**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý****   Quarterly  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934**                                                                                             |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                 |
| **For the quarterly period ended  June 30, 2004**                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                 |
| **or**                                                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                 |
| **o****   Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934**                                                                                                 |
| ** **                                                                                                                                                                                                                 |
| **For transition period from                   to                 ** |

 

**Commission File No. 0-12553**

 

**PACCAR FINANCIAL CORP.**

(Exact name of registrant as specified in itscharter)

 

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

 

Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90days.   Yes   ý   No   o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the ExchangeAct).   Yes   o   No   ý

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date:

 

Common Stock, $100 par value—145,000 shares as of July 31, 2004

 

THE REGISTRANT IS A WHOLLY-OWNED INDIRECT SUBSIDIARY OF PACCAR INC ANDMEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H)(1)(A) AND (B) OFFORM 10-Q AND IS, THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSUREFORMAT.

 

 

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**INDEX**

 
| PART I.  FINANCIAL INFORMATION:                                |                                                                                        |
|---------------------------------------------------------------------|---------------------------------------------------------------------------------------------|
|                                                                |                                                                                        |   |
| ITEM  1.                                                            | FINANCIAL  STATEMENTS:                                                                      |   |
|                                                                |                                                                                        |   |
| Statements of  Income and Retained Earnings—                   |                                                                                        |
| Three and Six  Months Ended June 30, 2004 and 2003 (Unaudited) |                                                                                        |
|                                                                |                                                                                        |   |
| Balance Sheets —                                               |                                                                                        |
| June 30, 2004  (Unaudited), and December 31, 2003         |                                                                                        |
|                                                                |                                                                                        |   |
| Statements of Cash Flows —                                     |                                                                                        |
| Six  Months Ended June 30, 2004 and 2003 (Unaudited)           |                                                                                        |
|                                                                |                                                                                        |   |
| Notes to Financial  Statements (Unaudited)                          |                                                                                        |
|                                                                |                                                                                        |   |
| ITEM  2.                                                            | MANAGEMENT’S DISCUSSION AND  ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION |   |
|                                                                |                                                                                        |   |
|                                                                |                                                                                        |   |
| ITEM 3.                                                             | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 |   |
|                                                                |                                                                                        |   |
| ITEM 4.                                                             | CONTROLS AND PROCEDURES                                                                     |   |
|                                                                |                                                                                        |   |
| PART II. OTHER INFORMATION:                                         |                                                                                        |
|                                                                |                                                                                        |   |
| ITEM 6.                                                             | EXHIBITS AND REPORTS  ON FORM 8-K                                                           |   |
|                                                                |                                                                                        |   |
| SIGNATURES                                                          |                                                                                        |
|                                                                |                                                                                        |   |
| INDEX TO EXHIBITS                                                   |                                                                                        |

 

2

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**PART I****—FINANCIAL INFORMATION**

 

**ITEM 1.****  FINANCIAL STATEMENTS**

 

##### **Statements of Income and Retained Earnin**gs (Unaudited)

(Millions of Dollars)

