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, 2000
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
incorporation or organization) Number)
2120 West End Ave
Nashville, Tennessee 37203-0001
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (615) 341-1000
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, 2000 one share of common stock of the Registrant
was outstanding.
HIGHLIGHTS: FIRST QUARTER 2000 VS. FIRST QUARTER 1999
Revenues for the first quarter were a record $320 million, an increase of $37
million or 13% from the same period last year.
Profit after tax was a record $38 million, a $3 million or 9 percent increase
from the first quarter of 1999.
New retail financing for the first quarter of 2000 was $1,171 million, a
decrease of $40 million or 3% from the same period last year.
The portfolio increased $1,201 million or 11% over March 31, 1999, to $12,225
million.
Past due receivables over 30 days were 2.9% compared to 2.0% at the end of the
same period one year ago.
James S. Beard, vice president of Caterpillar Inc. and president of Cat
Financial, said, "We are pleased with our financial performance as we continue
our global expansion to serve Caterpillar customers worldwide."
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended March 31, 2000
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 8-11
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 1999 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.; 2120 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 31, Dec. 31, March 31,
2000 1999 1999
Assets:
Cash and cash equivalents $ 66 $ 85 $ 33
Finance receivables
Retail notes receivable 2,668 2,657 2,278
Wholesale notes receivable 2,197 1,983 2,057
Investment in finance receivables 7,227 7,225 6,626
Notes receivable from Caterpillar Inc. 321 333 284
12,413 12,198 11,245
Less: Unearned income 1,008 971 872
Allowance for credit losses 141 134 125
11,264 11,093 10,248
Equipment on operating leases,
less accumulated depreciation 900 870 731
Deferred income taxes 10 9 9
Other assets 375 437 378
Total assets $12,615 $12,494 $11,399
Liabilities and stockholder's equity:
Payable to dealers and others $ 88 $ 127 $ 96
Payable to Caterpillar Inc. - Other 10 7 9
Accrued interest payable 122 94 108
Income taxes payable 25 9 21
Other liabilities 24 28 30
Payable to Caterpillar Inc. - Borrowings 309 311 208
Short-term borrowings 2,997 2,963 3,267
Current maturities of long-term debt 2,798 2,937 2,439
Long-term debt 4,791 4,585 3,946
Deferred income taxes 49 48 30
Total liabilities 11,213 11,109 10,154
Common stock - $1 par value
Authorized: 2,000 shares; issued and
outstanding: one share 745 745 695
Retained Earnings 721 683 589
Accumulated other comprehensive income (64) (43) (39)
Total stockholder's equity 1,402 1,385 1,245
Total liabilities and stockholder's equity $12,615 $12,494 $11,399
Caterpillar Financial Services Corporation
Consolidated Results of Operations
(Unaudited)
(Millions of Dollars)
Three Months Ended
March 31, March 31,
2000 1999
Revenues:
Wholesale finance $ 44 $ 37
Retail finance 186 165
Rental 70 59
Other 20 22
Total revenues 320 283
Expenses:
Interest 160 132
Depreciation 55 46
General, operating, and administrative 34 33
Provision for credit losses 11 17
Other Expense 1 -
Total expenses 261 228
Profit before income taxes 59 55
Provision for income taxes 21 20
Profit $ 38 $ 35
Caterpillar Financial Services Corporation
Consolidated Statement Of Changes in Equity
(Unaudited)
(Millions of Dollars)
Three Months Ended
March 31, March 31,
2000 1999
Retained earnings:
Balance at January 1 $ 683 $ 554
Profit 38 $ 38 35 $ 35
Balance at March 31 $721 $ 589
Accumulated other comprehensive income:
Balance at January 1 $ (43) $ (29)
Foreign currency
translation adjustment (21) (21) (10) (10)
Comprehensive income $ 17 $ 25
Balance at March 31 $ (64) $ (39)
Paid-in Capital:
Balance at January 1 $ 745 $ 675
Equity capital from
Caterpillar - 20
Balance at March 31 $ 745 $ 695
Total equity $1,402 $1,245
Caterpillar Financial Services Corporation
Consolidated Statement Of Cash Flows
(Unaudited)
(Millions of Dollars)
Three Months Ended
March 31, March 31,
2000 1999
Cash flows from operating activities:
Profit $38 $35
Adjustments for non-cash items:
Depreciation 55 46
Provision for credit losses 11 17
Other 2 (28)
Change in assets and liabilities:
Receivables from customers and others 25 34
Deferred income taxes 1 (2)
Payable to dealers and others (34) (11)
Accrued interest payable 28 23
Income taxes payable 16 (86)
Other, net (6) (1)
Net cash provided by operating activities 136 27
Cash flows from investing activities:
Additions to property and equipment (118) (96)
