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, 1998
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
The Registrant complies with the conditions set forth in General
Instruction (H)(1)(a) and (b) of Form 10-Q is therefore filing this
form with the reduced disclosure format.
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
At March 31, 1998 one share of common stock of the Registrant
was outstanding.
HIGHLIGHTS: FIRST QUARTER 1998 VS. FIRST QUARTER 1997
Caterpillar Financial Services Corporation reported record
revenues and new retail financing activity.
Revenues were a record $221.6 million, an increase of $38.6
million or 21% from last year.
Profit was $23.8 million, a $3.2 million or 12% decrease
compared with 1997. This decrease was the result of increased
provision for credit losses due to the volume of new business and
an increase in interest expense.
New retail financing business was a first quarter record of
$1,246.1 million, an increase of $392.7 million or 46% from 1997.
In January, Caterpillar Financial Services Corporation entered into
an agreement to purchase trade receivables from Caterpillar Inc. on
a weekly basis. The initial purchase was $874.4 million. The
outstanding balance at March 31, 1998 was $814.0 million.
James S. Beard, vice president of Caterpillar Inc. and
president of Caterpillar Financial Services Corporation said, "Cat
Financial had an exceptional first quarter. We are pleased with
our record growth and the excellent credit quality of our
portfolio."
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended March 31, 1998
Index
PART I. FINANCIAL INFORMATION Page
No.
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Financial Position
4
Consolidated Results of Operations
5
Consolidated Statement of Changes in Equity
6
Consolidated Statement of Cash Flows 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
11
Signatures
12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
In addition to our accompanying unaudited consolidated financial
statements, we suggest that you read our Annual Report on Form 10-
K. Although not incorporated by reference in this document,
additional information about us is available in our 1997 Annual
Report and on our web page http://www.CAT.com. The documents
mentioned above are available by writing to: Legal Dept.,
Caterpillar Financial Services Corp.; 3322 West End Ave.;
Nashville, TN 37203.
We believe this information reflects all adjustments, including
normal and recurring accruals, necessary to fairly present the
consolidated statements of financial position, results of
operations, changes in equity, and cash flows for the periods
presented. The results for interim periods do not necessarily
indicate the results we expect for the year.
Caterpillar Financial Services Corporation
Consolidated Statement Of Financial Position
(Unaudited)
(Millions of Dollars)
March Dec. 31, March
31, 31,
1998 1997 1997
Assets:
Cash and cash equivalents $ $ $
25.7 41.5 30.9
Finance receivables
Wholesale notes receivable 1,232.4 497.9 385.8
Retail notes receivable 1,978.2 1,852.1 1,624.6
Investment in finance receivables 5,408.4 4,993.6 4,561.1
8,619.0 7,343.6 6,571.5
Less: Unearned income 719.9 661.8 621.5
Allowance for credit losses 99.3 83.5 79.2
7,799.8 6,598.3 5,870.8
Equipment on operating leases,
less accumulated depreciation 585.0 558.7 526.8
Deferred income taxes 4.9 4.6 3.2
Other assets 341.1 223.7 178.5
Total assets $8,756.5 $7,426.8 $6,610.
2
Liabilities and stockholder's equity:
Payable to dealers and others $ 114.0 $ 84.9 $
80.3
Payable to Caterpillar Inc. - 62.8 243.5 308.0
Borrowings
Payable to Caterpillar Inc. - Other 2.8 4.1 2.4
Accrued interest payable 87.4 47.3 62.4
Income taxes payable 65.2 81.4 51.5
Other liabilities 33.3 22.2 26.7
Short-term borrowings 2,877.0 2,731.5 2,471.3
Current maturities of long-term 1,344.0 1,087.9 1,122.5
debt
Long-term debt 3,204.4 2,274.2 1,732.8
Deferred income taxes 31.9 38.7 40.1
Total liabilities 7,822.8 6,615.7 5,898.0
Common stock - $1 par value
Authorized: 2,000 shares
Issued and outstanding: one share 495.0 395.0 345.0
Retained Earnings 466.5 442.7 375.6
Foreign currency translation (27.8) (26.6) (8.4)
adjustment
Total stockholder's equity 933.7 811.1 712.2
Total liabilities and stockholder's $8,756.5 $7,426.8 $6,610.
