A summary of finance receivables included in the Consolidated Statements of Financial Position was as follows:
We further evaluate our portfolio segments by the class of finance receivables, which is defined as a level of information (below a portfolio segment) in which the finance receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit risk. Typically, our finance receivables within a geographic area have similar credit risk profiles and methods for assessing and monitoring credit risk. Our classes, which align with management reporting for credit losses, are as follows:
At origination, we evaluate credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit-rating agencycredit ratings, loan-to-value ratios, probabilities of default, industry trends, macroeconomic factors and other internal metrics. On an ongoing basis, we monitor credit quality based on past-due status and collection experience as there is a meaningful correlation between the past-due status of customers and the risk of loss.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | | | | | | | |
| September 30, 2017 |
| 31-60 Days Past Due | | 61-90 Days Past Due | | 91+ Days Past Due | | Total Past Due | | Current | | Recorded Investment in Finance Receivables | | 91+ Still Accruing |
Customer | |
| | |
| | |
| | | | | | | | |
North America | $ | 64 |
| | $ | 17 |
| | $ | 49 |
| | $ | 130 |
| | $ | 7,916 |
| | $ | 8,046 |
| | $ | 8 |
|
Europe | 27 |
| | 9 |
| | 56 |
| | 92 |
| | 2,642 |
| | 2,734 |
| | 4 |
|
Asia/Pacific | 27 |
| | 13 |
| | 17 |
| | 57 |
| | 2,299 |
| | 2,356 |
| | 9 |
|
Mining | 8 |
| | 4 |
| | 52 |
| | 64 |
| | 1,682 |
| | 1,746 |
| | 1 |
|
Latin America | 53 |
| | 28 |
| | 180 |
| | 261 |
| | 1,672 |
| | 1,933 |
| | — |
|
Caterpillar Power Finance | 11 |
| | 34 |
| | 124 |
| | 169 |
| | 2,589 |
| | 2,758 |
| | 11 |
|
Dealer | |
| | |
| | |
| | | | | | | | |
North America | — |
| | — |
| | — |
| | — |
| | 2,816 |
| | 2,816 |
| | — |
|
Europe | — |
| | — |
| | — |
| | — |
| | 350 |
| | 350 |
| | — |
|
Asia/Pacific | — |
| | — |
| | — |
| | — |
| | 580 |
| | 580 |
| | — |
|
Mining | — |
| | — |
| | — |
| | — |
| | 5 |
| | 5 |
| | — |
|
Latin America | 5 |
| | — |
| | 3 |
| | 8 |
| | 783 |
| | 791 |
| | — |
|
Caterpillar Power Finance | — |
| | — |
| | — |
| | — |
| | 2 |
| | 2 |
| | — |
|
Caterpillar Purchased Receivables | |
| | |
| | |
| | | | | | | | |
North America | 13 |
| | 5 |
| | 3 |
| | 21 |
| | 1,666 |
| | 1,687 |
| | 3 |
|
Europe | 2 |
| | — |
| | — |
| | 2 |
| | 333 |
| | 335 |
| | — |
|
Asia/Pacific | 1 |
| | — |
| | — |
| | 1 |
| | 396 |
| | 397 |
| | — |
|
Mining | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Latin America | — |
| | — |
| | — |
| | — |
| | 400 |
| | 400 |
| | — |
|
Caterpillar Power Finance | — |
| | — |
| | — |
| | — |
| | 4 |
| | 4 |
| | — |
|
Total | $ | 211 |
| | $ | 110 |
| | $ | 484 |
| | $ | 805 |
| | $ | 26,135 |
| | $ | 26,940 |
| | $ | 36 |
|
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | December 31, 2021 |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving Finance Receivables | | | | Total Finance Receivables |
North America | | | | | | | | | | | | | | | | | |
Current | $ | 4,792 | | | $ | 2,596 | | | $ | 1,426 | | | $ | 630 | | | $ | 182 | | | $ | 32 | | | $ | 182 | | | | | $ | 9,840 | |
31-60 days past due | 27 | | | 32 | | | 20 | | | 12 | | | 4 | | | 1 | | | 5 | | | | | 101 | |
61-90 days past due | 7 | | | 8 | | | 5 | | | 3 | | | 1 | | | 1 | | | 5 | | | | | 30 | |
91+ days past due | 9 | | | 17 | | | 12 | | | 13 | | | 5 | | | 4 | | | 5 | | | | | 65 | |
| | | | | | | | | | | | | | | | | |
EAME | | | | | | | | | | | | | | | | | |
Current | 1,499 | | | 836 | | | 577 | | | 352 | | | 140 | | | 26 | | | — | | | | | 3,430 | |
31-60 days past due | 5 | | | 4 | | | 3 | | | 1 | | | 1 | | | — | | | — | | | | | 14 | |
61-90 days past due | 3 | | | 3 | | | 3 | | | 1 | | | — | | | — | | | — | | | | | 10 | |
91+ days past due | 3 | | | 11 | | | 2 | | | 2 | | | — | | | 2 | | | — | | | | | 20 | |
| | | | | | | | | | | | | | | | | |
Asia/Pacific | | | | | | | | | | | | | | | | | |
Current | 1,456 | | | 943 | | | 420 | | | 119 | | | 40 | | | 3 | | | 36 | | | | | 3,017 | |
31-60 days past due | 10 | | | 14 | | | 10 | | | 2 | | | — | | | — | | | — | | | | | 36 | |
61-90 days past due | 3 | | | 7 | | | 4 | | | 1 | | | — | | | — | | | — | | | | | 15 | |
91+ days past due | 2 | | | 10 | | | 10 | | | 3 | | | — | | | — | | | — | | | | | 25 | |
| | | | | | | | | | | | | | | | | |
Mining | | | | | | | | | | | | | | | | | |
Current | 944 | | | 356 | | | 332 | | | 194 | | | 36 | | | 161 | | | 36 | | | | | 2,059 | |
31-60 days past due | 6 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | 6 | |
61-90 days past due | 1 | | | — | | | — | | | — | | | 4 | | | — | | | — | | | | | 5 | |
