SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File No. 0-13295
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
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 37203-0001
Nashville, Tennessee
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (615) 341-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Exchange
6.19% Notes due April 2000 New York Stock Exchange
6.40% Notes due August 2001 New York Stock Exchange
8.95% Notes due March 2005 New York Stock Exchange
9.50% Notes due February 2007 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of class)
Indicate by 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ] Not Applicable.
At December 31, 1999, there was one share of common stock of the
Registrant outstanding, which is owned by Caterpillar Inc.
The Registrant complies with the conditions set forth in General
Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this
Form with the reduced disclosure format
Documents Incorporated by Reference: None
CONTENTS
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 4
ITEM 3. LEGAL PROCEEDINGS 4
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS 4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 4
1999 COMPARED WITH 1998 4
1998 COMPARED WITH 1997 5
CAPITAL RESOURCES AND LIQUIDITY 6
ITEM 7.A QUANTITATIVE AND QUALITATIVE MARKET RISK 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 8
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K 8
SIGNATURES 10
REPORT OF INDEPENDENT ACCOUNTANTS 11
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 12
CONSOLIDATED STATEMENT OF PROFIT 13
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 14
CONSOLIDATED STATEMENT OF CASH FLOWS 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 16
NOTE 2 - RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES 18
NOTE 3 - INVESTMENT IN FINANCING LEASES 19
NOTE 4 - EQUIPMENT ON OPERATING LEASES 19
NOTE 5 - CONCENTRATION OF CREDIT RISK 19
NOTE 6 - CREDIT LINES 20
NOTE 7 - SHORT-TERM BORROWINGS 21
NOTE 8 - LONG-TERM BORROWINGS 21
NOTE 9 - DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 22
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES 22
NOTE 11 - INCOME TAXES 23
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS 25
NOTE 13 - TRANSACTIONS WITH RELATED PARTIES 25
NOTE 14 - LEASES 27
NOTE 15 - SEGMENT INFORMATION 27
NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) 29
STATEMENT SETTING FORTH COMPUTATION OF RATIO OF PROFIT TO FIXED CHARGES
30
CONSENT OF INDEPENDENT ACCOUNTANTS 31
PART I
ITEM 1. BUSINESS
Caterpillar Financial Services Corporation is a wholly owned
finance subsidiary of Caterpillar Inc. (together with its other
subsidiaries, "Caterpillar"). We provide retail financing
alternatives to customers and dealers around the world for Caterpillar
and non-competitive related equipment, provide wholesale financing to
Caterpillar dealers and purchase short-term dealer receivables from
Caterpillar. We emphasize prompt and responsive service and offer
various financing plans to meet customer requirements, increase
Caterpillar sales and generate financing income.
Retail financial plans include:
Finance receivables:
Tax leases that are classified as either operating or finance
leases for financial accounting purposes, depending on the
characteristics of the lease. For tax purposes, we are considered the
owner of the equipment (16%*).
Finance (non-tax) leases where the lessee is considered the owner
of the equipment during the term of the contract and that either
require or allow the customer to purchase the equipment for a fixed
price at the end of the term (23%*).
Installment sale contracts which are equipment loans that enable
customers to purchase equipment with a down payment or trade-in and
structure payments over time (21%*).
Governmental lease-purchase plans in the U.S. that offer low
interest rates and flexible terms to qualified non-federal government
agencies (1%*).
Retail notes receivable:
Working capital loans that allow customers and dealers to use
their Caterpillar equipment as collateral to obtain financing for other
business needs (22%*).
Wholesale financial plans (17%*) include wholesale notes receivable:
Inventory/rental programs which provide assistance to dealers by
financing their inventory, rental fleets and rental facilities.
Short-term dealer receivables we purchase from Caterpillar at a
discount.
* indicates the percentage of total portfolio at December 31,
1999. For more information, please refer to Note 5 of Notes to
Consolidated Financial Statements.
The retail financing business is highly competitive, with
financing for users of Caterpillar equipment available through a
variety of sources, principally commercial banks and finance and
leasing companies. We are largely dependent upon Caterpillar dealers'
ability to sell equipment and customers' willingness to enter into
financing or leasing agreements with us. We also are affected by the
availability of funds from our financing sources and general economic
conditions such as inflation and market interest rates.
We provide financing only when acceptable criteria are met.
Credit decisions are based on, among other things, the customer's
credit history, financial strength and intended use of equipment. We
typically maintain a security interest in retail financed equipment
and require physical damage insurance coverage on all financed
equipment.
Our competitive position is improved by marketing programs,
subsidized by Caterpillar and/or Caterpillar dealers, which allow us
to offer below market interest rates. Under these programs,
Caterpillar, or the dealer, pays us an amount at the outset of the
transaction which we then recognize as income over the term of the
financing.
We also have agreements with Caterpillar which are significant to
our operation. These agreements provide for financial support,
certain funding, employee benefits and corporate services among other
things. For more information on these agreements please refer to Note
13 of Notes to Consolidated Financial Statements.
In our continued focus to provide world-class customer service, we
are creating a Customer Business Center "CBC" which will be located in
our Nashville headquarters. This center will serve U.S. customers and
will combine several areas of customer contact such as credit
approval, billing, account modification, cash receipts and collections
as well as other back office functions such as contract documentation,
set-up, funding, adjustments and terminations. We believe this
effort, which will combine services previously performed in several
regional offices, will allow us to reduce operating costs, boost
efficiency and continue delivering exceptional service to our
customers. The CBC will begin limited operation in June and is
expected to be in full operation by January 2001.
ITEM 2. PROPERTIES
Our principal executive offices are located in Nashville,
Tennessee. We have 42 offices, of which, 7 are located in the United
States, 22 are in Europe and 13 are in other countries. All offices
are leased with the exception of one office in Mexico City, Mexico.
In February 2000, we will begin moving our principal executive offices
to a new leased facility at 2120 West End Ave. Nashville, TN, 37203-
0001. We will occupy new space in this building as it is made
available throughout 2000.
ITEM 3. LEGAL PROCEEDINGS
We are party to various legal proceedings. Although the outcomes
of these proceedings cannot be predicted with certainty, we believe
the final outcomes will not have a material adverse effect on our
financial position or results of operations or cashflows.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
Our stock is not publicly traded. Caterpillar is the owner of our
one outstanding share. We have not declared or paid any dividends on
our common stock.
