**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**FORM 10-K**

**FORANNUAL AND TRANSITION REPORTS**

**PURSUANTTO SECTIONS 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

**(Mark One)**

**x****                  ****ANNUAL REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the fiscal year endedDecember 31, 2006**

**OR**

**o****                     ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**Fortransition period from                  to                  **

**Commission File No. 001-11677**

**PACCARFINANCIAL CORP.**

(Exact name of Registrant as specified in itscharter)

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

 

**(425) 468-7100**

(Registrant’s telephone number, including area code)

Securities registeredpursuant to Section 12(b) of the Act:     

| **Title of Each Class**          |   | **Name of  Each Exchange on Which Registered** |
|----------------------------------|--------|------------------------------------------------|
| Series K  Medium-Term Notes      |   |                                           |
| $300 Million Due  April 27, 2009 |   | New York Stock  Exchange                       |

 

Securities registeredpursuant to Section 12(g) of the Act:     

**None**

(Title of Class)

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.  Yes: x No: o

Indicate by check mark if the registrant is not required to file reportspursuant to Section 13 or Section 15(d) of the Act.  Yes:  o No: x

Note- Checking the mark above will not relieve any registrant requiredto file reports pursuant to Section 13 or Section 15(d) of the Exchange Actfrom their obligations under those sections.

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter periods that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.  Yes: x  No: o

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K (§229.405 of this chapter) is not containedherein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in PartIII of this Form 10-K or any amendment to this Form 10-K.  x

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

| Large accelerated  filer: o |   | Accelerated filer: o |   | Non-accelerated filer: x |
|----------------------------------|--------|----------------------|--------|--------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12(b)-2 of the Act).    Yes: o   No: x

The aggregate market value of the voting stock held by non-affiliates ofthe registrant as of June 30, 2006:       None

The number of shares outstanding of the registrant’s classes of commonstock as of January 31, 2007:

**CommonStock, $100 par value — 145,000 shares**

THE REGISTRANT ISA WHOLLY-OWNED INDIRECT SUBSIDIARY OF PACCAR INC AND MEETS THE CONDITIONS SETFORTH IN GENERAL INSTRUCTIONS (I) (1) (a) AND (b) OF FORM 10-K AND IS,THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

 

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**PACCAR Financial Corp.**

**INDEX**
| **PART I**   |                                                                                                                |   |
|--------------|---------------------------------------------------------------------------------------------------------------------|--------|
| ** **   |                                                                                                                |   |
| Item 1.      | Business                                                                                                            |   |
| Item 1A.     | Risk Factors                                                                                                        |   |
| Item 1B.     | Unresolved Staff  Comments                                                                                          |   |
| Item 2.      | Properties                                                                                                          |   |
| Item 3.      | Legal  Proceedings                                                                                                  |   |
| Item 4.      | Submission of  Matters to a Vote of Security Holders                                                                |   |
|         |                                                                                                                |   |
| **PART II**  |                                                                                                                |   |
| ** **   |                                                                                                                |   |
| Item 5.      | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |   |
| Item 6.      | Selected Financial  Data                                                                                            |   |
| Item 7.      | Management’s  Discussion and Analysis of Financial Condition and Results of Operation                          |   |
| Item 7A.     | Quantitative  and Qualitative Disclosures about Market Risk                                                         |   |
| Item 8.      | Financial  Statements and Supplementary Data                                                                        |   |
| Item 9.      | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               |   |
| Item 9A.     | Controls and  Procedures                                                                                            |   |
| Item 9B.     | Other Information                                                                                                   |   |
|         |                                                                                                                |   |
| **PART III** |                                                                                                                |   |
| ** **   |                                                                                                                |   |
| Item 10.     | Directors,  Executive Officers and Corporate Governance                                                             |   |
| Item 11.     | Executive  Compensation                                                                                             |   |
| Item 12.     | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |   |
| Item 13.     | Certain  Relationships and Related Transactions, and Director Independence                                          |   |
| Item 14.     | Principal  Accounting Fees and Services                                                                             |   |
|         |                                                                                                                |   |
| **PART IV**  |                                                                                                                |   |
| ** **   |                                                                                                                |   |
| Item 15.     | Exhibits,  Financial Statement Schedules                                                                            |   |

 

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**PACCAR Financial Corp.**(Millions of Dollars)

**PART I**

#### **ITEM1 AND 1A.        BUSINESS AND RISK FACTORS**

## GENERAL

PACCAR FinancialCorp.

PACCAR Financial Corp. (the “Company”), aWashington corporation, was organized in 1961 as a wholly-owned subsidiary ofPACCAR Inc (“PACCAR”) to finance the sale of PACCAR products. In 2000, PACCARtransferred the stock of the Company to PACCAR Financial Services Corporation (“PFSC”),a wholly-owned subsidiary of PACCAR.

The Company principally provides financing andleasing of PACCAR-manufactured trucks and other transportation equipment soldthrough PACCAR’s independent dealer network in the United States. The Companyalso finances dealer inventories of new and used transportation equipment. TheCompany’s PacLease division franchises PACCAR dealerships to engage infull-service and finance leasing. In selected markets, PacLease directlyengages in full-service leasing with its customers through Company-owned storesand on a limited basis through PACCAR dealerships.

### PACCAR

PACCARhas two principal industry segments, (1) design, manufacture and distributionof light-, medium- and heavy-duty trucks and related aftermarket distributionof parts and (2) finance and leasing services provided to customers anddealers. PACCAR distributes trucks and parts primarily through its independentdealer network. PACCAR’s finance and leasing activities are principally relatedto PACCAR products and associated equipment. Other manufactured productsinclude industrial winches.

PACCARand its subsidiaries design and manufacture heavy-duty diesel trucks which aremarketed under the Peterbilt, Kenworth and DAF nameplates. These vehicles,which are built in four plants in the United States, three in Europe and oneeach in Australia, Canada and Mexico, are used worldwide for over-the-road andoff-highway hauling of freight, petroleum, wood products, construction andother materials.

PACCAR,through its Peterbilt and Kenworth Divisions, competes in the North Americanmedium-duty (Class 6/7) markets primarily with conventional models. Thesemedium-duty trucks are assembled at PACCAR’s Ste. Therese, Quebec plant and atPACCAR’s facility in Mexicali, Mexico. PACCAR competes in the Europeanlight/medium (6 to 15 metric ton) commercial vehicle market with DAFcab-over-engine trucks assembled in the United Kingdom by Leyland, one ofPACCAR’s wholly-owned subsidiaries. Commercial trucks and related replacementparts comprise the largest segment of PACCAR’s business, accounting for 93% oftotal 2006 net sales and revenues.

Substantiallyall trucks and related parts are sold to independently-owned dealers. TheKenworth and Peterbilt nameplates are marketed and distributed by separatedivisions in the U.S. and a foreign subsidiary in Canada. The Kenworthnameplate is also marketed and distributed by foreign subsidiaries in Mexicoand Australia. The DAF nameplate is marketed and distributed throughout Europeand Australia by a foreign subsidiary headquartered in The Netherlands. A U.S.division, PACCAR International, also markets all three nameplates outside eachof Kenworth’s, Peterbilt’s and DAF’s primary markets. The decision to operateas a subsidiary or as a division is incidental to Truck Segment operations andreflects legal, tax and regulatory requirements in the various countries wherePACCAR operates.

Therewere three other principal competitors in the U.S. and Canada Class 8 truckmarket in 2006. PACCAR’s share of that market was 25.3% of retail sales in2006.  In Europe there were five otherprincipal competitors in the commercial vehicle market in 2006, includingparent companies to two competitors of PACCAR in the United States. PACCAR’ssubsidiary, DAF, had a 14.5% share of the Western European heavy-duty market anda 9.6% share of the light/medium market. These markets are highly competitivein price, quality and service, and PACCAR is not dependent on any singlecustomer for its sales. There are no significant seasonal variations.

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Inaddition to the Company, which provides financing, leasing and full-servicetruck leasing in the United States, PACCAR offers similar financing programsfor PACCAR products through other wholly-owned finance companies in Mexico,Canada, Australia, the United Kingdom, The Netherlands, Belgium, Germany,France, Italy and Spain.  PACCAR alsoconducts full-service leasing operations through wholly-owned subsidiaries inCanada and Mexico.

PACCAR’scommon stock, $1 par value, is traded on the NASDAQ Global Select Market underthe symbol PCAR. PACCAR and the Company are subject to the informationalrequirements of the Securities Exchange Act of 1934 and, in accordancetherewith, file reports and other information with the Securities and ExchangeCommission (the “Commission”). All reports, proxy statements and otherinformation filed by PACCAR and the Company with the Commission may beinspected and copied at the public reference facility maintained by theCommission at 100 F Street, N.E., Washington, D.C. 20549 or through theCommission’s internet site at www.sec.gov.

BUSINESS OF THE COMPANY

TheCompany operates primarily in one industry segment, truck and related equipmentfinancing in the United States. The Company provides financing to customers anddealers for new Kenworth and Peterbilt trucks, used trucks, truck trailers andallied equipment. The Company’s PacLease division franchises PACCAR dealershipsto engage in full-service and finance leasing. In selected markets, PacLeasedirectly engages in full-service leasing with its customers throughCompany-owned stores and on a limited basis through PACCAR dealerships.

TheCompany currently conducts business with most PACCAR dealers in the UnitedStates. The volume of the Company’s business is significantly affected byPACCAR’s sales of trucks to its dealers and competition from other financing sources.

Asof December 31, 2006, the Company employed 302 full-time employees, none ofwhom are represented by a collective bargaining agent. The Company considersrelations with its employees to be good.

#### **RISKFACTORS**

The Company isexposed to certain risks and uncertainties that could have a material adverseimpact to the Company’s financial condition and operating results, including:

Sales of PACCAR Products

The Company’sbusiness is substantially dependent upon the sale of PACCAR products and itsability to offer competitive financing in the U.S.  Changes in the volume of sales of PACCARproducts due to a variety of reasons could impact the level of business of theCompany.  Refer to the “Relationshipswith PACCAR and Affiliates” section in this Business section and Note D –Transactions with PACCAR and Affiliates for further discussion regarding theCompany’s relationship with PACCAR.

Credit Risk

Credit risk,including counterparty credit risk in derivative transactions, is the risk ofloss arising from the failure of a customer, dealer or counterparty to meet theterms of any contract with the Company or otherwise fail to perform asagreed.  The Company may be exposed to agreater credit risk in periods of adverse economic conditions, such as risinginterest rates and diesel prices, combined with a decline in freight demand,since it becomes more difficult for customers and dealers to perform as agreedand could also cause a decrease in the value of the Company’s collateral.  Refer to Note E – Derivative FinancialInstruments for further discussion regarding the Company’s exposure to thisrisk.

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Residual Value Risk

Residual valuerisk is the risk that the estimated residual value at lease origination, forthe Company’s operating leases and certain direct financing leases, will not berecoverable.  When the market value ofthese leased assets at contract maturity is less than its contractual residualvalue, there is a higher probability of lease returns to the Company.  This exposes the Company to greater risk ofloss at lease termination.  Refer to theCritical Accounting Policy on “Equipment on Operating Leases” in the MD&Asection for further discussion regarding the Company’s exposure to this risk.

Market Risk

Market risk is therisk that changes in market interest rates or prices will negatively impact theCompany’s income and capital structure. Policies governing market risk exposure are established and periodicallyreviewed by the Company’s senior management. Refer to Item 7A. “Quantitative and Qualitative Disclosures about MarketRisk” for further discussion regarding the Company’s exposure to this risk.

