11
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, 1997
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 Identification
No.)
incorporation or organization)
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 31,1997 one share of common stock of the Registrant
was outstanding.
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended March 31, 1997
Index
PART I. FINANCIAL INFORMATION Page
No.
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Financial Position
3
Consolidated Statement of Income and Retained Earnings 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
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,
1997 1996 1996
Assets:
Cash and cash equivalents $ 30.9 $ 27.0 $ 31.4
Finance receivables
Wholesale notes receivable 385.8 465.1 336.2
Retail notes receivable 1,624.6 1,535.9 1,408.0
Investment in finance 4,561.1 4,352.5 3,774.5
receivables
6,571.5 6,353.5 5,518.7
Less: Unearned income 621.5 604.3 535.7
Allowance for credit 79.2 74.4 62.3
losses
5,870.8 5,674.8 4,920.7
Equipment on operating leases,
less accumulated depreciation 526.8 511.0 445.4
Deferred income taxes 3.2 2.9 -
Other assets 178.5 148.5 151.6
Total assets $6,610.2 $ 6,364.2 $5,549.1
Liabilities and stockholder's
equity:
Payable to dealers and others $ 80.3 $ 88.1 $ 68.5
Payable to Caterpillar Inc. - 308.0 150.0 384.0
Borrowings
Payable to Caterpillar Inc. - 2.4 3.1 24.4
Other
Accrued interest payable 62.4 39.2 59.7
Income taxes payable 51.5 40.4 12.0
Other liabilities 26.7 23.5 6.8
Short-term borrowings 2,471.3 2,678.9 1,721.7
Current maturities of long-term
debt 1,122.5 1,057.8 1,209.7
Long-term debt 1,732.8 1,545.7 1,400.8
Deferred income taxes 40.1 42.2 42.9
Total liabilities 5,898.0 5,668.9 4,930.5
Common stock - $1 par value
Authorized: 2,000 shares
Issued and outstanding: one 345.0 345.0 325.0
share
Retained Earnings 375.6 348.5 289.2
Foreign currency translation (8.4) 1.8 4.4
adjustment
Total stockholder's equity 712.2 695.3 618.6
Total liabilities and stockholder's $ 6,610.2 $ 6,364.2 $ 5,549.1
equity
(See Notes to Consolidated Financial Statements)
Caterpillar Financial Services Corporation
Consolidated Statement Of Income And Retained Earnings
(Unaudited)
(Millions of Dollars)
Three Months Ended
March March
31, 31,
1997 1996
Revenues:
Wholesale finance income $ $
5.5 6.2
Retail finance income 118.1 101.1
Rental income 41.6 37.0
Other income 17.8 9.9
Total revenues 183.0 154.2
Expenses:
Interest 79.5 73.7
Depreciation 31.9 28.0
General, operating, and 21.3 18.2
administrative
Provision for credit losses 8.6 7.4
Other expense .1 .4
Total expenses 141.4 127.7
Income before income taxes 41.6 26.5
Provision for income taxes 14.6 10.2
Net income $ $ 16.3
27.0
(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,
1997 1996
Cash flows from operating activities:
Net income $ 27.0 $ 16.3
Adjustments for non-cash items:
Depreciation 31.9 28.0
Provision for credit losses 8.6 7.4
Other - (2.2)
Change in assets and liabilities:
Receivables from customers and others (41.0) (25.5)
Deferred income taxes (1.4) (1.9)
Payable to dealers and others (6.6) 17.9
Payable to Caterpillar Inc. - Other (0.3) 19.4
Accrued interest payable 23.3 20.6
Income taxes payable 11.1 (6.7)
Other, net 7.7 2.2
Net cash provided by operating 60.3 75.5
activities
Cash flows from investing activities:
Additions to property and equipment (72.3) (47.2)
Disposals of equipment 34.4 16.2
Additions to finance receivables (1,299.7) (966.2)
Collections of finance receivables 679.2 528.1
Proceeds from sales of receivables 326.1 309.3
Other, net - (2.0)
Net cash used for investing activities (332.3) (161.8)
Cash flows from financing activities:
Payable to Caterpillar Inc. - Borrowings 157.5 (91.5)
Proceeds from long-term debt 472.4 1.2
Payments on long-term debt (218.2) (113.2)
Short-term borrowings, net (133.8) 276.5
Net cash provided by financing 277.9 73.0
activities
Effect of exchange rate changes on cash (2.0) 1.1
Net change in cash and cash equivalents 3.9 (12.2)
Cash and cash equivalents at beginning of
year 27.0 43.6
Cash and cash equivalents at end of year $ 30.9 $ 31.4
(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 1996 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 1997, the Company publicly
issued $470.7 million 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. The weighted average interest rate on all
outstanding medium-term notes was 6.3% at March 31, 1997.