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
PORTFOLIO
The net portfolio balance was $11.68 billion at December 31, 1999,
an increase of 10.8% or $1.14 billion over December 31, 1998. We
serviced and additional $1.66 billion in sold receivables for which we
collect servicing fees.
We financed new retail business of $5.84 billion during 1999 as
compared to $5.82 billion in 1998. Retail financing attributed $1.25
billion to the growth of our portfolio. This was slightly offset by a
decrease in the short-term dealer receivables purchased from
Caterpillar.
REVENUES
Total revenues for 1999 were a record $1.19 billion, an increase
of $141 million over 1998, primarily the result of the larger
portfolio.
The average interest rate on finance receivables was 8.12% for
1999 compared with 8.75% for 1998. This rate is computed by dividing
finance income by the average finance receivable balance, net of
unearned income. The tax benefits of governmental lease purchase
contracts and tax-oriented leases are not included in these computed
interest rates.
Other revenue was $79 million for 1999, an increase of $4 million
from 1998 which included:
Increases of: $9 million interest income from Cat Inc.
$5 million miscellaneous fees and late charges
$2 million securitization related income
Decreases of: $5 million gain on sale of receivables
$4 million profit on terminations
$4 million exchange gain/loss
EXPENSES
Interest expense for 1999 increased $67 million over 1998. This
increase was primarily the result of increased borrowings to support
the larger portfolio. The average interest rate on borrowed funds was
5.57% for 1999 as compared to 6.00% for 1998.
Depreciation expense increased $32 million over 1998 primarily due
to an increase in new equipment on operating leases.
General, operating and administrative expenses increased $29
million during 1999 as compared to 1998. This increase is primarily
due to staff-related expenses and other expenses incurred to increase
new business, service the larger managed portfolio and support
geographic expansion. The number of full-time employees was 928 at
December 31, 1999, an increase of 107 from 1998.
The provision for credit losses decreased $10 million compared to
1998. The decrease is attributable to improved loss performance in
1999. Our allowance for credit loss is 1.15% of our net finance
receivables, which is a slight increase from 1.05% in 1998.
PROFIT
Profit for 1999 was $128 million, a $16 million increase from
1998. This increase is primarily the result of increased revenue
related to the larger portfolio and decreased provision for credit
losses.
PAST DUE RECEIVABLES
Receivables that were past due over 30 days were 2.8% of the total
receivables at December 31, 1999 as compared to 1.5% at December 31,
1998. The increase was primarily related to past due receivables in
Latin America. We continuously 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 including impaired loans and finance leases. See Note 2
of Notes to Consolidated Financial Statements for information on the
allowance for credit losses.
1998 COMPARED WITH 1997
PORTFOLIO
The net portfolio balance was $10.54 billion at December 31, 1998,
an increase of 47% or $3.35 billion over December 31, 1997.
In January 1998, we entered into an agreement with Caterpillar to
purchase certain U.S. dealer receivables from Caterpillar at a
discount. Under this agreement, Caterpillar continues to service the
receivables. Under this program, we use a portion of collections each
week to purchase additional receivables in order to maintain a
consistent balance. At December 31, 1998, the balance of receivables
owned by us and serviced by Caterpillar was $1.17 billion, which is
classified as wholesale notes receivable.
We financed new retail business of $5.82 billion during 1998 as
compared to $4.38 billion in 1997. This 33% increase resulted
primarily from financing more Caterpillar units at a higher average
financed amount per unit.
REVENUES
Total revenues for 1998 were a record $1.05 billion. Of the $254
million increase over 1997, primarily the result of the larger
portfolio, $83 million resulted from the revenue earned on dealer
receivables purchased from Caterpillar.
The average interest rate on finance receivables was 8.75% for
1998 compared with 8.69% for 1997. This rate is computed by dividing
finance income by the average finance receivable balance, net of
unearned income. The tax benefits of governmental lease purchase
contracts and tax-oriented leases are not included in these computed
interest rates.
Other revenue was $75 million for 1998. The increase of $12
million from 1997 included increased securitization-related revenue of
$8 million, interest income on loans to Caterpillar of $4 million,
fees and other miscellaneous revenue.
EXPENSES
Interest expense for 1998 increased $135 million over 1997. This
increase was primarily the result of increased borrowings to support
the larger portfolio. The average interest rate on borrowed funds was
6.00% for 1998 as compared to 5.94% for 1997.
Depreciation expense increased $29 million over 1997 due to an
increase in new equipment on operating leases.
General, operating and administrative expenses increased $28
million during 1998 as compared to 1997. This increase was primarily
due to staff-related expenses and other expenses incurred to increase
new business, service the larger managed portfolio and support
geographic expansion. The number of full-time employees was 821 at
December 31, 1998, an increase of 137 from 1997.
The provision for credit losses increased $31 million over 1997
mainly due to the larger portfolio.
PROFIT
Profit for 1998 was $112 million, a $17 million increase from
1997. This increase was primarily the result of a larger portfolio,
partially offset by a higher provision for credit losses.
PAST DUE RECEIVABLES
Receivables that were past due over 30 days were 1.5% of the total
receivables at December 31, 1998 (1.7% excluding the dealer
receivables serviced by Caterpillar), as compared to 1.7% at December
31, 1997. We continuously 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 including
impaired loans and finance leases. See Note 2 of Notes to
Consolidated Financial Statements for information on the allowance for
credit losses.
CAPITAL RESOURCES AND LIQUIDITY
Operations for 1999 were funded with a combination of bank
borrowings, commercial paper, equity capital invested by Caterpillar,
medium-term notes, sales of receivables and retained earnings.
Total outstanding debt at December 31, 1999 was $10.80 billion, an
increase of $1.23 billion from 1998. This was primarily comprised of
$7.46 billion of medium term notes, $2.78 billion of commercial paper
and $88 million of notes payable to banks.
At December 31, 1999, we had total credit lines of $4.91 billion
that included $2.60 billion of revolving credit agreements shared with
Caterpillar, a $1 billion European Revolving Credit Agreement, $835
million of variable amount lending agreements with Caterpillar and
$471 million of short-term credit lines. These credit lines are with
a number of banks and are considered support for our commercial paper,
commercial paper guarantees and bank borrowings.
As an alternative funding source, we securitize assets from time
to time. In this process, retail or wholesale finance receivables are
sold to special purpose bankruptcy-remote subsidiaries. In 1999 we
received proceeds of $597 million for retail finance receivables sold.
Caterpillar contributed an additional $70 million of equity
capital during 1999. Our debt-to-equity ratio at December 31, 1999
was 7.8 to 1 as compared to 8.0 to 1 at December 31, 1998.