**THE COMPANY’S PRODUCTS**

Retail Customers

The Company offers thefollowing products to retail customers:

Retail Contracts andLoans The Company purchases contracts from dealers and receivesassignments of the contracts and a first lien security interest in the vehiclesfinanced (“Retail Contracts”). Certain Retail Contracts with third partyleasing companies may also include an assignment to the Company of the relatedlease and rental payments due. Retail Contracts purchased by the Company havefixed or floating interest rates.

TheCompany also makes loans to the end users of the vehicles financed that aresecured by a first lien security interest in the vehicles (“Loans”). Loans havefixed or floating interest rates.

Direct Financing Leases The Companyoffers direct financing lease contracts where it is treated as the owner of theequipment for tax purposes and generally retains the tax depreciation (“DirectFinancing Leases”). The lessee is responsible for the payment of property andsales taxes, licenses, maintenance and other operating items. The lessee isobligated to maintain the equipment and to insure the equipment againstcasualty and liability losses.

Mostof the Company’s Direct Financing Leases contain a Terminal Rental AdjustmentClause, which requires the lessee to guarantee to the Company a stated residualvalue upon disposition of the equipment at the end of the direct financinglease term.

Operating Leases The Companyoffers operating lease contracts (“Operating Leases”) where the Company ownsthe equipment. The lessee is responsible for the payment of property and salestaxes, licenses, maintenance and other operating items. The lessee is obligatedto maintain the equipment and to insure the equipment against casualty andliability losses.

Atthe end of the operating lease term, the lessee has the option to return theequipment to the Company or purchase the equipment at its fair market value.

Insurance The Companysells physical damage insurance through PACCAR dealers who are licensedinsurance agents as well as through licensed agents of the Company. The Companyretains the premium revenues and loss exposure for the policies, which areissued through an unrelated regulated insurance carrier.

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TheCompany offers physical damage and liability insurance on new and used trucksand trailers to its full-service lease customers. The Company retains premiumand loss exposure for the policies that are issued through an unrelatedregulated insurance carrier. To limit its exposure the Company has acquiredinsurance coverage for losses above specified levels from a third partyinsurance carrier.

Dealers/Franchisees

The Company offers thefollowing products to PACCAR dealers and PacLease franchisees:

Master Notes Master notecontracts (“Master Notes”) are an alternative form of retail financing offeredto select dealers for new and used trucks. Retail installment contractsoriginated by the dealer for new or used trucks which  meet the Company’s requirement as to form,terms and creditworthiness for Retail Contracts are pledged to the Company ascollateral for direct, full recourse loans by the Company to the dealer. MasterNotes have fixed or floating interest rates.

Wholesale Contracts The Companyprovides wholesale financing for new and used truck and trailer inventories fordealers (“Wholesale Contracts”). Wholesale Contracts are secured by theinventories financed. The amount of credit extended by the Company for eachtruck is generally limited to the invoice price of new equipment and to thewholesale value of used equipment. Interest charged under Wholesale Contractsis based upon floating interest rates.

Dealer Loans The Companymakes secured loans to selected Peterbilt and Kenworth dealers (“Dealer Loans”).The purpose of these loans includes the financing of real estate, fixed assets,working capital and dealership acquisitions. Dealer Loans have fixed orfloating interest rates.

Full-Service Leasing The Companyalso conducts full-service leasing operations under the PacLease trade name.Selected dealers are franchised to provide full-service leasing, which includesthe equipment, maintenance, parts, taxes and licenses all in a combinedcontract with the customer. The Company provides the franchisees with equipmentfinancing and managerial support. The Company also operates full-service leaseoutlets in selected markets on its own behalf.

Insurance The Companycharges a fee to provide insurance coverage, through an unrelated regulatedinsurance carrier, on new trucks, used trucks and trailer inventory to dealershaving Wholesale Contracts with the Company.

CUSTOMER CONCENTRATION,PAST DUE ACCOUNTS AND LOSS EXPERIENCE

Customer Concentration

The Company’s customers are concentrated in thetransportation industry throughout the United States. The Company does not havecontractual arrangements for the periods ended December 31, 2006, 2005 and2004, with any one party (customers, dealers and/or franchises) that accountfor 10% or more of total Interest and Other Revenue or Finance and LeaseReceivables.

Past Due Receivables andAllowance for Losses

Anaccount is considered past due by the Company if any portion of an installmentis due and unpaid for more than 30 days. In periods of adverse economicconditions, past due levels, repossessions and credit losses generallyincrease.

TheCompany maintains an allowance for losses on receivables at a level that itconsiders to be adequate to cover management’s estimates of losses inherent inthe portfolio.

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Forfurther discussion of the allowance for losses, see “Management’s Discussionand Analysis of Financial Condition and Results of Operations.”

COMPETITION AND ECONOMICFACTORS

Thecommercial truck and trailer finance and leasing business is highly competitiveamong banks, commercial finance companies, captive finance companies andleasing companies. Many of these institutions have substantially greaterfinancial resources than the Company and may borrow funds at lower rates.

Thedealers are the primary source of contracts acquired by the Company. However,dealers are not required to obtain financing from the Company and they have avariety of other sources that may be used for wholesale and customer financingof trucks. Retail purchasers also have a variety of sources available tofinance truck purchases.

Theability of the Company to compete in its market is principally based on therates, terms and conditions that the Company offers dealers and retailpurchasers, as well as the specialized services it provides. Rates, terms andconditions are based on the Company’s desire to provide flexible financing andservices to satisfy dealer and customer needs, the ability of the Company toborrow funds at competitive rates and the Company’s need to earn an adequatereturn on its invested capital. The Company’s business is also affected bychanges in market interest rates, which in turn are related to general economicconditions, demand for credit, inflation and governmental policies. Seasonalityis not a significant factor in the Company’s business.

Thevolume of receivables available to be acquired by the Company from dealers islargely dependent upon the number of Kenworth and Peterbilt trucks sold in theUnited States. Sales of medium- and heavy-duty trucks depend on the capitalequipment requirements of the transportation industry, which in turn areinfluenced by growth and cyclical variations in the economy. Medium- andheavy-duty truck sales are also sensitive to economic factors such as fuelcosts, interest rates, insurance premiums, federal excise and highway usetaxes, taxation on the acquisition and use of capital goods, as well asgovernment regulations.

REGULATION AND SIMILARMATTERS

Incertain states, the Company is subject to retail installment sales orinstallment loan statutes and related regulations, the terms of which vary fromstate to state. These laws may require the Company to be licensed as a salesfinance company and may regulate disclosure of finance charges and other termsof retail installment contracts. The Company is subject to substantive statefranchise regulations and federal and state uniform franchise disclosure lawsin connection with the offering of PacLease full-service truck leasing andrental franchises to PACCAR truck dealers. The Company also owns and operatesseveral such truck leasing and rental business locations, which are subject toapplicable state licensing laws. The Company is subject to state insuranceregulations in connection with its licensed insurance salesmen. The Company isalso subject to certain provisions of federal law relating tonon-discrimination in the granting of credit.

SOURCES OF FUNDS

TheCompany’s primary sources of funds are commercial paper and medium-term noteborrowings in the public capital markets, collections on loans and leases,retained earnings and to a lesser extent bank loans and capital contributionsfrom PFSC. The Company’s investment in additional receivables is dependent uponits ability to raise funds at competitive rates in the public and private debtmarkets. The receivables and leases that are financed are either fixed rate orfloating rate with terms that range from 12 to 84 months.

Toreduce the risk of changes in interest rates that could affect interestmargins, the Company obtains funds with interest rate characteristics similarto the corresponding assets. Fixed rate assets are primarily funded with

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fixed and floating ratemedium-term notes and commercial paper. Interest rate swaps are combined withcommercial paper or floating rate medium-term notes to convert floating ratedebt to fixed rate debt. Floating rate assets are funded primarily withcommercial paper with maturities of three months or less and floating ratemedium-term notes. As a result, the Company’s interest margin on existingbusiness does not change significantly from changes in interest rates.

TheCompany enters into interest rate swap contracts to achieve its matched fundingobjectives and to reduce total borrowing costs relative to its primaryborrowing sources – commercial paper and medium-term notes. Fixed rate swaps,matched to floating rate borrowings, are used to lock in the funding cost offixed rate assets. As of December 31, 2006, the total notional principal amountof interest rate swap contracts outstanding was $2,927.3, all of which resultin a fixed rate payment obligation. The notional amount is used to measure thevolume of these contracts and does not represent exposure to credit loss. Inthe event of default by a counterparty, the risk in these transactions is thecost of replacing the interest-rate contract at current market rates.Management believes the risk of incurring such losses is remote and any losseswould be immaterial. The permitted types of interest rate swap contracts, theirtransaction limits and related approval authorizations have been established bythe Company’s senior management and Board of Directors. The interest ratecontracts outstanding are regularly reported to, and reviewed by, the Company’ssenior management.

The Company participates with PACCAR and certain otherPACCAR affiliates in syndicated credit facilities of $2,000.0 at December 31,2006.  Of this amount, $1,000.0 expiresin July 2007 and $1,000.0 expires in July 2010. PACCAR intends to replace these credit facilities as they expirewith facilities of similar amounts.

Of the credit facilities, $1,216.7 is available for useby the Company and/or PACCAR and certain other PACCAR affiliates.  Of theremaining $783.3, $370.0 is only available for use by PACCAR’s Canadiansubsidiaries, $300.0 is only available for use by PACCAR’s Mexican financialsubsidiary, and $113.3 is only available for use by PACCAR’s Australianfinancial subsidiary.  These creditfacilities are used to provide backup liquidity for the Company’s commercialpaper and maturing medium-term notes. The Company is liable only for its ownborrowings under these credit facilities. There were no borrowings under thesecredit facilities in the years ended December 31, 2006 and 2005.

Asof December 31, 2006, the Company had $2,050.0 of medium-term notes outstandingunder two shelf registration statements, of which $250.0 are due within 12months.  See “Note F – Borrowings” in theNotes to Financial Statements for further information on medium-term notes.

Anindenture of the Company dated as of December 1, 1983, as amended by a firstsupplemental indenture dated June 19, 1989 (Exhibit 4.1), with respect to theCompany’s medium-term notes which are publicly issued from time to time,contains restrictions limiting secured debt which may be incurred by theCompany and any subsidiary.

RELATIONSHIP WITH PACCARAND AFFILIATES

General

The operations of the Company arefundamentally affected by its relationship with PACCAR. Sales of PACCARproducts are the Company’s principal source of financing business. The Companyreceives administrative support from and pays dividends to PFSC and mayoccasionally borrow funds from or lend money to PACCAR and/or its affiliates.The Company’s principal office is located in the corporate headquartersbuilding of PACCAR (owned by PACCAR). The Company also leases office space fromtwo facilities owned by PACCAR and three facilities leased by PACCAR. Since thedirectors of the Company are all executives of PACCAR and PACCAR is the soleowner of PFSC’s outstanding voting common stock, PACCAR can determine thecourse of the Company’s business.

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TheCompany periodically loans funds to certain foreign finance and leasingaffiliates of PACCAR. These foreign affiliates have Support Agreements withPACCAR, similar to the Company’s Support Agreement described below. The foreignaffiliates operate in the United Kingdom, The Netherlands, Mexico, Canada andAustralia.  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 limits is guaranteed by PACCAR. The Companyperiodically reviews the funding alternatives for these affiliates, and theselimits may be revised in the future.