91+ days past due | — | | | 1 | | | 8 | | | 9 | | | 3 | | | 1 | | | — | | | | | 22 | |
| | | | | | | | | | | | | | | | | |
Latin America | | | | | | | | | | | | | | | | | |
Current | 617 | | | 299 | | | 160 | | | 70 | | | 17 | | | 18 | | | — | | | | | 1,181 | |
31-60 days past due | 4 | | | 7 | | | 3 | | | 3 | | | 1 | | | — | | | — | | | | | 18 | |
61-90 days past due | 3 | | | 3 | | | 1 | | | 1 | | | — | | | — | | | — | | | | | 8 | |
91+ days past due | 4 | | | 9 | | | 9 | | | 7 | | | 7 | | | 14 | | | — | | | | | 50 | |
| | | | | | | | | | | | | | | | | |
Caterpillar Power Finance | | | | | | | | | | | | | | | | | |
Current | 120 | | | 152 | | | 119 | | | 70 | | | 180 | | | 104 | | | 101 | | | | | 846 | |
31-60 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
61-90 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
91+ days past due | — | | | — | | | — | | | — | | | — | | | 44 | | | — | | | | | 44 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Totals by Aging Category | | | | | | | | | | | | | | | | | |
Current | 9,428 | | | 5,182 | | | 3,034 | | | 1,435 | | | 595 | | | 344 | | | 355 | | | | | 20,373 | |
31-60 days past due | 52 | | | 57 | | | 36 | | | 18 | | | 6 | | | 1 | | | 5 | | | | | 175 | |
61-90 days past due | 17 | | | 21 | | | 13 | | | 6 | | | 5 | | | 1 | | | 5 | | | | | 68 | |
91+ days past due | 18 | | | 48 | | | 41 | | | 34 | | | 15 | | | 65 | | | 5 | | | | | 226 | |
Total | $ | 9,515 | | | $ | 5,308 | | | $ | 3,124 | | | $ | 1,493 | | | $ | 621 | | | $ | 411 | | | $ | 370 | | | | | $ | 20,842 | |
| | | | | | | | | | | | | | | | | |
Finance receivables in the Customer portfolio segment are substantially secured by collateral, primarily in the form of Caterpillar and other equipment. For those contracts where the borrower is experiencing financial difficulty, repayment of the outstanding amounts is generally expected to be provided through the operation or repossession and sale of the equipment.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | | | | | | | |
| December 31, 2016 |
| 31-60 Days Past Due | | 61-90 Days Past Due | | 91+ Days Past Due | | Total Past Due | | Current | | Recorded Investment in Finance Receivables | | 91+ Still Accruing |
Customer | |
| | |
| | |
| | | | | | | | |
North America | $ | 50 |
| | $ | 16 |
| | $ | 59 |
| | $ | 125 |
| | $ | 8,051 |
| | $ | 8,176 |
| | $ | 5 |
|
Europe | 16 |
| | 12 |
| | 39 |
| | 67 |
| | 2,388 |
| | 2,455 |
| | 6 |
|
Asia/Pacific | 18 |
| | 7 |
| | 15 |
| | 40 |
| | 1,944 |
| | 1,984 |
| | 4 |
|
Mining | 3 |
| | 2 |
| | 63 |
| | 68 |
| | 1,756 |
| | 1,824 |
| | 2 |
|
Latin America | 40 |
| | 33 |
| | 214 |
| | 287 |
| | 1,808 |
| | 2,095 |
| | — |
|
Caterpillar Power Finance | 11 |
| | 9 |
| | 73 |
| | 93 |
| | 3,018 |
| | 3,111 |
| | 1 |
|
Dealer | |
| | |
| | |
| | | | | | | | |
North America | — |
| | — |
| | — |
| | — |
| | 2,705 |
| | 2,705 |
| | — |
|
Europe | — |
| | — |
| | — |
| | — |
| | 336 |
| | 336 |
| | — |
|
Asia/Pacific | — |
| | — |
| | — |
| | — |
| | 582 |
| | 582 |
| | — |
|
Mining | — |
| | — |
| | — |
| | — |
| | 6 |
| | 6 |
| | — |
|
Latin America | — |
| | — |
| | — |
| | — |
| | 848 |
| | 848 |
| | — |
|
Caterpillar Power Finance | — |
| | — |
| | — |
| | — |
| | 2 |
| | 2 |
| | — |
|
Caterpillar Purchased Receivables | |
| | |
| | |
| | | | | | | | |
North America | 11 |
| | 3 |
| | 1 |
| | 15 |
| | 1,303 |
| | 1,318 |
| | 1 |
|
Europe | — |
| | — |
| | 1 |
| | 1 |
| | 268 |
| | 269 |
| | — |
|
Asia/Pacific | — |
| | — |
| | — |
| | — |
| | 475 |
| | 475 |
| | — |
|
Mining | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Latin America | — |
| | — |
| | — |
| | — |
| | 366 |
| | 366 |
| | — |
|
Caterpillar Power Finance | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
| | — |
|
Total | $ | 149 |
| | $ | 82 |
| | $ | 465 |
| | $ | 696 |
| | $ | 25,859 |
| | $ | 26,555 |
| | $ | 19 |
|
| | | | | | | | | | | | | |
Dealer
Impaired finance receivables
For all classes, a finance receivable is considered impaired, based on current information and events, if it is probable that we will be unable to collect all amounts due according to the contractual terms. ImpairedAs of March 31, 2022, our total amortized cost of finance receivables includewithin the Dealer portfolio segment was current, with the exception of $81 million. Of these past due receivables, $78 million were 91+ days past due in Latin America and were originated in 2017. As of December 31, 2021, our total amortized cost of finance receivables within the Dealer portfolio segment was current, with the exception of $78 million that have been restructured and are considered to be Troubled Debt Restructures.was 91+ days past due in Latin America, all of which was originated in 2017.