equity 2
Caterpillar Financial Services Corporation
Consolidated Results of Operations
(Unaudited)
(Millions of Dollars)
Three Months Ended
March March
31, 31,
1998 1997
Revenues:
Wholesale finance $ 19.8 $
5.5
Retail finance 139.4 118.1
Rental 48.2 41.6
Other 14.2 17.8
Total revenues 221.6 183.0
Expenses:
Interest 105.5 79.5
Depreciation 37.7 31.9
General, operating, and 25.6 21.3
administrative
Provision for credit losses 15.3 8.6
Other expense .2 .1
Total expenses 184.3 141.4
Profit before income taxes 37.3 41.6
Provision for income taxes 13.5 14.6
Profit $ 23.8 $
27.0
Caterpillar Financial Services Corporation
Consolidated Statement Of Changes in Equity
(Unaudited)
(Millions of Dollars)
Three Months Ended
March 31, March 31,
1998 1997
Retained earnings:
Balance at January 1 $ 442.7 $ 348.6
Profit 23.8 $ 23.8 27.0 27.0
Balance at March 31 $ 466.5 $ 375.6
Accumulated other
comprehensive income:
Balance at January 1 $ $
(26.6) 1.8
Foreign currency (1.2) (1.2) (10.2) (10.2)
translation adjustment
Comprehensive income $ $ 16.8
22.6
Balance at March 31 $ (27.8) $
(8.4)
Balance at January 1 $ 395.0 $ 345.0
Equity capital from 100.0 -
Caterpillar
Balance at March 31 $495.0 $ 345.0
Total equity $ 933.7 $ 712.2
Caterpillar Financial Services Corporation
Consolidated Statement Of Cash Flows
(Unaudited)
(Millions of Dollars)
Three Months
Ended
March 31, March 31,
1998 1997
Cash flows from operating activities:
Profit $23.8 $ 27.0
Adjustments for non-cash items:
Depreciation 37.7 31.9
Provision for credit losses 15.3 8.6
Other (4.2) -
Change in assets and liabilities:
Receivables from customers and others (60.1) (41.0)
Deferred income taxes (6.8) (1.4)
Payable to dealers and others 29.3 (6.6)
Payable to Caterpillar Inc. - Other (2.8) (0.3)
Accrued interest payable 40.0 23.3
Income taxes payable (16.2) 11.1
Other, net (8.5) 7.7
Net cash provided by operating 47.5 60.3
activities
Cash flows from investing activities:
Additions to property and equipment (89.5) (72.3)
Disposals of equipment 31.9 34.4
Additions to finance receivables (3,258.7) (1,299.7)
Collections of finance receivables 1,715.6 679.2
Proceeds from sales of receivables 340.2 326.1
Other, net .1 -
Net cash used for investing activities (1,260.4) (332.3)
Cash flows from financing activities:
Additional paid-in capital 100.0 -
Payable to Caterpillar Inc. - borrowings (179.2) 157.5
Proceeds from long-term debt 1,466.5 472.4
Payments on long-term debt (280.0) (218.2)
Short-term borrowings, net 93.9 (133.8)
Net cash provided by financing 1,201.2 277.9
activities
Effect of exchange rate changes on cash (4.1) (2.0)
Net change in cash and cash equivalents (15.8) 3.9
Cash and cash equivalents at beginning of 41.5 27.0
year
Cash and cash equivalents at end of year $ 25.7 $ 30.9
Cash paid for interest $ 79.1 $ 51.9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
THREE MONTHS ENDED MARCH 31, 1997 VS. THREE MONTHS ENDED MARCH
31, 1998
REVENUES
Total revenues for the first quarter of 1998 were a record
$221.6 million. The increase of $38.6 million over the same period
last year was primarily the result of continued portfolio growth.
The annualized interest rate on finance receivables was 8.7 %
for the first quarter of 1998 compared with 8.6% for the first
quarter of 1997. The tax benefits of governmental lease purchase
contracts and tax-oriented leases are not included in these
annualized interest rates.