PFSCcharges the Company for certain administrative services it provides and certainservices the Company receives indirectly from PACCAR. As of December 31, 2006,PFSC employed 191 full-time employees, none of whom are represented by acollective bargaining agent. The costs are charged to the Company based uponthe Company’s specific use of the services at PFSC’s or PACCAR’s cost.Management considers these charges reasonable and similar to the costs thatwould be incurred if the Company were on a stand-alone basis. See “Note D –Transactions with PACCAR and Affiliates” in the Notes to Financial Statements.

Support Agreement

TheCompany and PACCAR are parties to a Support Agreement that obligates PACCAR toprovide, when required, financial assistance to the Company to assure that theCompany maintains a ratio of net earnings available for fixed charges to fixedcharges (as defined in the Agreement) of at least 1.25 to 1 for any fiscalyear. The Support Agreement also requires PACCAR to own, directly orindirectly, all outstanding voting stock of the Company. The required ratio wasmet for the years ended December 31, 2006, 2005 and 2004 without assistance.See “Note D – Transactions with PACCAR and Affiliates” in the Notes toFinancial Statements.

TheCompany and PACCAR may amend or terminate any or all of the provisions of theSupport Agreement upon 30 days notice, with copies of the notice being sent toall nationally recognized statistical rating organizations (“NRSROs”) whichhave issued ratings with respect to debt of the Company (“Rated Debt”). Suchamendment or termination will be effective only if (i) two NRSROs confirm inwriting that their ratings with respect to any Rated Debt would remain the sameafter such amendment or termination, or (ii) the notice of amendment ortermination provides that the Support Agreement will continue in effect withrespect to Rated Debt outstanding on the effective date of such amendment ortermination unless such debt has been paid or defeased pursuant to theindenture or other agreement applicable to such debt, or (iii) the holders ofat least two-thirds of the aggregate principal amount of all outstanding RatedDebt with original maturity in excess of 270 days consent in writing to suchamendment or termination, provided that the holders of Rated Debt having anoriginal maturity of 270 days or less shall continue to have the benefits ofthe Support Agreement until the maturity of such debt.

TheSupport Agreement expressly states that PACCAR’s commitments to the Companythereunder do not constitute a PACCAR guarantee of payment of any indebtednessor liability of the Company to others and do not create rights against PACCARin favor of persons other than the Company. There are no guarantees, direct orindirect, by PACCAR of payment of any indebtedness of the Company.

OTHER DISCLOSURES

TheCompany’s filings on Form 10-K, 10-Q and 8-K and any amendments to thosereports can be reached through a link on the Company’s website, www.paccarfinancial.com,or PACCAR Inc’s website, www.paccar.com, free ofcharge as soon as reasonably practicable after the report is electronicallyfiled with, or furnished to, the Securities and Exchange Commission.  The information on our website is notincorporated by reference into this report.

**ITEM 1B.       UNRESOLVEDSTAFF COMMENTS**

Notapplicable.

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**ITEM2.          PROPERTIES**

TheCompany’s principal office is located in the corporate headquarters building ofPACCAR (owned by PACCAR) at 777 106thAvenueN.E., Bellevue, Washington 98004. The Company owns two full-service leasingfacilities in Texas.

Otheroffices and leasing facilities of the Company are located in leased premisesincluding two facilities owned by PACCAR and three facilities leased by PACCAR.The Company considers all its properties to be suitable for their intendedpurpose. Annual lease rentals for these premises in the aggregate are notmaterial in relation to expenses as a whole.

**ITEM3.          LEGAL PROCEEDINGS**

TheCompany is a party to various routine legal proceedings incidental to itsbusiness involving the collection of accounts and other matters. The Companydoes not consider such matters to be material with respect to the business orfinancial condition of the Company as a whole.

**ITEM4.          SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS**

Notapplicable.

**PART II**

**ITEM5.          MARKET FOR REGISTRANT’S COMMONEQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

Alloutstanding common stock is owned by PFSC; therefore, there is no tradingmarket in the Company’s common stock.

Cash dividends in the amount of $30.0, $70.0and $69.0 were declared and paid to PFSC in 2006, 2005 and 2004, respectively.

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**ITEM6.          SELECTED FINANCIAL DATA**

Thefollowing table summarizes selected financial data for the Company. Theinformation with respect to each of the five years in the period ended December31, 2006 has been derived from the Company’s audited financial statements.

**Balance Sheet Data**
| ** **                       | ** ** | **As of December 31** | ** **              |
|----------------------------------|------------|--------------------------------------|-------------------------|
| ** **                       | ** ** | **2006**                             | ** **              | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                       | ** ** | ** **                           | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total Assets                     | ** ** | **$**                                | **5,508.3  ** | ** ** | $ | 4,778.7   |   | $ | 3,970.7   |   | $ | 3,473.3   |   | $ | 3,511.5   |   |
| Total  Liabilities               | ** ** | **4,727.3  **              |                    | 4,066.1   |   | 3,295.6   |   | 2,834.8   |   | 2,955.6   |   |
| Total Stockholder’s  Equity | ** ** | **781.0  **                |                    | 712.6   |   | 675.1   |   | 638.5   |   | 555.9   |   |
|                                  |            |                                      |                         |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Income Statement Data**
| ** **                                                                     | ** ** | **Year ended December 31** | ** **            |
|--------------------------------------------------------------------------------|------------|-------------------------------------------|-----------------------|
| ** **                                                                     | ** ** | **2006**                                  | ** **            | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Total interest  and other revenue                                              | ** ** | **$**                                     | **509.6  ** |   | $ | 409.3   |   | $ | 320.9   |   | $ | 285.0   |   | $ | 292.6   |   |
|                                                                           | ** ** | ** **                                |                  |   |   |   |   |   |   |   |   |
| Total expenses                                                                 | ** ** | **373.3  **                     |                  | 289.3   |   | 209.5   |   | 206.9   |   | 247.6   |   |
|                                                                           | ** ** | ** **                                |                  |   |   |   |   |   |   |   |   |
| Income before  income taxes                                                    | ** ** | **136.3  **                     |                  | 120.0   |   | 111.4   |   | 78.1   |   | 45.0   |   |
|                                                                           | ** ** | ** **                                |                  |   |   |   |   |   |   |   |   |
| Income taxes                                                                   | ** ** | **51.8  **                      |                  | 46.0   |   | 42.2   |   | 30.8   |   | 17.7   |   |
|                                                                           | ** ** | ** **                                |                  |   |   |   |   |   |   |   |   |
| Net income                                                                     | ** ** | **$**                                     | **84.5  **  |   | $ | 74.0   |   | $ | 69.2   |   | $ | 47.3   |   | $ | 27.3   |   |
|                                                                           | ** ** | ** **                                |                  |   |   |   |   |   |   |   |   |
| Ratio of  Earnings to Fixed Charges Pursuant to SEC Reporting Requirements (1) | ** ** | **1.82**                                  | **x**                 | 2.17 | x | 2.61 | x | 1.98 | x | 1.39 | x |
|                                                                           | ** ** | ** **                                |                  |   |   |   |   |   |   |   |   |
| Ratio of Earnings to  Fixed Charges Pursuant to the Support Agreement          | ** ** | **2.30**                                  | **x**                 | 2.83 | x | 3.26 | x | 2.33 | x | 1.53 | x |

 

----

(1)          For thepurposes of this ratio, earnings consist of income before income taxes plusfixed charges. Fixed charges consist of interest expense plus a portion of rentexpense (which is deemed representative of an interest factor). The method ofcomputing the ratio of earnings to fixed charges shown above complies with SECreporting requirements (see Exhibit 12.1) but differs from the method calledfor in the Support Agreement between the Company and PACCAR (see Exhibit 12.2).

10

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**ITEM7.          MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND****RESULTS OF OPERATION**(Millions of Dollars)

**Results of Operations**
| ** **                                                                                                                                            | ** ** | **Year ended December 31** | ** **  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|-------------|
| ** **                                                                                                                                            | ** ** | **2006**                                  | ** **  | **2005** | ** ** | **2004** | ** ** |
| Average earning  assets                                                                                                                               | ** ** | **$**                                     | **4,881.5** |   | $ | 4,121.6 |   | $ | 3,412.5 |   |
| Interest and  other revenue                                                                                                                           | ** ** | **509.6**                                 |        | 409.3 |   | 320.9 |   |
| Income before  taxes                                                                                                                                  | ** ** | **136.3**                                 |        | 120.0 |   | 111.4 |   |
| Net income                                                                                                                                            | ** ** | **84.5**                                  |        | 74.0 |   | 69.2 |   |
|                                                                                                                                                  | ** ** | ** **                                |        |   |   |   |   |
| Allowance for losses:                                                                                                                                 | ** ** | ** **                                |        |   |   |   |   |
| Balance at beginning of year                                                                                                                          | ** ** | **$**                                     | **77.3**    |   | $ | 67.1 |   | $ | 67.4 |   |
| Provision for losses                                                                                                                                  | ** ** | **14.9**                                  |        | 14.2 |   | 4.3 |   |
| Credit losses                                                                                                                                         | ** ** | **(8.4**                                  | **)**       | (7.3 | ) | (8.9 | ) |
| Recoveries                                                                                                                                            | ** ** | **3.1**                                   |        | 3.3 |   | 4.3 |   |
|                                                                                                                                                  | ** ** | ** **                                |        |   |   |   |   |
| Balance at end  of year                                                                                                                               | ** ** | **$**                                     | **86.9**    |   | $ | 77.3 |   | $ | 67.1 |   |
|                                                                                                                                                  | ** ** | ** **                                |        |   |   |   |   |
| Ratios:                                                                                                                                               | ** ** | ** **                                |        |   |   |   |   |
| Credit losses  net of recoveries ($5.3 in 2006) to average total portfolio ($4,463.5 in  2006)                                                        | ** ** | **.12**                                   | **%**       | .11 | % | .15 | % |
|                                                                                                                                                  | ** ** | ** **                                | ** **  |   |   |   |   |
| Allowance for  losses ($86.9 in 2006) to year-end total portfolio ($5,020.2 in 2006)                                                                  | ** ** | **1.73**                                  | **%**       | 1.80 | % | 1.92 | % |
|                                                                                                                                                  | ** ** | ** **                                | ** **  |   |   |   |   |
| Year-end retail loan  and lease receivables past due, over 30 days, ($36.5 in 2006) to year-end  retail loan and lease receivables ($4,002.3 in 2006) | ** ** | **.91**                                   | **%**       | .86 | % | .97 | % |

 

The Company’s portfoliois 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:
|                             | ** ** | **As of December 31** | ** **  |
|-----------------------------|------------|--------------------------------------|-------------|
| ** **                  | ** ** | **2006**                             | ** **  | **2005** | ** ** | **2004** | ** ** |
| Retail loans                | ** ** | **$**                                | **2,798.4** | ** ** | **56%** |   | $ | 2,481.8 |   | 58% |   | $ | 2,157.8 |   | 62% |   |
| Retail leases               | ** ** | **1,203.9**                          | ** **  | **24%** |   | 977.3 |   | 23% |   | 787.2 |   | 22% |   |
| Dealer wholesale  financing | ** ** | **716.4**                            | ** **  | **14%** |   | 626.9 |   | 14% |   | 373.7 |   | 11% |   |
| Dealer master  notes        | ** ** | **301.5**                            | ** **  | **6%** |   | 206.0 |   | 5% |   | 171.2 |   | 5% |   |
| Total portfolio             | ** ** | **$**                                | **5,020.2** | ** ** | **100%** |   | $ | 4,292.0 |   | 100% |   | $ | 3,489.9 |   | 100% |   |

 

 

11

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In2006, credit losses of $8.4 increased by $1.1 compared to the $7.3 of creditlosses in 2005 and decreased by $.5 compared to the $8.9 of credit losses in2004.  As a percentage of the totalportfolio, net credit losses remained at low levels for the year ended December2006 at .12% compared to .11% and .15% at December 2005 and 2004,respectively.  This reflects customers’ability to make timely payments as they have benefited from the demand fortransportation services.  In addition,current industry conditions have had a positive impact on used truck valuessupporting the collateral underlying the Company’s receivables.

