12
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 June 30, 1997 one share of common stock of the Registrant
was outstanding.
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended June 30, 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
7-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
11
Signatures
12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Caterpillar Financial Services Corporation
Consolidated Statement Of Financial Position
(Unaudited)
(Millions of Dollars)
June 30, Dec. 31, June 30,
1997 1996 1996
Assets:
Cash and cash equivalents $ 75.3 $ 27.0 $ 34.6
Finance receivables
Wholesale notes receivable 848.0 465.1 812.4
Retail notes receivable 1,648.1 1,535.9 1,484.8
Investment in finance 4,567.3 4,352.5 3,726.5
receivables
7,063.4 6,353.5 6,023.7
Less: Unearned income 626.9 604.3 533.9
Allowance for credit 81.2 74.4 64.5
losses
6,355.3 5,674.8 5,425.3
Equipment on operating leases,
less accumulated depreciation 554.5 511.0 457.0
Deferred income taxes 3.6 2.9 2.7
Other assets 216.9 148.5 152.6
Total assets $7,205.6 $6,364.2 $6,072.2
Liabilities and stockholder's
equity:
Payable to dealers and others $ 99.5 $ 88.1 $ 110.7
Payable to Caterpillar Inc. - 354.0 150.0 501.5
Borrowings
Payable to Caterpillar Inc. - 4.1 3.1 23.4
Other
Accrued interest payable 41.5 39.2 35.1
Income taxes payable 63.1 40.4 21.7
Other liabilities 15.5 23.5 6.4
Short-term borrowings 2,546.0 2,678.9 2,140.4
Current maturities of long-term
debt 1,093.1 1,057.8 1,224.2
Long-term debt 2,225.7 1,545.7 1,327.8
Deferred income taxes 34.7 42.2 44.8
Total liabilities 6,477.2 5,668.9 5,436.0
Common stock - $1 par value
Authorized: 2,000 shares
Issued and outstanding: one 345.0 345.0 325.0
share
Retained Earnings 397.5 348.5 309.3
Foreign currency translation (14.1) 1.8 1.9
adjustment
Total stockholder's equity 728.4 695.3 636.2
Total liabilities and stockholder's $7,205.6 $6,364.2 $6,072.2
equity
(See Notes to Consolidated Financial Statements)
Caterpillar Financial Services Corporation
Consolidated Statement Of Income
(Unaudited)
(Millions of Dollars)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
Revenues:
Wholesale finance income $ 11.0 $ 10.2 $ 16.5 $ 16.4
Retail finance income 121.3 103.6 239.4 204.7
Rental income 44.3 38.9 85.9 75.9
Other income 12.8 13.4 30.6 23.3
Total revenues 189.4 166.1 372.4 320.3
Expenses:
Interest 87.8 75.9 167.3 149.6
Depreciation 34.0 29.8 65.9 57.8
General, operating, and 23.0 18.9 44.3 37.1
administrative
Provision for credit 9.6 9.8 18.2 17.2
losses
Other expense .7 .4 .8 .8
Total expenses 155.1 134.8 296.5 262.5
Income before income taxes 34.3 31.3 75.9 57.8
Provision for income taxes 12.4 11.2 27.0 21.4
Net income $ 21.9 $ 20.1 $ 48.9 $ 36.4
(See Notes to Consolidated Financial Statements)
Caterpillar Financial Services Corporation
Consolidated Statement Of Cash Flows
(Unaudited)
(Millions of Dollars)
Six Months Ended
June 30, June 30,
1997 1996
Cash flows from operating activities:
Net income $ 48.9 $ 36.4
Adjustments for non-cash items:
Depreciation 65.9 57.8
Provision for credit losses 18.2 17.2
Other (8.3) (3.1)
Change in assets and liabilities:
Receivables from customers and others (59.2) (27.6)
Deferred income taxes (6.2) (2.7)
Payable to dealers and others 12.9 59.7
Payable to Caterpillar Inc. - Other (1.2) 18.3
Accrued interest payable 2.4 (4.1)
Income taxes payable 22.9 3.2
Other, net (10.0) 1.9
Net cash provided by operating 86.3 157.0
activities
Cash flows from investing activities:
Additions to property and equipment (153.6) (112.0)
Disposals of equipment 65.3 42.9
Additions to finance receivables (3,236.2) (2,739.4)
Collections of finance receivables 1,546.7 1,302.3
Proceeds from sales of receivables 847.8 771.5
Other, net (8.6) 4.6
Net cash used for investing activities (938.6) (730.1)
Cash flows from financing activities:
Payable to Caterpillar Inc. - Borrowings 206.0 26.0
Proceeds from long-term debt 1,275.5 270.9
Payments on long-term debt (556.5) (442.1)
Short-term borrowings, net (24.4) 705.0
Net cash provided by financing 900.6 559.8
activities
Effect of exchange rate changes on cash - 4.3
Net change in cash and cash equivalents 48.3 (9.0)
Cash and cash equivalents at beginning of
period 27.0 43.6
Cash and cash equivalents at end of period $ 75.3 $ 34.6
(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"), which is a wholly owned subsidiary of Caterpillar
Inc. ("Caterpillar"), 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 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 six months of 1997, the Company publicly
issued $1,273.2 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 5.8% at June 30, 1997.
