UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2008

or

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

For the transition period from                    to                   

Commission File No. 001-14817

PACCAR Inc

 (Exact name of Registrant as specified in its charter)

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 at least the past 90 days.  Yes  x   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer  x   Accelerated filer  o   Non-accelerated filer  o   Smaller reporting company  o

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

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

Common Stock, $1 par value — 365,150,612 shares as of March 31, 2008

FORM 10-Q

PACCAR Inc AND SUBSIDIARIES

INDEX

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PART I—FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

Consolidated Statements of Income (Unaudited)

(Millions Except Per Share Amounts)

See Notes to Consolidated Financial Statements.

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Consolidated Balance Sheets

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*     The December 31, 2007 Consolidated Balance Sheet has been derived from audited financial statements.

See Notes to Consolidated Financial Statements.

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Condensed Consolidated Statements of Cash Flows (Unaudited)

See Notes to Consolidated Financial Statements.

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NOTE A—Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three month period ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ended December 31, 2008. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

PACCAR paid a 50% common stock dividend to stockholders in October 2007. All share and per share figures presented are adjusted for the effects of the dividend.

Reclassifications:  Certain prior year amounts have been reclassified to conform to the 2008 presentation.

NOTE B—Inventories

Under the LIFO method of accounting (used for approximately 39% of March 31, 2008 inventories), an actual valuation can be made only at the end of each year based on year-end inventory levels and costs. Accordingly, interim valuations are based on management’s estimates of those year-end amounts.

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NOTE C—Finance and Other Receivables

NOTE D—Product Support Liabilities

Product support liabilities consist of amounts accrued to meet product warranty obligations and accrued costs associated with optional extended warranty and repair and maintenance contracts. PACCAR periodically assesses the adequacy of its recorded liabilities and adjusts them as appropriate to reflect actual experience.

Changes in product support liabilities are summarized as follows:

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NOTE E—Stockholders’ Equity

Comprehensive Income

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

Accumulated Other Comprehensive Income

Accumulated other comprehensive income was comprised of the following:

The currency translation gains in 2008 and 2007 are primarily attributable to changes in the value of the U.S. dollar relative to the euro.  The unrealized net losses on derivative contracts in 2008 and 2007 are primarily due to a decrease in market interest rates.

Stock Compensation Plans

Stock-based compensation expense for the first quarter was $3.0 in 2008 and $3.8 in 2007.  Realized tax benefits related to the excess of deductible amounts over expense recognized amounted to $3.0 and $9.4 for the first three months of 2008 and 2007, respectively, and have been classified as a financing cash flow.

During the first quarter of 2008, PACCAR granted 734,284 employee stock options at a strike price of $45.74. The estimated aggregate fair value of the options granted was $6.3. The Company also awarded 240,770 shares of restricted stock with an aggregate fair value of $10.7 to employees and non-employee directors.

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Other Capital Stock Changes

In the three months ended March 31, 2008, PACCAR issued 525,826 additional common shares under deferred and stock compensation arrangements.  PACCAR purchased 2,450,000 shares of its common stock at an average price of $45.28 per share during the first three months of 2008.

Diluted Earnings Per Share

The following table shows the additional amounts added to weighted average basic shares outstanding to calculate diluted earnings per share.  These amounts primarily represent the dilutive effect of stock options. Antidilutive options are excluded from the diluted earnings per share calculation and are shown separately in the table below.

NOTE F—Segment Information

Included in ‘All other’ is PACCAR’s industrial winch manufacturing business and other sales, income and expense not attributable to a reportable segment, including a portion of corporate expense.  In 2007, ‘All other’ income before income taxes included a $21.7 ($14.7 net of tax) gain on sale of property in the United Kingdom.

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NOTE G—Fair Value Measurements

Adoption of FAS 157

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

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

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

Level 3 – Valuations are based on model-based techniques for which some or all of the assumptions are obtained from indirect market information that is significant to the overall fair value measurement and which require a significant degree of management judgment.  The Company has no financial instruments requiring Level 3 valuation.

PACCAR’s assets and liabilities subject to recurring fair value measurements are either Level 1 or Level 2 and include marketable debt securities and derivative contracts as follows:

The Company’s marketable debt securities consist of municipal bonds, foreign government obligations and investment-grade corporate bonds.