There were no impairedCaterpillar Purchased Receivables
The tables below summarize the aging category of our amortized cost of finance receivables as of September 30, 2017 and December 31, 2016, forin the Dealer and Caterpillar Purchased Receivables portfolio segments. Our recorded investment in impairedsegment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | | | | | | | |
| March 31, 2022 |
| 31-60 Days Past Due | | 61-90 Days Past Due | | 91+ Days Past Due | | Total Past Due | | Current | | Total Finance Receivables | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
North America | $ | 5 | | | $ | 12 | | | $ | 5 | | | $ | 22 | | | $ | 2,481 | | | $ | 2,503 | | | |
EAME | 2 | | | — | | | 1 | | | 3 | | | 714 | | | 717 | | | |
Asia/Pacific | 1 | | | — | | | — | | | 1 | | | 885 | | | 886 | | | |
Mining | — | | | — | | | — | | | — | | | — | | | — | | | |
Latin America | 3 | | | 1 | | | — | | | 4 | | | 532 | | | 536 | | | |
Caterpillar Power Finance | 1 | | | — | | | — | | | 1 | | | 4 | | | 5 | | | |
Total | $ | 12 | | | $ | 13 | | | $ | 6 | | | $ | 31 | | | $ | 4,616 | | | $ | 4,647 | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | | | | | | | |
| December 31, 2021 |
| 31-60 Days Past Due | | 61-90 Days Past Due | | 91+ Days Past Due | | Total Past Due | | Current | | Total Finance Receivables | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
North America | $ | 8 | | | $ | 6 | | | $ | 5 | | | $ | 19 | | | $ | 2,499 | | | $ | 2,518 | | | |
EAME | 1 | | | — | | | 1 | | | 2 | | | 844 | | | 846 | | | |
Asia/Pacific | — | | | — | | | 1 | | | 1 | | | 620 | | | 621 | | | |
Mining | — | | | — | | | — | | | — | | | — | | | — | | | |
Latin America | 1 | | | 1 | | | — | | | 2 | | | 472 | | | 474 | | | |
Caterpillar Power Finance | — | | | — | | | — | | | — | | | 3 | | | 3 | | | |
Total | $ | 10 | | | $ | 7 | | | $ | 7 | | | $ | 24 | | | $ | 4,438 | | | $ | 4,462 | | | |
| | | | | | | | | | | | | |
Non-accrual finance receivables and the related unpaid principal balances and allowance for the Customer portfolio segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | | | | | |
| As of September 30, 2017 | | As of December 31, 2016 |
Impaired Finance Receivables With No Allowance Recorded | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
North America | $ | 16 |
| | $ | 21 |
| | $ | — |
| | $ | 10 |
| | $ | 10 |
| | $ | — |
|
Europe | 47 |
| | 47 |
| | — |
| | 49 |
| | 48 |
| | — |
|
Asia/Pacific | 32 |
| | 31 |
| | — |
| | 3 |
| | 2 |
| | — |
|
Mining | 127 |
| | 125 |
| | — |
| | 129 |
| | 129 |
| | — |
|
Latin America | 60 |
| | 60 |
| | — |
| | 68 |
| | 68 |
| | — |
|
Caterpillar Power Finance | 187 |
| | 200 |
| | — |
| | 271 |
| | 271 |
| | — |
|
Total | $ | 469 |
| | $ | 484 |
| | $ | — |
| | $ | 530 |
| | $ | 528 |
| | $ | — |
|
Impaired Finance Receivables With An Allowance Recorded | |
| | |
| | |
| | |
| | |
| | |
|
North America | $ | 36 |
| | $ | 35 |
| | $ | 13 |
| | $ | 61 |
| | $ | 60 |
| | $ | 22 |
|
Europe | 8 |
| | 8 |
| | 5 |
| | 7 |
| | 7 |
| | 3 |
|
Asia/Pacific | 25 |
| | 25 |
| | 3 |
| | 50 |
| | 50 |
| | 8 |
|
Mining | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Latin America | 92 |
| | 104 |
| | 35 |
| | 93 |
| | 104 |
| | 34 |
|
Caterpillar Power Finance | 239 |
| | 241 |
| | 44 |
| | 45 |
| | 44 |
| | 18 |
|
Total | $ | 400 |
| | $ | 413 |
| | $ | 100 |
| | $ | 256 |
| | $ | 265 |
| | $ | 85 |
|
Total Impaired Finance Receivables | |
| | |
| | |
| | |
| | |
| | |
|
North America | $ | 52 |
| | $ | 56 |
| | $ | 13 |
| | $ | 71 |
| | $ | 70 |
| | $ | 22 |
|
Europe | 55 |
| | 55 |
| | 5 |
| | 56 |
| | 55 |
| | 3 |
|
Asia/Pacific | 57 |
| | 56 |
| | 3 |
| | 53 |
| | 52 |
| | 8 |
|
Mining | 127 |
| | 125 |
| | — |
| | 129 |
| | 129 |
| | — |
|
Latin America | 152 |
| | 164 |
| | 35 |
| | 161 |
| | 172 |
| | 34 |
|
Caterpillar Power Finance | 426 |
| | 441 |
| | 44 |
| | 316 |
| | 315 |
| | 18 |
|
Total | $ | 869 |
| | $ | 897 |
| | $ | 100 |
| | $ | 786 |
| | $ | 793 |
| | $ | 85 |
|
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | |
| Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
Impaired Finance Receivables With No Allowance Recorded | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
North America | $ | 14 |
| | $ | 1 |
| | $ | 24 |
| | $ | — |
|
Europe | 47 |
| | — |
| | 49 |
| | 1 |
|
Asia/Pacific | 30 |
| | 1 |
| | 1 |
| | — |
|
Mining | 128 |
| | 1 |
| | 90 |
| | 2 |
|
Latin America | 68 |
| | 1 |
| | 58 |
| | — |
|
Caterpillar Power Finance | 171 |