 
| ** **                                                  | ** ** | **Three Months Ended  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                  | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Interest and fee income                                     | ** ** | **$**                                | **49.1**   |                               | $          | 51.2 | ** ** | **$** | **96.5** |   | $ | 103.5 |   |
| Operating lease and rental income                           | ** ** | **20.4**                             |       | 14.4                               | ** ** | **38.7** |   | 27.2 |   |
| Insurance premiums and other revenue                        | ** ** | **7.9**                              |       | 5.4                                | ** ** | **14.2** |   | 10.9 |   |
|                                                        | ** ** | ** **                           |       |                               | ** ** | ** ** |   |   |   |
| **TOTAL  INTEREST AND OTHER REVENUE**                       | ** ** | **77.4**                             |       | 71.0                               | ** ** | **149.4** |   | 141.6 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Interest and other borrowing expenses                       | ** ** | **16.7**                             |       | 22.5                               | ** ** | **33.5** |   | 46.3 |   |
| Depreciation and other operating lease and  rental expenses | ** ** | **16.6**                             |       | 11.1                               | ** ** | **31.7** |   | 21.0 |   |
| Insurance claims and other expenses                         | ** ** | **4.4**                              |       | 3.0                                | ** ** | **8.5** |   | 6.2 |   |
| Selling general and administrative expenses                 | ** ** | **10.6**                             |       | 10.2                               | ** ** | **21.7** |   | 20.8 |   |
| Provision for losses on receivables                         | ** ** | **1.1**                              |       | 5.9                                | ** ** | **1.6** |   | 12.0 |   |
|                                                        | ** ** | ** **                           |       |                               | ** ** | ** ** |   |   |   |
| **TOTAL  EXPENSES**                                         | ** ** | **49.4**                             |       | 52.7                               | ** ** | **97.0** |   | 106.3 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| **INCOME  BEFORE INCOME TAXES**                             | ** ** | **28.0**                             |       | 18.3                               | ** ** | **52.4** |   | 35.3 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Income  taxes                                               | ** ** | **10.6**                             |       | 7.1                                | ** ** | **19.9** |   | 13.7 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| **NET INCOME**                                              | ** ** | **17.4**                             |       | 11.2                               | ** ** | **32.5** |   | 21.6 |   |
| ** **                                                  | ** ** | ** **                           |       |                               | ** ** | ** ** |   |   |   |
| **RETAINED  EARNINGS AT BEGINNING OF PERIOD**               | ** ** | **419.4**                            |       | 436.4                              | ** ** | **473.3** |   | 426.0 |   |
| Cash dividends paid                                         | ** ** | **—**                           |       | —                             | ** ** | **69.0** |   | — |   |
|                                                        | ** ** | ** **                           |       |                               | ** ** | ** ** |   |   |   |
| **RETAINED EARNINGS  AT END OF PERIOD**                     | ** ** | **$**                                | **436.8**  |                               | $          | 447.6 | ** ** | **$** | **436.8** |   | $ | 447.6 |   |

 

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

 

See Notes to Financial Statements.

 

3

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

**BalanceSheets**

(Millions of Dollars)

 
| ** **                                                                                                                                    | ** ** | **June 30  2004** | ** **  | **December 31  2003*** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                                    | ** ** | **(Unaudited)**        | ** **  | ** **                  | ** ** |
| **ASSETS**                                                                                                                                    |       | ** **             |        |                        |       |
|                                                                                                                                          |       | ** **             |        |                        |       |
| Cash                                                                                                                                          |       | **$**                  | **10.5**    |                        | $          | 5.5 |   |
| Finance and other receivables, net of  allowance for losses  (2004 - $66.8 and 2003 - $67.4)                                                  |       | **3,152.5**            |        | 2,976.7                     |       |
| Loans to PACCAR Inc and affiliates                                                                                                            |       | **231.9**              |        | 265.0                       |       |
| Equipment on operating leases, net of  depreciation  (2004 - $56.4 and 2003 - $44.3)                                                          |       | **244.8**              |        | 198.7                       |       |
| Other assets                                                                                                                                  |       | **37.5**               |        | 27.4                        |       |
|                                                                                                                                          |       | ** **             |        |                        |       |
| **TOTAL ASSETS**                                                                                                                              |       | **$**                  | **3,677.2** |                        | $          | 3,473.3 |   |
|                                                                                                                                          |       | ** **             |        |                        |       |
| **LIABILITIES**                                                                                                                               |       | ** **             |        |                        |       |
|                                                                                                                                          |       | ** **             |        |                        |       |
| Accounts payable, accrued expenses and  other                                                                                                 |       | **$**                  | **123.9**   |                        | $          | 134.4 |   |
| Commercial paper                                                                                                                              |       | **1,050.7**            |        | 1,014.5                     |       |
| Medium-term notes                                                                                                                             |       | **1,630.0**            |        | 1,480.0                     |       |
| Income taxes - current and deferred                                                                                                           |       | **243.9**              |        | 205.9                       |       |
|                                                                                                                                          |       | ** **             |        |                        |       |
| **TOTAL LIABILITIES**                                                                                                                         |       | **$**                  | **3,048.5** |                        | $          | 2,834.8 |   |
|                                                                                                                                          |       | ** **             |        |                        |       |
| **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 $100 per share,  200,000 shares authorized, 145,000 shares issued and outstanding                                     |       | **14.5**               |        | 14.5                        |       |
| Additional paid-in capital                                                                                                                    |       | **142.8**              |        | 131.9                       |       |
| Retained earnings                                                                                                                             |       | **436.8**              |        | 473.3                       |       |
| Accumulated other  comprehensive income (loss)                                                                                                |       | **3.6**                |        | (12.2                       | )          |
|                                                                                                                                          |       | ** **             |        |                        |       |
| **TOTAL STOCKHOLDER’S  EQUITY**                                                                                                          |       | **628.7**              |        | 638.5                       |       |
|                                                                                                                                          |       | ** **             |        |                        |       |
| **TOTAL LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                                                          |       | **$**                  | **3,677.2** |                        | $          | 3,473.3 |   |

