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, 1995
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, 1995, one share of common stock of the Registrant was
outstanding.
<PAGE>
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended March 31, 1995
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 7-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index 13
<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,
1995 1994 1994
Assets:
Cash and cash equivalents $ 27.6 $ 16.3 $ 11.1
Finance receivables:
Wholesale notes receivable 377.2 516.0 176.9
Retail notes receivable 1,153.6 1,105.9 1,035.0
Investment in finance receivables 3,091.3 2,831.4 2,487.0
4,622.1 4,453.3 3,698.9
Less: Unearned income 454.9 415.5 359.9
Allowance for credit losses 54.5 49.5 43.6
4,112.7 3,988.3 3,295.4
Equipment on operating leases,
less accumulated depreciation 430.8 425.0 371.2
Other assets 111.1 81.6 59.3
Total assets $4,682.2 $4,511.2 $3,737.0
Liabilities and stockholder's equity:
Payable to dealers and others $ 46.0 $ 42.9 $ 5.4
Payable to Caterpillar Inc. 2.9 3.2 4.1
Accrued interest payable 60.9 37.8 59.1
Income tax payable 29.8 21.6 42.6
Other liabilities 16.5 25.5 13.0
Short-term borrowings 1,455.3 1,383.1 1,176.2
Current maturities of long-term debt 738.6 807.6 512.9
Long-term debt 1,764.7 1,675.7 1,489.3
Deferred income taxes 11.1 10.7 8.2
Total liabilities 4,125.8 4,008.1 3,310.8
Common stock - $1 par value
Authorized: 2,000 shares
Issued & outstanding: one share 325.0 295.0 250.0
Profit employed in the business 225.5 207.7 181.9
Foreign currency translation
adjustment 5.9 .4 (5.7)
Total stockholder's equity 556.4 503.1 426.2
Total liabilities and stockholder's
equity $4,682.2 $4,511.2 $3,737.0
(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,
1995 1994
Revenues:
Wholesale finance income $ 10.7 $ 2.4
Retail finance income 82.5 66.1
Rental income 35.0 29.0
Other income 14.9 4.7
Total revenues 143.1 102.2
Expenses:
Interest 66.3 45.9
Depreciation 26.7 21.9
General, operating, and administrative 13.9 10.7
Provision for credit losses 6.1 5.0
Other expense 1.2 9.0
Total expenses 114.2 92.5
Income before income taxes and minority interest 28.9 9.7
Provision for income taxes 11.1 3.5
Minority interest in losses of subsidiary - .2
Net Income $ 17.8 $ 6.4
(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,
1995 1994
Cash flows from operating activities:
Net income $ 17.8 $ 6.4
Adjustments for noncash items:
Depreciation 26.7 21.9
Provision for credit losses 6.1 5.0
Unrealized mark-to-market losses (gains) (6.5) 8.8
Other (.9) (2.5)
Change in assets and liabilities:
Receivables from customers and others (21.4) (12.6)
Deferred income taxes .4 (4.9)
Payable to dealers and others .4 (8.6)
Payable to Caterpillar Inc. (.3) .2
Accrued interest payable 22.8 25.2
Income tax payable 8.2 6.6
Other, net (2.3) (1.4)
Net cash provided by operating
activities 51.0 44.1
Cash flows from investing activities:
Additions to equipment (38.9) (37.3)
Disposals of equipment 16.6 10.1
Additions to finance receivables (965.7) (589.1)
Collections of finance receivables 583.0 445.4
Proceeds from sale of receivables, net 300.0 -
Other, net (5.6) .1
Net cash used for investing
activities (110.6) (170.8)
Cash flows from financing activities:
Additional paid-in capital 30.0 -
Proceeds from long-term debt issues 294.5 251.9
Payments on long-term debt (280.7) (153.7)
Short-term borrowings, net 26.0 23.9
Net cash provided by financing
activities 69.8 122.1
Effect of exchange rate changes on cash 1.1 .1
Net change in cash and cash equivalents 11.3 (4.5)
Cash and cash equivalents at beginning
of year 16.3 15.6
Cash and cash equivalents at end of quarter $ 27.6 $ 11.1
(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 1994 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 and commitment fees in excess of $500 are
amortized to finance income using the interest method over the
contractual lives of the finance receivables.