Long-term debt outstanding at
June 30, 1997, matures as follows:
1997 $
503.2
1998 1,088.0
1999 1,039.7
2000 423.8
2001 212.0
Thereafter 52.1
Total $3,318.
8
Cash paid for interest on all debt for the six months ended June
30, 1997 and June 30, 1996 was $169.5 million and $163.7 million,
respectively.
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. There has been no material
impact on the Company 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 June 30, 1997 vs. Three Months Ended June
30,1996
Total revenues for the second quarter of 1997 were $189.4
million, a 14% increase over 1996 second quarter revenues of $166.1
million. The increase in revenues resulted primarily from
continued growth in the Company's portfolio. The portfolio value
increased to $6,937.8 million at June 30, 1997 from $5,910.1
million at June 30, 1996.
The Company financed new retail business transactions totaling
$1,119.2 million during the second quarter of 1997 compared with
$971.3 million during the second 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 second quarter of 1997 was $862.2 million, compared with
$799.1 million for the second quarter of 1996. The increase
resulted primarily from a higher volume of Caterpillar 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 8.6% for the
second quarter of 1997 compared with 8.8% for the second 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 $12.8 million for the second quarter of 1997
included securitization-related income, a $2.3 million gain on sale
of receivables (see Capital Resources and Liquidity), fees, and
other miscellaneous income.
Second quarter 1997 interest expense of $87.8 million was $11.9
million higher than 1996 second quarter interest expense due to
increased borrowings to support the larger portfolio, partially
offset by lower borrowing rates. The average cost of borrowed funds
was 5.9% for the second quarter of 1997 compared with 6.1% for the
second quarter of 1996.
Depreciation expense increased from $29.8 million for the second
quarter of 1996 to $34.0 million for the second quarter of 1997 due
to new operating lease business.
General, operating, and administrative expenses increased $4.1
million during the second 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 553
at June 30,1996 to 618 at June 30, 1997.
Provision for credit losses decreased from $9.8 million during
the second quarter of 1996 to $9.6 million during the second
quarter of 1997. Receivables, net of recoveries, of $3.3 million
were written off against the allowance for credit losses during the
second quarter of 1997, compared with $4.0 million during the
second quarter of 1996. Receivables past due over 30 days were
1.9% of total receivables at June 30, 1997, compared with 2.5% at
June 30,1996. 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 June 30, 1997, the allowance for
credit losses was $81.2 million which was 1.3% of finance
receivables, net of unearned income (1.5% excluding wholesale
receivables), compared with $64.5 million and 1.2% (1.4% excluding
wholesale receivables) at June 30,1996.
The effective income tax rate was 36% for both 1997 and 1996.
Net income for the second quarter of 1997 was $21.9 million,
$1.8 million above 1996 second quarter net income of $20.1 million.
The increase resulted primarily from a larger portfolio.
Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996
Total revenues for the first half of 1997 were $372.4 million,
a 16% increase over the revenues for the first half of 1996 of
$320.3 million. The increase in revenues resulted primarily from
an increase in financing volume. Also, see the change in Other
income described below.
The Company financed new retail business transactions
totaling $1,972.6 million during the first half of 1997 compared
with $1,707.0 million during the first half 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 half of 1997 was $1,368.2 million
compared with $1,126.2 million for the first half of 1996. The
increase resulted primarily from a higher volume of Caterpillar
rental fleet financing in North America but did not result in a
corresponding increase in Wholesale finance income due to the
timing of the new business.
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 8.6% for
the first half of 1997 compared with 8.9% for the first half of
1996. 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 $30.6 million for the first half of 1997
included servicing and other securitization-related income, fees,
gain on sale of receivables, interest from banks, and other
miscellaneous income. The increase of $7.3 million during the
first six months of 1997, as compared with the same period in 1996,
was primarily due to an increase of $5.3 million in servicing and
other securitization-related income.
Interest expense for the first half of 1997 was $167.3 million,
$17.7 million higher than the first six months of 1996 due to
increased borrowings to support the larger portfolio, partially
offset by lower borrowing rates, as the average cost of borrowed
funds was 5.9% for the first half of 1997 compared with 6.2% in
1996.
Depreciation expense increased from $57.8 million for the first
half of 1996 to $65.9 million for the first half of 1997 due to new
operating lease business.
General, operating, and administrative expenses for the first
six months of 1997 increased $7.2 million over the same period last
year, primarily due to staff-related and other expenses required to
increase new business and service the larger managed portfolio.
Provision for credit losses increased from $17.2 million in the
first half of 1996 to $18.2 million in the first half of 1997.
This increase reflected increased levels of new retail business.
Receivables, net of recoveries, of $6.2 million were written off
against the allowance for credit losses during the first half of
1997 compared with $6.1 million during the first half of 1996.