 

----

*The December 31, 2003 balance sheet has been derived from auditedfinancial statements.

 

See Notes to Financial Statements.

 

4

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

 

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

(Millions of Dollars)

 
| **Six  Months Ended June 30**                                       | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                     |       | ** ** | ** ** |       |       |
| **OPERATING  ACTIVITIES**                                                |       | ** ** | ** ** |       |       |
|                                                                     |       | ** ** | ** ** |       |       |
| Net income                                                               |       | **$**      | **32.5**   | ** ** | $          | 21.6 |   |
| Items included in net income not affecting  cash:                        |       | ** ** | ** ** |       |       |
| Depreciation and amortization                                            |       | **22.6**   | ** ** | 15.3       |       |
| Benefit for deferred income taxes                                        |       | **(14.1**  | **)**      | (12.0      | )          |
| Provision for losses on receivables                                      |       | **1.6**    | ** ** | 12.0       |       |
| Increase in payables and other                                           |       | **39.6**   | ** ** | 19.5       |       |
|                                                                     |       | ** ** | ** ** |       |       |
| **NET CASH PROVIDED  BY OPERATING ACTIVITIES**                           |       | **82.2**   | ** ** | 56.4       |       |
|                                                                     |       | ** ** | ** ** |       |       |
| **INVESTING  ACTIVITIES**                                                |       | ** ** | ** ** |       |       |
|                                                                     |       | ** ** | ** ** |       |       |
| Finance and other receivables originated                                 |       | **(766.0** | **)**      | (523.1     | )          |
| Collections on finance and other  receivables                            |       | **624.7**  | ** ** | 670.6      |       |
| Net increase in wholesale receivables                                    |       | **(34.2**  | **)**      | (11.3      | )          |
| Net decrease (increase) in loans to PACCAR  Inc and affiliates           |       | **33.1**   | ** ** | (121.5     | )          |
| Acquisition of equipment on operating  leases, primarily from PACCAR Inc |       | **(71.2**  | **)**      | (44.9      | )          |
| Acquisition of equipment                                                 |       | **(.2**    | **)**      | (.2        | )          |
| Proceeds from disposal of equipment                                      |       | **7.8**    | ** ** | 2.1        |       |
|                                                                     |       | ** ** | ** ** |       |       |
| **NET CASH USED IN  INVESTING ACTIVITIES**                               |       | **(206.0** | **)**      | (28.3      | )          |
|                                                                     |       | ** ** | ** ** |       |       |
| **FINANCING  ACTIVITIES**                                                |       | ** ** | ** ** |       |       |
|                                                                     |       | ** ** | ** ** |       |       |
| Net increase (decrease) in commercial paper                              |       | **36.2**   | ** ** | (197.3     | )          |
| Proceeds from medium-term notes                                          |       | **600.0**  | ** ** | 430.0      |       |
| Payments of medium-term notes                                            |       | **(450.0** | **)**      | (259.0     | )          |
| Dividends paid                                                           |       | **(69.0**  | **)**      | -          |       |
| Payment of advances  from (to) PACCAR Inc                                |       | **.7**     | ** ** | (2.2       | )          |
| Capital contributions                                                    |       | **10.9**   | ** ** | 8.7        |       |
|                                                                     |       | ** ** | ** ** |       |       |
| **NET CASH PROVIDED  BY (USED IN) FINANCING ACTIVITIES**                 |       | **128.8**  | ** ** | (19.8      | )          |
|                                                                     |       | ** ** | ** ** |       |       |
| **NET INCREASE IN  CASH**                                                |       | **5.0**    | ** ** | 8.3        |       |
|                                                                     |       | ** ** | ** ** |       |       |
| **CASH AT BEGINNING  OF PERIOD**                                         |       | **5.5**    | ** ** | 9.9        |       |
|                                                                     |       | ** ** | ** ** |       |       |
| **CASH AT END OF  PERIOD**                                               |       | **$**      | **10.5**   | ** ** | $          | 18.2 |   |

 

See Notes to Financial Statements.