3. The Company has a tax sharing agreement with Caterpillar Inc.
("Caterpillar") in which Caterpillar collects from or pays 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. A similar agreement
exists between Caterpillar Financial Australia Limited and Caterpillar
of Australia Ltd. with respect to taxes payable in Australia.
4. During the first three months of 1995, the Company publicly issued
$293.3 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 primarily indexed to LIBOR or
treasury bill rates swapped to LIBOR. The weighted average interest
rate on all outstanding medium-term notes was 6.7% at March 31, 1995.
Long-term debt outstanding at March 31, 1995, matures as follows:
1995 $ 627.8
1996 602.7
1997 547.2
1998 388.9
1999 155.0
2000 81.7
Thereafter 100.0
Total $2,503.3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
A. Consolidated Results of Operations
Three Months Ended March 31, 1995 vs. Three Months Ended March 31,
1994
Total revenues for the first quarter of 1995 were $143.1 million, a
40% increase over 1994 first quarter revenues of $102.2 million. The
increase in revenues was primarily the result of earnings from the
larger portfolio which increased to $4,569.5 million at March 31, 1995
from $3,688.0 million at March 31, 1994 and from recording unrealized
gains of $6.5 million on interest rate caps written by the Company.
The Company financed new retail business transactions totaling
$609.5 million during the first quarter of 1995 compared with $441.2
million during the first quarter of 1994. New retail financing in the
first quarter of 1995 was higher than the first quarter of 1994 levels
primarily due to financing increased dealer deliveries of Caterpillar
construction machines in the United States. The Company had wholesale
financing during the first quarter of 1995 of $423.3 million, compared
with $82.3 million for the first quarter of 1994. The increase was
primarily due to expansion of the Caterpillar dealer rental fleet
financing program in North America.
The annualized interest rate on finance receivables (computed by
dividing annualized finance income by the average monthly finance
receivable balances) was 9.0% for the first quarter of 1995 compared
with 8.7% for the first quarter of 1994. 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.
Other income of $14.9 million for the first quarter of 1995 included
unrealized gains on interest rate caps written by the Company, 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 $10.2 million during the first
quarter of 1995, as compared with the same period in 1994, was primarily
due to recording unrealized gains on interest rate caps written by the
Company and due to the gain on receivables sold.
First quarter interest expense of $66.3 million was $20.4 million
higher than 1994 first quarter interest expense due to increased
borrowings to support the larger portfolio and higher borrowing rates,
as the average cost of borrowed funds was 6.7% for the first quarter of
1995 compared with 6.0% for the first quarter of 1994.
Depreciation expense for the first quarter of 1995 was $26.7
million, $4.8 million higher than the same period in 1994. 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 $3.2
million during the first quarter of 1995 compared with the same period
last year. This increase resulted primarily from staff-related and
other expenses required to service the larger portfolio and for
expansion into Europe. The Company's full-time employment increased
from 369 at March 31, 1994 to 414 at March 31, 1995.
Provision for credit losses during the first quarter of 1995 was
$6.1 million, compared with $5.0 million during the first quarter last
year, reflecting the increased levels of new retail business.
Receivables, net of recoveries, of $1.9 million were written off against
the allowance for credit losses during the first quarter of 1995
compared with $3.3 million during the first quarter of 1994.
Receivables past due over 30 days were 2.0% of total receivables at
March 31, 1995, compared with 2.1% at March 31, 1994. 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, 1995, the allowance for credit losses was
$54.5 million which was 1.3% of finance receivables, net of unearned
income (1.4% excluding wholesale receivables), compared with $43.6
million and 1.3% (1.4% excluding wholesale receivables) at March 31,
1994, respectively.
Other expense for the first quarter of 1995 was $1.2 million
compared with $9.0 million for the first quarter of 1994. The decrease
resulted primarily from recording $8.8 million of unrealized losses in
the first quarter of 1994 on interest rate caps and swaptions written by
the Company. Unrealized gains on these written caps were recorded in
the first quarter of 1995 and are reflected in Other income.