The fair value of municipal bonds is estimated using recent transactions, market price quotations, and pricing models that consider, where applicable, interest rates and other observable market information.  These bonds are categorized as Level 2.

The fair value of foreign government obligations and foreign corporate bonds is based on quoted prices in active markets.  These are categorized as Level 1.

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

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NOTE H—Employee Benefit Plans

PACCAR has several defined benefit pension plans, which cover a majority of its employees. The Company also provides coverage of approximately 50% of medical costs for the majority of its U.S. employees from retirement until age 65.

The following information details the components of net periodic pension cost for the Company’s defined benefit plans:

During the first quarter of 2008, the Company contributed $3.4 to its pension plans.

The following information details the components of net periodic retiree cost for the Company’s unfunded postretirement medical and life insurance plans:

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

RESULTS OF OPERATIONS:

First quarter 2008 total net sales and revenues of $3.94 billion were comparable to the $3.98 billion in the first quarter of 2007. First quarter 2008 net income was $292.3 million ($.79 per diluted share) compared to $365.6 million ($.97 per diluted share) in the first quarter of 2007. Included in the first quarter 2007 net income was a $14.7 million gain on sale of property in the United Kingdom.  The translation effect of stronger foreign currencies, primarily the euro, increased first quarter 2008 sales and revenues by $247.6 million and income before income taxes by $32.4 million compared to the first quarter of 2007.

Truck segment net sales and revenues decreased to $3.58 billion in the first quarter of 2008 from $3.68 billion in the first quarter of 2007 due to lower truck sales in North America, mitigated somewhat by higher truck sales in Europe.  Truck segment income before income taxes of $335.3 million decreased from $428.6 million in the prior year due to lower truck sales and margins in North America and higher research and development spending.    First quarter gross margins were 15.0% in 2008 and 15.7% in 2007.  Gross margins in 2008 were affected by the weak truck market in the U.S. and Canada, somewhat offset by stronger truck and parts demand in Europe.  Research and development spending increased to $82.9 million from $37.4 million in the prior year reflecting investments in new vehicle and engine development programs.

Truck retail sales in the U.S. and Canada were dampened by higher fuel prices, lower housing starts, and lower auto production in the first quarter of 2008.  Class 8 truck orders are being impacted as customers adjust their capacity due to lower freight demand and a slowing economy.   The Company expects industry Class 8 heavy-duty retail sales for the year to be in the range of 165,000 - 185,000 trucks.

Truck demand in Europe, particularly in Central and Eastern Europe, and international markets remains strong.  2008 industry sales in Europe in the above 15 tonne truck market are expected to be at a record of 340,000 - 360,000 units.

Selling, general and administrative expense (SG&A) increased $6.0 million compared to the first quarter of 2007 as a result of stronger foreign currencies.   As a percent of sales, SG&A increased to 3.5% from 3.2%.

Financial Services segment revenues increased to $317.4 million from $264.0 million last year.  Financial Services income before income taxes of $67.3 million in the first quarter of 2008 increased from $65.6 million earned in the first quarter of 2007, primarily due to higher finance margins resulting from portfolio growth in Europe, Mexico and Australia, somewhat offset by a higher provision for losses.   The provision for losses was $17.4 million in the first quarter of 2008 compared to $14.9 million in the fourth quarter of 2007 and $7.7 million in the first quarter last year.  The effects of the slowing economy and higher fuel prices in the U.S. and Canada are negatively impacting truck operators and have resulted in higher past due accounts and increased credit losses.  Financial Services segment 30+ days past due accounts were at 2.2% of portfolio balances as of March 31, 2008 compared to 2.0% as of December 31, 2007 and 1.4% as of March 31, 2007.  Credit losses were $15.3 million in the first quarter of 2008 up from $9.4 million in the fourth quarter of 2007 and  $3.9 million in the first quarter last year.

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The effective tax rate for the first quarter of 2008 was 31.0% compared to 32.0% last year. The lower effective tax rate reflects a higher proportion of income from foreign operations.

LIQUIDITY AND CAPITAL RESOURCES:

Total Truck and Other cash and marketable debt securities decreased $202.3 million to $2.31 billion at the end of the first quarter of 2008, primarily due to dividend payments, stock repurchases and capital investments offset by positive operating cash flow.

Cash provided by operations was $367.0 million in the first quarter of 2008 compared to $412.8 million in the first quarter of 2007 primarily due to lower net income.

