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 September 30, 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 September 30, 1995, one share of common stock of the Registrant
was outstanding.
<PAGE>
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended September 30, 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 7-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Caterpillar Financial Services Corporation
Consolidated Statement of Financial Position
(Unaudited)
(Millions of Dollars)
Sept. 30, Dec. 31, Sept. 30,
1995 1994 1994
Assets:
Cash and cash equivalents $ 23.5 $ 16.3 $ 19.7
Finance receivables:
Wholesale notes receivable 1,056.7 516.0 486.2
Retail notes receivable 1,343.3 1,105.9 1,035.6
Investment in finance receivables 3,102.2 2,831.4 2,602.3
5,502.2 4,453.3 4,124.1
Less: Unearned income 462.2 415.5 376.8
Allowance for credit losses 55.5 49.5 46.4
4,984.5 3,988.3 3,700.9
Equipment on operating leases,
less accumulated depreciation 393.7 425.0 400.4
Other assets 138.5 81.6 90.3
Total assets $5,540.2 $4,511.2 $4,211.3
Liabilities and stockholder's equity:
Payable to dealers and others $ 72.5 $ 42.9 $ 20.5
Payable to Caterpillar Inc. 3.7 3.2 2.1
Accrued interest payable 68.2 37.8 54.6
Income tax payable 37.7 21.6 45.6
Other liabilities 3.9 25.5 19.4
Short-term borrowings 2,028.6 1,383.1 1,353.2
Current maturities of long-term debt 944.8 807.6 726.2
Long-term debt 1,766.7 1,675.7 1,512.6
Deferred income taxes 21.1 10.7 .2
Total liabilities 4,947.2 4,008.1 3,734.4
Common stock - $1 par value
Authorized: 2,000 shares
Issued & outstanding: one share 325.0 295.0 275.0
Profit employed in the business 261.4 207.7 201.3
Foreign currency translation
adjustment 6.6 .4 .6
Total stockholder's equity 593.0 503.1 476.9
Total liabilities and stockholder's
equity $5,540.2 $4,511.2 $4,211.3
(See Notes to Consolidated Financial Statements)
Caterpillar Financial Services Corporation
Consolidated Statement of Income
(Unaudited)
(Millions of Dollars)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1995 1994 1995 1994
Revenues:
Wholesale finance income $ 23.0 $ 8.3 $ 48.4 $ 16.4
Retail finance income 96.0 68.4 267.3 202.2
Rental income 27.3 31.2 98.4 90.3
Other income 14.2 5.3 42.4 15.3
Total revenues 160.5 113.2 456.5 324.2
Expenses:
Interest 81.6 54.1 221.7 151.8
Depreciation 20.1 23.9 74.4 68.5
General, operating, and
administrative 15.1 12.1 43.5 33.7
Provision for credit losses 10.8 5.1 27.2 15.9
Other expense .5 .8 2.7 14.4
Total expenses 128.1 96.0 369.5 284.3
Income before income taxes and
minority interest 32.4 17.2 87.0 39.9
Provision for income taxes 11.9 6.6 33.2 14.8
Minority interest in losses
of subsidiary - .3 - .7
Net Income $ 20.5 $ 10.9 $ 53.8 $ 25.8
(See Notes to Consolidated Financial Statements)<PAGE>
Caterpillar Financial Services Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Millions of Dollars)
Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
Cash flows from operating activities:
Net income $ 53.8 $ 25.8
Adjustments for noncash items:
Depreciation 74.4 68.5
Provision for credit losses 27.2 15.9
Mark-to-market adjustment (10.9) 13.6
Other .2 (5.4)
Change in assets and liabilities:
Receivables from customers and others (46.2) (36.6)
Deferred income taxes 10.6 (13.1)
Payable to dealers and others 24.6 5.1
Payable to Caterpillar Inc. .5 (1.8)
Accrued interest payable 30.1 20.5
Income tax payable 16.0 9.4
Other, net (10.7) (.2)
Net cash provided by operating
activities 169.6 101.7
Cash flows from investing activities:
Additions to equipment (120.9) (125.3)
Disposals of equipment 52.7 63.6
Additions to finance receivables (3,770.0) (2,047.5)
Collections of finance receivables 1,887.4 1,254.2
Proceeds from sale of receivables, net 935.0 241.4
Other, net .8 .9
Net cash used for investing
activities (1,015.0) (612.7)
Cash flows from financing activities:
Additional paid-in capital 30.0 25.0
Proceeds from long-term debt issues 929.5 717.0
Payments on long-term debt (706.2) (385.5)
Short-term borrowings, net 599.0 158.4
Net cash provided by financing
activities 852.3 514.9
Effect of exchange rate changes on cash .3 .2
Net change in cash and cash equivalents 7.2 4.1
Cash and cash equivalents at beginning
of year 16.3 15.6
Cash and cash equivalents at end of quarter $ 23.5 $ 19.7
(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.