In2006, recoveries of accounts previously written off of $3.1 decreased $.2 and$1.2 from $3.3 and $4.3 in 2005 and 2004, respectively.  This was primarily due to lower credit lossesexperienced in prior years.

Dealermaster notes, which have a lower allowance for losses than retail accounts,increased to 6% of the total portfolio at December 2006 compared to 5% atDecember 2005 and 2004, reducing the ratio of the allowance for losses to netreceivables (1.73% at December 2006 from 1.80% and 1.92% at December 2005 and2004, respectively).

Theestimation methods and factors considered for determining the allowance duringthe periods included in this filing have been consistently applied and arediscussed further under Critical Accounting Policies.  There have been no significant changes incustomer contract terms during the periods.

**2006 Compared to 2005:**

TheCompany’s net income of $84.5 in 2006 increased 14% from $74.0 in 2005. Theprofit improvement primarily resulted from an increased finance gross profit(revenues minus borrowing, lease and insurance expenses). Interest and otherrevenue increased to $509.6 from $409.3 in 2005 due to higher earning assetsand higher interest rates.  Averageearning assets increased due to higher new loan and lease volume from increasedPACCAR truck production.  Interest andother borrowing expenses increased to $168.8 in 2006 due to an increase inaverage debt balances and higher interest rates.  Depreciation and other operating lease andrental expenses increased 11% to $109.7 in 2006 from $98.7 in 2005 primarilydue to continued growth in operating lease assets.  The provision for losses in 2006 of $14.9increased slightly from the $14.2 in 2005, reflecting the impact of a growingportfolio and higher credit losses.  TheCompany’s 2006 income tax rate of 38.0% was comparable to 2005.

**2005 Compared to 2004:**

TheCompany’s net income of $74.0 in 2005 increased 7% from $69.2 in 2004. Theprofit improvement primarily resulted from an increased finance gross profitpartially offset by a higher provision for losses from a growingportfolio.  Interest and other revenueincreased to $409.3 from $320.9 in 2004 due to higher earning assets and higherinterest rates.  Interest and otherborrowing expenses increased to $106.4 in 2005 due to an increase in averagedebt balances and higher interest rates. Depreciation and other operating lease and rental expenses increased to$98.7 in 2005 from $71.6 in 2004 primarily due to continued growth in operatinglease assets.  The increase in theprovision for losses on receivables was discussed above.  The Company’s 2005 income tax rate of 38.3% wascomparable to 2004.

**Company Outlook**

Thefuture profitability of the Company is principally dependent on the generationof new business volume, the related spread between the asset yields and theborrowing costs on new business and the level of credit lossesexperienced.  Asset growth is expected tobe modest as new business volume is likely to approximate assetprepayments.  The Company continues to beexposed to the risk that economic weakness, as well as volatile interest ratesand diesel prices together with a decline in freight demand and changes ingovernmental regulations could negatively impact future truck sales financedand existing customers’ ability to make timely payments, which increases therisk of loss inherent in the portfolio.

12

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**Funding and Liquidity**

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

The Company believes that it hassufficient financial capabilities to continue funding receivables, servicingdebt and paying dividends through internally generated funds, access to publicand private debt markets, lines of credit and other financial resources.

The Company’sinvestment grade credit ratings continue to provide access to capital marketsat competitive interest rates. The Company’s debt ratings at December 31, 2006****are as follows:
|                        | ** ** | **Moody’s** | ** ** | **Standard  and Poor’s** | ** ** |
|------------------------|------------|------------------|------------|------------------------------------|------------|
| Commercial paper       |       | P-1              |       | A-1+                               |       |
| Senior unsecured  debt |       | A1               |       | AA-                                |       |

 

The Company’sstrong credit ratings are primarily based on PACCAR’s operating cash flow,demand for its quality products and substantial financial assets.  Accessto financing at competitive rates would be negatively impacted by a downgradein these credit ratings.

The followingsummarizes the Company’s contractual cash commitments at December 31, 2006:
| ** **       | ** ** | **Maturity**                      | ** ** | ** **                        | ** ** |
|------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **       | ** ** | **Less than  One Year** | ** ** | **More than  One Year** | ** ** | **Total** | ** ** |
| Borrowings       |       | $                                 | 2,331.1    |                              | $          | 1,800.0 |   | $ | 4,131.1 |   |
| Operating Leases |       | .7                                |       | 1.0                               |       | 1.7 |   |
| Total            |       | $                                 | 2,331.8    |                              | $          | 1,801.0 |   | $ | 4,132.8 |   |

 

As described inNote F to the financial statements, borrowings consist of medium-term notes andcommercial paper.  Included in the $1,800.0 of borrowings that mature in more than one year are $300.0 of medium-term extendiblenotes.  These extendible notes have an initial maturity of 13 months,which can be extended at the investor’s option to a final maturity of 5years.  The interest rate adjustment to LIBOR on the notes increases eachyear by a nominal, predetermined amount. These extendible medium-term notes are included as principalamounts due in 2008.  TheCompany has operating leases for office space, truck leasing facilities andoffice equipment.

13

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In addition,the Company had loan and lease commitments of $280.3 expiringwithin one year. These commitments represent commitments to fund new retailloan and lease contracts.

**Critical Accounting Policies:**

Inthe preparation of the Company’s financial statements, in accordance withaccounting principles generally accepted in the United States, management usesestimates and makes judgments and assumptions that affect asset and liabilityvalues and the amounts reported as income and expense during the periodspresented. The following are accounting policies which, in the opinion ofmanagement, are particularly sensitive and which, if actual results aredifferent, may have a material impact on the financial statements.

Equipmenton Operating Leases

In determining the estimated residualvalues for equipment on operating leases, and certain direct financing leases,the Company considers the length of the lease term, the truck model andanticipated market demand and the ex­pected usage of the truck. If the salesprice of the trucks at the end of the lease term differs significantly from theCompany’s estimate, a gain or loss will result. The Company believes itsresidual setting policies are appropriate; however, future market conditions,changes in government regulations and other factors outside the Company’scontrol can impact the ultimate sales price of trucks returned under thesecontracts. Residual values are reviewed regularly and adjusted if marketconditions warrant. See “Note A – Significant Accounting Policies” in the Notesto Financial Statements.

Allowancefor Credit Losses

TheCompany determines the allowance for credit losses on its retail loan andlease, wholesale and master note portfolios based on a combination ofhistorical information and current market conditions.  This analysis is dependent on estimates,including assumptions regarding collectibility of past-due accounts,repossession rates and the recovery rate on the underlying collateral.  Loss estimates have been established fromhistorical collection and loss information using past due account data whichhas demonstrated a strong correlation to future credit losses.

The Companyindividually evaluates bankrupt accounts, accounts which have significantamounts past due and other large accounts with higher risk ($42.0 million atDecember 31, 2006 or 1.0% of the total outstanding receivables).  It evaluates all other customers as a groupbased on past due categories (i.e., 90+, 60-90, 30-59 and less than 30 dayspast due), as well as current account balances. The Company has developed a range of specific loss estimates for each ofits retail, wholesale and dealer master note portfolios based on historicalexperience, taking into account loss frequency and severity in both strong andweak truck market conditions.  Lossestimates at December 31, 2006 range from less than 1% on current accounts to35% on certain accounts over 90 days past due. A projection is made of the range of estimated credit losses inherent inthe portfolio from which an amount is determined as probable based on currentmarket conditions, including diesel prices, freight tonnage trends, interestrates and other factors representing leading indicators impacting the creditworthinessof our borrowers and their ability to repay. The Company further considers the impact of dealer recourse, cashrecoveries and used equipment collateral recoveries.  The projected amount is then compared to thebalance in the allowance and appropriate adjustments are made.

Althoughcertain retail contracts acquired from dealers include full or partial dealerrecourse for the credit loss, this is a minor and decreasing component of theportfolio (6% of the retail portfolio at December 31, 2006).  For wholesale and dealer master noteportfolios, dealer recourse is present in substantially all the loanarrangements.  Cash recoveries and usedequipment collateral recoveries generally vary with market conditions.

14

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**Forward Looking Statements**

Certain information presented inthis Form 10-K 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 andavailability of external funding sources; and legislation and governmental regulation.

**ITEM 7A.       QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Market Risk andDerivative Financial Instruments

Inthe normal course of business, the Company issues various financial instrumentsthat expose the Company to market risk associated with market interest rates.Policies and procedures have been established by the Company to manage thesemarket risks through the use of various derivative financial instruments. TheCompany does not engage in derivatives trading, market-making or otherspeculative activities.

Thefollowing is a sensitivity analysis for the Company’s assets and liabilitiesthat have interest rate risk.  The gainsor losses in the table represent the changes in the financial instruments’ fairvalues that would result from a 100 basis point increase from the currentmarket rate at December 31, 2006 and 2005.

**Fair Value Gains (Losses)**

(Millionsof Dollars)

 
| ** **                                                                                             | ** ** | **Year ended December 31** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2006**                                  | ** ** | **2005** | ** ** |
|                                                                                                   |       |                                      |       |   |   |
| Assets                                                                                                 |       |                                      |       |   |   |
| Retail notes, contracts and wholesale financing, net  of unearned  interest, less allowance for losses | ** ** | **$**                                     | **(42.6**  | **)** | $ | (36.6 | ) |
|                                                                                                   |       |                                      |       |   |   |
| Liabilities                                                                                            |       |                                      |       |   |   |
| Debt                                                                                                   |       |                                      |       | .2 |   |
| Interest rate swaps related to debt                                                                    | ** ** | **44.3**                                  |       | 35.6 |   |
|                                                                                                   |       |                                      |       |   |   |
| Total                                                                                                  | ** ** | **$**                                     | **1.7**    |   | $ | (.8 | ) |

 

**ITEM 8.          FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

Thefinancial statements of the Company and related schedules described under Item15, “Exhibits, Financial Statement Schedules” are included following this page.

15

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**PACCAR Financial Corp.**

Report of IndependentRegistered Public Accounting Firm

Board of DirectorsPACCAR Financial Services Corporation and PACCAR Financial Corp.