YEAR 2000 READINESS
The Year 2000 ("Y2K") issue related to the inability of computer
applications to distinguish between years with the same last two
digits in different centuries such as 1900 and 2000. We are pleased
to report that we have experienced no interruptions to our business
related to Y2K. We spent approximately $.5 million preparing for Y2K.
We do not expect any significant problems in the future. However,
we will continue to monitor our systems and report significant Y2K
related problems.
ITEM 7.A QUANTITATIVE AND QUALITATIVE MARKET RISK
We use interest rate derivative financial instruments and currency
derivative financial instruments to manage interest rate and foreign
currency exchange risks that we encounter as a part of our normal
business. We do not use these instruments for trading purposes.
Interest rate derivatives. We have a "matched funding" objective
whereby the interest rate profile (fixed rate or floating rate) of our
debt portfolio is matched to the interest rate profile of our
receivables portfolio within certain parameters. In pursuing this
objective, we use interest rate swap agreements to modify the
structure of the debt portfolio. "Matched funding" allows us to
maintain our interest rate spreads, regardless of the direction
interest rates move.
Foreign currency derivatives. In managing foreign currency risk our
objective is to minimize earnings volatility resulting from the
translation of net foreign currency balance sheet positions. We use
foreign exchange contracts to offset the risk when the currency of our
receivables portfolio does not match the currency of our debt
portfolio.
In the normal course of business, our operations and financial
position are subject to fluctuations in interest rates. We use
interest rate swap agreements to manage this risk and maintain the
spread between interest-bearing assets and liabilities. To estimate
the impact of interest rate movement on our income, we use a software
application that computes a "baseline" and "shocked" interest expense
over the next 12 months. The difference between the "baseline" and
"shocked" amounts is an estimate of our sensitivity to interest rate
movement.
We determine the "baseline" interest expense by applying a market
interest rate to the unhedged portion of our debt portfolio. The
unhedged portion of our portfolio is an estimate of fixed rate assets
funded by floating rate liabilities. We incorporate the effects of
interest rate swap agreements in the estimate of our unhedged
portfolio. We determine the "shocked" interest expense by adding 100
basis points to the market interest rate applied to "baseline"
interest expense and apply this rate to the unhedged portfolio.
Based on our sensitivity analysis, assuming no new fixed-rate
assets were extended and no further action was taken to alter our
current interest rate sensitivity, the impact of a 100 basis point
rise in interest rates is an estimated $18 million increase to
interest expense over the next 12 months as compared to the $14
million estimated increase reported last year. Although we believe
this measure provides a meaningful estimate of our interest rate
sensitivity, it does not adjust for other factors that impact our
interest expense. Accordingly, no assurance can be given that actual
results would be consistent with the results of our estimate. Our
analysis does not necessarily represent our current outlook of future
market interest rate movement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by Item 8 is incorporated by reference from
pages 13 through 16.
Part IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Consolidated Statement of Financial Position
Consolidated Statement of Profit
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
(b) Reports on Form 8-K
No current reports on form 8-K were filed during the fourth
quarter.
(c) Exhibits
3.1 Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 to the Company's Form 10, as
amended, Commission File No. 0-13295).
3.2 Bylaws of the Company (incorporated by reference from Exhibit
3.2 to the Company's Annual Report on Form 10-K, for the year
ended December 31, 1990, Commission File No. 0-13295).
4.1 Indenture, dated as of April 15, 1985, between the Company and
Morgan Guaranty Trust Company of New York, as Trustee,
including form of Debt Security (see Table of Contents to
Indenture)(incorporated by reference from Exhibit 4.1 to the
Company's Registration Statement on Form S-3, Commission File
No. 33-2246).
4.2 First Supplemental Indenture, dated as of May 22, 1986,
amending the Indenture dated as of April 15, 1985 between the
Company and Morgan Guaranty Trust Company of New York, as
Trustee (incorporated by reference from Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1986, Commission File No. 0-13295).
4.3 Second Supplemental Indenture, dated as of March 15, 1987,
amending the Indenture dated as of April 15, 1985 between the
Company and Morgan Guaranty Trust Company of New York, as
Trustee (incorporated by reference from Exhibit 4.3 to the
Company's Current Report on Form 8-K dated April 24, 1987,
Commission File No. 0-13295).
4.4 Third Supplemental Indenture, dated as of October 2, 1989,
amending the Indenture dated as of April 15, 1985, between the
Company and Morgan Guaranty Trust Company of New York, as
Trustee (incorporated by reference from Exhibit 4.3 to the
Company's Current Report on Form 8-K, dated October 16, 1989,
Commission File No. 0-13295).
4.5 Fourth Supplemental Indenture, dated as of October 1, 1990,
amending the Indenture dated April 15, 1985, between the
Company and Morgan Guaranty Trust Company of New York, as
Trustee (incorporated by reference from Exhibit 4.3 to the
Company's Current Report on Form 8-K, dated October 29, 1990,
Commission File No. 0-13295).
4.6 Indenture, dated as of July 15, 1991, between the Company and
Continental Bank, National Association, as Trustee
(incorporated by reference from Exhibit 4.1 to the Company's
Current Report on Form 8-K, dated July 25, 1991, Commission
File No. 0-13295).
4.7 Support Agreement, dated as of December 21, 1984, between the
Company and Caterpillar (incorporated by reference from Exhibit
4.2 to the Company's Form 10, as amended, Commission File No. 0-
13295).
4.8 First Amendment to the Support Agreement dated June 14,
1995 between the Company and Caterpillar (incorporated by
reference from Exhibit 4 to the Company's Current Report on
Form 8-K dated June 14, 1995, Commission File No 0-13295).
10.1 Tax Sharing Agreement, dated as of June 21, 1984, between
the Company and Caterpillar (incorporated by reference from
Exhibit 10.3 to the Company's Form 10, as amended, Commission
File No. 0-13295).
12 Statement Setting Forth Computation of Ratio of Profit to Fixed
Charges.