 

5

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**FORM 10-Q**

**PACCAR FINANCIAL CORP.**

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

 

**NOTE A—Basis of Presentation**

 

The accompanying unaudited financial statements have been prepared inaccordance with the instructions to Form 10-Q and Article 10 of RegulationS-X. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements. However, 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, 2003.

 

*Reclassifications*: Certain prior year amountshave been reclassified to conform to the 2004 presentation.

 

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

 

The Company and PACCAR Inc (“PACCAR”) are parties to a SupportAgreement that obligates PACCAR to provide, when required, financial assistanceto the Company to ensure that the Company maintains a ratio of net earningsavailable for fixed charges to fixed charges (as defined) of at least 1.25 to 1for any fiscal year. The required ratio for the six months ended June 30,2004 and full year 2003 was met without assistance. The Company determines theamount of PACCAR assistance, if any, at the end of each fiscal year. TheSupport Agreement also requires PACCAR to own, directly or indirectly, alloutstanding voting stock of the Company.

 

PACCAR Financial Services Corporation (“PFSC”) charges the Company forcertain administrative services it provides and certain services the Companyreceives indirectly from PACCAR. The costs are charged to the Company basedupon the Company’s specific use of the services at PFSC’s or PACCAR’s cost.Management considers these charges similar to the costs that would be incurredif the Company were on a stand-alone basis. PFSC recognizes certain of theseadministrative services as an additional investment in the Company. The Companyrecords the investment as additional paid-in capital. A cash dividend in the amountof $69.0 was declared and paid during the first quarter 2004. There were nocash dividends declared or paid during the second quarter of 2004 or the fullyear 2003.

 

Periodically, the Company borrows funds from PACCAR and makes loans toPACCAR. Loans outstanding to PACCAR were $7.1 and $54.5 at June 30, 2004and December 31, 2003, respectively. Loans outstanding from PACCAR were$.4 at June 30, 2004. There were no loans outstanding from PACCAR atDecember 31, 2003.

 

The Company’s principal office is located in the corporate headquartersbuilding of PACCAR (owned by PACCAR). The Company also leases office space fromtwo other facilities owned 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. Separate allocations of defined benefitplan assets and obligations relating to the Company have not been made. 

 

PACCAR has issued letters of credit as of June 30, 2004 in theamount of $7.9 on behalf of the Company to guarantee funds for payment toinsured franchisees and their 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

 

6

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foreign affiliates operate in the United Kingdom, the Netherlands,Mexico, Canada and Australia, and any resulting currency exposure is fullyhedged. The foreign affiliates provide financing and leasing of trucks andrelated equipment manufactured primarily by PACCAR and sold through PACCAR’sindependent dealer networks in Europe, Mexico, Canada and Australia. TheCompany will not make loans to the foreign affiliates in excess of theequivalent of $300.0 United States dollars, unless the amount in excess of suchlimits is guaranteed by PACCAR. The Company periodically reviews the fundingalternatives for these affiliates, and these limits may be revised in thefuture. There was a total of $224.8 and $210.5 in loans outstanding to foreignaffiliates operating in the United Kingdom and the Netherlands at June 30,2004 and December 31, 2003, 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  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|---------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                  | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                  | ** ** | ** **                           | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                  | ** ** | **$**                                | **17.4**   |                               | $          | 11.2 | ** ** | **$** | **32.5** |   | $ | 21.6 |   |
| Other comprehensive income:                 | ** ** | ** **                           |       |                               | ** ** | ** ** |   |   |   |
| Unrealized net gain on derivative contracts | ** ** | **16.9**                             |       | .9                                 | ** ** | **15.8** |   | 5.7 |   |
| Total comprehensive income                  | ** ** | **$**                                | **34.3**   |                               | $          | 12.1 | ** ** | **$** | **48.3** |   | $ | 27.3 |   |

 

Theincrease in unrealized net gain on derivative contracts for the three monthsand for the six months ended June 30, 2004 was due to arise in market interest rates causing unrealized net gains to increase onfloating to fixed rate contracts.

