wholesale  financing | ** ** | **696.4**               | ** **  | **14**                  | **%**      | 601.5                      |       | 14 | % | 716.4 |   | 14 | % |
| Dealer master  notes        | ** ** | **290.0**               | ** **  | **5**                   | **%**      | 229.4                      |       | 5 | % | 301.5 |   | 6 | % |
| Total portfolio             | ** ** | **$**                   | **5,095.1** | ** **              | **100**    | **%**                      | $          | 4,345.4 |   | 100 | % | $ | 5,020.2 |   | 100 | % |

 

The provision forlosses in the first quarter of 2007 of $4.0 increased $1.4 from $2.6 in thefirst quarter of 2006, primarily from portfolio growth, higher credit lossesand lower recoveries.  As a percentage ofthe total portfolio, net credit losses increased to .20% for the three months endedMarch 31, 2007 from .10% for the three months ended March 31, 2006.  This reflected some softening in freightdemand that negatively impacted customers’ ability to make payments.

Dealer wholesalefinancing and master notes, which have lower allowance for losses than retailaccounts, increased to $986.4 of the total portfolio at March 31, 2007 comparedto $830.9 in March 2006.  The ratio ofthe allowance for losses to period-end total portfolio was 1.74% at March 31,2007 versus 1.81% at March 31, 2006.

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

**CompanyOutlook**

The futureprofitability of the Company is principally dependent on the generation of newbusiness volume, the related spread between the asset yields and the borrowingcosts on new business and the level of credit losses experienced.  Asset growth is expected to be modest as newbusiness originated is forecast to approximate collections on theportfolio.  The Company continues to beexposed to risks affecting freight demand, including economic weakness, changesin governmental regulations and volatile interest rates and diesel prices, thatcould negatively impact future truck sales financed and existing customers’ability to make timely payments, which could increase the level of creditlosses experienced.

**Funding andLiquidity**

The Company periodically registers debtsecurities under the Securities Act of 1933 for offering to the public.  In November 2006, the Company filed a newshelf registration statement.  Theregistration expires in 2009 and does not limit the principal amount of debtsecurities that may be issued during the period.

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

The Company’s investmentgrade credit ratings continue to provide access to capital markets atcompetitive interest rates. The Company’s credit ratings at March 31, 2007 areas follows:
|                        | ** ** | **Moody’s** | ** ** | **Standard  and Poor’s** |
|------------------------|------------|------------------|------------|-------------------------------|
| Commercial paper       |       | P-1              |       | A-1+                          |
| Senior unsecured  debt |       | A1               |       | AA-                           |

 

The Company’s strong creditratings are primarily based on PACCAR’s operating cash flow, demand for itsquality products and excellent overall financial condition.  Access tofinancing at competitive rates would be negatively impacted by a downgrade inthese credit ratings.

The Company participates with PACCAR andcertain other PACCAR affiliates in syndicated credit facilitiesof $2,000 at March 31, 2007.  Of this amount, $1,000expires in July 2007 and $1,000 expires in July 2010.  PACCAR intends to replace these creditfacilities as they expire with facilities of similar amounts.

Of the credit facilities, $1,216.7 isavailable for use by the Company and/or PACCAR and certain other PACCARaffiliates.  Of the remaining $783.3,$370.0 is only available for use by PACCAR’s Canadian subsidiaries, $300.0is only available for use by PACCAR’s Mexican subsidiary and $113.3 isonly available for use by PACCAR’s Australian financial subsidiary.  Thesecredit 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, 2007 and theyear ended December 31, 2006.

Other information on liquidity, sources ofcapital, and contractual cash commitments as presented in the Company’s 2006Annual Report on Form 10-K continues to be 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 and availability of externalfunding sources; and legislation and governmental regulation.

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

There have been nomaterial changes in the Company’s market risk during the three months endedMarch 31, 2007. For additional information, refer to the market risk disclosurein Item 7A as presented in the Company’s 2006 Annual Report on Form 10-K.

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

An evaluation was performedunder the supervision and with the participation of the Company’s management,including the principal executive officer and principal financial officer, ofthe effectiveness of the design and operation of the Com­pany’s disclosurecontrols and procedures (as defined in rules 13a-15(e) and 15d-15(e)promulgated under the Securities Exchange Act of 1934, as amended) as of March31, 2007. Based on that evaluation, the principal executive officer andprincipal financial officer of the Company concluded that the disclosurecontrols and procedures in place at the Company are effective to ensure thatinformation required to be disclosed by the Company, including its consolidatedsubsidiaries, 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 no significantchanges in the Company’s internal control over financial reporting during thefiscal quarter covered by this quarterly report that have materially affected,or are reasonably likely to materially affect, the Company’s internal controlover financial reporting.

**ITEM 4T.  CONTROLS ANDPROCEDURES** – NotApplicable.

**PART II – OTHER INFORMATION**

For items 1, 1A, and 5, there was no reportable information during thethree months ended March 31, 2007.

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

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

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

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**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|        | **PACCAR Financial Corp.** | ** **                 |
|--------|----------------------------|----------------------------|
|   | (Registrant)               |
|   |                       |
|   |                       |
| Date   |  May 4, 2007          |                       | By | /s/ Timothy M. Henebry |   |
|   |                       | Timothy M. Henebry         |
|   |                       | President                  |
|   |                       | (Authorized Officer)       |
|   |                       |                       |
|   |                       |                       |
|   | By                         | /s/ Cathy A. MacLeod       |   |
|   |                       | Cathy A. MacLeod           |
|   |                       | Controller                 |
|   |                       | (Chief Accounting Officer) |
|        |                            |                            |  |  |  |

 

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**INDEX TO EXHIBITS**

Exhibits (in order of assignedindex numbers)
| 3      | Articles of incorporation and bylaws:                                       |
|--------|-----------------------------------------------------------------------------|
|   |                                                                        |   |
|   | (a)                                                                         | Restated Articles of Incorporation of the Company,  as amended (incorporated by reference to Exhibit 3.1 to the Company’s 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 security holders,  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, 2007 and 2006. |
|   |                                     |   |
|   | (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, 2007 and 2006. |
|   |                                     |   |
|   | (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, 2007 and 2006. |
|   |                                     |   |
| 31     | Rule 13a-14(a)/15d-14(a) Certifications: |
|   |                                     |   |
|   | (a)                                      | Certification of Principal Executive Officer. |
|   |                                     |   |
|   | (b)                                      | Certification of Principal Financial Officer. |
|   |                                     |   |
| 32     | Section 1350 Certifications:             |
|   |                                     |   |
|   | (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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