23 Consent of Independent Accountants.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Dated: February 23, 2000 By: /s/ Paul J. Gaeto
Paul J. Gaeto, Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
Date Signature Title
President, Director
February 23, 2000 /s/ James S. Beard and Principal
James S. Beard Executive Officer
Executive Vice
February 23, 2000 /s/ James R. English President and
James R. English Director
February 23, 2000 /s/ James W. Owens Director
James W. Owens
Controller and
February 23, 2000 /s/ Kenneth C. Springer Principal Accounting
Kenneth C. Springer Officer
Treasurer and
February 23, 2000 /s/ Edward J. Scott Principal Financial
Edward J. Scott Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Caterpillar Financial Services Corporation
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) on page 8 present fairly, in all
material respects, the financial position of Caterpillar Financial
Services Corporation and its subsidiaries at December 31, 1999, 1998
and 1997 and the results of their operations and their cash flows for
the years then ended in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Nashville, Tennessee
January 20, 2000
CATERPILLAR FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT DECEMBER 31, (Dollars in Millions, except share data)
1999 1998 1997
Assets:
Cash and cash equivalents $ 85 $ 49 $ 41
Finance receivables (Notes 2, 3 and 5):
Retail notes receivable 2,657 2,283 1,852
Wholesale notes receivable 1,983 2,110 498
Investment in finance receivables 7,225 6,351 4,994
11,865 10,744 7,344
Less: Unearned income 971 852 662
Allowance for credit losses 134 111 84
10,760 9,781 6,598
Equipment on operating leases,(Note 4)
less accumulated depreciation 870 716 559
Deferred income taxes (Note 11) 9 8 5
Notes receivable from
Caterpillar (Note 13) 333 246 -
Other assets 437 335 224
Total assets $12,494 $11,135 $7,427
Liabilities and stockholder's equity:
Payable to dealers and others $ 127 $ 113 $ 85
Payable to Caterpillar -
Borrowings (Note 13) 311 212 244
Payable to Caterpillar -
Other (Note 13) 7 5 5
Accrued interest payable 94 85 47
Income taxes payable (Note 11) 9 106 81
Other liabilities 28 31 22
Short-term borrowings (Note 7) 2,963 3,113 2,731
Current maturities of long-term
debt (Note 8) 2,937 2,179 1,088
Long-term debt (Note 8) 4,585 4,058 2,274
Deferred income taxes (Note 11) 48 32 39
Total liabilities 11,109 9,934 6,616
Commitments and contingent liabilities (Note 10)
Common stock - $1 par value
Authorized: 2,000 shares
Issued and outstanding:one share 745 675 395
Retained earnings 683 555 443
Accumulated other comprehensive
income (43) (29) (27)
Total stockholder's equity 1,385 1,201 811
Total liabilities and
stockholder's equity $12,494 $11,135 $7,427
See Notes to Consolidated Financial Statements
CATERPILLAR FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF PROFIT
FOR THE YEARS ENDED DECEMBER 31, (Dollars in Millions)
1999 1998 1997
Revenues:
Wholesale finance income $ 171 $ 147 $ 49
Retail finance income 685 610 499
Rental income 253 214 180
Other income 79 75 63
Total revenues 1,188 1,046 791
Expenses:
Interest (Notes 7 and 8) 569 502 367
Depreciation 200 168 139
General, operating and administrative 154 125 97
Provision for credit losses 60 70 39
Other expense 2 2 2
Total expenses 985 867 644
Profit before income taxes 203 179 147
Provision for income taxes (Note 11) 75 67 53
Net profit $128 $112 $ 94
See Notes to Consolidated Financial Statements
CATERPILLAR FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, (Dollars in Millions)
1999 1998 1997
Retained earnings:
Balance at January 1, $ 555 $ 443 $ 349
Net profit 128 $128 112 $112 94 $ 94
Balance at December 31, 683 555 443
Accumulated other
comprehensive income:
Balance at January 1, (29) (27) 1
Foreign currency
translation adjustment (14) (14) (2) (2) (28) (28)
Comprehensive income $114 $110 $ 66
Balance at December 31, (43) (29) (27)
Paid-in capital:
Balance at January 1, 675 395 345
Equity capital from
Caterpillar 70 280 50
Balance at December 31, 745 675 395
Total equity $1,385 $1,201 $ 811
See Notes to Consolidated Financial Statements
CATERPILLAR FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, (Dollars in Millions)
1999 1998 1997
Cash flows from operating activities:
Net income $ 128 $112 $ 94
Adjustments for non-cash items:
Depreciation 200 168 139
Provision for credit losses 60 70 39
Other (9) (29) (42)
Change in assets and
liabilities:
Receivables from customers (164) (157) (40)
and others
Deferred income taxes 17 (11) (3)
Payable to dealers and others 14 28 (1)
Payable to Caterpillar - other 3 - 2
Accrued interest payable 9 38 9
Income taxes payable (97) 25 41
Other, net 8 (3) (3)
Net cash provided by operating activities 169 241 235
Cash flows from investing activities:
Additions to property and equipment (490) (343) (282)
Disposals of equipment 186 124 123
Additions to finance receivables (15,798) (14,962) (6,644)
Collections of finance receivables 13,323 9,958 3,605
Proceeds from sales of receivables 1,324 1,706 1,833
Notes receivable from Caterpillar (87) (243) -
Other, net 4 (4) (3)
Net cash used for investing activities (1,538) (3,764) (1,368)
Cash flows from financing activities:
Additional paid-in capital 70 280 50
Payable to Caterpillar - Borrowings 100 (29) 94
Proceeds from long-term debt 3,464 3,962 1,822
Payments on long-term debt (2,179) (1,088) (1,060)
Short-term borrowings, net (56) 411 241
Net cash provided by financing
activities 1,399 3,536 1,147
Effect of exchange rate changes on cash 6 (5) -
Net change in cash and cash equivalents 36 8 14
Cash and cash equivalents at
beginning of year 49 41 27
Cash and cash equivalents at
end of year $ 85 $ 49 $ 41
See Notes to Consolidated Financial Statements
All short-term investments, which consist primarily of highly liquid
investments with original maturities of less than 3 months, are
considered to be cash equivalents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions)
Note 1 - Summary Of Significant Accounting Policies
A. Basis of consolidation
Caterpillar Financial Services Corporation is a wholly owned
finance subsidiary of Caterpillar Inc. (together with its other
subsidiaries, "Caterpillar"). We provide retail financing
alternatives to customers and dealers around the world for
Caterpillar and non-competitive related equipment, provide
wholesale financing to Caterpillar dealers and purchase short-term
dealer receivables from Caterpillar.
The financial statements include the accounts of Caterpillar
Financial Services Corporation and its subsidiaries. Investments
in companies that are owned 50% or less are accounted for by the
equity method. All material intercompany balances have been
eliminated. Certain amounts for prior periods have been
reclassified to conform to the 1999 presentation.
