FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] 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. 0-13295
CATERPILLAR FINANCIAL SERVICES CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 37-1105865
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3322 WEST END AVENUE, NASHVILLE, TENNESSEE 37203-0983
(Address of principal executive offices)
Registrant's telephone number, including area code:
(615) 386-5800
Indicate by a 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 X No
The Registrant complies with the conditions set forth in General
Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this
form with the reduced disclosure format.
At March 31, 1994, one share of common stock of the Registrant was
outstanding.
<PAGE>
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended March 31, 1994
Index
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Financial Position 3
Consolidated Statement of Income 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Caterpillar Financial Services Corporation
Consolidated Statement of Financial Position
(Unaudited)
(Millions of Dollars)
March 31, Dec. 31, March 31,
1994 1993 1993
Assets:
Cash and cash equivalents $ 11.1 $ 15.6 $ 12.0
Finance receivables:
Wholesale notes receivable 176.9 142.8 42.2
Retail notes receivable 1,035.0 1,035.5 894.2
Investment in finance receivables 2,487.0 2,350.8 2,000.2
3,698.9 3,529.1 2,936.6
Less: Unearned income 359.9 348.2 314.6
Allowance for credit losses 43.6 41.5 38.8
3,295.4 3,139.4 2,583.2
Equipment on operating leases,
less accumulated depreciation 371.2 364.6 277.3
Other assets 59.3 45.1 36.1
Total assets $3,737.0 $3,564.7 $2,908.6
Liabilities and stockholder's equity:
Payable to dealers and customers $ 5.4 $ 13.7 $ 3.1
Payable to Caterpillar Inc. 4.1 3.9 3.3
Accrued interest payable 59.1 33.6 47.6
Income tax payable 42.6 36.0 36.7
Other liabilities 13.0 5.4 3.7
Short-term borrowings 1,176.2 1,138.2 971.8
Current maturities of long-term debt 512.9 492.5 545.1
Long-term debt 1,489.3 1,410.4 922.1
Deferred income taxes 8.2 13.0 10.5
Total liabilities 3,310.8 3,146.7 2,543.9
Common stock - $1 par value
Authorized: 2,000 shares
Issued & outstanding: one share 250.0 250.0 220.0
Profit employed in the business 181.9 175.5 147.7
Foreign currency translation
adjustment (5.7) (7.5) (3.0)
Total stockholder's equity 426.2 418.0 364.7
Total liabilities and stockholder's
equity $3,737.0 $3,564.7 $2,908.6
(See Notes to Consolidated Financial Statements)
Caterpillar Financial Services Corporation
Consolidated Statement of Income
(Unaudited)
(Millions of Dollars)
Three Months Ended
March 31, March 31,
1994 1993
Revenues:
Wholesale finance income $ 2.4 $ 1.2
Retail finance income 66.1 59.2
Rental income 29.0 23.0
Other income 4.7 3.1
Total revenues 102.2 86.5
Expenses:
Interest 45.9 42.3
Depreciation 21.9 16.4
General, operating, and administrative 10.7 9.1
Provision for credit losses 5.0 3.3
Other expense 9.0 .2
Total expenses 92.5 71.3
Income before income taxes and minority interest 9.7 15.2
Provision for income taxes (3.5) (5.3)
Minority interest in losses of subsidiary .2 .1
Net Income $ 6.4 $ 10.0
(See Notes to Consolidated Financial Statements)<PAGE>
Caterpillar Financial Services Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Millions of Dollars)
Three Months Ended
March 31, March 31,
1994 1993
Cash flows from operating activities:
Net income $ 6.4 $ 10.0
Adjustments for noncash items:
Depreciation 21.9 16.4
Provision for credit losses 5.0 3.3
Other 6.3 (1.0)
Change in assets and liabilities:
Receivables from customers and others (12.6) (7.4)
Deferred and refundable income taxes (4.9) (2.4)
Payable to dealers and customers (8.6) (8.0)
Payable to Caterpillar Inc. .2 .4
Accrued interest payable 25.2 19.5
Income tax payable 6.6 6.7
Other, net (1.4) .5
Net cash provided by operating
activities 44.1 38.0
Cash flows from investing activities:
Additions to equipment (37.3) (19.7)
Disposals of equipment 10.1 3.6
Additions to finance receivables (589.1) (352.3)
Collections of finance receivables 445.4 297.3
Other, net .1 1.6
Net cash used for investing
activities (170.8) (69.5)
Cash flows from financing activities:
Proceeds from long-term debt issues 251.9 90.4
Payments on long-term debt (153.7) (111.5)
Short-term borrowings, net 23.9 52.8
Net cash provided by financing
activities 122.1 31.7
Effect of exchange rate changes on cash .1 .3
Net change in cash and cash equivalents (4.5) .5
Cash and cash equivalents at beginning
of year 15.6 11.5
Cash and cash equivalents at end of quarter $ 11.1 $ 12.0
(See Notes to Consolidated Financial Statements)<PAGE>
Notes to Consolidated Financial Statements
(Dollar Amounts in Millions)
1. The accompanying unaudited consolidated financial statements have
been prepared by Caterpillar Financial Services Corporation (the
"Company") pursuant to the rules and regulations of the Securities and
Exchange Commission. Although the Company believes the disclosures are
adequate, it is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto
presented in the Company's 1993 Annual Report and the Company's Annual
Report on Form 10-K. Unless the context otherwise requires, the term
"Company" includes subsidiary companies.