Other revenue of $14.2 million for the first quarter of 1998
included securitization-related revenue, fees, and other
miscellaneous revenue. The decrease of $3.6 million, as compared
to the first quarter of 1997, was primarily due to securitization
revenue.
EXPENSES
Interest expense for the first quarter increased $26.0 million
over the same period last year. This increase was primarily the
result of increased borrowings and a higher borrowing rate. The
average interest rate on borrowed funds was 6.1% for the first
quarter of 1998 as compared to 5.8% for the first quarter of 1997
due primarily to market rates at the time of borrowing.
Depreciation expense increased $5.8 million over the first
quarter of 1997 due to new operating lease business. Net equipment
on operating leases increased $26.3 million over the first quarter
of 1997.
General, operating, and administrative expenses increased $4.3
million during the first quarter of 1998 as compared to the same
period last year. This increase is primarily due to staff-related
expenses and other expenses incurred due to increased new business
and to service the larger managed portfolio. The number of full-
time employees increased to 730 at March 31, 1998, an increase of
136 from last year's first quarter.
The effective income tax rate for the first quarter of 1998 was
36% as compared to 35% for the first quarter of 1997.
PROFIT
Profit for the first quarter of 1998 was $23.8 million, a $3.2
million decrease from the first quarter of 1997. This decrease is
primarily the result of increased interest expense and increased
provision for credit losses.
PORTFOLIO
The portfolio value was $8,418.0 million at March 31, 1998, an
increase of $1,992.1 million over the same period last year.
During the first quarter of 1998 we financed new retail business
transactions totaling $1,246.1 million as compared to $853.4
million during the first quarter of 1997. This increase resulted
primarily from financing an increased percentage of deliveries of
Caterpillar product in North America.
In January 1998, we entered into an agreement with Caterpillar
Inc. ("Caterpillar") to purchase certain U.S. dealer receivables
from Caterpillar at a discount. Under this agreement Caterpillar
will continue to service the receivables. On a weekly basis, we
use a portion of the collections from these receivables to purchase
more receivables. At March 31, 1998, the balance of receivables
owned by us and serviced by Caterpillar was $814.0 million, which
is classified as wholesale notes receivable.
At March 31, 1998, we serviced $1,254.7 million in receivables
sold to others which consist of $550.0 million in wholesale
receivables, under a revolving asset-backed securitization
agreement, and $704.7 million of installment sale contracts.
ALLOWANCE FOR CREDIT LOSSES
The following table shows activity related to the Allowance for
Credit Losses:
March 31, March 31,
1998 1997
Balance at beginning of year $ 83.5 $ 74.4
Provision for credit losses 15.3 8.6
Receivables written off, net of .4 (2.9)
recoveries
Foreign currency translation adjustment .1 (.9)
$ 99.3 $ 79.2
The provision for credit losses increased $6.7 million over the
first quarter of 1997 primarily due to record new business.
Receivables that were past due over 30 days were 1.6% of the
total receivables at March 31, 1998, as compared to 2.7% at March
31, 1997. We will continue to monitor the allowance for credit
losses to provide for an amount we believe is adequate, after
considering the value of any collateral, to cover uncollectible
receivables.
CAPITAL RESOURCES AND LIQUIDITY
Operations for the first quarter of 1998 were funded with a
combination of bank borrowings, commercial paper, equity capital
invested by Caterpillar Inc., medium-term notes and retained
earnings.
At March 31, 1998, we had the following credit lines available:
Short-term credit lines from banks. These credit lines total
$577.1 million and will be eligible for renewal at various dates
throughout 1998. They are used for bank borrowings and as
support for our outstanding commercial paper and commercial paper
guarantees. At March 31, 1998, we had $138.2 million outstanding
against these credit lines.
Variable amount lending agreements with Caterpillar. Under these
agreements, we may borrow up to $788.2 million from Caterpillar,
and Caterpillar may borrow up to $533.2 million from us. The
agreements are in effect for indefinite periods of time and may
be changed or terminated by either party with 30 days' notice.
We had borrowings of $62.8 million outstanding at March 31,1998
and $243.5 million at December 31, 1997, but had no loans
receivable under these agreements.