| | 1 |
| | 282 |
| | 3 |
|
Total | $ | 458 |
| | $ | 5 |
| | $ | 504 |
| | $ | 6 |
|
Impaired Finance Receivables With An Allowance Recorded | |
| | |
| | |
| | |
|
North America | $ | 44 |
| | $ | — |
| | $ | 42 |
| | $ | — |
|
Europe | 6 |
| | — |
| | 10 |
| | — |
|
Asia/Pacific | 28 |
| | 1 |
| | 35 |
| | — |
|
Mining | — |
| | — |
| | 19 |
| | — |
|
Latin America | 102 |
| | 1 |
| | 67 |
| | 1 |
|
Caterpillar Power Finance | 251 |
| | 3 |
| | 43 |
| | — |
|
Total | $ | 431 |
| | $ | 5 |
| | $ | 216 |
| | $ | 1 |
|
Total Impaired Finance Receivables | |
| | |
| | |
| | |
|
North America | $ | 58 |
| | $ | 1 |
| | $ | 66 |
| | $ | — |
|
Europe | 53 |
| | — |
| | 59 |
| | 1 |
|
Asia/Pacific | 58 |
| | 2 |
| | 36 |
| | — |
|
Mining | 128 |
| | 1 |
| | 109 |
| | 2 |
|
Latin America | 170 |
| | 2 |
| | 125 |
| | 1 |
|
Caterpillar Power Finance | 422 |
| | 4 |
| | 325 |
| | 3 |
|
Total | $ | 889 |
| | $ | 10 |
| | $ | 720 |
| | $ | 7 |
|
| | | | | | | |
|
| | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | |
| Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
Impaired Finance Receivables With No Allowance Recorded | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
North America | $ | 12 |
| | $ | 1 |
| | $ | 19 |
| | $ | 1 |
|
Europe | 48 |
| | 1 |
| | 45 |
| | 1 |
|
Asia/Pacific | 22 |
| | 2 |
| | 2 |
| | — |
|
Mining | 128 |
| | 5 |
| | 84 |
| | 3 |
|
Latin America | 69 |
| | 2 |
| | 39 |
| | — |
|
Caterpillar Power Finance | 233 |
| | 7 |
| | 269 |
| | 8 |
|
Total | $ | 512 |
| | $ | 18 |
| | $ | 458 |
| | $ | 13 |
|
Impaired Finance Receivables With An Allowance Recorded | |
| | |
| | |
| | |
|
North America | $ | 52 |
| | $ | 1 |
| | $ | 28 |
| | $ | — |
|
Europe | 6 |
| | — |
| | 11 |
| | — |
|
Asia/Pacific | 35 |
| | 2 |
| | 34 |
| | 2 |
|
Mining | — |
| | — |
| | 15 |
| | — |
|
Latin America | 101 |
| | 3 |
| | 59 |
| | 2 |
|
Caterpillar Power Finance | 141 |
| | 4 |
| | 50 |
| | 1 |
|
Total | $ | 335 |
| | $ | 10 |
| | $ | 197 |
| | $ | 5 |
|
Total Impaired Finance Receivables | |
| | |
| | |
| | |
|
North America | $ | 64 |
| | $ | 2 |
| | $ | 47 |
| | $ | 1 |
|
Europe | 54 |
| | 1 |
| | 56 |
| | 1 |
|
Asia/Pacific | 57 |
| | 4 |
| | 36 |
| | 2 |
|
Mining | 128 |
| | 5 |
| | 99 |
| | 3 |
|
Latin America | 170 |
| | 5 |
| | 98 |
| | 2 |
|
Caterpillar Power Finance | 374 |
| | 11 |
| | 319 |
| | 9 |
|
Total | $ | 847 |
| | $ | 28 |
| | $ | 655 |
| | $ | 18 |
|
| | | | | | | |
Recognition of income is suspended and the finance receivable is placed on non-accrual status when management determines that collection of future income is not probable (generally afterprobable. Contracts on non-accrual status are generally more than 120 days past due).due or have been restructured in a TDR. Recognition is resumed and previously suspended income is recognized when the finance receivable becomes current and collection of remaining amounts is considered probable. Payments received while the finance receivable is on non-accrual status are applied to interest and principal in accordance with the contractual terms. Interest earned but uncollected prior to the receivable being placed on non-accrual status is written off through Provision for credit losses when, in the judgment of management, it is considered uncollectible.
In our Customer portfolio segment, finance receivables which were on non-accrual status and finance receivables over 90 days past due and still accruing income were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | March 31, 2022 | | December 31, 2021 |
| Amortized Cost | | Amortized Cost |
| Non-accrual With an Allowance | | Non-accrual Without an Allowance | | 91+ Still Accruing | | Non-accrual With an Allowance | | Non-accrual Without an Allowance | | 91+ Still Accruing |
North America | $ | 43 | | | $ | 6 | | | $ | 13 | | | $ | 47 | | | $ | 9 | | | $ | 12 | |
EAME | 20 | | | 1 | | | 2 | | | 18 | | | 1 | | | 2 | |
Asia/Pacific | 13 | | | — | | | 18 | | | 19 | | | — | | | 7 | |
Mining | 28 | | | 1 | | | 1 | | | 8 | | | 1 | | | 14 | |
Latin America | 56 | | | — | | | 1 | | | 52 | | | 4 | | | 1 | |
Caterpillar Power Finance | 31 | | | 12 | | | — | | | 40 | | | 11 | | | — | |
Total | $ | 191 | | | $ | 20 | | | $ | 35 | | | $ | 184 | | | $ | 26 | | | $ | 36 | |
| | | | | | | | | | | |
There was $1 million and $3 million of September 30, 2017interest income recognized during the three months ended March 31, 2022 and 2021, respectively, for customer finance receivables on non-accrual status.