At March 31, 2008, PACCAR’s European finance subsidiary, PACCAR Financial Europe (PFE), had €605.8 million available for issuance under the €1.2 billion medium term-note program registered with the London Stock Exchange. PFE intends to renew this program (which is renewable annually through the filing of a new prospectus) during the second quarter of 2008.

The Company had line of credit arrangements of $3.11 billion, of which $3.08 billion was unused at the end of March 2008. Included in these arrangements is a $2.7 billion bank facility, of which $1.7 billion matures in June 2008 and $1.0 billion matures in 2012. The Company intends to replace these credit facilities as they expire with facilities of similar amounts. These credit facilities are maintained primarily to provide backup liquidity for commercial paper borrowings and maturing medium term notes of the financial services companies.

During the first three months of 2008, PACCAR maintained its Standard & Poor’s short- and long-term debt ratings of A-1+ and AA-, respectively.  The Company believes its strong cash position and investment-grade credit ratings will continue to provide financial stability and access to public debt markets at competitive interest rates.

Other information on liquidity and sources of capital as presented in the 2007 Annual Report to Stockholders continues to be relevant.

FORWARD-LOOKING STATEMENTS:

Certain information presented in this report 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: a significant decline in industry sales; competitive pressures; reduced market share; reduced availability of or higher prices for fuel; increased safety, emissions, or other regulations resulting in higher costs and/or sales restrictions; currency or commodity price fluctuations; lower used truck prices; insufficient or under-utilization of manufacturing capacity; supplier interruptions; insufficient liquidity in the capital markets; insufficient supplier capacity or access to raw materials; labor disruptions; shortages of commercial truck drivers; increased warranty costs or litigation; or legislative and governmental regulations.

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ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in the Company’s market risk during the three months ended March 31, 2008. For additional information, refer to Item 7A as presented in the 2007 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 March 31, 2008. 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 are effective to ensure that information required to be disclosed by the Company, including its consolidated 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 that occurred during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 4T.     CONTROLS AND PROCEDURES

Not Applicable.

PART II—OTHER INFORMATION

For Items 1, 3 and 5, there was no reportable information for the three months ended March 31, 2008.

ITEM 1A.     RISK FACTORS

For information regarding risk factors, refer to Part I, Item 1A as presented in the 2007 Annual Report on Form 10-K.  There has been no material changes in the Company’s risk factors during the three months ended March 31, 2008.

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ITEM 2.        UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

For items 2(a) and (b), there was no reportable information for the three months ended March 31, 2008.

(c)   Issuer purchases of equity securities.

On October 29, 2007 PACCAR’s Board of Directors approved a plan to repurchase up to $300 million of the Company’s outstanding common stock. The following are details of repurchases under this plan for the period covered by this report:

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) The annual meeting of stockholders was held on April 22, 2008.

(b) The following persons were elected to serve as directors:

Class I - Term Expiring in 2011

John M. Fluke, Jr.

Stephen F. Page

Michael A. Tembreull

Other persons whose term of office as a director continued after the meeting:

Class II - Term Expiring in 2009

James C. Pigott

Mark C. Pigott

William G. Reed, Jr.

Charles R. Williamson

Class III - Term Expiring in 2010

Alison J. Carnwath

Robert T. Parry

Gregory M.E. Spierkel

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(c)   Following is a brief description and vote count of all items voted on at the annual meeting:

ITEM NO. 1: ELECTION OF DIRECTORS

Directors were elected with the following vote:

ITEM NO. 2: PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED COMMON SHARES

Item No. 2 was approved with the following vote:

ITEM NO. 3: STOCKHOLDER PROPOSAL REGARDING THE SUPERMAJORITY VOTING PROVISIONS

Item No. 3 was not approved with the following vote:

ITEM NO. 4: STOCKHOLDER PROPOSAL REGARDING A DIRECTOR VOTE THRESHOLD

Item No. 4 was not approved with the following vote:

(d)   None

ITEM 6.        EXHIBITS

Any exhibits filed herewith are listed in the accompanying index to exhibits.

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SIGNATURE

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

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INDEX TO EXHIBITS

Exhibit (in order of assigned index numbers)

3          Articles of incorporation and bylaws:

(a)     Restated Certificate of Incorporation of PACCAR Inc (incorporated by reference to Exhibit 99.3 of the Current Report on Form 8-K of PACCAR Inc dated September 19, 2005).

