UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2005

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

For transition period from to

Commission File No. 0-12553

PACCAR FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Washington		91-6029712
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

777 – 106^th Ave. N.E., Bellevue, WA		98004
(Address of principal executive offices)		(Zip code)

(425) 468-7100

(Registrant’s telephone number, including area code)

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

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

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

Common Stock, $100 par value—145,000 shares as of June 30, 2005

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

FORM 10-Q

PACCAR FINANCIAL CORP.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Statements of Income and Retained Earnings (Unaudited)

(Millions of Dollars)

	Three Months Ended June 30				Six Months Ended June 30
	2005		2004		2005		2004

Interest and fee income	$	59.7	$	49.1	$	114.7	$	96.5
Operating lease and rental income	28.9		20.4		55.9		38.7
Insurance premiums and other revenue	9.4		7.9		18.5		14.2
TOTAL INTEREST AND OTHER REVENUE	98.0		77.4		189.1		149.4

Interest and other borrowing expenses	24.4		16.7		45.7		33.5
Depreciation and other operating lease and rental expenses	23.4		16.6		46.0		31.7
Insurance claims and other expenses	5.3		4.4		9.9		8.5
Selling, general and administrative expenses	11.5		10.6		23.4		21.7
Provision for losses on receivables	4.6		1.1		5.7		1.6
TOTAL EXPENSES	69.2		49.4		130.7		97.0

INCOME BEFORE INCOME TAXES	28.8		28.0		58.4		52.4

Income taxes	11.1		10.6		22.4		19.9

NET INCOME	17.7		17.4		36.0		32.5

RETAINED EARNINGS AT BEGINNING OF PERIOD	491.8		419.4		473.5		473.3
Cash dividends paid	20.0		—		20.0		69.0

RETAINED EARNINGS AT END OF PERIOD	$	489.5	$	436.8	$	489.5	$	436.8

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

See Notes to Financial Statements.

FORM 10-Q

PACCAR FINANCIAL CORP.

Balance Sheets

(Millions Except Share and Per Share Amounts)

	June 30		December 31
	2005		2004*
	(Unaudited)
ASSETS

Cash	$	30.1	$	18.2
Finance and other receivables, net of allowance for losses (2005 - $71.5 and 2004 - $67.1)	3,724.7		3,423.8
Loans to PACCAR Inc and affiliates	57.1		129.1
Equipment on operating leases, net of depreciation (2005 - $97.8 and 2004 - $73.4)	373.8		357.8
Other assets	88.4		41.8

TOTAL ASSETS	$	4,274.1	$	3,970.7

LIABILITIES

Accounts payable, accrued expenses and other	$	148.7	$	133.3
Commercial paper	1,431.0		1,050.8
Medium-term notes	1,700.0		1,830.0
Income taxes – current and deferred	289.0		281.5

TOTAL LIABILITIES	$	3,568.7	$	3,295.6

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	161.5		150.7
Retained earnings	489.5		473.5
Accumulated other comprehensive income	8.9		5.4

TOTAL STOCKHOLDER’S EQUITY	705.4		675.1

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	4,274.1	$	3,970.7

*The December 31, 2004 balance sheet has been derived from audited financial statements.

See Notes to Financial Statements.

FORM 10-Q

PACCAR FINANCIAL CORP.

Statements of Cash Flows (Unaudited)

(Millions of Dollars)

Six Months Ended June 30	2005			2004

OPERATING ACTIVITIES

Net income	$	36.0		$	32.5
Items included in net income not affecting cash:
Depreciation and amortization	35.3			22.6
Benefit for deferred taxes	(20.8		)	(14.1		)
Provision for losses on receivables	5.7			1.6
Increase in payables and other	20.0			39.6

NET CASH PROVIDED BY OPERATING ACTIVITIES	76.2			82.2

INVESTING ACTIVITIES

Finance and other receivables originated	(885.1		)	(746.6		)
Collections on finance and other receivables	680.0			624.7
Net increase in wholesale receivables	(93.0		)	(34.2		)
Net decrease in loans to PACCAR Inc and affiliates	72.0			33.1
Acquisition of equipment on operating leases, primarily from PACCAR Inc	(58.0		)	(71.2		)
Proceeds from disposal of equipment	10.0			7.8
Other	(38.6		)	(19.6		)