There were $78 million in finance receivables in our Dealer portfolio segment on non-accrual status as of March 31, 2022 and December 31, 2016, there2021, all of which was in Latin America. There were no finance receivables in our Dealer portfolio segment more than 90 days past due and still accruing income as of March 31, 2022 and December 31, 2021 and no interest income was recognized on dealer finance receivables on non-accrual status forduring the Dealer portfolio segment of $3 millionthree months ended March 31, 2022 and $-, respectively, all of which were in the Latin America finance receivable class. As of September 30, 2017 and December 31, 2016, there were finance receivables on non-accrual status for the Caterpillar Purchased Receivables portfolio segment of $- and $1 million, respectively, all of which were in the Europe finance receivable class. The recorded investment in Customer finance receivables on non-accrual status was as follows: 2021.
|
| | | | | | | |
(Millions of dollars) | September 30, 2017 | | December 31, 2016 |
North America | $ | 48 |
| | $ | 66 |
|
Europe | 56 |
| | 35 |
|
Asia/Pacific | 11 |
| | 12 |
|
Mining | 55 |
| | 69 |
|
Latin America | 242 |
| | 307 |
|
Caterpillar Power Finance | 277 |
| | 90 |
|
Total | $ | 689 |
| | $ | 579 |
|
| | | |
Troubled debt restructurings
A restructuring of a finance receivable constitutes a troubled debt restructuring (TDR)TDR when the lender grants a concession it would not otherwise consider to a borrower experiencing financial difficulties. Concessions granted may include extended contract maturities, inclusion of interest only periods, below market interest rates, extended skip payment periodsdeferrals and reduction of principal and/or accrued interest. We individually evaluate TDR contracts and establish an allowance based on the present value of expected future cash flows discounted at the receivable’s effective interest rate, the fair value of the collateral for collateral-dependent receivables or the observable market price of the receivable.
As of September 30, 2017, there were no additional funds committed to lend to a borrower whose terms have been modified in a TDR. As of December 31, 2016, there were $11 million of additional funds committed to lend to a borrower whose terms have been modified in a TDR.
There were no finance receivables modified as TDRs during the three and nine months ended September 30, 2017March 31, 2022 and 20162021 for the Dealer or Caterpillar Purchased Receivables portfolio segments. Our recorded investment in financeFinance receivables in the Customer portfolio segment modified as TDRs were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2021 |
| Pre-TDR Amortized Cost | | Post-TDR Amortized Cost | | Pre-TDR Amortized Cost | | Post-TDR Amortized Cost |
| | | | | | | |
EAME | $ | 1 | | | $ | 1 | | | $ | — | | | $ | — | |
| | | | | | | |
Mining | — | | | — | | | 11 | | | 5 | |
| | | | | | | |
Caterpillar Power Finance | 6 | | | 6 | | | — | | | — | |
Total | $ | 7 | | | $ | 7 | | | $ | 11 | | | $ | 5 | |
| | | | | | | |
| | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| Number of Contracts | | Pre-TDR Recorded Investment | | Post-TDR Recorded Investment | | Number of Contracts | | Pre-TDR Recorded Investment | | Post-TDR Recorded Investment |
North America | 11 |
| | $ | 4 |
| | $ | 5 |
| | 2 |
| | $ | — |
| | $ | — |
|
Europe | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Asia/Pacific | — |
| | — |
| | — |
| | 4 |
| | 1 |
| | 1 |
|
Mining | — |
| | — |
| | — |
| | 1 |
| | 33 |
| | 30 |
|
Latin America(1) | 3 |
| | 21 |
| | 22 |
| | 341 |
| | 105 |
| | 74 |
|
Caterpillar Power Finance | 5 |
| | 51 |
| | 44 |
| | 4 |
| | 13 |
| | 13 |
|
Total | 20 |
| | $ | 76 |
| | $ | 71 |
| | 352 |
| | $ | 152 |
| | $ | 118 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| Number of Contracts | | Pre-TDR Recorded Investment | | Post-TDR Recorded Investment | | Number of Contracts | | Pre-TDR Recorded Investment | | Post-TDR Recorded Investment |
North America | 37 |
| | $ | 13 |
| | $ | 13 |
| | 15 |
| | $ | 16 |
| | $ | 16 |
|
Europe | 2 |
| | — |
| | — |
| | 3 |
| | 11 |
| | 8 |
|
Asia/Pacific | 6 |
| | 39 |
| | 30 |
| | 8 |
| | 4 |
| | 4 |
|
Mining | 2 |
| | 57 |
| | 56 |
| | 2 |
| | 43 |
| | 35 |
|
Latin America | 17 |
| | 26 |
| | 27 |
| | 431 |
| | 117 |
| | 87 |
|
Caterpillar Power Finance(2) | 59 |
| | 319 |
| | 305 |
| | 34 |
| | 196 |
| | 177 |
|
Total | 123 |
| | $ | 454 |
| | $ | 431 |
| | 493 |
| | $ | 387 |
| | $ | 327 |
|
| | | | | | | | | | | |
(1) ForThe Post-TDR amortized cost of TDRs in the three months ended September 30, 2016, 321 contracts with a pre-TDR recorded investment of $94 million and a post-TDR recorded investment of $64 million are related to four customers.
(2) For the nine months ended September 30, 2017, 44 contracts with a pre-TDR recorded investment of $200 million and a post-TDR recorded investment of $200 million are related to four customers.
During the nine months ended September 30, 2017, there were 241 contracts, primarily related to two customers, with a recorded investment of $16 millionCustomer portfolio segment with a payment default (defined as 91+ days past due) which had been modified within twelve months prior to the default date, in the Customer portfolio segment, all of which were in the Latin America finance receivable class.was as follows:
UNAUDITED | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | Three Months Ended March 31, | | | | | | |
| 2022 | | 2021 | | | | | | | | |
North America | $ | — | | | $ | 1 | | | | | | | | | |
| | | | | | | | | | | |
Asia/Pacific | — | | | 4 | | | | | | | | | |
Mining | 5 | | | — | | | | | | | | | |
| | | | | | | | | | | |
Caterpillar Power Finance | — | | | 5 | | | | | | | | | |
Total | $ | 5 | | | $ | 10 | | | | | | | | | |
| | | | | | | | | | | |
4.Derivative Financial Instruments and Risk Management
| |
4. | Derivative Financial Instruments and Risk Management |
Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency exchange rate and interest rate exposures. Our policy specifies that derivatives are not to be used for speculative purposes. Derivatives that we use are primarily foreign currency forward, option and cross currency contracts and interest rate contracts. Our derivative activities are subject to the management, direction and control of our senior financial officers. Risk management practices, including the use of financial derivative instruments, are presentedWe present at least annually to our Board of Directors and the Audit Committee of the Caterpillar Inc. Board of Directors at least annually.on our risk management practices, including our use of financial derivative instruments.