B. Recognition of earned income
Retail finance income on finance leases, installment sale
contracts and governmental tax leases is recognized over the term of
the contract at a constant rate of return on the scheduled
outstanding principal balance.
Rental income on operating leases is recorded in the period
earned.
Wholesale finance income on dealer inventory, rental fleets,
rental stores and on short-term dealer receivables is recognized
based on the daily balance of wholesale receivables outstanding and
the applicable effective interest rate.
Loan origination and commitment fees over five hundred dollars
are amortized to finance income using the interest method over the
life of the finance receivables.
Recognition of income is suspended when management determines
that collection of future income is not probable. Accrual is
resumed, and previously suspended income is recognized, when the
receivable becomes contractually current and collection doubts are
removed.
C. Depreciation
Depreciation on equipment on operating lease is recognized using
the straight-line method over the lease term, typically one to
seven years. The depreciable basis is the original cost of the
equipment less the estimated residual value of the equipment at the
end of the lease term.
D. Amortization
Debt issuance costs are capitalized and amortized to interest
expense over the expected term of the debt issue.
E. Derivative financial instruments
We use interest rate and currency derivative financial
instruments to manage risks encountered through the normal course
of business. We do not use any of these instruments for
speculative purposes. Please refer to Note 9 for more information
on derivative instruments, including the methods used to account
for them.
F. Allowance for credit losses
On a regular basis, we evaluate the collectibility of receivable
balances and maintain an allowance for credit losses that we
believe is sufficient to cover uncollectible accounts including
impaired loans and finance leases. Uncollectible receivable
balances are written off against the allowance for credit losses
when the underlying collateral is repossessed or when we determine
that it is probable the receivable balance is uncollectible.
G. Income taxes
We have a tax sharing agreement with Caterpillar under which we
combine our tax position with Caterpillar's when appropriate. When
we combine our tax positions under this agreement, we pay to or
receive from Caterpillar our allocated share of income taxes or
credits.
H. Foreign currency translation
Assets and liabilities of foreign subsidiaries (the majority of
which use the local currency as their functional currency) are
translated at current exchange rates. The effects of translation
adjustments are reported as a separate component of accumulated
other comprehensive income entitled "Foreign currency translation
adjustment." Gains and losses resulting from the translation of
foreign currency amounts to functional currency are included in
"Other income" on the Consolidated Statement of Profit.
I. Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires us to make
estimates and assumptions that affect the reported amounts.
Examples include accruals for income taxes and the allowance for
credit losses. Actual results may differ from these estimates.
J. 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.
Note 2 - Receivables And Allowance For Credit Losses
The contractual maturities of outstanding receivables at
December 31, 1999 were:
Installment Finance
Amounts due in Contracts Leases Notes Total
2000 $1,121 $1,295 $2,720 $ 5,136
2001 794 979 664 2,437
2002 509 626 468 1,603
2003 242 329 269 840
2004 69 136 194 399
Thereafter 18 128 325 471
2,753 3,493 4,640 10,886
Residual value 979 979
Less: Unearned income 295 596 80 971
Total $2,458 $3,876 $4,560 $10,894
Receivables generally may be repaid or refinanced without
penalty prior to contractual maturity. We also sell receivables.
Accordingly, this presentation should not be regarded as a forecast
of future cash collections.
In July 1999, we securitized $594 of our receivables consisting
of $487 of installment sale contracts and $107 of finance lease
contracts and recognized a $3 pre-tax gain. We will continue to
receive fees in future periods for servicing these sold
receivables. We used the proceeds from this sale to reduce debt.
At December 31, 1999, we serviced $1,660 of sold receivables
which consisted of $750 in wholesale receivables under a revolving
asset-backed securitization agreement, $753 of installment sale
contracts and $157 of finance leases. These receivables are not
available to pay our creditors.
Impaired loans or finance leases
A loan or finance lease is considered impaired when the
investment in the contract or equipment exceeds the expected
proceeds, including the disposition of underlying collateral if
applicable.
1999 1998 1997
Total investment in impaired loans/finance
leases at December 31, $ 95 $ 61 $ 30
Less: Fair value of underlying collateral 41 35 18
Potential loss on impaired loans/finance leases $ 54 $ 26 $ 12
Average investment in impaired loans/fianance
leases $ 106 $ 73 $ 47
Allowance for credit losses activity for the year ended December 31,
1999 1998 1997
Balance at beginning of year $ 111 $ 84 $ 74
Provision for credit losses 60 70 39
Receivables written off, net of recoveries (31) (38) (19)
Adjustment related to sale of receivables (5) (5) (6)
Foreign currency translation adjustment (1) - (4)
Balance at end of year $ 134 $ 111 $ 84
Note 3 - Investment In Financing Leases
The components of net investment in financing leases at December 31,
were as follows:
1999 1998 1997
Total minimum lease payments receivable $3,493 $3,161 $2,783
Estimated residual value of leased assets:
Guaranteed 261 229 206
Unguaranteed 718 667 519
4,472 4,057 3,508
Less: Unearned Income 596 529 477
Net investment in financing leases $3,876 $3,528 $3,031
Note 4 - Equipment On Operating Leases
Components of equipment on operating leases, less accumulated
depreciation, at December 31, were as follows:
1999 1998 1997
Equipment on operating leases, at cost $1,260 $1,040 $827
Less: Accumulated depreciation 390 324 268
Equipment on operating leases, net $ 870 $ 716 $559
At December 31, 1999, scheduled minimum rental payments for
operating leases were as follows:
There-
2000 2001 2002 2003 2004 after Total
$250 $192 $105 $48 $13 $8 $616
Note 5 - Concentration Of Credit Risk
Our receivables are primarily comprised of receivables under
installment sale contracts, receivables arising from leasing
transactions and notes receivable. Percentages of the total value
of our portfolio represented by each financing plan at December 31,
were as follows:
1999 1998 1997
Retail Financing:
Finance (non-tax)leases 23% 23% 29%
Installment sale contracts 21% 20% 19%
Tax leases 16% 15% 18%
Customer loans 16% 15% 18%
Dealer loans 6% 6% 7%
Municiple leases 1% 2% 2%
Wholesale Financing 17% 19% 7%
Receivables from customers in construction-related industries
made up approximately one-third of total finance receivables at
December 31, 1999, 1998 and 1997. No single customer or dealer
represents a significant concentration of credit risk. We
typically maintain a security interest in retail financed equipment
and require physical damage insurance coverage on all financed
equipment. For information concerning business segments see Note
15.
