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 June 30, 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 June 30, 1994, one share of common stock of the Registrant was
outstanding.
<PAGE>
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended June 30, 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 7-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Caterpillar Financial Services Corporation
Consolidated Statement of Financial Position
(Unaudited)
(Millions of Dollars)
June 30, Dec. 31, June 30,
1994 1993 1993
Assets:
Cash and cash equivalents $ 16.9 $ 15.6 $ 12.6
Finance receivables:
Wholesale notes receivable 394.9 142.8 93.2
Retail notes receivable 1,069.0 1,035.5 938.8
Investment in finance receivables 2,405.6 2,350.8 2,098.7
3,869.5 3,529.1 3,130.7
Less: Unearned income 355.6 348.2 316.1
Allowance for credit losses 43.5 41.5 38.6
3,470.4 3,139.4 2,776.0
Equipment on operating leases,
less accumulated depreciation 383.7 364.6 310.1
Other assets 78.4 45.1 37.4
Total assets $3,949.4 $3,564.7 $3,136.1
Liabilities and stockholder's equity:
Payable to dealers and others $ 18.4 $ 13.7 $ 6.2
Payable to Caterpillar Inc. 3.3 3.9 2.9
Accrued interest payable 33.8 33.6 31.8
Income tax payable 35.8 36.0 30.7
Other liabilities 19.8 5.4 4.5
Short-term borrowings 1,168.3 1,138.2 1,101.3
Current maturities of long-term debt 714.4 492.5 539.5
Long-term debt 1,488.5 1,410.4 1,039.8
Deferred income taxes 3.9 13.0 8.0
Total liabilities 3,486.2 3,146.7 2,764.7
Common stock - $1 par value
Authorized: 2,000 shares
Issued & outstanding: one share 275.0 250.0 220.0
Profit employed in the business 190.4 175.5 157.1
Foreign currency translation
adjustment (2.2) (7.5) (5.7)
Total stockholder's equity 463.2 418.0 371.4
Total liabilities and stockholder's
equity $3,949.4 $3,564.7 $3,136.1
(See Notes to Consolidated Financial Statements)
Caterpillar Financial Services Corporation
Consolidated Statement of Income
(Unaudited)
(Millions of Dollars)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
Revenues:
Wholesale finance income $ 5.7 $ 1.5 $ 8.1 $ 2.7
Retail finance income 67.7 60.0 133.8 119.3
Rental income 30.1 24.2 59.1 47.2
Other income 5.4 4.7 10.0 7.8
Total revenues 108.9 90.4 211.0 177.0
Expenses:
Interest 51.7 42.7 97.7 85.0
Depreciation 22.7 17.8 44.6 34.2
General, operating, and
administrative 11.1 9.9 21.6 19.0
Provision for credit losses 5.7 5.2 10.8 8.5
Other expense 4.7 .2 13.6 .5
Total expenses 95.9 75.8 188.3 147.2
Income before income taxes and
minority interest 13.0 14.6 22.7 29.8
Provision for income taxes 4.7 5.3 8.2 10.6
Minority interest in losses
of subsidiary .2 .1 .4 .2
Net Income $ 8.5 $ 9.4 $ 14.9 $ 19.4
(See Notes to Consolidated Financial Statements)<PAGE>
Caterpillar Financial Services Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Millions of Dollars)
Six Months Ended
June 30, June 30,
1994 1993
Cash flows from operating activities:
Net income $ 14.9 $ 19.4
Adjustments for noncash items:
Depreciation 44.6 34.2
Provision for credit losses 10.8 8.5
Unrealized mark-to-market losses 13.2 -
Other (4.0) (2.4)
Change in assets and liabilities:
Receivables from customers and others (27.1) (9.2)
Deferred and refundable income taxes (9.4) (4.9)
Payable to dealers and others 3.3 (4.7)
Payable to Caterpillar Inc. (.6) -
Accrued interest payable (.2) 4.0
Income tax payable (.3) .8
Other, net .9 1.4
Net cash provided by operating
activities 46.1 47.1
Cash flows from investing activities:
Additions to equipment (78.4) (78.4)
Disposals of equipment 45.6 11.2
Additions to finance receivables (1,351.3) (890.6)
Collections of finance receivables 782.4 614.5
Proceeds from sale of receivables, net 241.4 -
Other, net .5 1.6
Net cash used for investing
activities (359.8) (341.7)