The information furnished reflects, in the opinion of management,
all adjustments, which include normal and recurring accruals, necessary
for a fair presentation of the consolidated statements of financial
position, income, and cash flows for the periods presented. The results
for interim periods are not necessarily indicative of the results to be
expected for the year.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current presentation.
2. Income on financing leases, installment sale contracts, and customer
and dealer loans (retail finance income) is recognized over the term of
the contract at a constant rate of return on the scheduled uncollected
principal balance. Income on dealer floor planning and rental fleet
financing (wholesale finance income) is recognized based on the daily
balance of wholesale receivables outstanding and the applicable
effective interest rate. Income on operating leases (rental income) is
reported over the life of the operating lease in the period earned.
Loan origination fees are amortized to finance income using the interest
method over the contractual lives of the finance receivables.
Commitment fees are amortized to other income using the straight-line
method over the commitment period.
3. The Company has a tax sharing agreement with Caterpillar Inc.
("Caterpillar") in which the Company and Caterpillar agree, among other
things, to collect from or pay to the Company its allocated share of any
consolidated U.S. income tax liability or credit applicable to any
period for which the Company is included as a member of the consolidated
group. Similar agreements exist between Caterpillar Financial Australia
Limited and Caterpillar of Australia Ltd. with respect to taxes payable
in Australia, and between the Company and Caterpillar with respect to
taxes payable in Germany.
4. During the first three months of 1994, the Company publicly issued
$245.0 million of medium-term notes. The notes are offered on a
continuous basis through agents and have maturities ranging from nine
months to 15 years. Interest rates on fixed-rate medium-term notes are
established by the Company as of the date of issuance. Interest rates
on floating-rate medium-term notes are based on various indices. The
weighted average interest rate on all outstanding medium-term notes was
5.8% at March 31, 1994. Long-term debt outstanding at March 31, 1994,
matures as follows:
1994 $ 349.3
1995 588.8
1996 302.7
1997 242.1
1998 239.0
1999 103.4
Thereafter 176.9
Total $2,002.2
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
A. Consolidated Results of Operations
Three Months Ended March 31, 1994 vs. Three Months Ended March 31,
1993
Total revenues for the first quarter of 1994 were $102.2 million, an
18% increase over 1993 first quarter revenues of $86.5 million. The
increase in revenues was primarily the result of earnings from the
larger portfolio which increased to $3,688.0 million at March 31, 1994
from $2,871.6 million at March 31, 1993.
The Company financed new retail business transactions totaling
$441.2 million during the first quarter of 1994 compared with $316.9
million during the first quarter of 1993. New retail financing in the
first quarter was higher than 1993 levels due to increased machine
financing in the United States and Europe. The Company had wholesale
financing during the first quarter of 1994 of $82.3 million, compared
with $48.4 million for the first quarter of 1993.
The annualized interest rate on finance receivables (computed by
dividing annualized finance income by the average monthly finance
receivable balances) was 8.7% for the first quarter of 1994 compared
with 9.4% for the first quarter of 1993. Tax benefits associated with
governmental lease-purchase contracts and a portion of tax benefits
associated with long-term tax-oriented leases are not reflected in such
annualized interest rates. The decrease in the annualized interest rate
reflected a decrease in interest rates charged to customers.