NET CASH USED IN INVESTING ACTIVITIES	(312.7		)	(206.0		)

FINANCING ACTIVITIES

Net increase in commercial paper	380.2			36.2
Proceeds from medium-term notes	200.0			600.0
Payments of medium-term notes	(330.0		)	(450.0		)
Dividends paid	(20.0		)	(69.0		)
Proceeds of loans from PACCAR Inc	7.4			.7
Capital contributions	10.8			10.9

NET CASH PROVIDED BY FINANCING ACTIVITIES	248.4			128.8

NET INCREASE IN CASH	11.9			5.0

CASH AT BEGINNING OF PERIOD	18.2			5.5

CASH AT END OF PERIOD	$	30.1		$	10.5

See Notes to Financial Statements.

FORM 10-Q

PACCAR FINANCIAL CORP.

Notes to Financial Statements (Unaudited)

(Millions of Dollars)

NOTE A – Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and footnotes included in PACCAR Financial Corp.’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2004.

Reclassifications: Certain prior year amounts have been reclassified to conform to the 2005 presentation.

NOTE B – Transactions with PACCAR Inc and Affiliates

The Company and PACCAR Inc (“PACCAR”) are parties to a Support Agreement that obligates PACCAR to provide, when required, financial assistance to the Company to ensure that the Company maintains a ratio of net earnings available for fixed charges to fixed charges (as defined) of at least 1.25 to 1 for any fiscal year. The required ratio for the six months ended June 30, 2005 and full year 2004 was met without assistance. The Company determines the amount of PACCAR assistance, if any, at the end of each fiscal year. The Support Agreement also requires PACCAR to own, directly or indirectly, all outstanding voting stock of the Company.

PACCAR Financial Services Corporation (“PFSC”), the Company’s parent, charges the Company for certain administrative services it provides and certain services the Company receives indirectly from PACCAR. The costs are charged to the Company based upon the Company’s specific use of the services at PFSC’s or PACCAR’s cost. Management considers these charges similar to the costs that would be incurred if the Company were on a stand-alone basis. PFSC recognizes certain of these administrative services as an additional investment in the Company. The Company records the investment as additional paid-in capital. A cash dividend in the amount $20.0 was declared and paid during the second quarter of 2005 and $69.0 was declared and paid during the first quarter 2004.

The Company’s principal office is located in the corporate headquarters building of PACCAR (owned by PACCAR). The Company also leases office space from two additional facilities owned by PACCAR and two facilities leased by PACCAR.

The Company’s employees are covered by a defined benefit pension plan, an unfunded post-retirement medical and life insurance plan, and a defined contribution plan sponsored by PACCAR. Separate allocations of defined benefit plan assets and obligations relating to the Company have not been made.

Periodically, the Company borrows funds from PACCAR and makes loans to PACCAR. Loans outstanding to PACCAR were $7.0 and $13.8 at June 30, 2005 and December 31, 2004, respectively. Loans outstanding from PACCAR were $8.3 and $.9 at June 30, 2005 and December 31, 2004, respectively.

PACCAR has issued letters of credit as of June 30, 2005 in the amount of $6.7 on behalf of the Company to guarantee funds for payment to insured franchisees and customers for any future insurance losses.

The Company periodically loans funds to certain foreign finance and leasing affiliates of PACCAR. These various affiliates have Support Agreements with PACCAR, similar to the Company’s Support Agreement. The

foreign affiliates operate in the United Kingdom, The Netherlands, Mexico, Canada and Australia, and any resulting currency exposure is fully hedged. The foreign affiliates provide financing and leasing of PACCAR-manufactured trucks and related equipment sold through PACCAR’s independent dealer networks in Europe, Mexico, Canada and Australia. The Company will not make loans to the foreign affiliates in excess of the equivalent of $375.0 United States dollars, unless the amount in excess of such limits is guaranteed by PACCAR. The Company periodically reviews the funding alternatives for these affiliates, and these limits may be revised in the future. There was a total of $50.1 and $115.3 in loans outstanding to foreign affiliates operating in the United Kingdom and The Netherlands at June 30, 2005 and December 31, 2004, respectively.