Disposals of equipment 52 46
Additions to finance receivables (3,587) (3,085)
Collections of finance receivables 2,714 2,400
Proceeds from sales of receivables 581 414
Notes receivable from Caterpillar 12 (38)
Other, net (1) 3
Net cash used for investing activities (347) (356)
Cash flows from financing activities:
Additional paid-in capital - 20
Payable to Caterpillar Inc. - Borrowings 2 -
Proceeds from long-term debt 873 685
Payments on long-term debt (797) (536)
Short-term borrowings, net 106 142
Net cash provided by financing activities 184 311
Effect of exchange rate changes on cash 8 2
Net change in cash and cash equivalents (19) (16)
Cash and cash equivalents at beginning of year 85 49
Cash and cash equivalents at end of quarter $ 66 $ 33
Cash paid for interest $ 138 $ 103
Cash paid for income taxes $ 58 $ 106
NOTES TO FINANCIAL STATEMENTS
A. Supplemental segment data for the three months ended March 31,
2000 North Diversified
America Europe Services Total
Revenue from external customers $ 206 63 51 $ 320
Inter-segment revenue $ 12 1 - $ 13
Net profit $ 28 7 3 $ 38
Assets $8,783 2,945 2,348 $14,076
1999 North Diversified
America Europe Services Total
Revenue from external customers $ 184 52 47 $ 283
Inter-segment revenue $ 23 1 - $ 24
Net profit $ 27 4 4 $ 35
Assets $8,141 2,364 1,939 $12,444
We segregate information based on management responsibility:
North America: We have offices in the United States and Canada that serve
local dealers and customers.
Europe: We have offices throughout Europe that serve European dealers and
customers. Our Marine services division, which primarily finances marine
vessels with Caterpillar engines, is also included in this segment.
Diversified Services: We have offices in Asia, Australia and Latin America
that serve local dealers and customers. Our Global accounts division, which
primarily provides cross-border financing to customers in countries in which
we have no local presence, is also included in this segment.
Due to accounting differences in the presentation of supplemental data and
our GAAP-based external statements, total segment information may not equal
amounts reflected in our GAAP statements.
B. New accounting standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. We will adopt this new
accounting standard on January 1, 2001. Due to the complexity of this new
standard, we have not completed an assessment of the impact it will have on our
financial position or results of operations.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31, 1999
REVENUES
Total revenues for the first quarter of 2000 were a record $320 million.
The increase of $37 million over the same period last year was primarily the
result of continued portfolio growth.
The annualized interest rate on finance receivables was 8.38% for the first
quarter of 2000 compared with 8.19% for the first quarter of 1999. The tax
benefits of governmental lease purchase contracts and tax-oriented leases are
not included in these annualized interest rates.
Other revenue was $20 million, a decrease of $2 million for the first
quarter of 2000 that included:
Increases of: Interest income from Caterpillar $2 million
Late charges $1 million
Gain on sale of receivables $1 million
Decreases of: Securitization related revenue $3 million
Exchange gain $3 million
EXPENSES
Interest expense for the first quarter increased $28 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 5.99% for the first quarter of 2000 as compared to 5.63% for the
first quarter of 1999.
Depreciation expense increased $9 million over the first quarter of 1999
primarily due to new operating lease business.
General, operating, and administrative expenses increased $1 million during
the first quarter of 2000 as compared to the same period last year. The number
of full-time employees was 940 at March 31, 2000, an increase of 83 from last
year's first quarter.
Provision for credit losses decreased $6 million to $11 million for the
first quarter of 2000. The decrease is primarily attributable to our valuation
and assessment of the portfolio and the adequacy of our allowance for credit
losses.
PROFIT
Profit for the first quarter of 2000 was $38 million, a $3 million increase
from the first quarter of 1999.
PORTFOLIO
The portfolio value was $12,225 million at March 31, 2000, an increase of
$1,201 million over the prior year. During the first quarter of 2000 we
financed new retail business totaling $1,171 million as compared to $1,211
million during the first quarter of 1999. The slight decrease is the result
of decreased sales of Caterpillar equipment in North America and financing a
decreased percentage of dealer deliveries.