Long-term debt outstanding at March 31, 1997, matures as follows:
1997 $ 842.3
1998 823.4
1999 702.3
2000 283.8
2001 152.0
Thereafter 51.5
Total $2,855.
3
5.In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December
31, 1996. This statement establishes new criteria for determining
whether a transfer of financial assets should be accounted for as a
sale or as a secured borrowing. The accounting treatment of such
transactions focuses on who controls the transferred assets, and
whether or not those assets have been isolated from the transferor
and put beyond the reach of creditors. The Company adopted this
accounting standard on January 1, 1997 and believes there has been
no material impact on its results of operations or financial
position due to the adoption of this accounting standard.
Item 2. Management's Discussion and Analysis of Financial Condition
and
Results of Operations
A. Consolidated Results of Operations
Three Months Ended March 31, 1997 vs. Three Months Ended March 31,
1996
Total revenues for the first quarter of 1997 were $183.0
million, a 19% increase over 1996 first quarter revenues of $154.2
million. The increase in revenues resulted primarily from
continued growth in the Company's portfolio. The portfolio value
increased to $6,425.9 million at March 31, 1997 from $5,400.0
million at March 31, 1996.
The Company financed new retail business transactions totaling
$853.4 million during the first quarter of 1997 compared with
$735.7 million during the first quarter of 1996. The increase was
the result of financing a higher volume and increased percentage of
Caterpillar product deliveries. Wholesale financing activity
during the first quarter of 1997 was $506.0 million, compared with
$327.1 million for the first quarter of 1996. The increase resulted
primarily from a higher volume of Caterpillar dealer inventory and
rental fleet financing in North America and Europe, but did not
result in a corresponding increase in Wholesale finance income due
to the timing of the new business and a decrease in the rate of
interest earned on wholesale receivables.
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 8.4% for the first
quarter of 1997 compared with 8.9% for the first quarter of 1996.
Tax benefits associated with governmental lease purchase contracts
and tax-oriented leases are not reflected in such annualized
interest rates.
Other income of $17.8 million for the first quarter of 1997
included securitization-related income, fees, and other
miscellaneous income. The increase of $7.9 million, from the first
quarter of 1996, was primarily due to a $6.3 million increase in
securitization related income.
First quarter interest expense of $79.5 million was $5.8 million
higher than 1996 first quarter interest expense due to increased
borrowings to support the larger portfolio, substantially offset by
lower borrowing rates. The average cost of borrowed funds was 5.7%
for the first quarter of 1997 compared with 6.3% for the first
quarter of 1996.
Depreciation expense increased from $28.0 million for the first
quarter of 1996 to $31.9 million for the first quarter of 1997 due
to new operating lease business.
General, operating, and administrative expenses increased $3.1
million during the first quarter of 1997 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 519
at March 31, 1996 to 594 at March 31, 1997.
Provision for credit losses increased from $7.4 million during
the first quarter of 1996 to $8.6 million during the first quarter
of 1997, reflecting increased new business. Receivables, net of
recoveries, of $2.9 million were written off against the allowance
for credit losses during the first quarter of 1997, compared with
$2.1 million during the first quarter of 1996. Receivables past
due over 30 days were 2.7% of total receivables at March 31, 1997,
compared with 2.2% at March 31, 1996. 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, 1997, the allowance for credit losses was $79.2 million which
was 1.3% of finance receivables, net of unearned income (1.4%
excluding wholesale receivables), compared with $62.3 million and
1.3% (1.3% excluding wholesale receivables) at March 31, 1996,
respectively.
The effective income tax rate for the first quarter of 1997 was
35% compared with 38% for the first quarter of 1996. The decrease
was primarily due to offsetting income for European subsidiaries
with prior years' start-up losses.
Net income for the first quarter of 1997 was $27.0 million,
$10.7 million above 1996 first quarter net income of $16.3 million.
The increase resulted primarily from a larger portfolio and other
income.
B. Capital Resources and Liquidity
The Company's operations during the first quarter of 1997 were
primarily funded with a combination of bank borrowings, commercial
paper, medium-term notes, proceeds from sale of receivables, and
retained earnings. The ratio of debt to equity at March 31, 1997
was 7.9 to 1 compared with 7.8 to 1 at December 31, 1996.
Total debt outstanding as of March 31,1997 was $5,634.6 million,
an increase of $202.2 million over that at December 31, 1996, and
was primarily comprised of $2,800.1 million of medium-term notes,
$2,197.3 million of commercial paper, and $223.7 million of bank
borrowings. 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
$930.6 million at March 31, 1997 which consisted of $500.0 million
of wholesale receivables, under a revolving asset-backed
securitization agreement, and $430.6 million of installment sale
contracts.