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 five hundred
dollars 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 nine months of 1995, the Company publicly issued
$893.7 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 rates. The
weighted average interest rate on all outstanding medium-term notes was
6.5% at September 30, 1995. Long-term debt outstanding at
September 30, 1995, matures as follows:
1995 $ 205.5
1996 1,038.9
1997 702.5
1998 424.8
1999 155.8
2000 81.8
Thereafter 102.2
Total $2,711.5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
A. Consolidated Results of Operations
Three Months Ended September 30, 1995 vs. Three Months Ended
September 30, 1994
Total revenues for the third quarter of 1995 were $160.5 million, a
42% increase over 1994 third quarter revenues of $113.2 million. The
increase in revenues was primarily the result of earnings from the
larger portfolio which increased to $5,412.2 million at September 30,
1995 from $4,125.2 million at September 30, 1994 and the increase in
Other income described below. See Capital Resources and Liquidity
section regarding sold receivables serviced by the Company.
The Company financed new retail business transactions totaling
$778.5 million during the third quarter of 1995 compared with $496.1
million during the third quarter of 1994. New retail financing in the
third quarter of 1995 was higher than the third quarter of 1994 levels
primarily due to financing increased dealer deliveries of Caterpillar
construction machines in the United States and Europe and increased
dealer loans in the United States. The Company had wholesale financing
during the third quarter of 1995 of $483.3 million, compared with $212.2
million for third quarter 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 9.3% for the third quarter of 1995 compared
with 8.6% for the third 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 $14.2 million for the third quarter of 1995 included
a gain on sale of receivables (see Capital Resources and Liquidity
section), securitization-related income, fees, gains on sales of
equipment returned from lease, and other miscellaneous income. The
increase of $8.9 million in other income during the third quarter of
1995, as compared with the same period in 1994, was primarily due to a
$4.1 million gain on receivables sold and a $3.9 million increase in
servicing and residual income earned on assets securitized by the
Company.
Third quarter interest expense of $81.6 million was $27.5 million
higher than 1994 third quarter interest expense due to increased
borrowings to support the larger portfolio and higher borrowing rates as
the average cost of borrowed funds was 6.6% for the third quarter of
1995, compared with 6.2% for the third quarter of 1994.
Depreciation expense for the third quarter of 1995 was $20.1
million, $3.8 million lower than the same period in 1994. This decrease
primarily resulted from a reclassification of certain contracts from
operating to finance leases, partially offset by an increase due to new
business.
General, operating, and administrative expenses increased $3.0
million during the third 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 managed portfolio. The
Company's full-time employment increased from 404 at September 30, 1994
to 448 at September 30, 1995.
Provision for credit losses during the third quarter of 1995 was
$10.8 million, compared with $5.1 million during the third quarter last
year, reflecting a higher provision taken by the Company and the
increased levels of new retail business. Receivables, net of
recoveries, of $2.6 million were written off against the allowance for
credit losses during the third quarter of 1995, the same amount as
during the third quarter of 1994. Receivables past due over 30 days
were 2.2% of total receivables at September 30, 1995, compared with 2.4%
at September 30, 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 September 30, 1995, the
allowance for credit losses was $55.5 million which was 1.1% of finance
receivables, net of unearned income (1.4% excluding wholesale
receivables), compared with $46.4 million and 1.2% (1.4% excluding
wholesale receivables) at September 30, 1994, respectively.