We have audited theaccompanying balance sheets of PACCAR Financial Corp. (a wholly-ownedsubsidiary of PACCAR Financial Services Corporation) as of December 31, 2006and 2005, and the related statements of income, cash flows, stockholder’sequity and comprehensive income for each of the three years in the period endedDecember 31, 2006. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard  (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting.  Ouraudits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of PACCAR Financial Corp. at December 31, 2006and 2005, and the results of its operations and its cash flows for each of thethree years in the period ended December 31, 2006 in conformity with U.S.generally accepted accounting principles.
|                      | /s/ Ernst & Young  LLP |   |
|----------------------|----------------------------|--------|
|                 |                       |
|                 |                       |
| Seattle,  Washington |
| February 16,  2007   |

 

16

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**PACCAR Financial Corp.**

 

##### **STATEMENTS OF INCOME**

(Millions of Dollars)
| ** **                                                  | ** ** | **Year ended December 31** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                  | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                        | ** ** | ** **                                | ** ** | ** ** |   |   |   |
| Interest and fee income                                     | ** ** | **$**                                     | **322.9**  |   | $ | 248.6 |   | $ | 200.3 |   |
| Operating lease and  rental income                          | ** ** | **135.2**                                 |       | 120.1 |   | 87.3 |   |
| Insurance premiums and  other revenue                       | ** ** | **51.5**                                  |       | 40.6 |   | 33.3 |   |
| **TOTAL INTEREST AND OTHER  REVENUE**                       | ** ** | **509.6**                                 |       | 409.3 |   | 320.9 |   |
|                                                        | ** ** | ** **                                |       |   |   |   |   |
| Interest and other  borrowing expenses                      | ** ** | **168.8**                                 |       | 106.4 |   | 71.6 |   |
| Depreciation and other  operating lease and rental expenses | ** ** | **109.7**                                 |       | 98.7 |   | 71.6 |   |
| Insurance claims and  other expenses                        | ** ** | **29.6**                                  |       | 22.7 |   | 17.1 |   |
| Selling, general and  administrative expenses               | ** ** | **50.3**                                  |       | 47.3 |   | 44.9 |   |
| Provision for losses on  receivables                        | ** ** | **14.9**                                  |       | 14.2 |   | 4.3 |   |
| **TOTAL EXPENSES**                                          | ** ** | **373.3**                                 |       | 289.3 |   | 209.5 |   |
| ** **                                                  | ** ** | ** **                                |       |   |   |   |   |
| **INCOME BEFORE INCOME TAXES**                              | ** ** | **136.3**                                 |       | 120.0 |   | 111.4 |   |
| ** **                                                  | ** ** | ** **                                |       |   |   |   |   |
| Income taxes                                                | ** ** | **51.8**                                  |       | 46.0 |   | 42.2 |   |
|                                                        | ** ** | ** **                                |       |   |   |   |   |
| **NET INCOME**                                              | ** ** | **$**                                     | **84.5**   |   | $ | 74.0 |   | $ | 69.2 |   |

 

Earningsper share and dividends per share are not reported because the Company is awholly-owned subsidiary of PACCAR Financial Services Corporation.

17

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**PACCAR Financial Corp.**

 

**BALANCE SHEETS**

(Millions of Dollars)
| ** **                                                                                                                                    | ** ** | **As of December 31** | ** **  |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|-------------|
| ** **                                                                                                                                    | ** ** | **2006**                             | ** **  | **2005** | ** ** |
|                                                                                                                                          |       |                                 |        |   |   |
| **ASSETS**                                                                                                                                    |       |                                 |        |   |   |
|                                                                                                                                          | ** ** | ** **                           | ** **  | ** ** | ** ** |
| Cash                                                                                                                                          | ** ** | **$**                                | **13.9**    |   | $ | 19.0 |   |
| Finance and  other receivables, net of allowance for losses (2006 - $86.9 and 2005 -  $77.3)                                                  | ** ** | **4,933.3**                          |        | 4,214.7 |   |
| Loans to PACCAR  Inc and affiliates                                                                                                           | ** ** | **14.6**                             |        | 50.7 |   |
| Equipment on  operating leases, net of depreciation (2006 - $151.1 and 2005 - $119.1)                                                         | ** ** | **461.4**                            |        | 421.3 |   |
| Other assets                                                                                                                                  | ** ** | **85.1**                             |        | 73.0 |   |
|                                                                                                                                          | ** ** | ** **                           | ** **  | ** ** | ** ** |
| **TOTAL  ASSETS**                                                                                                                             | ** ** | **$**                                | **5,508.3** |   | $ | 4,778.7 |   |
|                                                                                                                                          | ** ** | ** **                           | ** **  | ** ** | ** ** |
| **LIABILITIES**                                                                                                                               | ** ** | ** **                           | ** **  | ** ** | ** ** |
|                                                                                                                                          | ** ** | ** **                           | ** **  | ** ** | ** ** |
| Accounts payable,  accrued expenses and other                                                                                                 | ** ** | **$**                                | **264.9**   |   | $ | 156.9 |   |
| Commercial paper                                                                                                                              | ** ** | **2,081.1**                          |        | 1,805.6 |   |
| Medium-term  notes                                                                                                                            | ** ** | **2,050.0**                          |        | 1,800.0 |   |
| Income taxes –  current and deferred                                                                                                     | ** ** | **331.3**                            |        | 303.6 |   |
|                                                                                                                                          | ** ** | ** **                           | ** **  | ** ** | ** ** |
| **TOTAL  LIABILITIES**                                                                                                                        | ** ** | **$**                                | **4,727.3** |   | $ | 4,066.1 |   |
|                                                                                                                                          | ** ** | ** **                           | ** **  | ** ** | ** ** |
| **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 $100 per share, 200,000 shares authorized, 145,000 shares issued  and outstanding                                    | ** ** | **14.5**                             |        | 14.5 |   |
| Additional  paid-in capital                                                                                                                   | ** ** | **192.4**                            |        | 170.0 |   |
| Retained  earnings                                                                                                                            | ** ** | **532.0**                            |        | 477.5 |   |
| Accumulated  other comprehensive income                                                                                                       | ** ** | **11.1**                             |        | 19.6 |   |
|                                                                                                                                          | ** ** | ** **                           | ** **  | ** ** | ** ** |
| **TOTAL  STOCKHOLDER’S EQUITY**                                                                                                          | ** ** | **781.0**                            |        | 712.6 |   |
|                                                                                                                                          | ** ** | ** **                           | ** **  | ** ** | ** ** |
| **TOTAL LIABILITIES AND STOCKHOLDER’S  EQUITY**                                                                                          | ** ** | **$**                                | **5,508.3** |   | $ | 4,778.7 |   |

 

SeeNotes to Financial Statements

18

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**PACCAR Financial Corp.**

 

**STATEMENTS OF CASH FLOWS**

(Millions of Dollars)
| ** **                                                               | ** ** | **Year ended December 31** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                               | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                     |       |                                      |       |   |   |   |   |
| **OPERATING  ACTIVITIES**                                                |       |                                      |       |   |   |   |   |
|                                                                     |       |                                      |       |   |   |   |   |
| Net income                                                               | ** ** | **$**                                     | **84.5**   |   | $ | 74.0 |   | $ | 69.2 |   |
| Items included  in net income not affecting cash:                        |       |                                      |       |   |   |   |   |
| Depreciation and amortization                                            | ** ** | **84.8**                                  |       | 73.8 |   | 52.2 |   |
| Provision for losses on receivables                                      | ** ** | **14.9**                                  |       | 14.2 |   | 4.3 |   |
| Provision for deferred taxes                                             | ** ** | **39.1**                                  |       | (.2 | ) | 68.2 |   |
| Administrative fees for services from PFSC                               | ** ** | **22.4**                                  |       | 19.3 |   | 18.8 |   |
| Increase  (decrease) in payables and other                               | ** ** | **(14.3**                                 | **)**      | 26.6 |   | (23.1 | ) |
|                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **NET  CASH PROVIDED BY OPERATING ACTIVITIES**                           | ** ** | **231.4**                                 |       | 207.7 |   | 189.6 |   |
|                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **INVESTING  ACTIVITIES**                                                | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Finance and  other receivables originated                                | ** ** | **(2,286.7**                              | **)**      | (1,980.6 | ) | (1,662.6 | ) |
| Collections on  finance and other receivables                            | ** ** | **1,727.2**                               |       | 1,428.6 |   | 1,298.9 |   |
| Net increase in  wholesale receivables                                   | ** ** | **(89.5**                                 | **)**      | (253.3 | ) | (61.3 | ) |
| Net decrease in  loans to PACCAR Inc and affiliates                      | ** ** | **36.1**                                  |       | 79.4 |   | 136.3 |   |
| Acquisition of  equipment on operating leases, primarily from PACCAR Inc | ** ** | **(177.7**                                | **)**      | (165.9 | ) | (218.3 | ) |
| Proceeds from  disposal of equipment                                     | ** ** | **66.4**                                  |       | 35.5 |   | 14.8 |   |
| Other                                                                    | ** ** | **(19.1**                                 | **)**      | (4.6 | ) | (2.9 | ) |
|                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **NET  CASH USED IN INVESTING ACTIVITIES**                               | ** ** | **(743.3**                                | **)**      | (860.9 | ) | (495.1 | ) |
|                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **FINANCING  ACTIVITIES**                                                | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                               | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net increase in  commercial paper                                        | ** ** | **275.5**                                 |       | 754.8 |   | 36.3 |   |
| Proceeds from  medium-term notes                                         | ** ** | **1,500.0**                               |       | 550.0 |   | 1,150.0 |   |
| Payments of  medium-term notes                                           | ** ** | **(1,250.0**                              | **)**      | (580.0 | ) | (800.0 | ) |
| Dividends paid                                                           | ** ** | **(30.0**                                 | **)**      | (70.0 | ) | (69.0 | ) |
| Payment of  advances from (to) PACCAR Inc                                | ** ** | **11.3**                                  |       | (.8 | ) | .9 |   |
|                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **NET  CASH PROVIDED BY FINANCING ACTIVITIES**                           | ** ** | **506.8**                                 |       | 654.0 |   | 318.2 |   |
|                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **NET  (DECREASE) INCREASE IN CASH**                                     | ** ** | **(5.1**                                  | **)**      | .8 |   | 12.7 |   |
|                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **CASH AT  BEGINNING OF YEAR**                                           | ** ** | **19.0**                                  |       | 18.2 |   | 5.5 |   |
|                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **CASH AT END OF YEAR**                                                  | ** ** | **$**                                     | **13.9**   |   | $ | 19.0 |   | $ | 18.2 |   |

 

SeeNotes to Financial Statements

19

----

**PACCAR Financial Corp.**

 

**STATEMENTS OF STOCKHOLDER’S EQUITY**

(Millions of Dollars)
| ** **                                                       | ** ** | **Year ended December 31** | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                       |       |                                      |       |   |   |   |   |
| **PREFERRED  STOCK,** $100 par value                             |       |                                      |       |   |   |   |   |
|                                                             | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at beginning of year                                     | ** ** | **$**                                     | **31.0**   |   | $ | 31.0 |   | $ | 31.0 |   |
| Balance at end of year                                           | ** ** | **31.0**                                  |       | 31.0 |   | 31.0 |   |
|                                                             | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **COMMON  STOCK,** $100 par value                                | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                             | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at beginning of year                                     | ** ** | **14.5**                                  |       | 14.5 |   | 14.5 |   |
| Balance at end of year                                           | ** ** | **14.5**                                  |       | 14.5 |   | 14.5 |   |
|                                                             | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **ADDITIONAL  PAID-IN CAPITAL**                                  | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                             | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at beginning of year                                     | ** ** | **170.0**                                 |       | 150.7 |   | 131.9 |   |
| Investments from PACCAR Financial Services  Corporation          | ** ** | **22.4**                                  |       | 19.3 |   | 18.8 |   |
| Balance at end of year                                           | ** ** | **192.4**                                 |       | 170.0 |   | 150.7 |   |
| ** **                                                       | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **RETAINED  EARNINGS**                                           | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                             | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at beginning of year                                     | ** ** | **477.5**                                 |       | 473.5 |   | 473.3 |   |
| Net income                                                       | ** ** | **84.5**                                  |       | 74.0 |   | 69.2 |   |
| Cash dividends paid                                              | ** ** | **(30.0**                                 | **)**      | (70.0 | ) | (69.0 | ) |
| Balance at end of year                                           | ** ** | **532.0**                                 |       | 477.5 |   | 473.5 |   |
| ** **                                                       | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **ACCUMULATED  OTHER COMPREHENSIVE INCOME (LOSS)**               | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accumulated unrealized net gain (loss) on derivative  contracts: | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at beginning of year                                     | ** ** | **19.6**                                  |       | 5.4 |   | (12.2 | ) |
| Net unrealized (loss) gain                                       | ** ** | **(8.5**                                  | **)**      | 14.2 |   | 17.6 |   |
| Balance at end of year                                           | ** ** | **11.1**                                  |       | 19.6 |   | 5.4 |   |
|                                                             | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **TOTAL STOCKHOLDER’S EQUITY**                              | ** ** | **$**                                     | **781.0**  |   | $ | 712.6 |   | $ | 675.1 |   |