The effective income tax rate for the first half of 1997 was
36% compared with 37% for the first half of 1996. The decrease was
primarily due to an increase in pre-tax income for European
subsidiaries not taxed due to prior years' losses.
Net income for the first half of 1997 was $48.9 million
compared with $36.4 million in the first half of 1996. The
increase resulted primarily from a larger portfolio and increased
other income.
B. Capital Resources and Liquidity
The Company's operations were primarily funded with a
combination of bank borrowings, commercial paper, medium-term
notes, notes payable to Caterpillar, proceeds from the sale of
receivables, and retained earnings. The ratio of debt to equity at
June 30, 1997 was 8.5 to 1 compared with 7.8 to 1 at December 31,
1996.
Total debt outstanding as of June 30, 1997 was $6,218.8 million,
an increase of $786.4 million over that at December 31, 1996, and
was primarily comprised of $3,268.7 million of medium-term notes,
$2,331.6 million of commercial paper, and $163.8 million of bank
borrowings. The increase in debt and the funds provided by
operations were used to finance the increase in the portfolio.
In May 1997, $346.6 million of the Company's installment sale
contracts were securitized. The proceeds were used to reduce debt.
The Company recognized a $2.3 million pre-tax gain on this
transaction in the second quarter and will receive fees in future
periods for servicing these sold receivables.
The amount of sold receivables serviced by the Company was
$1,193.2 million at June 30, 1997 which consisted of $500.0 million
of wholesale receivables, under a revolving asset-backed
securitization agreement, and $693.2 million of installment sale
contracts.
At June 30, 1997, the Company had available, from a number of
banks, a total of $817.6 million of short-term credit lines which
expire at various dates over the next twelve months. These credit
lines support the Company's outstanding commercial paper and
commercial paper guarantees and are utilized for bank borrowings.
At June 30, 1997, there were $163.8 million of these lines utilized
for bank borrowings.
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 $737.3 million from Caterpillar, and Caterpillar may
borrow up to $237.3 million from the Company. All of the variable
amount lending agreements are effective for indefinite terms and
may be terminated by either party upon 30 days' notice. At June
30, 1997, December 31, 1996, and June 30, 1996 the Company had
borrowings with Caterpillar totaling $354.0 million, $150.0
million, and $501.5 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 revolving 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 June 30, 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 June 30, 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 June 30, 1997, the Company
had outstanding interest rate swap contracts with notional amounts
totaling $1,744.2 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 $1,405.2 million of floating rate debt to
fixed rate debt, $20.0 million of fixed rate debt to floating rate
debt, and $319.0 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 and Thailand, its U.S. dollar denominated
positions in Australia, its capital investment in Thailand, 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 one year. At June 30, 1997, the Company
had foreign exchange contracts totaling $855.4 million, of which
$1.6 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.
27 Financial Data Schedule
(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: August 1, 1997 By: /s/K.C. Springer
K.C. Springer, Controller and
Principal Accounting Officer
Date: August 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 Six Months
Ended Ended
June June June June
30, 30, 30, 30,
1997 1996 1997 1996
Net Income $ 21.9 $ 20.1 $ 48.9 $ 36.4
Add:
Provision for income taxes 12.4 11.2 27.0 21.4
Deduct:
Equity in profit of (.7) (.7) (1.2) (1.1)
partnerships
Profit before taxes $ 33.6 $ 30.6 $ 74.7 $ 56.7
Fixed charges:
Interest on borrowed funds $ 87.8 $ 75.9 $167.3 $149.6
Rentals at computed interest* .7 .6 1.3 1.2
Total fixed charges $ 88.5 $ 76.5 $168.6 $150.8
Profit before taxes plus fixed $122.1 $107.1 $243.3 $207.5
charges
Ratio of profit before taxes
plus 1.38 1.40 1.44 1.38
fixed charges to fixed charges
*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 second quarter 1997 10-Q
and is qualified in its entirety by
reference to such financial
statements
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE>6-Mos
<FISCAL-YEAR-END>Dec-31-1997
<PERIOD-END>Jun-30-1997
<CASH>75300
<SECURITIES>0
<RECEIVABLES>6436500
<ALLOWANCES>812
<INVENTORY>0
<CURRENT-ASSETS>0<F1>
<PP&E>828600
<DEPRECIATION>261000
<TOTAL-ASSETS>7205600
<CURRENT-LIABILITIES>0<F1>
<BONDS>3318800<F2>
<COMMON>345000
0
0
<OTHER-SE>383400
<TOTAL-LIABILITY-AND-EQUITY> 7205600
<SALES>0
<TOTAL-REVENUES>372400
<CGS>0
<TOTAL-COSTS>110200
<OTHER-EXPENSES>100
<LOSS-PROVISION>18200
<INTEREST-EXPENSE>167300
<INCOME-PRETAX>75900
<INCOME-TAX>27000
<INCOME-CONTINUING>0
<DISCONTINUED>0
<EXTRAORDINARY>0
<CHANGES>0
<NET-INCOME>48900
<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 non-current maturities of long-term debt.
</FN>
</TABLE>