Note 6 - Credit Lines
At December 31, 1999, 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, 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 December 31, 1999, there were no borrowings under these lines.
European revolving credit line. This $1,000 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 December 31, 1999, there were no borrowings under
this credit line.
Short-term credit lines from banks. These credit lines total $471
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. We
had $88 outstanding against these credit lines at December 31,
1999.
Variable amount lending agreements with Caterpillar. Under these
agreements, we may borrow up to $835 from Caterpillar, and
Caterpillar may borrow up to $673 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 $311 and loans receivable of $333 outstanding at December 31,
1999. Please refer to Note 13 for more information concerning
activity under these lines.
The revolving credit facilities require us to maintain a
consolidated ratio of profit before taxes plus fixed charges to
fixed charges at no less than 1.15 to 1 for each quarter; total
debt to total stockholder's equity, as defined by agreement, may
not exceed 8.0 to 1 at year-end (8.5 to 1 moving six-month average
at other than year-end); and tangible net worth must be at least
$20. At December 31, 1999, we were in compliance with these
requirements.
Note 7 - Short-Term Borrowings
At December 31, short-term borrowings were comprised of the
following:
1999 1998 1997
Balance Avg. Balance Avg. Balance Avg.
Rate Rate Rate
Commercial paper, net $2,778 5.5% $2,850 5.2% $2,536 5.2%
Payable to banks, net 88 5.8% 189 4.8% 145 4.5%
Other 97 5.8% 74 5.2% 50 5.5%
Total $2,963 $3,113 $2,731
Additional information about our short-term debt is as follows for
the years ended December 31,:
1999 1998 1997
Average short-term borrowings $2,773 $2,875 $2,655
Weighted average interest rate 5.2% 5.3% 5.3%
Cash paid for interest $148 $183 $158
Note 8 - Long-Term Borrowings
During 1999, we issued $3,436 of medium-term notes, of which
$1,285 were at fixed interest rates and $2,151 were at floating
interest rates, primarily indexed to LIBOR. At December 31,1999,
the average weighted interest rate on outstanding medium-term notes
was 6.1%, with remaining maturities ranging up to 7 years. Cash
paid for interest on long-term debt in 1999, 1998 and 1997 was
$403, $298 and $198, respectively.
Long-term debt outstanding at December 31, 1999 matures as
follows:
2000 $2,937
2001 2,198
2002 1,389
2003 383
2004 530
Thereafter 85
Total $7,522
Note 9 - Derivative Financial Instruments And Risk Management
We use interest rate derivative financial instruments and
currency derivative financial instruments to manage interest rate
and foreign currency exchange risks that we 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. Under the terms of a swap agreement, we
exchange with the counterparty the difference between two interest
rates periodically over the life of the agreement. At December 31,
1999, we had interest rate swap contracts outstanding with notional
amounts totaling $3,247 with terms up to fifteen years. These
contracts effectively change:
$2,118 of floating rate debt to fixed rate debt
$1,129 of fixed rate debt to floating rate debt
Net interest on interest rate swap agreements is recorded as
either Other assets or Accrued interest payable and recognized as
an adjustment to Interest expense. Gains and losses on termination
of these agreements are deferred and amortized over the remaining
original life of the agreement, unless the underlying debt to which
the agreement is designated is disposed of or the hedge is
terminated because of a loss of correlation, in which case the gain
or loss is recognized immediately in income. We did not incur any
gains or losses on termination of these contracts during 1999.
Our current loss exposure on interest rate swaps related to
credit risk is $22 at December 31, 1999. In addition, we may incur
additional costs in replacing at current market rates any contracts
for which a counterparty fails to perform. To reduce the risk of
credit losses being incurred, we enter into contracts only with
counterparties that have A- or better credit ratings and monitor
the credit standing of the counterparties. We do not anticipate
nonperformance by any of these counterparties.
Foreign currency derivatives
We use foreign exchange contracts to manage the risk of
fluctuating exchange rates. These contracts have terms that
generally range up to three months. At December 31, 1999, we had
foreign exchange contracts totaling $2,000, $3 of which were with
Caterpillar. They hedge foreign currency denominated receivables
and debt of our international subsidiaries.
Deferred amounts relating to foreign exchange contracts are
recorded as either Other assets or Other liabilities, and the
premium/discount is recognized as an adjustment to Interest
expense. Exchange gains/losses on these contracts are recorded in
Other income.
Note 10 - Commitments And Contingent Liabilities
We are contingently liable under guarantees of securities of
certain parties, including Caterpillar. These guarantees have
terms ranging up to two years and are secured by dealer assets or
Caterpillar equipment. No loss has been experienced nor is any
anticipated under these guarantees. The total guarantees and
amounts outstanding at December 31, are as follows:
1999 1998 1997
Guarantees with others $ 305 $179 $211
Guarantees with Caterpillar 85 75 50
Total guarantees $ 390 $254 $261
Outstanding with others $ 129 $ 88 $104
Outstanding with Caterpillar 4 31 5
Total outstanding $ 133 $119 $109
We are party to agreements in the normal course of business with
selected customers and dealers in which we commit to provide a set
dollar amount of financing on a pre-approved basis. We also
provide lines of credit to selected customers and dealers, of which
a portion remains unused as of December 31, 1999. Commitments and
lines of credit generally have fixed expiration dates or other
termination clauses. It has been our experience that not all
commitments and lines of credit will be used. Management applies
the same credit policies when making commitments and granting lines
of credit as it does for any other financing. We do not require
collateral for these commitments/lines, but if credit is extended,
collateral may be required upon funding. The amount of the
commitments and lines of credit outstanding as of December 31, 1999
was $1,886 compared to $3,891 at December 31, 1998 and $2,347 at
December 31, 1997.
We are party to various litigation matters and claims, and,
while the results cannot be predicted with certainty, management
believes the final outcome of such matters and claims will not have
a material adverse effect on our consolidated financial position.
Note 11 - Income Taxes
The components of the provision for income taxes were as follows
for the years ended December 31,:
1999 1998 1997
Current tax provision:
U.S. federal taxes $ 43 $ 54 $ 47
Foreign taxes 13 18 9
U.S. state taxes 4 5 5
60 77 61
Deferred tax provision
(credit):
U.S. federal taxes 9 (7) (9)
Foreign taxes 6 (3) 2
U.S. state taxes - - (1)
15 (10) (8)
Total provision for income $ 75 $ 67 $ 53
taxes
Cash paid for taxes $ 158 $ 52 $ 16
Current tax provision (credit) is the amount of income taxes
reported or expected to be reported on our tax returns. Under our
tax sharing agreement with Caterpillar we have paid to, or received
from Caterpillar, our allocated share of income taxes or credits as
requested by Caterpillar, based on actual tax settlements.