Other income of $4.7 million for the first quarter of 1994 included
fees, gains on sales of equipment returned from lease, and other
miscellaneous income. The increase of $1.6 million during the first
quarter of 1994, as compared with the same period in 1993, was primarily
due to a higher amount of fees collected and earned.
First quarter interest expense of $45.9 million was $3.6 million
higher than 1993 first quarter interest expense due to increased
borrowings to support the larger portfolio, mostly offset by lower
borrowing rates as the average cost of borrowed funds was 6.0% for the
first quarter of 1994, compared with 7.1% for the first quarter of 1993.
Depreciation expense for the first quarter of 1994 was $21.9
million, $5.5 million higher than the same period in 1993. This
increase resulted from additional equipment on operating leases which,
computed as a monthly average balance, increase 24.7%.
General, operating, and administrative expenses increased $1.6
million during the first quarter of 1994 compared with the same period
last year. This increase resulted primarily from staff-related and
other expenses required for expansion into Europe and to service the
larger portfolio. The Company's full-time employment increased from 343
at March 31, 1993 to 369 at March 31, 1994.
Provision for credit losses during the first quarter of 1994 was $5.0
million, compared with $3.3 million during the first quarter last year,
reflecting the increased levels of new business. Receivables, net of
recoveries, of $3.3 million were written off against the allowance for
credit losses during the first quarter of 1994 compared with $1.2
million during the first quarter of 1993. Receivables past due over 30
days were 2.1% of total receivables at March 31, 1994, compared with
2.7% at March 31, 1993. Past due percentages for the first quarter of
1994 decreased primarily as a result of an improving U.S. economy and
collection efforts. The allowance for credit losses is monitored to
provide for an amount which, in management's judgment, will be adequate
to cover uncollectible receivables. At March 31, 1994, the allowance
for credit losses was $43.6 million which was 1.3% of finance
receivables, net of unearned income, compared with $38.8 million and
1.5% at March 31, 1993, respectively.
Other expense of $9.0 million for the first quarter of 1994
primarily resulted from unrealized losses due to marking to market the
Company's written interest rate caps and swaptions which are used as
part of its overall funding strategy. The unrealized losses represent
the estimated present value of future costs of the contracts based upon
interest rates as of March 31, 1994.
The effective income tax rate for the first quarter of 1994 was 36%
compared with 35% for the first quarter of 1993. The increase was
primarily due to losses recorded by the Company's European subsidiaries'
operations without a related tax benefit.
Consolidated net income for the first quarter of 1994 was $6.4
million, $3.6 million below 1993 first quarter net income of $10.0
million. The decrease in net income resulted from the written cap and
swaption agreements being marked to market with unrealized losses, net
of tax, of $5.4 million. Without the marked-to-market adjustment for
the written caps and swaptions, the consolidated net income for the
first quarter of 1994 would be $11.8 million, $1.8 million above 1993
first quarter net income. This increase generally reflected the
increased revenues from a larger portfolio. The increase was partially
offset by an increased provision for credit losses due to growth in new
business volume and administrative costs to support the larger
portfolio.
B. Capital Resources and Liquidity
The Company's operations were primarily funded with a combination of
medium-term notes, commercial paper, bank borrowings, and retained
earnings. The ratio of debt to equity at March 31, 1994 was 7.5 to 1
compared with 7.3 to 1 at December 31, 1993.
Total debt outstanding as of March 31, 1994 was $3,178.3 million, an
increase of $137.3 million over that at December 31, 1993, and was
primarily comprised of $1,960.6 million of medium-term notes, $776.6
million of commercial paper, and $392.8 million of notes payable to
banks. The increase in debt and the funds provided by operations were
used to finance the increase in the portfolio.
The Company is currently considering an asset-backed securitization
of approximately $300 million of its fixed-rate installment sale
contracts. The proceeds would be used to reduce existing debt.
At March 31, 1994, the Company had available in the United States,
Australia, Canada, Germany, Spain, Sweden, and the United Kingdom a
total of $1,065.1 million of short-term credit lines which expire at
various dates in 1994 and first quarter 1995, and $34.4 million of long-
term credit lines which expire at various dates from March 1996 to May
1996. These credit lines are with a number of banks and are considered
support for the Company's outstanding commercial paper, commercial paper
guarantees, the discounting of bank and trade bills, and bank borrowings
at various interest rates. At March 31, 1994, there were $378.1 million
of these lines utilized for bank borrowings in Australia and Europe.