 

Accumulated other comprehensive income of $3.6 and loss of $12.2 atJune 30, 2004 and December 31, 2003, respectively, is comprised ofthe unrealized net gain (loss) on derivative contracts.

 

7

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

 

**Results of Operations**

 

TheCompany’s net income of $17.4 for the second quarter of 2004 increased 55% fromthe $11.2 for the second quarter of 2003. Net income of $32.5 for the first sixmonths of 2004 increased $10.9 or 50% higher than the $21.6 earned in the firstsix months of 2003.  The profitimprovement resulted from both a lower provision for losses and a higherfinance margin. The provision for losses decreased $4.8 to $1.1 in the secondquarter of 2004 and decreased by $10.4 to $1.6 in the first six months of 2004.The improvement was mainly due to lower credit losses related to a significantreduction in repossessed units, reflecting improvements in the portfolio. Inaddition, finance margin increased in both the second quarter of 2004 and forthe first six months of 2004, benefiting from more favorable market conditionsand continuing enhancements made to pricing and credit policies.  Also in the second quarter, average earningassets increased approximately 4% from the comparable period in the prioryear.  The increase in average earningassets was due to higher new business volume and lower contract terminationsfrom repossessions.  Interest income andexpense in the second quarter and for the first six months of 2004 were lowerprimarily due to lower market interest rates. Operating lease revenue andrelated depreciation have increased due to an increase in equipment onoperating leases.

 

Thefollowing table summarizes the activity in the Company’s allowance for losseson receivables and presents related ratios:

 

##### **Allowancefor Losses**

 
| ** **                                                                                                                                                 | ** ** | **Six Months  Ended  June 30  2004** | ** ** | **Year Ended  December 31  2003** | ** ** | **Six Months  Ended  June 30  2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------|------------|
| Balance at beginning of period                                                                                                                             | ** ** | **$**                                     | **67.4**   | ** **                             | $          | 66.9                                      |       | $ | 66.9 |   |
|                                                                                                                                                       | ** ** | ** **                                | ** ** |                                   |       |                                      |       |
| Provision for losses                                                                                                                                       | ** ** | **1.6**                                   | ** ** | 19.6                                   |       | 12.0                                      |       |
|                                                                                                                                                       | ** ** | ** **                                | ** ** |                                   |       |                                      |       |
| Credit losses, net of recoveries                                                                                                                           |       | **(2.2**                                  | **)**      | (19.1                                  | )          | (11.8                                     | )          |
|                                                                                                                                                       |       | ** **                                | ** ** |                                   |       |                                      |       |
| Balance at end of period                                                                                                                                   | ** ** | **$**                                     | **66.8**   | ** **                             | $          | 67.4                                      |       | $ | 67.1 |   |
| Ratios:                                                                                                                                                    |       | ** **                                | ** ** |                                   |       |                                      |       |
|                                                                                                                                                       |       | ** **                                | ** ** |                                   |       |                                      |       |
| Credit losses net of recoveries ($2.2 in  2004) to average net receivables ($2,988.2 in 2004) annualized at  June 30, 2004 and 2003                   | ** ** | **.15**                                   | **%**      | .64                                    | %          | .78                                       | %          |
|                                                                                                                                                       | ** ** | ** **                                | ** ** |                                   |       |                                      |       |
| Allowance for losses ($66.8 in 2004) to  period-end net receivables ($3,119.1 in 2004)                                                                     | ** ** | **2.14**                                  | **%**      | 2.27                                   | %          | 2.25                                      | %          |
|                                                                                                                                                       | ** ** | ** **                                | ** ** |                                   |       |                                      |       |
| Period-end finance and lease receivables  past due, over 60 days, ($22.8 in 2004) to period-end retail contracts and  lease receivables ($2,839.1 in 2004) | ** ** | **.80**                                   | **%**      | 1.15                                   | %          | 1.61                                      | %          |

 

8

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**Company Outlook**

 

The future profitability of the Company is primarilydependent on the generation of new business and on the level of credit lossesexperienced.  Asset growth in the secondhalf of 2004 is contingent upon continued improvement in the general economyand the resulting increase in truck sales and the impact of increased competition.  Some economic weakness, as well as high fueland insurance costs and higher interest rates, could exert pressure on theprofit margins of truck operators and cause a return to higher past-dueaccounts and repossessions, which could result in higher credit losses.