 

SeeNotes to Financial Statements

20

----

**PACCAR Financial Corp.**

 

**STATEMENTS OF COMPREHENSIVE INCOME**

(Millions of Dollars)
| ** **                                         | ** ** | **Year ended December 31** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                         | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                         |       |                                      |       |   |   |   |   |
| Net income                                         | ** ** | **$**                                     | **84.5**   |   | $ | 74.0 |   | $ | 69.2 |   |
| Other comprehensive income, net of tax             | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Unrealized net (loss) gain on derivative contracts | ** ** | **(8.5**                                  | **)**      | 14.2 |   | 17.6 |   |
| Net other comprehensive (loss) income              | ** ** | **(8.5**                                  | **)**      | 14.2 |   | 17.6 |   |
|                                               | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **TOTAL  COMPREHENSIVE INCOME**                    | ** ** | **$**                                     | **76.0**   |   | $ | 88.2 |   | $ | 86.8 |   |

 

SeeNotes to Financial Statements

21

----

**PACCAR Financial Corp.**

 

**NOTES TO FINANCIAL STATEMENTS**

(Millions ofDollars)

**NOTEA – SIGNIFICANT ACCOUNTING POLICIES**

Descriptionof Operations: PACCAR Financial Corp. (the “Company”),is a wholly-owned subsidiary of PACCAR Financial Services Corporation (“PFSC”).PFSC is a wholly-owned subsidiary of PACCAR Inc (“PACCAR”).  The Company primarily provides financing ofPACCAR-manufactured trucks and related equipment sold by authorized dealers.The Company also finances dealer inventories of transportation equipment andfranchises PACCAR dealerships to engage in full-service and finance leasing.The operations of the Company are fundamentally affected by its relationshipwith PACCAR.

Dueto the nature of the Company’s business, customers are concentrated in thetransportation industry throughout the United States. Generally, allreceivables are collateralized by the equipment being financed. The risk ofcredit losses related to this concentration has been considered in establishingthe allowance for losses.

Useof Estimates: The preparation of financial statementsin conformity with accounting principles generally accepted in the UnitedStates requires management to make estimates and assumptions that affect theamounts reported in the financial statements and accompanying notes. Actualresults could differ from those estimates.

Allowance forLosses: The provision forlosses on finance and other receivables is charged to income in an amountsufficient to maintain the allowance for losses at a level considered adequateto cover estimated credit losses, net of recoveries, inherent in the portfolio.Receivables are charged to this allowance when, in the judgment of management,they are deemed uncollectible (generally upon repossession of the collateral).With respect to certain retail contracts acquired from dealers, the dealerretains liability, up to specified limits, for the credit loss.

RevenueRecognition: Interest income from financereceivables and other receivables is recognized using the interest method.Certain loan origination costs are deferred and amortized to interest incomeover the term of the loan using the effective yield method. For operatingleases, rental revenue is recognized on a straight-line basis over the leaseterm.

Recognitionof interest income and rental revenue are suspended when management determinesthat collection is not probable (generally after 90 days past due). Recognitionis resumed if the receivable becomes contractually current and the collectionof amounts is again considered probable.

Equipmenton Operating Leases: Equipment on operating leases isrecorded at cost and is depreciated on the straight-line basis to its estimatedresidual value. Residual values are reviewed regularly and adjusted if marketconditions warrant.

IncomeTaxes: The Company is included in the consolidated federal incometax return of PACCAR. Income taxes for the Company are determined on a separatereturn basis, and any related tax liability is paid by the Company to PACCARand any related tax benefit is paid by PACCAR to the Company.

Reclassifications: Certainprior-year amounts have been reclassified to conform to the 2006 presentation.

**NewAccounting Pronouncements**

*Accountingfor Uncertainty in Income Taxes**:  *In July 2006, the FASB issued InterpretationNo. 48, *Accounting for Uncertainty in IncomeTaxes* (FIN 48).  FIN 48 is aninterpretation of FAS No. 109, *Accountingfor Income Taxes*, that clarifies the criteria for recognition ofincome tax benefits and becomes effective January 1, 2007.  The Company does not expect thispronouncement to have a significant effect on its results of operations orfinancial position.

22

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**NOTEB – FINANCE AND OTHER RECEIVABLES**

Termsfor finance and other receivables at origination range from 12 to 84 months.Repayment experience indicates some receivables will be paid prior to contractmaturity, while some others will be extended or renewed. Accordingly, thematurities of receivables presented here should not be regarded as a forecastof future collections.

Loansare reported at the principal amount outstanding, net of unearned income.

Directfinancing leases are carried at the aggregate of lease payments receivable plusestimated residual value of the leased property, less unearned income.

TheCompany’s finance and other receivables are as follows:
| ** **                                                                                            | ** ** | **Year ended December 31** | ** **  |
|-------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|-------------|
| ** **                                                                                            | ** ** | **2006**                                  | ** **  | **2005** | ** ** |
| Retail contracts  and loans due within:                                                               |       |                                      |        |   |   |
| One year                                                                                              | ** ** | **$**                                     | **1,109.3** |   | $ | 945.1 |   |
| Two years                                                                                             | ** ** | **719.7**                                 |        | 678.5 |   |
| Three years                                                                                           | ** ** | **590.9**                                 |        | 521.2 |   |
| Four years                                                                                            | ** ** | **394.1**                                 |        | 335.2 |   |
| Five years                                                                                            | ** ** | **189.1**                                 |        | 140.6 |   |
| Six years and beyond                                                                                  | ** ** | **30.6**                                  |        | 19.4 |   |
|                                                                                                  | ** ** | **3,033.7**                               |        | 2,640.0 |   |
|                                                                                                  | ** ** | ** **                                |        |   |   |
| Wholesale  financing                                                                                  | ** ** | **716.4**                                 |        | 626.9 |   |
| Direct financing  leases (including unguaranteed residual values of $38.0 in 2006 and $30.5 in  2005) | ** ** | **1,399.8**                               |        | 1,120.9 |   |
| Interest and  other receivables                                                                       | ** ** | **66.2**                                  |        | 47.8 |   |
| Unearned  interest on direct financing leases                                                         | ** ** | **(195.9**                                | **)**       | (143.6 | ) |
|                                                                                                  | ** ** | ** **                                |        |   |   |
|                                                                                                  | ** ** | **5,020.2**                               |        | 4,292.0 |   |
|                                                                                                  | ** ** | ** **                                |        |   |   |
| Less allowance  for losses                                                                            | ** ** | **(86.9**                                 | **)**       | (77.3 | ) |
|                                                                                                  | ** ** | ** **                                |        |   |   |
| Finance and  other receivables                                                                        | ** ** | **$**                                     | **4,933.3** |   | $ | 4,214.7 |   |
|                                                                                                  | ** ** | ** **                                |        |   |   |

 

Futureminimum lease payments on direct financing leases totaled $1,361.7 at December31, 2006 and are due as follows: $320.7 in 2007; $290.5 in 2008; $290.1 in2009; $226.1 in 2010; $147.8 in 2011 and $86.5 in 2012 and beyond.

23

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Theallowance for losses on finance and other receivables is summarized as follows:
| ** **                        | ** ** | **Year ended December 31** | ** ** |
|-----------------------------------|------------|-------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                  | ** ** | **2005** | ** ** |
|                              |       |                                      |       |   |   |
| Balance at  beginning of year     | ** ** | **$**                                     | **77.3**   |   | $ | 67.1 |   |
| Provision for  losses             | ** ** | **14.9**                                  |       | 14.2 |   |
| Credit losses,  net of recoveries | ** ** | **(5.3**                                  | **)**      | (4.0 | ) |
|                              |       |                                      |       |   |   |
| Balance at end of year            | ** ** | **$**                                     | **86.9**   |   | $ | 77.3 |   |

 

AtDecember 31, 2006 and 2005, the recorded investments in retail contracts andloans that were considered to be impaired were $21.5 and $18.5, respectively.Included in the allowance for losses were specific reserves of $3.6 and $3.0 onthese impaired retail contracts and loans. The average recorded investment inimpaired retail contracts and loans during the years ended December 31, 2006,2005 and 2004, was $17.9, $19.6 and $23.5, respectively. The Company recognizedinterest income of $.6, $.5 and $.2 for the years ended December 31, 2006, 2005and 2004, respectively, on those impaired retail contracts and loans, all ofwhich were recognized in income upon receipt of cash.

**NOTEC – EQUIPMENT ON OPERATING LEASES**

Termsof operating leases at origination generally range from 24 to 72 months.  The total future annual minimum rentalpayments to be received for equipment on non-cancelable operating leasesbeginning January 1, 2007 of $209.2 are due as follows: $95.6 in 2007; $62.6 in2008; $38.1 in 2009; $12.0 in 2010 and $0.9 in 2011.  Depreciation expense related to equipment onoperating leases was $78.1, $67.1, and $44.9 in 2006, 2005 and 2004,respectively. Substantially all equipment on operating leases is manufacturedby PACCAR.

**NOTED – TRANSACTIONS WITH PACCAR AND AFFILIATES**

TheCompany and PACCAR are parties to a Support Agreement that obligates PACCAR toprovide, when required, financial assistance to the Company to ensure that theCompany maintains a ratio of net earnings available for fixed charges to fixedcharges (as defined in the Agreement) of at least 1.25 to 1 for any fiscalyear. The required ratio for the years ended December 31, 2006, 2005 and 2004 wasmet without assistance. The Support Agreement also requires PACCAR to own,directly or indirectly, all outstanding voting stock of the Company.

PFSCcharges 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 reasonable and similar to thecosts that would be incurred if the Company were on a stand-alone basis. Feesfor services of $22.4, $19.3 and $18.8 in 2006, 2005 and 2004, respectively,were charged to the Company. PFSC recognizes certain of these administrativeservices as an additional investment in the Company. The Company records theinvestment as additional paid-in capital.

Cashdividends in the amount of $30.0, $70.0 and $69.0 were declared and paid in2006, 2005 and 2004, respectively.

TheCompany’s principal office is located in the corporate headquarters building ofPACCAR (owned by PACCAR). The Company also leases office space from twofacilities owned by PACCAR and three facilities leased by PACCAR.

24

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TheCompany’s employees are covered by a defined benefit pension plan, an unfundedpost-retirement medical and life insurance plan and a defined contribution plansponsored by PACCAR. Separate allocations of plan assets and defined benefitplan obligations relating to the Company have not been made. Expenses chargedto the Company by PACCAR for the defined benefit pension plan and the unfundedpost-retirement medical and life insurance plan were $1.7, $1.1 and $.9, foryears 2006, 2005 and 2004, respectively. Expenses incurred by the Company forthe defined contribution plan benefits were $1.1 for each of the three years endedDecember 31, 2006.