The Company also has a $445.0 million revolving credit agreement
with a group of banks. This agreement is also considered support for
the Company's outstanding commercial paper and commercial paper
guarantees. The agreement terminates in 1996 and provides for
borrowings at interest rates which vary according to LIBOR or money
market rates. At March 31, 1994, there were no borrowings under this
agreement.
In connection with its match funding objectives, the Company entered
into a variety of interest rate contracts including interest rate swap
and cap agreements, options, and forward rate agreements. These
agreements are entered into with major financial institutions to reduce
the Company's exposure to changes in interest rates by matching the
maturities of interest-earning assets with comparable maturities of
long-term and short-term funding.
As of March 31, 1994, there were outstanding swap and cap agreements
with notional amounts totaling $2,265.5 million and $636.2 million,
respectively. These agreements have terms generally ranging up to five
years, which effectively changed $1,078.0 million of floating rate debt
to fixed rate debt, $799.1 million of fixed rate debt to floating rate
debt, and $1,024.6 million of floating rate debt to floating rate debt
having different conditions. In connection with swap agreements having
a total notional amount of $47.2 million, the Company entered into
option agreements (swaptions) which would allow the counterparty to
enter into swap agreements at some future date or alter the conditions
of certain swap agreements. The Company has marked to market the
written cap and swaption agreements which resulted in an after-tax
charge of $5.4 million for unrealized losses.
The company will continue to manage the written caps and swaptions
on an economic basis. This could lead to future marked-to-market gains
or losses. Increases in interest rates since the first quarter will
result in an additional marked-to-market after-tax charge of $1.5
million as of April 30, 1994. It is the intention of the company that,
going forward, the use of interest rate contracts will be limited to
those that qualify for hedge accounting treatment, thereby minimizing
fluctuations to the earnings of the Company created by marked-to-market
accounting treatment.
The Company's outstanding forward rate agreements totaled $298.2
million at the end of the first quarter of 1994. These agreements have
terms generally ranging up to six months.
The Company has entered into forward exchange contracts to hedge its
U.S. dollar denominated obligations in Australia against currency
fluctuations. At March 31, 1994, the outstanding forward exchange
contracts totaled $144.4 million.
To supplement external debt financing sources, the Company has
variable amount lending agreements with Caterpillar (including one of
its subsidiaries). Under these agreements, which may be amended from
time to time, the Company may borrow up to $55.1 million from
Caterpillar, and Caterpillar may borrow up to $85.1 million from the
Company. All of the variable amount lending agreements are effective
for indefinite terms and may be terminated by either party upon 30 days'
notice. At March 31, 1994, December 31, 1993, and March 31, 1993, the
Company had no outstanding borrowings or loans receivable under these
agreements.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
12 Statement Setting Forth
Computation of Ratio of Profit to
Fixed Charges
(The ratios of profit before
taxes plus fixed charges to fixed
charges for the quarters ending
March 31, 1994, and March 31,
1993, were 1.21 and 1.35,
respectively.)
(b) Reports on Form 8-K
A report on Form 8-K dated February 22, 1994, was filed by the
Company, containing an additional form of Medium-Term Note,
Series E.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Caterpillar Financial Services Corporation
(Registrant)
Date: May 16, 1994 By: /s/K.C. Springer
K.C. Springer, Controller and
Principal Accounting Officer
Date: May 16, 1994 By: /s/J.S. Beard
J.S. Beard, President
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
12 Statement Setting Forth Computation of 13
Ratio of Profit to Fixed Charges
EXHIBIT 12
CATERPILLAR FINANCIAL SERVICES CORPORATION
STATEMENT SETTING FORTH COMPUTATION OF
RATIO OF PROFIT TO FIXED CHARGES
(Unaudited)
(Dollars in Millions)
Three Months Ended
March 31, March 31,
1994 1993
Net income $ 6.4 $ 10.0
Add:
Provision for income taxes 3.5 5.3
Deduct:
Equity in profit of partnerships (.4) (.5)
Profit before taxes $ 9.5 $ 14.8
Fixed charges:
Interest on borrowed funds $ 45.9 $ 42.3
Rentals--at computed interest* .3 .3
Total fixed charges $ 46.2 $ 42.6
Profit before taxes plus fixed charges $ 55.7 $ 57.4
Ratio of profit before taxes plus fixed
charges to fixed charges 1.21 1.35
*Those portions of rent expense that are representative of interest
cost.