 

**Funding and Liquidity**

 

The Company manages its capital structureconsistent with industry standards. The Company believes that it has sufficient financial capabilities tocontinue funding receivables and servicing debt through internally generatedfunds, access to public and private debt markets, lines of credit and otherfinancial resources.  The Company’sability to obtain funds is partly affected by its credit ratings, which areclosely related to the outlook for, and the financial condition of, PACCAR aswell as its syndicated credit facilities. The Company’s investment grade credit ratings continue to provide accessto capital markets at competitive interest rates. The Company’s credit ratingsat June 30, 2004 are as follows:

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

 

A mix of short-term and long-term debt is used to fund the Companyalong with stockholder’s equity.  AtJune 30, 2004, the Company had $1,050.7 of commercial paper and $1,630.0of senior unsecured term debt outstanding and $628.7 of stockholder’s equity.

 

Since 1983, the Company has registered debt securities under theSecurities Act of 1933 for offering to the public. In December 2003, theCompany filed a shelf registration statement which became effective onJanuary 16, 2004, under which $3,000.0 of medium-term notes could beissued as needed. As of June 30, 2004, $2,400.0 of such securities wereavailable for issuance.

 

The Company participates with PACCAR andcertain other PACCAR affiliates in syndicated credit facilities of $1,500.0 at June 30,2004.  Of this amount, $750.0 wasreplaced in July 2004 and will expire in July 2005 with the remaining$750.0 expiring in July 2006. PACCAR intends to replace these credit facilities as they expirewith facilities of similar amounts. Of the$1,500.0 in syndicated credit facilities, $1,350.0 is available for use by theCompany and/or PACCAR and certain other PACCAR affiliates. The remaining $150.0is only available for use by PACCAR’s Canadian subsidiaries.  These credit facilities along with cashand marketable securities of PACCAR areused to provide backup liquidity for the Company’s commercial paper andmaturing medium-term notes. The Company is liable only for its own borrowingsunder these credit facilities. There were no borrowings under these creditfacilities in the six months ended June 30, 2004 and the year ended December 31, 2003.

 

Other information on liquidity, sources of capital, and contractualcash commitments as presented in the Company’s 2003 Annual Report on Form 10-Kcontinues to be relevant.

 

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**Forward Looking Statements**

 

Certain information presented in this Form10-Q contains forward-looking statements made pursuant to the PrivateSecurities Litigation Reform Act of 1995, which are subject to risks anduncertainties that may affect actual results. Risks and uncertainties include,but are not limited to: national and local economic, political and industryconditions; changes in the levels of new business volume due to unitfluctuations in new PACCAR truck sales; changes in competitive factors; changesaffecting the profitability of truck owners and operators; price changesimpacting equipment costs and residual values; changes in costs and availabilityof external funding sources; and legislation and governmental regulation.

 

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

 

There was no reportable information during the six months endedJune 30, 2004.

 

**ITEM 4.****                 CONTROLSAND PROCEDURES**

 

An evaluation was performed under the supervisionand with the participation of the Company’s management, including the principalexecutive officer and principal financial officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedures (asdefined in rules 13a-15(e) and 15d-15(e) promulgated under the SecuritiesExchange Act of 1934, as amended) as of June 30, 2004 (“Evaluation Date”).Based on that evaluation, the principal executive officer and principalfinancial officer of the Company concluded that the disclosure controls andprocedures in place at the Company were adequate to ensure that informationrequired to be disclosed by the Company, including its consolidatedsubsidiaries (the Company has no subsidiaries), in reports that the Companyfiles or submits under the Exchange Act, is recorded, processed, summarized andreported on a timely basis in accordance with applicable rules and regulations.There have been no significant changes in the Company’s internal controls overfinancial reporting during the second quarter of 2004 that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**PART II****—OTHER INFORMATION**

 

For items 1, 2, 3, 4 and 5, there was no reportable information duringthe six months ended June 30, 2004.