Financingand cash management is partly provided through unsecured short-term advances toand from PACCAR. Net annual interest paid to PACCAR was $.3, $.1 and $.1 foryears 2006, 2005 and 2004.

Periodically,the Company borrows funds from PACCAR and makes loans to PACCAR. Loansoutstanding to PACCAR were $14.6 and $.6 at December 31, 2006 and 2005,respectively. Loans outstanding from PACCAR were $11.5 and $.2 at December 31,2006 and 2005, respectively.

TheCompany periodically loans funds to certain foreign finance and leasingaffiliates of PACCAR. These foreign affiliates have Support Agreements withPACCAR, 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 limits is guaranteed by PACCAR. The Companyperiodically reviews the funding alternatives for these affiliates, and theselimits may be revised in the future. There were no loans outstanding to foreignaffiliates operating in the United Kingdom and The Netherlands at December 31,2006. There was a total of $50.1 in loans outstanding to foreign affiliatesoperating in the United Kingdom and The Netherlands at December 31, 2005. Therewere no loans outstanding to other foreign affiliates for those periods.Interest income earned on affiliate loans was $.9, $2.3 and $3.5 in 2006, 2005 and2004, respectively.

PACCARhas issued letters of credit as of December 31, 2006 in the amount of $5.9 onbehalf of the Company to guarantee funds for payment to insured franchises andtheir customers for any future insurance losses.

Includedwithin accounts payable, accrued expenses and other is $34.9 and $20.8 payableto PACCAR’s truck divisions at December 31, 2006 and 2005, respectively.

**NOTEE – DERIVATIVE FINANCIAL INSTRUMENTS**

Derivativefinancial instruments are used as hedges to manage exposures to fluctuations ininterest rates.  The Company’s policiesprohibit the use of derivatives for speculation or trading.  The Company documents its hedge objectives,procedures and accounting treatment at the inception of and during the term ofeach hedge.  Exposure limits and minimumcredit ratings are used to minimize the risks of counterparty default, and theCompany had no material exposures to default at December 31, 2006.

TheCompany enters into interest-rate contracts, including cap agreements.  Interest-rate contracts generally involve theexchange of fixed and floating rate interest payments.  These contracts are used to manage exposuresto fluctuation in interest rates.  Netamounts paid or received are reflected as adjustments to interest expense.  At December 31, 2006, the Company had 172interest-rate swaps and one interest-rate cap agreement outstanding.  The notional amount of these contractstotaled $2,927.3 with amounts expiring annually over the next six years.  The notional amount is used to measure thevolume of these contracts and does not represent exposure to credit loss.  In the event of default by a counterparty,the risk in these transactions is the cost of replacing the interest-ratecontract at current market rates.  Thetotal fair value of all interest-rate contracts amounted to an asset of $21.8and a liability of $3.9 at December 31, 2006. Fair values at December 31, 2005 amounted to an asset of $32.0 and aliability of $.3.

25

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Notionalmaturities for all interest-rate contracts for the six yearsbeginning January 1, 2007, are $806.2, $867.9, $871.2, $269.0, $100.0 and$13.0.  The majority of these contractsare floating to fixed swaps that effectively convert an equivalent amount ofcommercial paper and other variable rate debt to fixed rates.

Derivativeassets are included in the consolidated balance sheets in “Other assets.”  Derivative liabilities are included in “Accountspayable, accrued expenses and other.”

Allof the Company’s interest-rate contracts have been designated as cash flowhedges.  The Company uses regression andthe change in variable cash flows method to assess and measure effectiveness ofinterest-rate contracts.  Gains or losseson the effective portion of derivatives designated and qualifying as cash flowhedges that arise from changes in fair value are initially reported in othercomprehensive income.  Gains or losses onthe ineffective portion of cash flow hedges are recognized currently inearnings and were immaterial for each of the three years ended December 31,2006.

Amountsin accumulated other comprehensive income are reclassified into net income inthe same period in which the hedged transaction affects earnings.  Net realized gains and losses forinterest-rate contracts are recognized as an adjustment to interestexpense.  Of the accumulatednet gain included in other comprehensive income as of December 31, 2006, $9.9,net of tax, is expected to be reclassified to interest expense in 2007.  The fixed interest earned on financereceivables will offset the amount recognized in interest expense, resulting ina stable interest margin consistent with the Company’s interest-rate riskmanagement strategy.

**NOTEF – BORROWINGS**

Borrowingsare summarized as follows:
| ** **                      | ** ** | **Effective** | ** ** | **As of December 31,** | ** **  |
|---------------------------------|------------|---------------|------------|---------------------------------------|-------------|
| ** **                      | ** ** | **Rate***     | ** ** | **2006**                              | ** **  | **2005** | ** ** |
|                            |       |          |       |                                  |        |   |   |
| Commercial paper                | ** ** | **4.59**      | **%**      | **$**                                 | **2,081.1** |   | $ | 1,805.6 |   |
| Fixed rate medium-term notes    |       |          |       |                                  |        | 50.0 |   |
| Floating rate medium-term notes | ** ** | **4.84**      | **%**      | **2,050.0**                           |        | 1,750.0 |   |
| Total                           | ** ** | **4.71**      | **%**      | **$**                                 | **4,131.1** |   | $ | 3,605.6 |   |

 

----

*Theeffective rate is the weighted average rate as of December 31, 2006 andincludes the effects of interest rate swap agreements.

Interestexpense on borrowings amounted to $163.9, $101.2, and $67.9 for 2006, 2005 and2004, respectively.

Cashpaid for interest (net of swap interest received) was $162.4 in 2006, $106.1 in2005, and $69.0 in 2004.

Principalamounts of medium-term notes due over the next five years beginning January 1,2007 are $250.0 in 2007, $500.0 in 2008, and $1,300.0 in 2009.

In2005 and 2006, the Company issued, and has outstanding at December 31, 2006,$300.0 of extendible floating rate medium-term notes under its shelfregistration.  The extendible notes havean initial maturity of 13 months, which can be extended at the investor’soption to a final maturity of 5 years. The interest rate adjustment to LIBOR on the notes increases each yearby a nominal, predetermined amount. These extendible medium-term notes are included as principal amounts duein 2008.

26

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**NOTEG – CREDIT ARRANGEMENTS**

TheCompany participates with PACCAR and certain other PACCAR affiliates insyndicated credit facilities of $2,000.0 at December 31, 2006.  Of this amount, $1,000.0 expires in July 2007and $1,000.0 expires in July 2010. PACCAR intends to replace these credit facilities as they expirewith facilities of similar amounts.

Ofthe facilities, $1,216.7 is available for use by the Company and/or PACCAR andcertain other PACCAR affiliates.  Of the remaining $783.3, $370.0 is onlyavailable for use by PACCAR’s Canadian subsidiaries, $300.0 is only availablefor use by PACCAR’s Mexican financial subsidiary, and $113.3 is only availablefor use by PACCAR’s Australian financial subsidiary.  These credit facilities are used to providebackup liquidity for the Company’s commercial paper and maturing medium-termnotes. The Company is liable only for its own borrowings under these creditfacilities. There were no borrowings under these credit facilities in the yearsended December 31, 2006 and 2005.

**NOTEH – INCOME TAXES**

Theprovision for income taxes consisted of the following:
| ** **                    | ** ** | **Year ended  December 31** | ** ** |
|-------------------------------|------------|-------------------------------------------------|------------|
| ** **                    | ** ** | **2006**                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|                          |       |                                            |       |   |   |   |   |
| Current  provision (benefit)  |       |                                            |       |   |   |   |   |
| Federal                       | ** ** | **$**                                           | **12.3**   |   | $ | 44.0 |   | $ | (26.9 | ) |
| State                         | ** ** | **.4**                                          |       | 2.2 |   | .9 |   |
| ** **                    | ** ** | **12.7**                                        |       | 46.2 |   | (26.0 | ) |
| ** **                    | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deferred  provision (benefit) | ** ** | **39.1**                                        |       | (.2 | ) | 68.2 |   |
| ** **                    | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **$**                                           | **51.8**   |   | $ | 46.0 |   | $ | 42.2 |   |

 

A reconciliation between the statutory federal income tax rate to theactual provision for income taxes is shown below:

 
| ** **                        | ** ** | **Year ended  December 31** | ** ** |
|-----------------------------------|------------|-------------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|                              |       |                                            |       |   |   |   |   |
| Tax at the  statutory rate of 35% | ** ** | **$**                                           | **47.7**   |   | $ | 42.0 |   | $ | 39.0 |   |
| Effect of state  income taxes     | ** ** | **4.4**                                         |       | 3.9 |   | 3.2 |   |
| Other                             | ** ** | **(.3**                                         | **)**      | .1 |   | — |   |
| ** **                        | ** ** | **$**                                           | **51.8**   |   | $ | 46.0 |   | $ | 42.2 |   |

Cashpaid/(received) for income taxes was $18.9 in 2006, $32.7 in 2005 and ($20.2)in 2004.

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Deferredincome tax assets and liabilities consisted of the following:
| ** **                            | ** ** | **As of December 31** | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **2006**                             | ** ** | **2005** | ** ** |
| Deferred tax  liability:              |       |                                 |       |   |   |
| Asset capitalization and depreciation | ** ** | **$**                                | **370.6**  |   | $ | 326.1 |   |
| Other                                 | ** ** | **9.5**                              |       | 13.2 |   |
|                                  | ** ** | ** **                           |       |   |   |
| Deferred tax  assets:                 |       |                                 |       |   |   |
| Allowance for losses on receivables   | ** ** | **(33.3**                            | **)**      | (29.6 | ) |
| Other                                 | ** ** | **(12.8**                            | **)**      | (9.5 | ) |
|                                  |       |                                 |       |   |   |
| Net deferred tax  liability           | ** ** | **$**                                | **334.0**  |   | $ | 300.2 |   |

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**NOTE I – FAIR VALUES OF FINANCIAL INSTRUMENTS**

Thefollowing methods and assumptions were used by the Company in estimating itsfair value disclosures for financial instruments:

Cash: Thecarrying amount reported in the balance sheets is stated at fair value.

NetReceivables: For floating rate loans and wholesalefinancing, fair values approximate carrying values. For fixed rate loans, fairvalues are estimated using discounted cash flow analysis based on interestrates currently being offered for loans with similar terms to borrowers ofsimilar credit quality. The carrying amount of accrued interest and otherreceivables approximates its fair value. Direct financing lease receivables andthe related allowance for losses have been excluded from the accompanyingtable.

CommercialPaper and Medium-Term Notes: The carrying amounts of the Company’scommercial paper and floating rate medium-term notes approximate their fairvalue. The fair value of the Company’s fixed rate medium-term notes isestimated using discounted cash flow analysis, based on the Company’s currentincremental borrowing rates for similar types of borrowing arrangements.

DerivativeInstruments*:* Derivativeinstruments, including interest rate contracts, are carried at fair value.Fair values are based on quoted market prices or pricing models using currentmarket rates.

Accounts Payable,Accrued Expenses and Other: Carrying amounts approximate fairvalue and have been excluded from the accompanying table.

