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, 1996
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, 1996, one share of common stock of the Registrant was
outstanding.
<PAGE>
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended March 31, 1996
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 6-7
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
<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,
1996 1995 1995
Assets:
Cash and cash equivalents $ 31.4 $ 43.6 $ 27.6
Finance receivables:
Wholesale notes receivable 336.2 538.3 377.2
Retail notes receivable 1,408.0 1,382.1 1,153.6
Investment in finance receivables 3,774.5 3,471.7 3,091.3
5,518.7 5,392.1 4,622.1
Less: Unearned income 535.7 515.6 454.9
Allowance for credit losses 62.3 57.0 54.5
4,920.7 4,819.5 4,112.7
Equipment on operating leases,
less accumulated depreciation 445.4 437.3 430.8
Other assets 151.6 121.7 111.1
Total assets $5,549.1 $5,422.1 $4,682.2
Liabilities and stockholder's equity:
Payable to dealers and others $ 68.5 $ 51.0 $ 46.0
Payable to Caterpillar Inc. 408.4 480.6 2.9
Accrued interest payable 59.7 39.2 60.9
Income tax payable 12.0 18.5 29.8
Other liabilities 6.8 4.5 16.5
Short-term borrowings 1,721.7 1,453.1 1,455.3
Current maturities of long-term debt 1,209.7 1,105.8 738.6
Long-term debt 1,400.8 1,621.3 1,764.7
Deferred income taxes 42.9 44.8 11.1
Total liabilities 4,930.5 4,818.8 4,125.8
Common stock - $1 par value
Authorized: 2,000 shares
Issued & outstanding: one share 325.0 325.0 325.0
Profit employed in the business 289.2 272.9 225.5
Foreign currency translation
adjustment 4.4 5.4 5.9
Total stockholder's equity 618.6 603.3 556.4
Total liabilities and stockholder's
equity $5,549.1 $5,422.1 $4,682.2
(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,
1996 1995
Revenues:
Wholesale finance income $ 6.2 $ 10.7
Retail finance income 101.1 82.5
Rental income 37.0 35.0
Other income 9.9 14.9
Total revenues 154.2 143.1
Expenses:
Interest 73.7 66.3
Depreciation 28.0 26.7
General, operating, and administrative 18.2 13.9
Provision for credit losses 7.4 6.1
Other expense .4 1.2
Total expenses 127.7 114.2
Income before income taxes 26.5 28.9
Provision for income taxes 10.2 11.1
Net Income $ 16.3 $ 17.8
(See Notes to Consolidated Financial Statements)
Caterpillar Financial Services Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Millions of Dollars)
Three Months Ended
March 31, March 31,
1996 1995
Cash flows from operating activities:
Net income $ 16.3 $ 17.8
Adjustments for noncash items:
Depreciation 28.0 26.7
Provision for credit losses 7.4 6.1
Mark-to-market adjustment - (6.5)
Other (2.2) ( .9)
Change in assets and liabilities:
Receivables from customers and others (25.5) (21.4)
Deferred income taxes (1.9) .4
Payable to dealers and others 17.9 .4
Payable to Caterpillar Inc. 19.4 (.3)
Accrued interest payable 20.6 22.8
Income tax payable (6.7) 8.2
Other, net 2.2 (2.3)
Net cash provided by operating
activities 75.5 51.0
Cash flows from investing activities:
Additions to equipment (47.2) (38.9)
Disposal of equipment 16.2 16.6
Additions to finance receivables (966.2) (965.7)
Collections of finance receivables 528.1 583.0
Proceeds from sale of receivables 309.3 300.0
Other, net (2.0) (5.6)
Net cash used for investing
activities (161.8) (110.6)
Cash flows from financing activities:
Additional paid-in capital - 30.0
Payable to Caterpillar Inc. (91.5) -
Proceeds from long-term debt issues 1.2 294.5
Payments on long-term debt (113.2) (280.7)
Short-term borrowings, net 276.5 26.0
Net cash provided by financing
activities 73.0 69.8
Effect of exchange rate changes on cash 1.1 1.1
Net change in cash and cash equivalents (12.2) 11.3
Cash and cash equivalents at beginning
of year 43.6 16.3
Cash and cash equivalents at end of quarter $ 31.4 $ 27.6
(See Notes to Consolidated Financial Statements)
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 1995 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 three months of 1996, the Company publicly issued
no medium-term notes. The notes are generally 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. The weighted
average interest rate on all outstanding medium-term notes was 6.3% at
March 31, 1996. Long-term debt outstanding at March 31, 1996, matures
as follows:
1996 $ 998.6
1997 701.2
1998 486.0
1999 238.3
2000 81.7
2001 4.0
Thereafter 100.7
Total $2,610.5
5. In March 1995, the Financial Accounting Standards Board issued SFAS
121, "Accounting for the Impairment of Long-Lived Assets." The new
statement establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill. This
standard is effective for fiscal years beginning after December 15,
1995, and was therefore adopted by the Company in the first quarter of
1996. The adoption by the Company of the standard did not impact the
Company's financial position or income.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
A. Consolidated Results of Operations
Three Months Ended March 31, 1996 vs. Three Months Ended March 31,
1995
Total revenues for the first quarter of 1996 were $154.2 million, an
8% increase over 1995 first quarter revenues of $143.1 million. The
increase in revenues resulted primarily from the increase in financing
volume (the portfolio value increased to $5,400.0 million at March 31,
1996 from $4,569.5 million at March 31, 1995) partially offset by the
decrease in Other income described below.