All derivatives are recognized on the Consolidated Statements of Financial Position at their fair value. On the date the derivative contract is entered into, the derivative instrument is (1) designated as a hedge of the fair value of a recognized asset or liability (fair value hedge), (2) designated as a hedge of a forecasted transaction or the variability of cash flows (cash flow hedge) or (3) undesignated. ChangesWe record in current earnings changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged recognized asset or liability that is attributable to the hedged risk, are recordedrisk. We record in current earnings. ChangesAccumulated other comprehensive income (loss) (AOCI) changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge, are recorded in Accumulated other comprehensive income/(loss) (AOCI), to the extent effective, on the Consolidated Statements of Financial Position until they are reclassifiedwe reclassify them to earnings in the same period or periods during which the hedged transaction affects earnings. ChangesWe report changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current earnings. CashWe classify cash flows from designated derivative financial instruments are classified within the same category as the item being hedged on the Consolidated Statements of Cash Flows. CashWe include cash flows from undesignated derivative financial instruments are included in the investing category on the Consolidated Statements of Cash Flows.
We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value hedges to specific assets and liabilities on the Consolidated Statements of Financial Position and linking cash flow hedges to specific forecasted transactions or variability of cash flow.
We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flow of hedged items. When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, we discontinue hedge accounting prospectively, in accordance with the derecognition criteria for hedge accounting.
Foreign currency exchange rate risk
We have balance sheet positions and expected future transactions denominated in foreign currencies, thereby creating exposure to movements in exchange rates. In managing foreign currency risk, our objective is to minimize earnings volatility resulting from conversion and the remeasurement of net foreign currency balance sheet positions and future transactions denominated in foreign currencies. Our policy allows the use of foreign currency forward, option and cross currency contracts to offset the risk of currency mismatch between our assets and liabilities and exchange rate risk associated with future transactions denominated in foreign currencies. Our foreign currency forward option and cross currencyoption contracts are primarily undesignated. We designate fixed-to-fixed cross currency contracts as cash flow hedges to protect against movements in exchange rates on foreign currency fixed ratefixed-rate assets and liabilities.
Interest rate risk
Interest rate movements create a degree of risk by affecting the amount of our interest payments and the value of our fixed-rate debt. Our practice is to use interest rate contracts to manage our exposure to interest rate changes.
We have a match-funding policy that addresses interest rate risk by aligning the interest rate profile (fixed or floating rate and duration) of our debt portfolio with the interest rate profile of our finance receivable portfolio within predetermined ranges on an ongoing basis. In connection with that policy, we use interest rate derivative instruments to modify the debt structure to match assets within the finance receivable portfolio. This matched funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move.
Our policy allows us to use fixed-to-floating, floating-to-fixed and floating-to-floating interest rate contracts to meet the match-funding objective. We designate fixed-to-floating interest rate contracts as fair value hedges to protect debt against changes in fair value due to changes in the benchmark interest rate. We designate most floating-to-fixed interest rate contracts as cash flow hedges to protect against the variability of cash flows due to changes in the benchmark interest rate. We have, at certain times, liquidated fixed-to-floating and floating-to-fixed interest rate contracts. We amortize the gains or losses associated with these contracts at the time of liquidation into earnings over the original term of the previously designated hedged item.
The location and fair value of derivative instruments reported in the Consolidated Statements of Financial Position were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | | |
| | |
| | March 31, 2022 | | December 31, 2021 |
| | Assets1 | | Liabilities2 | | Assets1 | | Liabilities2 |
Designated derivatives | | | | | | | | |
Foreign exchange contracts | | $ | 131 | | | $ | (78) | | | $ | 142 | | | $ | (32) | |
Interest rate contracts | | 75 | | | (59) | | | 38 | | | (15) | |
| | $ | 206 | | | $ | (137) | | | $ | 180 | | | $ | (47) | |
Undesignated derivatives | | | | | | | | |
Foreign exchange contracts | | $ | 35 | | | $ | (81) | | | $ | 28 | | | $ | (36) | |
| | $ | 35 | | | $ | (81) | | | $ | 28 | | | $ | (36) | |
| | | | | | | | |
(1) Assets are classified on the Consolidated Statements of Financial Position as Other assets.
(2) Liabilities are classified on the Consolidated Statements of Financial Position as Accrued expenses.
The total notional amount of our derivative instruments was $13.42 billion and $13.85 billion as of March 31, 2022 and December 31, 2021, respectively. The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties. We calculate the amounts exchanged by the parties by referencing the notional amounts and by other terms of the derivatives, such as foreign currency exchange rates and interest rates.
The effect of derivatives on the Consolidated Statements of Profit was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | | | | | | |
| | Fair Value / Undesignated Hedges | | Cash Flow Hedges |
| | Gains (Losses) Recognized1 | | Gains (Losses) Recognized in AOCI | | Gains (Losses) Reclassified from AOCI2 |
| | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Foreign exchange contracts | | $ | (79) | | | $ | 86 | | | $ | (27) | | | $ | 119 | | | $ | 16 | | | $ | 114 | |
Interest rate contracts | | 6 | | | 6 | | | 56 | | | — | | | (6) | | | (10) | |
| | $ | (73) | | | $ | 92 | | | $ | 29 | | | $ | 119 | | | $ | 10 | | | $ | 104 | |
| | | | | | | | | | | | |
| | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1) Foreign exchange contract gains (losses) are primarily from undesignated forward contracts and are included in Other income (expense). Interest rate contract gains (losses) are from designated fair value hedges and are included in Interest expense.
(2) Foreign exchange contract gains (losses) are primarily included in Other income (expense). Interest rate contract gains (losses) are included in Interest expense.