Financialinstruments where the recorded carrying amount is not at fair value are asfollows:
| ** **                    | ** ** | **As of December 31** | ** **  |
|-------------------------------|------------|--------------------------------------|-------------|
| ** **                    | ** ** | **2006**                             | ** **  | **2005** | ** ** |
| ** **                    | ** ** | **Carrying  Amount**                 | ** **  | **Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** |
|                          |       |                                 |        |   |   |   |   |   |   |
| Net receivables               | ** ** | **$**                                | **3,684.7** | ** ** | **$** | **3,624.1** |   | $ | 3,207.9 |   | $ | 3,167.2 |   |
| Fixed rate medium-term  notes |       |                                 |        |   |   | 50.0 |   | 49.6 |   |
|                               |            |                                      |             |  |  |  |  |  |  |  |  |  |  |

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**NOTEJ – STOCKHOLDER’S EQUITY**

**PreferredStock**

TheCompany’s Articles of Incorporation provide that the 6%, noncumulative,nonvoting preferred stock (100% owned by PFSC) is redeemable only at the optionof the Company’s Board of Directors.

**OtherComprehensive Income**

Thecomponents of other comprehensive income with the related tax effects are asfollows:
| ****                                     | ** ** | **Pretax  Amount** | ** ** | **Tax Effect** | ** ** | **Net Amount** | ** ** |
|------------------------------------------|------------|--------------------|------------|---------------------|------------|---------------------|------------|
|                                     | ** ** | ** **         | ** ** | ** **          |       |                |       |
| **2006**                                 | ** ** | ** **         | ** ** | ** **          |       |                |       |
| Other comprehensive  income:             | ** ** | ** **         | ** ** | ** **          | ** ** | ** **          | ** ** |
| Net holding gain on derivative contracts | ** ** | **$**              | **4.1**    | ** **          | **$**      | **(1.6**            | **)**      | **$** | **2.5** | ** ** |
| Reclassification adjustment              | ** ** | **(17.9**          | **)**      | **6.9**             | ** ** | **(11.0**           | **)**      |
| Net other  comprehensive income          | ** ** | **$**              | **(13.8**  | **)**               | **$**      | **5.3**             | ** ** | **$** | **(8.5** | **)** |
| ** **                               | ** ** | ** **         | ** ** | ** **          |       |                |       |
| **2005**                                 | ** ** | ** **         | ** ** | ** **          |       |                |       |
| Other  comprehensive income:             |       |               |       |                |       |                |       |
| Net holding gain on derivative contracts |       | $                  | 24.3       |                | $          | (9.3                | )          | $ | 15.0 |   |
| Reclassification adjustment              |       | (1.3               | )          | .5                  |       | (.8                 | )          |
| Net other  comprehensive income          |       | $                  | 23.0       |                | $          | (8.8                | )          | $ | 14.2 |   |
| ** **                               | ** ** | ** **         | ** ** | ** **          |       |                |       |
| **2004**                                 | ** ** | ** **         | ** ** | ** **          |       |                |       |
| Other  comprehensive income:             |       |               |       |                |       |                |       |
| Net holding loss on derivative contracts |       | $                  | 7.2        |                | $          | (2.8                | )          | $ | 4.4 |   |
| Reclassification adjustment              |       | 21.3               |       | (8.1                | )          | 13.2                |       |
| Net other comprehensive  income          |       | $                  | 28.5       |                | $          | (10.9               | )          | $ | 17.6 |   |

30

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**NOTEK – QUARTERLY RESULTS** (Unaudited)
| ** **                  | ** ** | **QUARTER** | ** ** |
|-----------------------------|------------|-------------|------------|
| ** **                  | ** ** | **First**   | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
|                        |       |        |       |   |   |   |   |   |   |
| **2006**                    |       |        |       |   |   |   |   |   |   |
|                        |       |        |       |   |   |   |   |   |   |
| Interest and  other revenue |       | $           | 116.0      |   | $ | 124.0 |   | $ | 131.3 |   | $ | 138.3 |   |
| Income before  income taxes |       | 32.1        |       | 34.5 |   | 34.8 |   | 34.9 |   |
| Net income                  |       | 19.8        |       | 21.3 |   | 21.5 |   | 21.9 |   |
|                        |       |        |       |   |   |   |   |   |   |
| **2005**                    |       |        |       |   |   |   |   |   |   |
|                        |       |        |       |   |   |   |   |   |   |
| Interest and  other revenue |       | $           | 91.1       |   | $ | 98.2 |   | $ | 106.4 |   | $ | 113.6 |   |
| Income before  income taxes |       | 29.6        |       | 28.8 |   | 30.6 |   | 31.0 |   |
| Net income                  |       | 18.3        |       | 17.7 |   | 18.9 |   | 19.1 |   |

 

**NOTEL – COMMITMENTS AND CONTINGENCIES**

The Company is a partyto various routine legal proceedings incidental to its business involving thecollection of accounts and other matters. The Company does not consider suchmatters to be material with respect to the business or financial condition ofthe Company as a whole. In addition, at December 31, 2006, the Company has loanand lease commitments of $280.3 expiring within one year. These commitmentsrepresent commitments to fund new retail loan and lease contracts.

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**PACCAR Financial Corp.**(Millionsof Dollars)

**ITEM 9.          CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

Theregistrant has not had any disagreements with its independent auditors onaccounting or financial disclosure matters.

**ITEM 9A.       CONTROLSAND 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 ofDecember 31, 2006 (“Evaluation Date”). Based on that evaluation, the principalexecutive officer and principal financial officer of the Company concluded thatthe disclosure controls and procedures in place at the Company were adequate toensure that information required to be disclosed by the Company, including itsconsolidated subsidiaries (the Company has no subsidiaries), in reports thatthe Company files or submits under the Exchange Act, is recorded, processed,summarized and reported on a timely basis in accordance with applicable rulesand regulations. There have been no changes in the Company’s internal controlsover financial reporting during the fourth quarter of 2006 that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

**ITEM 9B.  OTHER INFORMATION**

Notapplicable.

**PART III**

**ITEMS 10, 11, 12 AND 13**

Theseitems omitted pursuant to Form 10-K General Instruction (I)(1)(a) and (b).

**ITEM 14.       PRINCIPAL ACCOUNTING FEES AND SERVICES**

Audit Fees

Audit fees charged to theCompany were $.5 and $.4 for 2006 and 2005, respectively.

Other Fees

The registrant has noaudit-related, tax or other fees billed and/or paid during 2006 or 2005 forservices provided by the principal accountant.

As a wholly-owned,indirect subsidiary of PACCAR Inc, audit and non-audit services provided by theCompany’s external auditor are subject to PACCAR Inc’s Audit Committeepre-approval policies and procedures as described in the PACCAR Inc 2007 proxystatement.  During the year endedDecember 31, 2006, all services provided by the external auditor werepre-approved by the PACCAR Inc Audit Committee.

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**PART IV**

**ITEM 15.       EXHIBITS,FINANCIAL STATEMENT SCHEDULES**

(1)Listing of financial statements

Thefollowing financial statements of the Company are included in Item 8:

Statementsof Income – Years Ended December 31, 2006, 2005 and 2004

BalanceSheets – December 31, 2006 and 2005

Statementsof Cash Flows – Years Ended December 31, 2006, 2005 and 2004

Statementsof Stockholder’s Equity – Years Ended December 31, 2006, 2005 and 2004

Statementsof Comprehensive Income – Years Ended December 31, 2006, 2005 and 2004

Notesto Financial Statements – December 31, 2006, 2005 and 2004

(2) Listing offinancial statement schedules

Allschedules are omitted because the required matter or conditions are not presentor because the information required by the schedules is submitted as part ofthe consolidated financial statements and notes thereto.

(3)Listing of Exhibits

Theexhibits required by Item 601 of Regulation S-K are listed in the accompanyingExhibit Index.

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SIGNATURES

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.
|                     | PACCAR Financial Corp. |                   |   |
|--------------------------|------------------------|------------------------|--------|
|                     |                   |                   |   |
|                     |                   |                   |   |
|                     | By                     | /s/ Timothy M. Henebry |   |   |
|                     |                   | Timothy M.  Henebry    |   |   |
|                     |                   | President              |   |   |
|                     |                   |                   |   |   |
|                     |                   |                   |   |   |
| Date: February  26, 2007 |                   |                   |   |   |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant as ofthe above date and in the capacities indicated.
| (1)    | Principal Executive Officer          |                      |   |
|--------|--------------------------------------|---------------------------|--------|
|   |                                 |                      |   |
|   |                                 |                      |   |
|   |                                 | /s/ Mark C.  Pigott       |   | Chairman |
|   |                                 | Mark C. Pigott            |   |   |
|   |                                 |                      |   |   |
| (2)    | Principal Financial Officer          |                      |   |
|   |                                 |                      |   |   |
|   |                                 |                      |   |   |
|   |                                 | /s/ Michael A.  Tembreull |   | Vice Chairman |
|   |                                 | Michael A.  Tembreull     |   |   |
|   |                                 |                      |   |   |
| (3)    | Principal Accounting Officer         |                      |   |
|   |                                 |                      |   |   |
|   |                                 |                      |   |   |
|   |                                 | /s/ Cathy A.  MacLeod     |   | Controller |
|   |                                 | Cathy A. MacLeod          |   |   |
|   |                                 |                      |   |   |
| (4)    | A Majority of the Board of Directors |                      |   |
|   |                                 |                      |   |   |
|   |                                 |                      |   |   |
|   |                                 | /s/ Timothy M.  Henebry   |   |   |
|   |                                 | Timothy M.  Henebry       |   |   |
|   |                                 |                      |   |   |
|   | Kenneth R.  Gangl*                   |                      |   |
|   | Thomas E.  Plimpton*                 |                      |   |

 

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| *By    | /s/ Timothy M. Henebry |   |   |
|--------|------------------------|--------|--------|
|   | Timothy M.  Henebry    |   |   |
|   | Attorney-in-fact       |   |   |

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**EXHIBIT INDEX**

 

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

3.2                                 By-laws ofthe Company, as amended (incorporated by reference to Exhibit 3.2 to theCompany’s Registration Statement on Form 10 dated October 20, 1983, File Number0-12553).

4.1                                 Indenturefor Senior Debt Securities dated as of December 1, 1983 and first SupplementalIndenture 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 onForm 10-K dated March 26, 1984, File Number 0-12553 and Exhibit 4.2 to theCompany’s Registration Statement on Form S-3 dated June 23, 1989, RegistrationNumber 33-29434).

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

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

4.3                                 Forms ofMedium-Term Note, Series L (incorporated by reference to Exhibits 4.2A and 4.2Bto the Company’s Registration Statement on Form S-3 dated November 7, 2006,Registration Number 333-138464).

Formof Letter of Representation among the Company, Citibank, N.A. and TheDepository Trust Company, Series L (incorporated by reference to Exhibit 4.3 tothe Company’s Registration Statement on Form S-3 dated November 7, 2006,Registration Number 333-138464).

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

12.1                           Statementre: computation of ratio of earnings to fixed charges of the Company pursuantto SEC reporting requirements for each of the five years ended December 31,2002 - 2006.

12.2                           Statementre: computation of ratio of earnings to fixed charges of the Company pursuantto the Support Agreement with PACCAR for each of the five years ended December31, 2002 - 2006.

12.3                           Statementre: computation of ratio of earnings to fixed charges of PACCAR andsubsidiaries pursuant to SEC reporting requirements for each of the five yearsended December 31, 2002 - 2006.

23                                    Consent ofIndependent Registered Public Accounting Firm.

25.1                           Power ofattorney of certain officers and directors.

31.1                        Rule13a-14(a)/15d-14(a) Certification - Certification of Principal ExecutiveOfficer.

31.2                        Rule13a-14(a)/15d-14(a) Certification - Certification of Principal FinancialOfficer.

32.1                           Section1350 Certifications - Certification pursuant to Rule 13a-14(b) and Section 906of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350).

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

35

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