Cash flows from financing activities:
Additional paid-in capital 25.0 -
Proceeds from long-term debt issues 556.6 311.7
Payments on long-term debt (259.2) (220.6)
Short-term borrowings, net (7.7) 204.6
Net cash provided by financing
activities 314.7 295.7
Effect of exchange rate changes on cash .3 -
Net change in cash and cash equivalents 1.3 1.1
Cash and cash equivalents at beginning
of year 15.6 11.5
Cash and cash equivalents at end of quarter $ 16.9 $ 12.6
(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 six months of 1994, the Company publicly issued
$538.5 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
5.9% at June 30, 1994. Long-term debt outstanding at June 30, 1994,
matures as follows:
1994 $ 245.8
1995 706.4
1996 404.8
1997 302.7
1998 240.3
1999 123.7
Thereafter 179.2
Total $2,202.9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
A. Consolidated Results of Operations
Three Months Ended June 30, 1994 vs. Three Months Ended June 30,
1993
Total revenues for the second quarter of 1994 were $108.9 million, a
20% increase over 1993 second quarter revenues of $90.4 million. The
increase in revenues was primarily the result of earnings from the
larger portfolio which increased to $3,874.5 million at June 30, 1994
from $3,097.2 million at June 30, 1993.
The company financed new retail business transactions totaling
$540.7 million during the second quarter of 1994 compared with $456.8
million during the second quarter of 1993. New retail financing in the
second quarter was higher than 1993 levels due to increased machine and
engine financing. The Company had wholesale financing during the second
quarter of 1994 of $272.0 million, compared with $67.3 million for the
second quarter of 1993. The increase was primarily due to a program
developed to support Caterpillar dealer rental fleets in the United
States.
The annualized interest rate on finance receivables (computed by
dividing annualized finance income by the average monthly finance
receivable balances) was 8.6% for the second quarter of 1994 compared
with 9.3% for the second 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 $5.4 million for the second quarter of 1994 included
fees, gains on sales of equipment returned from lease, gain on sale of
receivables (see Capital Resources and Liquidity section), and other
miscellaneous income. The increase of $0.7 million during the second
quarter of 1994, as compared with the same period in 1993, was primarily
due to the gain on receivables sold, partially offset by a lower amount
of fees collected and earned.
Second quarter interest expense of $51.7 million was $9.0 million
higher than 1993 second quarter interest expense due to increased
borrowings to support the larger portfolio. This increase was partially
offset by lower borrowing rates as the average cost of borrowed funds
was 6.1% for the second quarter of 1994, compared with 6.6% for the
second quarter of 1993.
Depreciation expense for the second quarter of 1994 was $22.7
million, $4.9 million higher than the same period in 1993. This
increase resulted from additional equipment on operating leases which,
computed as a monthly average balance, increased 21.8%.
General, operating, and administrative expenses increased $1.2
million during the second 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 347
at June 30, 1993 to 390 at June 30, 1994.
Provision for credit losses during the second quarter of 1994 was
$5.7 million, compared with $5.2 million during the second quarter last
year, reflecting the increased levels of new retail business.
Receivables, net of recoveries, of $3.2 million were written off against
the allowance for credit losses during the second quarter of 1994
compared with $4.9 million during the second quarter of 1993.