The effective income tax rate for the first quarter of 1995 was 38%
compared with 36% for the first quarter of 1994. The increase was
primarily due to a decrease in the percentage of total income generated
from tax-exempt municipal leases.
Net income for the first quarter of 1995 was $17.8 million, $11.4
million above 1994 first quarter net income of $6.4 million. The
increase in net income resulted primarily from recording unrealized
gains, net of tax, of $4.2 million on interest rate caps written by the
Company, compared with a $5.4 million unrealized loss for the first
quarter of 1994, and from a $1.6 million after-tax gain on receivables
sold.
B. Capital Resources and Liquidity
The Company's operations were primarily funded with a combination of
medium-term notes, commercial paper, bank borrowings, proceeds from sale
of receivables, retained earnings, and additional equity capital of
$30.0 million invested by Caterpillar during the quarter. The ratio of
debt to equity at March 31, 1995 was 7.1 to 1 compared with 7.7 to 1 at
December 31, 1994.
Total debt outstanding as of March 31, 1995 was $3,958.6 million, an
increase of $92.2 million over that at December 31, 1994, and was
primarily comprised of $2,424.8 million of medium-term notes, $819.8
million of commercial paper, and $618.0 million of notes payable to
banks. The increase in debt and the funds provided by operations and by
Caterpillar were used to finance the increase in the portfolio.
On March 30, 1995, the Company entered into its first private-
placement, revolving, asset-backed securitization whereby it agreed to
sell on an ongoing basis up to $300.0 million of wholesale (rental fleet
financing) receivables. The $300.0 million of proceeds from the sale
were used to reduce existing debt. The Company recognized a $2.4
million gain on this transaction and will receive fees on a monthly
basis for servicing the participating interests sold.
The net amount of sold receivables serviced by the Company was
$442.0 million at March 31, 1995 which consisted of $300.0 million of
wholesale receivables and $142.0 million of retail receivables.
During the first quarter of 1995, the Company had an early
extinguishment of two of its medium-term notes with a principal amount
of $50.0 million each and two related interest rate swaps with a
notional amount of $50.0 million each. There were no material gains or
losses from these transactions.
At March 31, 1995, the Company had available a total of $1,096.1
million of short-term credit lines which expire at various dates through
first quarter 1996, and a $28.6 million long-term credit line which
expires May 1997. 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, 1995, there
were $600.5 million of these lines utilized for bank borrowings in
Australia and Europe.
The Company also participates with Caterpillar in two syndicated
revolving credit facilities aggregating $1.8 billion, consisting of a
$1.2 billion five-year facility and a $600.0 million 364-day revolving
facility. Effective May 1, 1995, the Company's allocation is $1,290.0
million, consisting of a $860.0 million five-year revolving credit and a
$430.0 million 364-day revolving credit. The Company has the ability to
request a change in its allocation and will do so to maintain the
required amount of support for the Company's outstanding commercial
paper and commercial paper guarantees. These facilities provide for
borrowings at interest rates which vary according to LIBOR or money
market rates. At March 31, 1995, there were no borrowings under these
facilities.
In connection with its match funding objectives, the Company
utilizes a variety of interest rate contracts including swap, cap, and
forward rate agreements. All of these interest rate agreements are held
or issued for purposes other than trading. The agreements are entered
into with major financial institutions and are utilized for two
principal reasons: 1) To modify the Company's debt structure in order to
match fund its receivable portfolio which reduces the risk of
deteriorating margins between its interest-earning assets and interest-
bearing liabilities, and 2) To gain an economic/competitive advantage
through lowering the cost of borrowed funds by either changing the
characteristics of existing debt instruments or entering into agreements
in combination with the issuance of debt.
In addition to meeting the Company's funding objectives, it also has
two currency swaps to reduce its currency risk exposure on two yen
financing agreements. These currency swaps exchange the yen cash flows
on the financing agreements with a fixed U.S. dollar cash flow.