Two syndicated revolving credit lines. The two revolving credit
lines totaling $2,500.0 million are shared with Caterpillar with
the following allocation:
Five-year 364-day Total
Facility Facility
Caterpillar $187.5 $ 62.5 $ 250.0
Caterpillar Financial 1,687.5 562.5 2,250.0
Services Corp.
Total $ 1,875.0 $ 625.0 $ 2,500.0
We can request a change to this distribution to maintain the
required amount of support for our outstanding commercial paper
and guarantees of commercial paper. At March 31, 1998, there
were no borrowings under these lines.
European revolving credit line. This $1.0 billion credit line
supports our Euro-commercial paper program. Under this program,
commercial paper is issued by Caterpillar International Finance
plc, our Irish subsidiary, with our guarantee. At March 31,
1998, there were no borrowings under this credit line.
Total outstanding borrowings at March 31,1998 was $7,488.2
million, an increase of $1,151.1 million over December 31, 1997.
Outstanding borrowings primarily include:
$4,507.5 million of medium-term notes
$2,680.7 million of commercial paper
$138.2 million of bank borrowings
In January, Caterpillar Inc. contributed an additional $100.0 million of
equity capital. Our debt-to-equity ratio at March 31, 1998 was
8.0 to 1 as compared to 7.8 to 1 at December 31, 1997.
DERIVATIVES
We use interest rate derivative financial instruments and
currency derivative financial instruments to manage interest rate
and foreign currency exchange risks that we may encounter as a part
of our normal business. We do not use these instruments for
trading purposes.
Interest rate derivatives. We use interest rate swap agreements to
manage the risk of changes in interest rates, allowing us to gain
competitive and economic advantages by minimizing funding costs
regardless of the direction interest rates move. At March 31,
1998, we had interest rate swap contracts outstanding with
notional amounts totaling $2,028.8 million and terms up to five
years. These contracts change:
$1,493.2 million of floating rate debt to fixed rate debt
$417.5 million of fixed rate debt to floating rate debt
$118.1 million of floating rate debt to floating rate debt
having different characteristics
Foreign currency derivatives. We use foreign exchange contracts to
minimize potential risk of fluctuating exchange rates. These
contracts have terms that generally range up to three months. At
March 31, 1998, we had foreign exchange contracts totaling
$1,077.5 million, $3.6 million of which were with Caterpillar.
They hedge:
foreign currency denominated receivables and debt of
international subsidiaries
a portion of our net investment in Thailand
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
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, 1998 By: /s/K.C. Springer
K.C. Springer, Controller and
Principal Accounting Officer
Date: April 30, 1998 By: /s/J.S. Beard
J.S. Beard,President
EXHIBIT 12
CATERPILLAR FINANCIAL SERVICES CORPORATION
COMPUTATION OF RATIO OF PROFIT TO FIXED CHARGES
(Unaudited)
(Millions of Dollars)
Three Months
Ended
March March
31, 31,
1998 1997
Profit $ 23.8 $ 27.0
Add:
Provision for income taxes 13.5 14.6
Deduct:
Equity in profit of (.7) (.5)
partnerships
Profit before taxes $ 36.6 $ 41.1
Fixed charges:
Interest on borrowed funds $105.5 $ 79.5
Rentals at computed interest* .9 .7
Total fixed charges $106.4 $ 80.2
Profit before taxes plus fixed $143.0 $121.3
charges
Ratio of profit before taxes
plus 1.34 1.51
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 Caterpillar
Financial Company's first quarter 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 26
<SECURITIES> 0
<RECEIVABLES> 7899
<ALLOWANCES> 99
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 914
<DEPRECIATION> 297
<TOTAL-ASSETS> 8757
<CURRENT-LIABILITIES> 0
<BONDS> 4508
0
0
<COMMON> 495
<OTHER-SE> 467
<TOTAL-LIABILITY-AND-EQUITY> 8757
<SALES> 0
<TOTAL-REVENUES> 222
<CGS> 0
<TOTAL-COSTS> 38
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> 37
<INCOME-TAX> 13
<INCOME-CONTINUING> 24
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