Beginning January 1999, we agreed to make quarterly payments to
Caterpillar based on estimated tax liabilities. The $158 paid
during 1999 includes $98, paid to Caterpillar, which was accrued
during 1997 and 1998 for federal income taxes.
Differences between accounting rules and tax laws cause
differences between the bases of certain assets and liabilities for
financial reporting and tax purposes. The tax effects of these
differences, to the extent they are temporary, are recorded as
deferred tax assets and liabilities netted by tax jurisdiction and
taxpayer. Our consolidated deferred taxes consisted of the
following components at December 31,:
1999 1998 1997
Deferred tax assets:
Allowance for credit losses $ 35 $ 30 $ 22
Alternative fuel tax credit - 1 1
Expected foreign tax credit 16 8 10
Net operating loss carryforwards 7 7 5
58 46 38
Deferred tax liabilities - primarily
depreciation (90) (63) (67)
Valuation allowance for deferred
tax assets (7) (7) (5)
(97) (70) (72)
Deferred taxes - net $(39) $(24) $(34)
Of our foreign subsidiaries that are in net operating loss carry
forward positions, there is not sufficient evidence to substantiate
recognition of deferred tax assets. Accordingly, a valuation
allowance has been recorded for this amount. It is possible that
circumstances could change in the near term at one or more of these
foreign subsidiaries which would allow us to reduce the valuation
allowance and to record additional net deferred tax assets.
The provision for income taxes was different than would result
from applying the U.S. statutory rate to Profit before income taxes
for the years ended December 31, for the reasons set forth in the
following reconciliation:
1999 1998 1997
Taxes computed at U.S. statutory rates $ 71 $63 $52
Increases (decreases) in taxes
resulting from:
Finance income not subject to
federal taxation (3) (4) (3)
State income taxes, net of federal taxes 3 3 3
Subsidiaries' results subject to
tax rates other than U.S. statutory rates 4 5 1
Provision for income taxes $ 75 $67 $53
The domestic and foreign components of Profit before income
taxes for the years ended December 31, were as follows:
1999 1998 1997
Domestic $163 $149 $121
Foreign 40 30 26
Total $203 $179 $147
The foreign component of Profit before income taxes is comprised
of the profit of all consolidated subsidiaries located outside the
United States.
Note 12 - Fair Value Of Financial Instruments
We use the following methods and assumptions to estimate the
fair value of our financial instruments:
Assets and liabilities other than those listed below - carrying
amount is a reasonable estimate of fair value.
Finance receivables, net - fair value is estimated by discounting the
future cash flows using current rates for new receivables with
similar remaining maturities. Historical bad debts experience is
also considered.
Long-term debt - fair value is estimated by discounting the future
cash flows using our current borrowing rates for similar types and
maturities of debt, except for floating rate notes for which the
carrying amount is considered a reasonable estimate of fair value.
Interest rate swaps - fair value is estimated based upon the amount
we would receive or pay to terminate the agreements as of December
31.
Forward exchange contracts - carrying amount is a reasonable estimate
of fair value.
The estimated fair values of financial instruments at December 31,
are as follows:
1999 1998 1997
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
Finance receivables
net (excluding tax
leases (1)) $ 9,740 $ 9,719 $ 8,916 $ 8,978 $ 5,846 $ 5,873
Long-term debt $(7,522) $(7,444) $(6,237) $(6,281) $(3,362) $(3,420)
Interest rate swaps:
In a net receivable
position $ 22 $ 29 $ 14 $ 19 - $ 19
In a net payable
position $(1) $(7) $(2) $(24) $(3) $(12)
Forward exchange
contracts:
In a net gain
position $ 70 $70 $ 21 $ 21 $ 48 $ 48
In a net loss
position $(3) $(3) $(9) $(9) $(6) $(6)
(1) Excluded items have a net carrying value of $1,020 at December
31, 1999, $865 at December 31, 1998 and $753 at December 31, 1997.
Note 13 - Transactions With Related Parties
We have a Support Agreement with Caterpillar which provides that
Caterpillar will remain, directly or indirectly, our sole owner,
cause us to maintain a net worth of at least $20 and ensure that we
maintain a ratio of earnings and interest expense (as defined) to
interest expense of not less than 1.15 to 1. In 1999, Caterpillar
made capital contributions of $70. Although this agreement can be
modified or terminated by either party, any modification or
termination which would adversely affect holders of our debt is
required to be approved by holders of 66-2/3% of the aggregate
outstanding debt. Caterpillar's obligation under this agreement is
not directly enforceable by any of our creditors and does not
constitute a guarantee of any of our obligations.
We have variable amount lending agreements with Caterpillar.
Under these agreements, we may borrow up to $835 from Caterpillar,
and Caterpillar may borrow up to $673 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. Information
concerning these agreements is as follows:
1999 1998 1997
Loans payable at December 31, $311 $212 $244
Loans receivable at December 31, $333 $246 -
Interest paid $ 11 $ 6 $ 12
Interest earned $ 13 $ 4 -
We were contingently liable under guarantees of securities of
Caterpillar totaling $85 at December 31, 1999, $75 at December 31,
1998 and $50 at December 31, 1997. Of these guarantees, the amount
outstanding was $4 at December 31, 1999, $31 at December 31, 1998
and $5 at December 31, 1997.
We enter into forward exchange contracts with Caterpillar to
hedge our U.S. dollar denominated positions in Australia against
currency fluctuations. These contracts have terms generally
ranging up to three months. These contracts totaled $3 at December
31, 1999, 1998 and 1997.
We have agreements with Caterpillar to purchase, at a discount,
certain receivables generated by sales of products to Caterpillar
dealers. Information pertaining to these purchases is as below:
1999 1998 1997
Purchases made $7,727 $6,622 $444
Discounts earned $ 103 $ 89 $ 6
Servicing fees paid $ 6 $ 5 $ -
Balance at December 31, $1,173 $1,389 $139
Under this program, we use a portion of collections each week to
purchase additional receivables in order to maintain a consistent
balance. The effective interest rate on these receivables was
8.93% at December 31, 1999.