Receivables past due over 30 days were 3.2% of total receivables at June
30, 1994, compared with 1.9% at June 30, 1993. Past due percentages for
the second quarter of 1994 increased primarily in the fishing and coal
mining industries. 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 June 30, 1994, the allowance for
credit losses was $43.5 million which was 1.2% of finance receivables,
net of unearned income, compared with $38.6 million and 1.4% at June 30,
1993, respectively.
Other expense of $4.7 million for the second quarter of 1994
primarily resulted from recording unrealized losses on interest rate
caps and swaptions written by the Company.
The effective income tax rate for the second quarter of 1994 and the
second quarter of 1993 was 36%.
Net income for the second quarter of 1994 was $8.5 million, $0.9
million below 1993 second quarter net income of $9.4 million. The
decrease in net income was primarily the result of recording unrealized
losses on the written cap and swaption agreements, net of tax, of $2.8
million. This decrease was almost entirely offset by increased revenues
from a larger portfolio.
Six Months Ended June 30, 1994 vs. Six Months Ended June 30, 1993
Total revenues for the first half of 1994 were $211.0 million, a 19%
increase over the revenues for the first half of 1993 of $177.0 million.
The increase in revenues was primarily the result of earnings from the
larger portfolio.
The Company financed new retail business transactions totaling
$981.9 million during the first half of 1994 compared with $773.7
million during the first half of 1993. New retail financing in the
first half of the year was higher than 1993 levels due to increased
machine financing in Europe and the United States and increased engine
financing in the United States. The Company had wholesale financing
during the first half of 1994 of $354.3 million compared with $115.7
million for the first half of 1993. The increase was primarily due to a
program developed to support Caterpillar dealer rental fleets in the
United States.
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 half of 1994 compared with
9.3% for the first half 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 $10.0 million for the first half of 1994 included
fees, gains on sales of equipment returned from lease, gain on sale of
receivables, and other miscellaneous income. The increase of $2.2
million during the first six months of 1994, as compared with the same
period in 1993, was primarily due to the gain on sale of receivables, a
higher amount of gains on sales of equipment returned from lease, and a
higher amount of fees collected and earned.
Interest expense for the first half of 1994 was $97.7 million, $12.7
million higher than the first six months of 1993 due to increased
borrowings to support the larger portfolio. This increase was partially
offset by lower borrowing rates as the average cost of borrowed funds
was 6.1% for the first half of 1994 compared with 6.8% in 1993.
Depreciation expense increased from $34.2 million for the first half
of 1993 to $44.6 million for the first half of 1994 due to the increase
in equipment on operating leases which, computed as a monthly average
balance, increased 22.8%.
General, operating, and administrative expenses for the first six
months of 1994 increased $2.6 million over the same period last year
primarily due to staff-related and other expenses required for expansion
into Europe and to service the larger portfolio.
Provision for credit losses during the first six months of 1994
increased from $8.5 million in the first half of 1993 to $10.8 million
in the first half of 1994. This increase reflected increased levels of
new retail business and a higher provision taken for the U.S. Company.
Receivables, net of recoveries, of $6.5 million were written off against
the allowance for credit losses during the first half of 1994 compared
with $6.1 million during the first half of 1993.
Other expense of $13.6 million for the first half of 1994 primarily
resulted from recording unrealized losses on interest rate caps and
swaptions written by the Company.
The effective income tax rate for the first half of 1994 and the
first half of 1993 was 36%.
Net income for the first half of 1994 was $14.9 million compared
with $19.4 million in the first half of 1993. The decrease in net
income primarily resulted from the recording of unrealized losses on the
written cap and swaption agreements, net of tax, of $8.1 million. This
decrease was partially offset by increased revenues from a 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, asset-backed
securities, additional equity capital of $25.0 million invested by
Caterpillar, and retained earnings. The ratio of debt to equity at June
30, 1994 and at December 31, 1993 was 7.3 to 1.
On June 30, 1994, the Company completed its first asset-backed
securitization which was comprised of $242.5 million of fixed-rate
installment sale contracts. The proceeds were used to reduce existing
debt. The Company recognized a $1.3 million gain on this transaction in
the second quarter of 1994 and will receive fees in future months for
servicing these sold receivables.