The following amounts were recorded in the Consolidated Statements of Financial Position related to cumulative basis adjustments for fair value hedges:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | | |
| | Carrying Value of the Hedged Liabilities | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Value of the Hedged Liabilities |
| | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
Current maturities of long-term debt | | $ | 750 | | | $ | 755 | | | $ | — | | | $ | 5 | |
Long-term debt | | 1,447 | | | 1,304 | | | (59) | | | (2) | |
Total | | $ | 2,197 | | | $ | 2,059 | | | $ | (59) | | | $ | 3 | |
| | | | | | | | |
As of September 30, 2017, $2March 31, 2022, $10 million of deferred net gains, net of tax, included in equity (AOCI in the Consolidated Statements of Financial Position), related to our floating-to-fixed interest rate contracts,cash flow hedges, are expected to be reclassified to Interest expenseearnings over the next twelve months. The actual amount recorded in Interest expenseearnings will vary based on interest rates and exchange rates at the time the hedged transactions impact earnings.
We have, at certain times, liquidated fixed-to-floating interest rate contracts that resulted in deferred gains at the time of liquidation. The deferred gains associated with these interest rate contracts are included in Long-term debt in the Consolidated Statements of Financial Position and are being amortized to Interest expense over the remaining term of the previously designated hedged item.
The location and fair value of derivative instruments reported in the Consolidated Statements of Financial Position were as follows:
|
| | | | | | | | | |
(Millions of dollars) | | | | | |
| | | Asset (Liability) Fair Value |
| Consolidated Statements of Financial Position Location | | September 30, 2017 | | December 31, 2016 |
Designated derivatives | | | | | |
Interest rate contracts | Other assets | | $ | 3 |
| | $ | 4 |
|
Interest rate contracts | Accrued expenses | | (1 | ) | | (1 | ) |
Cross currency contracts | Other assets | | 8 |
| | 29 |
|
Cross currency contracts | Accrued expenses | | (41 | ) | | (3 | ) |
| | | $ | (31 | ) | | $ | 29 |
|
Undesignated derivatives | | | |
| | |
Foreign exchange contracts | Other assets | | $ | 17 |
| | $ | 12 |
|
Foreign exchange contracts | Accrued expenses | | (8 | ) | | (4 | ) |
Cross currency contracts | Other assets | | 25 |
| | 27 |
|
| | | $ | 34 |
| | $ | 35 |
|
| | | | | |
The total notional amount of our derivative instruments was $3.56 billion and $2.63 billion as of September 30, 2017 and December 31, 2016, respectively. The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties. The amounts exchanged by the parties are calculated by reference to the notional amounts and by other terms of the derivatives, such as foreign currency exchange rates and interest rates.
The effect of derivatives designated as hedging instruments on the Consolidated Statements of Profit was as follows:
|
| | | | | | | | | | | | | | | | | |
Fair Value Hedges |
(Millions of dollars) | | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| Classification | | Gains (Losses) on Derivatives | | Gains (Losses) on Borrowings | | Gains (Losses) on Derivatives | | Gains (Losses) on Borrowings |
Interest rate contracts | Other income (expense) | | $ | — |
| | $ | — |
| | $ | (11 | ) | | $ | 11 |
|
| | | | | | | | | |
| | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| Classification | | Gains (Losses) on Derivatives | | Gains (Losses) on Borrowings | | Gains (Losses) on Derivatives | | Gains (Losses) on Borrowings |
Interest rate contracts | Other income (expense) | | $ | (1 | ) | | $ | 1 |
| | $ | (11 | ) | | $ | 10 |
|
| | | | | | | | | |
|
| | | | | | | | | | | | |
Cash Flow Hedges |
(Millions of dollars) | Three Months Ended September 30, 2017 |
| | Recognized in Earnings |
| Amounts of Gains (Losses) Recognized in AOCI (Effective Portion) | Classification | | Reclassified from AOCI to Earnings (Effective Portion) | | Recognized in Earnings (Ineffective Portion) |
Interest rate contracts | $ | (1 | ) | Interest expense | | $ | 1 |
| | $ | — |
|
Cross currency contracts | (21 | ) | Other income (expense) | | (20 | ) | | — |
|
Cross currency contracts | | Interest expense | | 1 |
| | — |
|
| $ | (22 | ) | | | $ | (18 | ) | | $ | — |
|
| | | | | | |
| Three Months Ended September 30, 2016 |
| | Recognized in Earnings |
| Amounts of Gains (Losses) Recognized in AOCI (Effective Portion) | Classification | | Reclassified from AOCI to Earnings (Effective Portion) | | Recognized in Earnings (Ineffective Portion) |
Interest rate contracts | $ | 2 |
| Interest expense | | $ | — |
| | $ | — |
|
Cross currency contracts | (17 | ) | Other income (expense) | | (10 | ) | | — |
|
| $ | (15 | ) | | | $ | (10 | ) | | $ | — |
|
| | | | | | |
| Nine Months Ended September 30, 2017 |
| | Recognized in Earnings |
| Amounts of Gains (Losses) Recognized in AOCI (Effective Portion) | Classification | | Reclassified from AOCI to Earnings (Effective Portion) | | Recognized in Earnings (Ineffective Portion) |
Interest rate contracts | $ | (1 | ) | Interest expense | | $ | 2 |
| | $ | — |
|
Cross currency contracts | (62 | ) | Other income (expense) | | (69 | ) | | — |
|
Cross currency contracts | | Interest expense | | 3 |
| | — |
|
| $ | (63 | ) | | | $ | (64 | ) | | $ | — |
|
| | | | | | |
| Nine Months Ended September 30, 2016 |
| | Recognized in Earnings |
| Amounts of Gains (Losses) Recognized in AOCI (Effective Portion) | Classification | | Reclassified from AOCI to Earnings (Effective Portion) | | Recognized in Earnings (Ineffective Portion) |
Interest rate contracts | $ | — |
| Interest expense | | $ | (3 | ) | | $ | — |
|
Cross currency contracts | (23 | ) | Other income (expense) | | (16 | ) | | — |
|
| $ | (23 | ) | | | $ | (19 | ) | | $ | — |
|
| | | | | | |
The effect of derivatives not designated as hedging instruments on the Consolidated Statements of Profit was as follows: |
| | | | | | | | | |
(Millions of dollars) | | | Three Months Ended September 30, |
| Classification | | 2017 | | 2016 |
Foreign exchange contracts | Other income (expense) | | $ | 14 |
| | $ | (5 | ) |
Cross currency contracts | Other income (expense) | | (3 | ) | | — |
|
| | | $ | 11 |
| | $ | (5 | ) |
| | | | | |
| | | Nine Months Ended September 30, |
| Classification | | 2017 | | 2016 |
Foreign exchange contracts | Other income (expense) | | $ | 25 |
| | $ | (21 | ) |
Cross currency contracts | Other income (expense) | | (4 | ) | | (12 | ) |
| | | $ | 21 |
| | $ | (33 | ) |
| | | | | |
Balance sheet offsetting
We enter into International Swaps and Derivatives Association (ISDA) master netting agreements that permit the net settlement of amounts owed under their respective derivative contracts. Under these master netting agreements, net settlement generally permits us or the counterparty to determine the net amount payable for contracts due on the same date and in the same currency for similar types of derivative transactions. The master netting agreements generally also provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event.