At March 31, 1997, the Company had available, from a number of
banks, a total of $918.8 million of short-term credit lines which
expire at various dates through the fourth quarter 1997. These
credit lines support the Company's outstanding commercial paper and
commercial paper guarantees and are utilized for bank borrowings.
At March 31, 1997, there were $223.7 million of these lines
utilized for bank borrowings in Europe and Mexico.
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 $739.6 million from Caterpillar, and Caterpillar may
borrow up to $239.6 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
31,1997, December 31, 1996, and March 31,1996 the Company had
borrowings with Caterpillar totaling $308.0 million, $150.0
million, and $384.0 million, respectively, but had no loans
receivable under these agreements.
The Company also participates with Caterpillar in two syndicated
revolving credit facilities aggregating $2.8 billion, consisting of
a $1.7 billion five-year facility and a $1.1 billion 364-day
revolving facility. The Company's allocation is $1,840.0 million,
consisting of a $1,120.0 million five-year revolving credit and a
$720.0 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
borrowings at interest rates which vary according to LIBOR or money
market rates. At March 31, 1997, there were no borrowings under
these facilities.
The Company also has a $1.0 billion five year revolving credit
facility to support its $1.0 billion 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, 1997, there were no borrowings under
this facility.
Through the course of normal business, the Company is exposed to
market risk from fluctuations in interest rates and foreign
currency exchange rates. To manage these exposures, the Company
uses interest rate and currency derivative financial instruments.
The Company does not use any of these instruments for trading
purposes.
Interest rate swap agreements are used to manage the risk due to
fluctuations in interest rates. These agreements reduce the risk of
deteriorating margins between interest-earning assets and interest-
bearing liabilities and allow the Company to gain competitive and
economic advantages by minimizing funding costs regardless of the
direction interest rates move. As of March 31, 1997, the Company
had outstanding interest rate swap contracts with notional amounts
totaling $1,740.3 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 $1,352.3 million of floating rate debt to
fixed rate debt, $40.0 million of fixed rate debt to floating rate
debt, and $348.0 million of floating rate debt to floating rate
debt having different characteristics.
Foreign exchange contracts are used to minimize the risk
associated with fluctuations in exchange rates. The Company has
foreign exchange contracts to hedge its U.S. dollar denominated
obligations in Spain, its U.S. dollar denominated positions in
Australia, and its foreign currency denominated short-term
intercompany loans receivable against currency fluctuations. The
Company only enters into foreign currency related derivative
instruments to neutralize risk - not as speculative instruments.
These contracts have terms generally ranging up to three months.
At March 31, 1997, the Company had foreign exchange contracts
totaling $716.1 million, of which $1.8 million were with
Caterpillar.
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, 1997 and March 31, 1996 were 1.51 and
1.35, respectively.)
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated March 14, 1997, was filed by the
Company, containing a letter in which Orrick, Herrington &
Sutcliffe LLP, stated their opinion concerning certain tax matters
disclosed in the February 28, 1997 Registration S-3.
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 1, 1997 By: /s/K.C. Springer
K.C. Springer, Controller and
Principal Accounting Officer
Date: May 1, 1997 By: /s/J.S. Beard
J.S. Beard, President
EXHIBIT 12
CATERPILLAR FINANCIAL SERVICES CORPORATION
STATEMENT SETTING FORTH COMPUTATION OF
RATIO OF PROFIT TO FIXED CHARGES
(Unaudited)
(Millions of Dollars)
Three Months
Ended
March March
31, 31,
1997 1996
Net Income $ 27.0 $ 16.3
Add:
Provision for income taxes 14.6 10.2
Deduct:
Equity in profit of (.5) (.4)
partnerships
Profit before taxes $ 41.1 $ 26.1
Fixed charges:
Interest on borrowed funds $ 79.5 $ 73.7
Rentals at computed interest* .7 .6
Total fixed charges $80.2 $ 74.3
Profit before taxes plus fixed $ 121.3 $ 100.4
charges
Ratio of profit before taxes
plus 1.51 1.35
fixed charges to fixed charges
*Those portions of rent expense that are representative of
interest cost.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary
financial information extracted
from the company's first quarter
1997 10-Q and is qualified in its
entirety by reference to such
financial statements
</LEGEND>
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<PERIOD-END> MAR-31-1997
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<RECEIVABLES> 595000
<ALLOWANCES> 79200
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<PP&E> 789500
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<COMMON> 345000
<PREFERRED- 0
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0
<OTHER-SE> 367200
<TOTAL-LIABILITY-
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<TOTAL-REVENUES> 183000
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<F1> The company is a captive finance
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<F2> Includes current and non-current
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