Total debt outstanding as of June 30, 1994 was $3,371.2 million, an
increase of $330.1 million over that at December 31, 1993, and was
primarily comprised of $2,148.6 million of medium-term notes, $561.0
million of commercial paper, and $451.4 million of notes payable to
banks. The increase in debt and the funds provided by Caterpillar and
by operations were used to finance the increase in the portfolio.
At June 30, 1994, the Company had available a total of $1,242.5
million of short-term credit lines which expire at various dates in 1994
and the first half of 1995, and $34.7 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 June 30, 1994, there were $434.3 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 other
short-term interest rates. At June 30, 1994, there were no borrowings
under this agreement.
In connection with its match funding objectives, the Company
utilizes 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 manage
the Company's exposure to changes in interest rates.
As of June 30, 1994, there were outstanding swap, sold (written)
cap, and purchased cap agreements with notional amounts totaling
$1,935.0 million, $436.2 million, and $200.0 million, respectively.
These agreements have terms generally ranging up to five years, which
effectively change $1,073.3 million of floating rate debt to fixed rate
debt, $786.0 million of fixed rate debt to floating rate debt, and
$712.0 million of floating rate debt to floating rate debt having
different conditions. The Company also has future swaps having a total
notional amount of $110.8 million, which effectively change $62.8
million of floating rate debt to fixed rate debt and $48.0 million of
fixed rate debt to floating rate debt. The first of these future swap
agreements begins in September 1994. These future agreements generally
have maturities ranging up to four years. In connection with swap
agreements having a total notional amount of $40.0 million, the Company
had outstanding written 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 a
before-tax charge of $13.2 million for unrealized losses for the first
six months of 1994.
The Company is continuing to manage the written caps and swaptions
on an economic basis. This will lead to future mark-to-market gains or
losses. 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 mark-to-market accounting treatment.
The Company's outstanding forward rate agreements totaled $150.2
million at the end of the second 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 June 30, 1994, the outstanding forward exchange
contracts totaled $146.4 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 $106.5 million from
Caterpillar, and Caterpillar may borrow up to $86.5 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 June 30, 1994, December 31, 1993, and June 30, 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
June 30, 1994, and June 30, 1993,
were 1.24 and 1.33, respectively,
and for the six months ending
June 30, 1994, and June 30, 1993,
were 1.23 and 1.34, respectively.)
(b) Reports on Form 8-K
A report on Form 8-K dated July 21, 1994, was filed by the
Company, in which the Company reported that it had executed a
Distribution Agreement relating to the sale of up to
$1,000,000,000 of its Medium-Term Notes, Series E, and filed
the Distribution Agreement dated July 21, 1994.
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: August 9, 1994 By: /s/K.C. Springer
K.C. Springer, Controller and
Principal Accounting Officer
Date: August 9, 1994 By: /s/J.S. Beard
J.S. Beard, President
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
12 Statement Setting Forth Computation of 15
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 Six Months Ended
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
Net Income $ 8.5 $ 9.4 $ 14.9 $ 19.4
Add:
Provision for income taxes 4.7 5.3 8.2 10.6
Deduct:
Equity in profit of
partnerships (.5) (.4) (.9) (.8)
Profit before taxes $ 12.7 $ 14.3 $ 22.2 $ 29.2
Fixed charges:
Interest on borrowed
funds $ 51.7 $ 42.7 $ 97.7 $ 85.0
Rentals--at computed
interest* .3 .3 .6 .6
Total fixed charges $ 52.0 $ 43.0 $ 98.3 $ 85.6
Profit before taxes plus
fixed charges $ 64.7 $ 57.3 $120.5 $114.8
Ratio of profit before
taxes plus fixed charges
to fixed charges 1.24 1.33 1.23 1.34
*Those portions of rent expense that are representative of interest
cost.