The effective income tax rate for the third quarter of 1995 was 37%
compared with 38% for the third quarter of 1994.
Net income for the third quarter of 1995 was $20.5 million, $9.6
million above 1994 third quarter net income of $10.9 million. The
increase in net income was primarily the result of increased earnings
from a larger portfolio, a gain on sale of receivables, and higher
securitization-related income.
Nine Months Ended September 30, 1995 vs. Nine Months Ended
September 30, 1994
Total revenues for the first nine months of 1995 were $456.5
million, a 41% increase over the revenues for the first nine months of
1994 of $324.2 million. The increase in revenues was primarily the
result of earnings from the larger portfolio and the increase in Other
income described below.
The Company financed new retail business transactions totaling
$2,118.0 million during the first nine months of 1995 compared with
$1,478.1 million during the first nine months of 1994. New retail
financing in the first nine months of the year was higher than 1994
levels due to financing increased dealer deliveries of Caterpillar
construction machines in the United States and Europe and due to
increased engine financing in the United States. The Company had
wholesale financing during the first nine months of 1995 of $1,799.4
million compared with $566.6 million for the first nine months 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 9.1% for the first nine months of 1995 compared
with 8.6% for the first nine months 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 $42.4 million for the first nine months of 1995
included gains on interest rate caps written by the Company that were
terminated in the second quarter, securitization-related income, fees,
gains on sales of receivables, gains on sales of equipment returned from
lease, and other miscellaneous income. The increase of $27.1 million
during the first nine months of 1995, as compared with the same period
in 1994, was primarily due to recording gains of $10.9 million in the
first half of 1995 on interest rate caps written by the Company and an
increase in securitization-related income of $7.8 million and gains on
sales of receivables of $5.3 million.
Interest expense for the first nine months of 1995 was $221.7
million, $69.9 million higher than the first nine months of 1994 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 nine months of 1995 compared with 6.1% in 1994.
Depreciation expense increased from $68.5 million for the first nine
months of 1994 to $74.4 million for the first nine months of 1995 due to
new business, partially offset by a reclassification of certain
contracts from operating to finance leases.
General, operating, and administrative expenses for the first nine
months of 1995 increased $9.8 million over the same period last year
primarily due to staff-related and other expenses required to service
the larger managed portfolio.
Provision for credit losses during the first nine months of 1995
increased from $15.9 million in the first nine months of 1994 to $27.2
million in the first nine months of 1995. This increase reflected a
higher provision taken by the Company and an increase in new retail
business. Receivables, net of recoveries, of $19.2 million were written
off against the allowance for credit losses during the first nine months
of 1995 compared with $9.1 million during the first nine months of 1994.
The increased write-offs were primarily attributable to one customer in
the fishing industry.
Other expense for the first nine months of 1995 was $2.7 million
compared with $14.4 million for the first nine months of 1994. The
decrease resulted primarily from recording $13.7 million of losses in
the first nine months of 1994 on interest rate caps and swaptions
written by the Company. Gains on the written caps were recorded in the
first half of 1995 (terminated in the second quarter) and are reflected
in Other income.
The effective income tax rate for the first nine months of 1995 was
38% compared with 37% for the first nine months of 1994.
Net income for the first nine months of 1995 was $53.8 million
compared with $25.8 million in the first nine months of 1994. The
increase in net income resulted partially from a gain, net of tax, of
$6.8 million on interest rate caps written by the Company, compared with
an $8.8 million loss, net of tax, for the first nine months of 1994.
Net income excluding these amounts was $47.0 million, compared with
$34.6 million in 1994. This increase of $12.4 million resulted
primarily from increased earnings from a larger portfolio and an
increase in securitization-related income and gains on sales of
receivables, partially offset by an increase in the provision for credit
losses.
B. Capital Resources and Liquidity
The Company's operations during the year were primarily funded with
a combination of commercial paper, bank borrowings, proceeds from sale
of receivables, medium-term notes, retained earnings, and additional
equity capital of $30.0 million invested by Caterpillar. The ratio of
debt to equity at September 30, 1995 was 8.0 to 1 compared with 7.7 to 1
at December 31, 1994.