(b)     Certificate of Amendment of Certificate of Incorporation of PACCAR Inc dated April 28, 2008.

(c)     Amended and Restated Bylaws of PACCAR Inc (incorporated by reference to Exhibit 99.4 of the Current Report on Form 8-K of PACCAR Inc dated September 19, 2005).

4          Instruments defining the rights of security holders, including indentures:

(a)     Rights agreement dated as of December 10, 1998 between PACCAR Inc and First Chicago Trust Company of New York setting forth the terms of the Series A Junior Participating Preferred Stock, no par value per share (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K of PACCAR Inc dated December 21, 1998).

(b)     Amendment Number 1 to rights agreement dated as of December 10, 1998 between PACCAR Inc and First Chicago Trust Company of New York appointing Wells Fargo Bank N.A. as successor rights agent, effective as of the close of business September 15, 2000 (incorporated by reference to Exhibit (4)(b) of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).

(c)     Indenture for Senior Debt Securities dated as of December 1, 1983 and first Supplemental Indenture dated as of June 19, 1989 between PACCAR Financial Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.1 of PACCAR Financial Corp.’s Annual Report on Form 10-K dated March 26, 1984, File Number 001-11677 and Exhibit 4.2 of PACCAR Financial Corp.’s Registration Statement on Form S-3 dated June 23, 1989, Registration Number 33-29434), and the Agreement of Resignation, Appointment and Acceptance, dated as of October 31, 2006 (incorporated by reference to PACCAR Financial Corp.’s Form 8-K dated November 3, 2006).

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

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

(e)     Forms of Medium-Term Note, Series L (incorporated by reference to Exhibits 4.2A and 4.2B to PACCAR Financial Corp.’s Registration Statement on Form S-3 dated November 7, 2006, Registration Number 333-138464).

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

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Exhibit (in order of assigned index numbers)

10        Material contracts:

(a)     PACCAR Inc Amended and Restated Supplemental Retirement Plan (incorporated by reference to Exhibit (10)(a) of the Annual Report on Form 10-K for the year ended December 31, 2006).

(b)     Deferred Incentive Compensation Plan (Amended and Restated as of December 31, 2004) (incorporated by reference to Exhibit (10)(b) of the Annual Report on Form 10-K for the year ended December 31, 2005).

(c)     Amended and Restated PACCAR Inc Restricted Stock and Deferred Compensation Plan for Non-employee Directors (incorporated by reference to Exhibit 99.2 of Form 8-K dated and filed December 10, 2007).

(d)     PACCAR Inc Long Term Incentive Plan (incorporated by reference to Appendix A of the 2006 Proxy Statement, dated March 14, 2006).

(e)     PACCAR Inc Senior Executive Yearly Incentive Compensation Plan (incorporated by reference to Appendix B of the 2006 Proxy Statement, dated March 14, 2006).

(f)      PACCAR Inc Long Term Incentive Plan, Nonstatutory Stock Option Agreement and Form of Option Grant Agreement (incorporated by reference to Exhibit 99.1 of Form 8-K dated January 20, 2005 and filed January 25, 2005).

(g)     PACCAR Inc Long Term Incentive Plan, Amended Form of 2006 Restricted Stock Award Agreement (incorporated by reference as Exhibit 99.2 of Form 8-K dated January 31, 2007 and filed February 5, 2007).

(h)     PACCAR Inc Long Term Incentive Plan, Form of Restricted Stock Award Agreement (incorporated by reference as Exhibit 99.1 of Form 8-K dated January 31, 2007 and filed February 5, 2007).

(i)      PACCAR Inc Long Term Incentive Plan, Amended Form of Share Match Restricted Stock Award Agreement (incorporated by reference as Exhibit 99.1 of Form 8-K dated January 30, 2008 and filed February 5, 2008).

(j)      Amendment to compensatory arrangement with non-employee directors (incorporated by reference to Exhibit (10)(h) of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).

(k)     PACCAR Inc Savings Investment Plan, Amendment and Restatement Effective January 1, 2006 (incorporated by reference to Exhibit (10)(l) of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2007).

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Exhibit (in order of assigned index numbers)

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

(a)        Certification of Principal Executive Officer.

(b)       Certification of Principal Financial Officer.

32        Section 1350 Certifications:

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

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