NOTE C – Stockholder’s Equity

Preferred Stock

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

Comprehensive Income

The components of comprehensive income, net of related tax, were as follows:

	Three Months Ended June 30					Six Months Ended June 30
	2005			2004		2005		2004

Net income	$	17.7		$	17.4	$	36.0	$	32.5
Other comprehensive income:
Unrealized net (loss) gain on derivative contracts	(7.2		)	16.9		3.5		15.8
Total comprehensive income	$	10.5		$	34.3	$	39.5	$	48.3

The unrealized net loss on derivative contracts for the three months ended June 30, 2005 was due to a decrease in long term market interest rates causing a decrease in the fair market value in the Company’s floating to fixed rate contracts.

Accumulated other comprehensive income of $8.9 and $5.4 at June 30, 2005 and December 31, 2004, respectively, is comprised of the unrealized net gain on derivative contracts.

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

Results of Operations

The Company’s net income of $17.7 for the second quarter of 2005 increased 2% from the $17.4 for the second quarter of 2004. Net income of $36.0 for the first six months of 2005 increased $3.5 or 11% higher than the $32.5 earned in the first six months of 2004. The profit improvement in the second quarter and for the first six months primarily resulted from a higher finance margin (revenues minus borrowing, lease, and insurance expenses), partially offset by an increase in the provision for losses on receivables. Finance margin increased in the second quarter of 2005 and for the first six months of 2005, benefiting from an increase in average earning assets of approximately 20% and 19%, respectively, from the comparable periods in the prior year. The increase in average earning assets was due to higher new loan and lease volume resulting from higher PACCAR truck production. Interest income and expense for the second quarter and the first six months of 2005 were higher from growth in the portfolio and higher market interest rates. Operating lease revenue and related depreciation have increased due to an increase in equipment on operating leases in the past year. The provision for losses increased by $3.5 to $4.6 in the second quarter of 2005 and increased by $4.1 to $5.7 in the first six months of 2005, reflecting the impact of a growing portfolio.

The following table summarizes the activity in the Company’s allowance for losses on receivables and presents related ratios:

Allowance for Losses

	Six Months Ended			Year Ended			Six Months Ended
	June 30			December 31			June 30
	2005			2004			2004
Balance at beginning of period	$	67.1		$	67.4		$	67.4
Provision for losses	5.7			4.3			1.6
Credit losses, net of recoveries	(1.3		)	(4.6		)	(2.2		)
Balance at end of period	$	71.5		$	67.1		$	66.8
Ratios:

Credit losses net of recoveries ($1.3 in 2005) to average net receivables ($3,462.6 in 2005) annualized at June 30, 2005 and 2004	.07		%	.15		%	.15		%

Allowance for losses ($71.5 in 2005) to period-end net receivables ($3,682.0 in 2005)	1.94		%	1.98		%	2.14		%

Period-end finance and lease receivables past due, over 60 days, ($13.0 in 2005) to period-end retail contracts and lease receivables ($3,376.3 in 2005)	.39		%	.52		%	.80		%

Company Outlook

The future profitability of the Company is primarily dependent on the generation of new business and on the level of credit losses experienced. Continued asset growth is dependent upon the level of truck sales financed and the impact of competition. Some economic weakness, as well as continuing high fuel and insurance costs and higher interest rates, could exert pressure on the profit margins of truck operators and cause higher past-due accounts and repossessions, which could result in higher credit losses.

Funding and Liquidity

The Company manages its capital structure consistent with industry standards. Since 1983, the Company has registered debt securities under the Securities Act of 1933 for offering to the public. In December 2003, the Company filed a shelf registration statement under which $3,000 of medium-term notes could be issued as needed. As of June 30, 2005, $1,650 of such securities were available for issuance.

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

The Company’s investment grade credit ratings continue to provide access to capital markets at competitive interest rates. The Company’s credit ratings at June 30, 2005 are as follows:

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

The Company participates with PACCAR and certain other PACCAR affiliates in syndicated credit facilities of $1,500 at June 30, 2005. In July 2005, the $1,500 syndicated credit facilities were replaced with $1,500 in new facilities. Of this amount, $500 expires in July 2006 and $1,000 expires in July 2010. PACCAR intends to replace these credit facilities as they expire with facilities of similar amounts.