The Company financed new retail business transactions totaling
$735.7 million during the first quarter of 1996 compared with $609.5
million during the first quarter of 1995. The increase was the result
of financing a higher percentage of deliveries of Caterpillar products
in the markets served by the Company. Wholesale financing activity
during the first quarter of 1996 was $327.1 million, compared with
$423.3 million for the first quarter of 1995. The decrease was
primarily due to a decrease in the volume of Caterpillar dealer rental
fleet financing in North America.
The annualized interest rate on finance receivables (computed by
dividing annualized finance income by the average monthly finance
receivable balances, net of unearned income) was 8.9% for the first
quarter of 1996 compared with 9.0% for the first quarter of 1995. 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 $9.9 million for the first quarter of 1996 included
servicing and other securitization-related income, fees, interest from
banks, gains on sales of equipment returned from lease, and other
miscellaneous income. The decrease of $5.0 million during the first
quarter of 1996, as compared with the same period in 1995, was primarily
from a $5.8 million mark-to-market gain in the first quarter of 1995 for
interest rate caps written by the Company (the subject caps were
terminated second quarter 1995) and from a $2.4 million gain on sale of
receivables in the first quarter of 1995 for which no similar results
exist for the first quarter of 1996. Partially offsetting these
decreases was a $3.2 million increase in servicing and other
securitization-related income.
First quarter interest expense of $73.7 million was $7.4 million
higher than 1995 first quarter interest expense due to increased
borrowings to support the larger portfolio, partially offset by lower
borrowing rates, as the average cost of borrowed funds was 6.3% for the
first quarter of 1996 compared with 6.7% for the first quarter of 1995.
Depreciation expense increased from $26.7 million for the first
quarter of 1995 to $28.0 million for the first quarter of 1996 due to
new operating lease business.
General, operating, and administrative expenses increased $4.3
million during the first quarter of 1996 compared with the same period
last year, primarily due to staff-related and other expenses required to
increase new business and service the larger managed portfolio. The
Company's full-time employment increased from 414 at March 31, 1995 to
519 at March 31, 1996.
Provision for credit losses increased from $6.1 million during the
first quarter of 1995 to $7.4 million during the first quarter of 1996,
reflecting an increase in new retail business. Receivables, net of
recoveries, of $2.1 million were written off against the allowance for
credit losses during the first quarter of 1996 compared with $1.9
million during the first quarter of 1995. Receivables past due over 30
days were 2.2% of total receivables at March 31, 1996, compared with
2.0% at March 31, 1995. The allowance for credit losses will continue to
be monitored to provide for an amount which, in management's judgment,
is adequate to cover uncollectible receivables after considering the
value of any collateral. At March 31, 1996, the allowance for credit
losses was $62.3 million which was 1.3% of finance receivables, net of
unearned income (1.3% excluding wholesale receivables), compared with
$54.5 million and 1.3% (1.4% excluding wholesale receivables)
respectively at March 31, 1995.
The effective income tax rate for the first quarter of 1996 was 38%,
the same as for the first quarter of 1995.
Net income for the first quarter of 1996 was $16.3 million, $1.5
million less than 1995 first quarter net income of $17.8 million. The
decrease resulted primarily from a $3.8 million mark-to-market after-tax
gain in the first quarter of 1995 for interest rate caps written by the
Company for which no similar results exist for the first quarter of 1996
(the subject caps were terminated in the second quarter of 1995).