At March 31, 2000, we serviced $1,541 million in receivables sold to others,
which consist of $750 million in wholesale receivables under a revolving, asset-
backed securitization agreement, $654 million of installment sale contracts and
$137 million of finance leases.
On January 1, 2000, Caterpillar Inc. replaced an inventory merchandising
program for North American Caterpillar dealers with a new merchandising
program. U.S. Accounts receivable generated from the old program were
securitized under a $750 million private-placement, revolving facility. The old
securitization facility is being replaced with a new, similar facility for U.S.
accounts receivable generated under the new merchandising program. On March
31, 2000, we sold $150 million into the new facility to maintain a combined
balance of $750 million between the two securitization facilities.
ALLOWANCE FOR CREDIT LOSSES
The following table shows activity related to the Allowance for Credit
Losses for the period ending:
March 31, March 31,
2000 1999
Balance at beginning of quarter $ 134 $ 111
Provision for credit losses 11 17
Receivables written off, net of recoveries (3) (1)
Foreign currency translation adjustment (1) (2)
$ 141 $ 125
Receivables that were past due over 30 days were 2.9% of the total
receivables at March 31, 2000, as compared to 2.0% at March 31, 1999. The
increase is primarily related to increased past due receivables in Latin
America. 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 2000 were funded with a combination of
bank borrowings, commercial paper, medium-term notes, retained earnings and
sale of receivables.
At March 31, 2000, we had the following credit lines available:
Two syndicated revolving credit lines. Two revolving credit lines, used to
support our commercial paper and commercial paper guarantees, totaling $2,900
million, are shared with Caterpillar under the following allocation:
Five-year 364-day
Facility Facility Total
Caterpillar $ 187 $ 113 $ 300
Caterpillar Financial Services Corp. 1,688 912 2,600
Total $1,875 $1,025 $2,900
The five year facility expires on Oct. 5, 2002; the 364-day facility expires
on Sept. 28, 2000.
At March 31, 2000, there were no borrowings under these lines.
European revolving credit line. This $1.0 billion credit line, which expires
on May 1, 2003, 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, 2000, there were no
borrowings under this credit line.
Short-term credit lines from banks. These credit lines total $505 million and
will be eligible for renewal at various dates throughout 2000. They are used
for bank borrowings and as support for our outstanding commercial paper and
commercial paper guarantees. At March 31, 2000, we had $91 million
outstanding against these credit lines.
Variable amount lending agreements with Caterpillar. Under these agreements,
we may borrow up to $831 million from Caterpillar, and Caterpillar may borrow
up to $670 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 $309 million outstanding at March 31,
2000 compared to $311 million at December 31, 1999, and loans receivable of
$321 million at March 31, 2000 compared to $333 million at December 31, 1999
under these agreements.
Total outstanding borrowings at March 31, 2000 were $10,895 million, an
increase of $99 million over December 31, 1999. Outstanding borrowings
primarily include:
$7,549 million of medium-term notes
$2,804 million of commercial paper
$ 91 million of bank borrowings
Our debt-to-equity ratio was 7.8 to 1 at March 31, 2000 and December 31,
1999.
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, 2000, we had interest rate swap contracts
outstanding with notional amounts totaling $3,240 million and remaining terms
up to fifteen years. These contracts change:
$2,504 million of floating rate debt to fixed rate debt
$ 736 million of fixed rate debt to floating rate debt
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, 2000, we had foreign
exchange contracts totaling $1,308 million, $2 million of which were with
Caterpillar. They hedge foreign currency denominated receivables and debt of
international subsidiaries.
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 20, 2000 By: /s/K.C. Springer
K.C. Springer, Controller and
Principal Accounting Officer
Date: April 20, 2000 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 31, March 31,
2000 1999
Profit $ 38 $ 35
Add:
Provision for income tax 21 20
Deduct:
Equity in profit of partnerships 1 -
Profit before taxes $ 58 $ 55
Fixed charges:
Interest on borrowed funds $160 $132
Rentals at computed interest* 1 1
Total Fixed charges $161 $133
Profit before taxes plus fixed charges $219 $188
Ratio of profit before taxes plus fixed
charges to fixed charges 1.36 1.41
Those portions of rent expense that are representative of interest cost.
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This schedule contains summary financial data extracted from Caterpillar
Financial Services Corp.'s first quarter 10-Q and is qualified in its entirety
by reference to such financial statements.
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