Of the new facilities, $1,120 is available for use by the Company and/or PACCAR and certain other PACCAR affiliates. For the remaining $380, $300 is only available for use by PACCAR’s Canadian subsidiaries and $80 is only available for use by PACCAR’s Australian financial subsidiary. These credit facilities are used to provide backup liquidity for the Company’s commercial paper and maturing medium-term notes. The Company is liable only for its own borrowings under these credit facilities. There were no borrowings under these credit facilities in the six months ended June 30, 2005 and the year ended December 31, 2004.

Other information on liquidity, sources of capital, and contractual cash commitments as presented in the Company’s 2004 Annual Report on Form 10-K continues to be relevant.

Forward Looking Statements

Certain information presented in this Form 10-Q contains forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties that may affect actual results. Risks and uncertainties include, but are not limited to: national and local economic, political and industry conditions; changes in the levels of new business volume due to unit fluctuations in new PACCAR truck sales; changes in competitive factors; changes affecting the profitability of truck owners and operators; price changes impacting equipment costs and residual values; changes in costs and availability of external funding sources; and legislation and governmental regulation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material changes in the Company’s market risk during the six months ended June 30, 2005. For additional information, refer to the market risk disclosure in Item 7a as presented in the Company’s 2004 annual report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of June 30, 2005 (“Evaluation Date”). Based on that evaluation, the principal executive officer and principal financial officer of the Company concluded that the disclosure controls and procedures in place at the Company were adequate to ensure that information required to be disclosed by the Company, including its consolidated subsidiaries (the Company has no subsidiaries), in reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported on a timely basis in accordance with applicable rules and regulations. There have been no significant changes in the Company’s internal controls over financial reporting during the second quarter of 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

For items 1, 2, 3, 4 and 5, there was no reportable information during the six months ended June 30, 2005.

ITEM 6. EXHIBITS

Any exhibits filed herewith as part of this report are listed in the accompanying Index of Exhibits.

FORM 10-Q

PACCAR FINANCIAL CORP.

INDEX TO EXHIBITS

Exhibits (in order of assigned index numbers)

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

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

4.1 Indenture for Senior Debt Securities dated as of December 1, 1983 and first Supplemental Indenture dated as of June 19, 1989 between the Company and Citibank, N.A. (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K dated March 26, 1984, File Number 0-12553 and Exhibit 4.2 to the Company’s Registration Statement on Form S-3 dated June 23, 1989, Registration Number 33-29434).

4.5 Forms of Medium-Term Note, Series J (incorporated by reference to Exhibits 4.2A and 4.2B to the Company’s Registration Statement on Form S-3 dated March 2, 2000, Registration Number 333-31502).

Form of Letter of Representation among the Company, Citibank, N.A. and The Depository Trust Company, Series J (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-3 dated March 2, 2000, Registration Number 333-31502).

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

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

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

12.1 Statement re: computation of ratio of earnings to fixed charges of the Company pursuant to SEC reporting requirements for the six-month periods ended June 30, 2005 and 2004.

		PACCAR Financial Corp.
			(Registrant)


Date	July 29, 2005	By	/s/ Timothy M. Henebry
			Timothy M. Henebry
			President (Authorized Officer)


		By	/s/ Brice J. Poplawski
			Brice J. Poplawski
			Controller (Chief Accounting Officer)

PART I. FINANCIAL INFORMATION:

ITEM 1.	FINANCIAL STATEMENTS:

Statements of Income and Retained Earnings— Three and Six Months Ended June 30, 2005 and 2004 (Unaudited)

Balance Sheets — June 30, 2005 (Unaudited) and December 31, 2004

Statements of Cash Flows — Six Months Ended June 30, 2005 and 2004 (Unaudited)

Notes to Financial Statements (Unaudited)

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4.	CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION:

ITEM 6.	EXHIBITS

SIGNATURES

INDEX TO EXHIBITS