We participate in certain marketing programs sponsored by
Caterpillar by providing financing to customers at rates below
standard rates. Under these programs, Caterpillar pays us an
amount at the outset of the transaction, which we then recognize as
income over the term of the financing. During 1999, we billed $340
to Caterpillar relative to such programs, compared with $221 in
1998 and $151 in 1997.
Caterpillar provides us with certain operational and
administrative support, which is integral to the conduct of our
business. Our employees are covered by various benefit plans,
including pension/post-retirement plans, administered by
Caterpillar. We reimburse Caterpillar for these charges which
amounted to $7 during 1999, $6 during 1998 and $5 during 1997.
Other corporate services for which we reimburse Caterpillar
amounted to $2 for the year ended December 31, 1999, $3 for the
year ended December 31, 1998 and $2 for the year ended December 31,
1997.
We have a tax sharing agreement with Caterpillar under which we
combine our tax position with Caterpillar's when appropriate. When
we combine our tax positions under this agreement, we pay to or
receive from Caterpillar our allocated share of income taxes or
credits.
Note 14 - Leases
We lease certain offices and other property through operating
leases. Rental expense is charged to operations as incurred. Total
rental expense for operating leases was $14, $12 and $10 for 1999,
1998 and 1997, respectively. At December 31, 1999, minimum
payments for operating leases having initial non-cancelable terms
in excess of one year are:
2000 $ 7
2001 5
2002 4
2003 3
2004 2
Thereafter 2
Total $23
In February 2000, we will begin moving our principal executive
offices to a new leased facility. The terms of this operating
lease are enforceable only when the lessor meets certain criteria
and deadlines. We will occupy new space as it is made available
throughout 2000. Expected payments related to this new space are
$2 for 2000, $4 for 2001 and $6 for each subsequent year until
2014. These amounts are subject to change based upon actual
occupancy dates and are not reflected in the table above.
Note 15 - Segment Information
Basis for segment information
We have three operating segments in which we offer primarily the
same types of services (see Note 1). We account for transactions
between segments in accordance with generally accepted accounting
principles. 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.
1999 North Europe Diversified Total
America Services
Revenue from external cusomters $ 771 228 189 $ 1,188
Inter-segment revenue $ 51 2 - $ 53
Net profit $ 107 18 3 $ 128
Interest expense $ 425 89 107 $ 621
Depreciation expense $ 129 57 14 $ 200
Income tax expense $ 61 11 3 $ 75
Assets $ 9,236 2,968 2,317 $ 14,521
Expenditures for assets $ 321 146 23 $ 490
1998 North Europe Diversified Total
America Services
Revenue from external customers $ 675 197 174 $ 1,046
Inter-segment revenue $ 26 4 - $ 30
Net profit $ 90 9 13 $ 112
Interest expense $ 353 80 99 $ 532
Depreciation expense $ 101 52 15 $ 168
Income tax expense $ 50 7 10 $ 67
Assets $ 7,956 2,454 1,989 $ 12,401
Expenditures for assets $ 284 93 22 $ 399
1997 North Europe Diversified Total
America Services
Revenue from external cusomters $ 508 161 123 $ 792
Inter-segment revenue $ 5 1 - $ 6
Net profit $ 73 14 7 $ 94
Interest expense $ 239 66 67 $ 372
Depreciation expense $ 83 38 18 $ 139
Income tax expense $ 41 7 5 $ 53
Assets $ 5,080 1,765 1,379 $ 8,224
Expenditures for assets $ 141 179 30 $ 350
Reconciliation:
Interest expense 1999 1998 1997
Interest expense from segments $621 $532 $372
Inter-segment interest expense 52 30 5
Total interest expense $569 $502 $367
Assets 1999 1998 1997
Assets from segements $14,521 $12,401 $8,224
Investment in subsidiaries 605 494 395
Inter-segment balances 1,422 772 402
Total assets $12,494 $11,135 $7,427
Inside and outside the United States:
Revenue 1999 1998 1997
Inside U.S. $ 849 $ 748 $581
Outside U.S. 339 298 210
$1,188 $1,046 $791
Property and Equipment, Net 1999 1998 1997
Inside U.S. $596 $485 $402
Outside U.S. 306 249 173
$902 $734 $575
Note 16 - Selected Quarterly Financial Data (Unaudited)
1999 First Second Third Fourth
quarter quarter quarter quarter
Total revenues $283 $294 $303 $307
Profit before taxes $ 55 $ 49 $ 58 $ 41
Net profit $ 35 $ 31 $ 37 $ 25
1998
Total revenues $222 $255 $283 $285
Profit before taxes $ 37 $ 40 $ 57 $ 45
Net profit $ 24 $ 26 $ 35 $ 27
1997
Total revenues $183 $189 $206 $213
Profit before taxes $ 42 $ 34 $ 36 $ 35
Net profit $ 27 $ 22 $ 23 $ 22
EXHIBIT 12
STATEMENT SETTING FORTH COMPUTATION OF RATIO OF PROFIT TO FIXED CHARGES
YEARS ENDED DECEMBER 31, (Millions of dollars)(Unaudited)
1999 1998 1997
Net profit $128 $112 $ 94
Add:
Provision for income taxes 75 67 53
Deduct:
Equity in profit of partnerships (2) (3) (3)
Profit before taxes $201 $176 $ 144
Fixed charges:
Interest on borrowed funds $569 $ 502 $ 367
Rentals at computed interest* 5 4 3
Total fixed charges $574 $ 506 $ 370
Profit before taxes plus fixed $775 $ 682 $ 514
charges
Ratio of profit before taxes plus
fixed charges to fixed charges 1.35 1.35 1.39
*Those portions of rent expense that are representative of
interest cost.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-3 (No. 333-73083) of Caterpillar
Financial Services Corporation of our report dated January 20, 2000
appearing on page 11 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Nashville, Tennessee
February 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from our
financial statements for the year ended December 31, 1999 and is qualified in
its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 85
<SECURITIES> 0
<RECEIVABLES> 11865
<ALLOWANCES> 134
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 1260
<DEPRECIATION> 390
<TOTAL-ASSETS> 12494
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 7151
0
0
<COMMON> 745
<OTHER-SE> 640
<TOTAL-LIABILITY-AND-EQUITY> 12494
<SALES> 0
<TOTAL-REVENUES> 1188
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 356
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 569
<INCOME-PRETAX> 203
<INCOME-TAX> 75
<INCOME-CONTINUING> 128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>We do not classify our balance sheet.
</FN>
</TABLE>