As of March 31, 1995, the Company had outstanding interest rate swap
contracts with notional amounts totaling $1,579.9 million that are
either designated as hedges of specific debt issuances or of commercial
paper. These swap agreements have terms generally ranging up to five
years, which effectively change $951.9 million of floating rate debt to
fixed rate debt, $306.0 million of fixed rate debt to floating rate
debt, and $322.0 million of floating rate debt to floating rate debt
having different characteristics. The interest rate swaps designated to
commercial paper provide the ability to obtain fixed rate term debt
utilizing short-term debt markets. The Company also had swaps having
future effective dates with a total notional amount of $33.0 million,
which will effectively change fixed rate debt to floating rate debt.
The effective dates of the future dated swaps range from 1995 through
1998 with terms of these swaps ranging up to two years.
As of March 31, 1995, the Company had outstanding sold (written)
interest rate cap agreements with notional amounts totaling $235.7
million. To the extent that rates decrease, the notional amount may
decrease and/or the term of the written cap agreements may shorten based
on the index amortizing feature of the caps. These cap agreements have
remaining maturities through October 1997. The Company has marked to
market the written cap agreements and is continuing to manage these
agreements on an economic basis, which will lead to future mark-to-
market gains or losses.
The Company's outstanding forward rate agreements totaled $21.9
million at the end of the first quarter of 1995. These agreements have
terms generally ranging up to six months.
The Company has forward exchange contracts to hedge its U.S. dollar
denominated obligations in Australia against currency fluctuations.
These contracts have terms generally ranging up to three months and do
not subject the Company to risk due to exchange rate movements, because
the gains and losses on the contracts offset the losses and gains on the
liabilities being hedged. At March 31, 1995, the Company had forward
exchange contracts totaling $173.5 million, all with Caterpillar.
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 $86.4 million from
Caterpillar, and Caterpillar may borrow up to $86.4 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, 1995, December 31, 1994, and March 31, 1994, 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, 1995, and March 31,
1994, were 1.43 and 1.21,
respectively.)
(b) Reports on Form 8-K
None.
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 11, 1995 By: /s/ K. C. Springer
K.C. Springer, Controller and
Principal Accounting Officer
Date: May 11, 1995 By: /s/ J. S. Beard
J.S. Beard, President
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
12 Statement Setting Forth Computation of 14
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,
1995 1994
Net income $ 17.8 $ 6.4
Add:
Provision for income taxes 11.1 3.5
Deduct:
Equity in profit of partnerships (.2) (.4)
Profit before taxes $ 28.7 $ 9.5
Fixed charges:
Interest on borrowed funds $ 66.3 $ 45.9
Rentals--at computed interest* .4 .3
Total fixed charges $ 66.7 $ 46.2
Profit before taxes plus fixed charges $ 95.4 $ 55.7
Ratio of profit before taxes plus fixed
charges to fixed charges 1.43 1.21
*Those portions of rent expense that are representative of interest
cost.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE
COMPANY'S FIRST QUARTER 1995 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 27,600
<SECURITIES> 0
<RECEIVABLES> 4,167,200
<ALLOWANCES> 54,500
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 628,700
<DEPRECIATION> 197,900
<TOTAL-ASSETS> 4,682,200
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,503,300<F2>
<COMMON> 325,000
0
0
<OTHER-SE> 231,400
<TOTAL-LIABILITY-AND-EQUITY> 4,682,200
<SALES> 0
<TOTAL-REVENUES> 143,100
<CGS> 0
<TOTAL-COSTS> 40,600
<OTHER-EXPENSES> 1,200
<LOSS-PROVISION> 6,100
<INTEREST-EXPENSE> 66,300
<INCOME-PRETAX> 28,900
<INCOME-TAX> 11,100
<INCOME-CONTINUING> 17,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,800
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE COMPANY IS A CAPTIVE FINANCE SUBSIDIARY WHICH DOES NOT
HAVE A CLASSIFIED
BALANCE SHEET.
<F2>INCLUDES CURRENT AND NONCURRENT MATURITIES OF LONG-TERM DEBT.
</FN>
</TABLE>