 

**ITEM 6.****                 EXHIBITSAND REPORTS ON FORM 8-K**

 

(a)              Exhibits filed as part of this report arelisted in the accompanying Index to Exhibits.

 

(b)             There were no reports on Form 8-K for thequarter ended June 30, 2004.

 

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**SIGNATURES**

 

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

 

 
| ** ** | **PACCAR Financial Corp.**      | ** **                                                 |
|------------|---------------------------------|------------------------------------------------------------|
| ** ** | (Registrant)                    |
|       |                            |
|       |                            |
| Date       |   August 6, 2004 |                                                       | By | /s/ Timothy M. Henebry |   |
|       |                            | Timothy M. Henebry  President  (Authorized Officer)        |
|       |                            |
|       |                            |
|       | By                              | /s/ Brice J. Poplawski                                     |   |
|       |                            | Brice J. Poplawski  Controller  (Chief Accounting Officer) |
|            |                                 |                                                            |  |  |  |

 

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**INDEXTO EXHIBITS**

 

Exhibits (in order of assigned index numbers)

 
| 3.1    |   | 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).                                                                                                              |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.2    |   | By-laws of the Company, as amended (incorporated by reference to  Exhibit 3.2 to the Company’s Registration Statement on Form 10-Q dated  October 20, 1983, File Number 0-12553).                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1    |   | 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 Citibank, N.A. (incorporated by reference to Exhibit 4.1 to  the Company’s Annual Report on Form 10-K dated March 26, 1984, File  Number 0-12553 and Exhibit 4.2 to the Company’s Registration Statement on  Form S-3 dated June 23, 1989, Registration Number 33-29434). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.4    |   | Forms of Medium-Term Note, Series I (incorporated by reference to  Exhibits 4.2A and 4.2B to the Company’s Registration Statement on Form S-3  dated September 10, 1998, Registration Number 333-63153).                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | Form of Letter of Representation among the Company, Citibank, N.A.  and The Depository Trust Company, Series I (incorporated by reference to  Exhibit 4.3 to the Company’s Registration Statement on Form S-3 dated  September 10, 1998, Registration Number 333-63153).                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.5    |   | Forms of Medium-Term Note, Series J (incorporated by reference to  Exhibits 4.2A and 4.2B to the Company’s Registration Statement on Form S-3  dated March 2, 2000, Registration Number 333-31502).                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | Form of Letter of Representation among the Company, Citibank, N.A.  and The Depository Trust Company, Series J (incorporated by reference to  Exhibit 4.3 to the Company’s Registration Statement on Form S-3 dated  March 2, 2000, Registration Number 333-31502).                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.6    |   | 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).                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.1   |   | 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).                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 12.1   |   | Statement re: computation of ratio of earnings to fixed charges of  the Company pursuant to SEC reporting requirements for the six-month periods  ended June 30, 2004 and 2003.                                                                                                                                                                                                                                                                           |

 

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| 12.2   |   | Statement re: computation of ratio of earnings to fixed charges of  the Company pursuant to the Support Agreement between the Company and PACCAR  for the six-month periods ended June 30, 2004 and 2003. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                           |
| 12.3   |   | Statement re: computation of ratio of earnings to fixed charges of  PACCAR and subsidiaries pursuant to SEC reporting requirements for the  six-month periods ended June 30, 2004 and 2003.               |
|   |   |                                                                                                                                                                                                           |
| 31.1   |   | Rule 13a-14(a)/15d-14(a)  Certification - Certification of Principal Executive Officer.                                                                                                                        |
|   |   |                                                                                                                                                                                                           |
| 31.2   |   | Rule 13a-14(a)/15d-14(a)  Certification - Certification of Principal Financial Officer.                                                                                                                        |
|   |   |                                                                                                                                                                                                           |
| 32.1   |   | Section 1350  Certifications - Certification pursuant to Rule 13a-14(b) and  Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.  section 1350).                                           |

 

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

 

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