Total debt outstanding as of September 30, 1995 was $4,740.1
million, an increase of $873.7 million over that at December 31, 1994,
and was primarily comprised of $2,604.6 million of medium-term notes,
$1,310.8 million of commercial paper, and $689.7 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.
The Company filed a shelf registration during the third quarter of
1995 obtaining approval in the amount of $760.0 million for
securitization of installment sale contracts and finance leases. In
September 1995, $459.1 million of the Company's installment sale
contracts were securitized. The proceeds were used to reduce existing
debt. The Company recognized a $4.1 million pre-tax gain on this
transaction in the third quarter and will receive fees in future periods
for servicing these sold receivables.
The net amount of sold receivables serviced by the Company was
$824.9 million at September 30, 1995 which consisted of $300.0 million
of wholesale receivables, under a revolving asset-backed securitization
agreement, and $524.9 million of installment sale contracts.
At September 30, 1995, the Company had available a total of $1,320.4
million of short-term credit lines which expire at various dates through
third quarter 1996, and a $29.7 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 September 30, 1995, there were $688.2 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. The Company's allocation is $1,440.0 million, consisting of a
$960.0 million five-year revolving credit and a $480.0 million 364-day
revolving credit. The Company has the ability to request a change in
its allocation to maintain the required amount of support for the
Company's outstanding commercial paper and commercial paper guarantees.
These facilities provide for borrowing at interest rates which vary
according to LIBOR or money market rates. At September 30, 1995, there
were no borrowings under these facilities. Effective October 10, the
debt to equity ratio covenant was amended to maintain a ratio of not
greater than a) 8.75 to 1 until December 31, 1995; b) 8.25 to 1 on
January 1, 1996 and thereafter; except for c) 8.0 to 1 on each
December 31 commencing December 31, 1995. The ratios in a) and b) will
be based on the average of the six preceding calendar months. At
September 30, 1995, the Company was in compliance with this debt
covenant.
In connection with its match funding objectives, the Company
utilizes a variety of interest rate contracts including swap 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.
As of September 30, 1995, the Company had outstanding interest rate
swap contracts with notional amounts totaling $1,539.3 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 $1,050.8 million of floating rate debt
to fixed rate debt, $311.0 million of fixed rate debt to floating rate
debt, and $177.5 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 $17.0 million,
which will effectively change $14.0 million of floating rate debt to
fixed rate debt and $3.0 million of fixed rate debt to floating rate
debt. The effective dates of the future dated swaps range from 1996 to
1998 with one year terms.
The Company's outstanding forward rate agreements totaled $17.0
million at the end of the third quarter of 1995. These agreements have
terms generally ranging up to nine 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. At
September 30, 1995, the Company had forward exchange contracts totaling
$179.3 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 $237.8 million from
Caterpillar, and Caterpillar may borrow up to $87.8 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 September 30, 1995, December 31, 1994, and September 30,
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
None
(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: November 2, 1995 By: /s/K.C. Springer
K.C. Springer, Controller and
Principal Accounting Officer
Date: November 2, 1995 By: /s/J.S. Beard
J.S. Beard, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE
COMPANY'S THIRD QUARTER 1995 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 23,500
<SECURITIES> 0
<RECEIVABLES> 5,040,000
<ALLOWANCES> 55,500
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 603,400
<DEPRECIATION> 209,700
<TOTAL-ASSETS> 5,540,200
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,711,500<F2>
<COMMON> 325,000
0
0
<OTHER-SE> 268,000
<TOTAL-LIABILITY-AND-EQUITY> 5,540,200
<SALES> 0
<TOTAL-REVENUES> 456,500
<CGS> 0
<TOTAL-COSTS> 117,900
<OTHER-EXPENSES> 2,700
<LOSS-PROVISION> 27,200
<INTEREST-EXPENSE> 221,700
<INCOME-PRETAX> 87,000
<INCOME-TAX> 33,200
<INCOME-CONTINUING> 53,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,800
<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>