B. Capital Resources and Liquidity
The Company's operations were primarily funded with a combination of
medium-term notes, commercial paper, notes payable to Caterpillar, bank
borrowings, proceeds from sale of receivables, and retained earnings.
The ratio of debt to equity at March 31, 1996 was 7.6 to 1 compared with
7.7 to 1 at December 31, 1995.
Total debt outstanding as of March 31, 1996 was $4,716.2 million, an
increase of $61.0 million over that at December 31, 1995, and was
primarily comprised of $2,518.1 million of medium-term notes, $1,354.4
million of commercial paper, $384.0 million of notes payable to
Caterpillar, and $331.9 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 net amount of sold receivables serviced by the Company was
$695.4 million at March 31, 1996 which consisted of $300.0 million of
wholesale receivables, under a revolving asset-backed securitization
agreement, and $395.4 million of installment sale contracts.
At March 31, 1996, the Company had available a total of $1,283.5
million of short-term credit lines which expire at various dates through
first quarter 1997, and a $29.4 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 March 31, 1996, there were $331.9 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 $2.3 billion, consisting of a
$1.4 billion five-year facility and a $.9 billion 364-day revolving
facility. The Company's allocation is $1,439.4 million, consisting of a
$876.2 million five-year revolving credit and a $563.2 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 borrowings at interest rates which vary
according to LIBOR or money market rates. At March 31, 1996, there were
no borrowings under these facilities.
The Company also has a U.S. $500.0 million five year revolving
credit facility in the United Kingdom to support it's U.S. $500.0
million Euro-commercial paper program. The commercial paper is issued
by Caterpillar International Finance PLC, an Irish subsidiary of the
Company, with the guarantee of the Company. Proceeds from the issuance
of commercial paper have been used to replace bank borrowings of certain
of the Company's subsidiaries. At March 31, 1996, there were no
borrowings under this facility.
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 March 31, 1996, the Company had outstanding interest rate swap
contracts with notional amounts totaling $1,518.0 million, all of which
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 $1,061.5 million of floating
rate debt to fixed rate debt, $286.0 million of fixed rate debt to
floating rate debt, and $170.5 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 $104.7
million, which will effectively change $101.7 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
second quarter 1996 through 1998, and the terms of these swaps generally
range up to four years.
The Company's outstanding forward rate agreements, which are
utilized to hedge short-term borrowings, totaled $13.4 million at the
end of the first quarter of 1996. These agreements have terms generally
ranging up to one year.
The Company has forward exchange contracts to hedge its U.S. dollar
denominated obligations in Australia and Spain and it's foreign
denominated short-term intercompany loans receivable 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 and intercompany loans receivable
being hedged. At March 31, 1996, the Company had forward exchange
contracts totaling $477.4 million, of which $54.0 million were with
Caterpillar.
To supplement external debt financing sources, the Company has
variable amount lending agreements with Caterpillar. Under these
agreements, which may be amended from time to time, the Company may
borrow up to $739.0 million from Caterpillar, and Caterpillar may borrow
up to $239.0 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, 1996 and
December 31, 1995, the Company had borrowings with Caterpillar totalling
$384.0 million and $475.5 million, respectively, but had no loans
receivable under these agreements. At March 31, 1995, the Company had
no outstanding borrowings or loans receivable under these agreements.
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: April 30, 1996 By: /s/ K. C. Springer
K.C. Springer, Controller and
Principal Accounting Officer
Date: April 30, 1996 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 FIRST QUARTER 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 31,400
<SECURITIES> 0
<RECEIVABLES> 4,983,000
<ALLOWANCES> 62,300
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 674,200
<DEPRECIATION> 228,800
<TOTAL-ASSETS> 5,549,100
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,610,500<F2>
<COMMON> 325,000
0
0
<OTHER-SE> 293,600
<TOTAL-LIABILITY-AND-EQUITY> 5,549,100
<SALES> 0
<TOTAL-REVENUES> 154,200
<CGS> 0
<TOTAL-COSTS> 46,200
<OTHER-EXPENSES> 400
<LOSS-PROVISION> 7,400
<INTEREST-EXPENSE> 73,700
<INCOME-PRETAX> 26,500
<INCOME-TAX> 10,200
<INCOME-CONTINUING> 16,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,300
<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>