Collateral is generally not required of the counterparties or us under the master netting agreements. As of September 30, 2017March 31, 2022 and December 31, 2016,2021, no cash collateral was received or pledged under the master netting agreements.
The effect of net settlement provisions of the master netting agreements on our derivative balances upon an event of default or a termination event was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Assets | | Liabilities | | Assets | | Liabilities |
Gross amounts recognized | | $ | 241 | | | $ | (218) | | | $ | 208 | | | $ | (83) | |
Financial instruments not offset | | (96) | | | 96 | | | (67) | | | 67 | |
| | | | | | | | |
Net amount | | $ | 145 | | | $ | (122) | | | $ | 141 | | | $ | (16) | |
| | | | | | | | |
|
| | | | | | | | | |
Offsetting of Derivative Assets and Liabilities | | | | |
(Millions of dollars) | | | | |
| | September 30, 2017 | | December 31, 2016 |
Derivative Assets | | | | |
Gross Amount of Recognized Assets | | $ | 53 |
| | $ | 72 |
|
Gross Amounts Offset | | — |
| | — |
|
Net Amount of Assets(1) | | 53 |
| | 72 |
|
Gross Amounts Not Offset | | (8 | ) | | (7 | ) |
Net Amount | | $ | 45 |
| | $ | 65 |
|
| | | | |
Derivative Liabilities | | | | |
Gross Amount of Recognized Liabilities | | $ | (50 | ) | | $ | (8 | ) |
Gross Amounts Offset | | — |
| | — |
|
Net Amount of Liabilities(1) | | (50 | ) | | (8 | ) |
Gross Amounts Not Offset | | 8 |
| | 7 |
|
Net Amount | | $ | (42 | ) | | $ | (1 | ) |
| | | | |
(1) As presented in the Consolidated Statements of Financial Position.
5.Accumulated Other Comprehensive Income (Loss)
| |
5. | Accumulated Other Comprehensive Income/(Loss) |
We present Comprehensive income/income (loss) and its components are presented in the Consolidated Statements of Comprehensive Income. Changes in Accumulated other comprehensive income/income (loss), net of tax, included in the Consolidated Statements of Changes in Shareholder'sShareholder’s Equity consisted of the following:
| | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
Foreign currency translation | | | | | | | | |
Balance at beginning of period | | $ | (762) | | | $ | (551) | | | | | |
| | | | | | | | |
| | | | | | | | |
Gains (losses) on foreign currency translation | | 19 | | | (94) | | | | | |
Less: Tax provision/(benefit) | | 11 | | | 25 | | | | | |
Net gains (losses) on foreign currency translation | | 8 | | | (119) | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other comprehensive income (loss), net of tax | | 8 | | | (119) | | | | | |
Balance at end of period | | $ | (754) | | | $ | (670) | | | | | |
| | | | | | | | |
Derivative financial instruments | | | | | | | | |
Balance at beginning of period | | $ | (12) | | | $ | (44) | | | | | |
| | | | | | | | |
| | | | | | | | |
Gains (losses) deferred | | 29 | | | 119 | | | | | |
Less: Tax provision/(benefit) | | 6 | | | 25 | | | | | |
Net gains (losses) deferred | | 23 | | | 94 | | | | | |
(Gains) losses reclassified to earnings | | (10) | | | (104) | | | | | |
Less: Tax (provision)/benefit | | (3) | | | (21) | | | | | |
Net (gains) losses reclassified to earnings | | (7) | | | (83) | | | | | |
Other comprehensive income (loss), net of tax | | 16 | | | 11 | | | | | |
Balance at end of period | | $ | 4 | | | $ | (33) | | | | | |
| | | | | | | | |
Total Accumulated other comprehensive income (loss) at end of period | | $ | (750) | | | $ | (703) | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
(Millions of dollars) | Foreign currency translation | | Derivative financial instruments | | Available-for- sale securities | | Total |
| | | | | | | |
Three Months Ended September 30, 2016 | | | | | | | |
Balance at June 30, 2016 | $ | (790 | ) | | $ | 1 |
| | $ | (2 | ) | | $ | (791 | ) |
Other comprehensive income/(loss) before reclassifications | (5 | ) | | (10 | ) | | 1 |
| | (14 | ) |
Amounts reclassified from accumulated other comprehensive (income)/loss | — |
| | 7 |
| | — |
| | 7 |
|
Other comprehensive income/(loss) | (5 | ) | | (3 | ) | | 1 |
| | (7 | ) |
Balance at September 30, 2016 | $ | (795 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | (798 | ) |
| | | | | | | |
Three Months Ended September 30, 2017 | | | | | | | |
Balance at June 30, 2017 | $ | (756 | ) | | $ | 2 |
| | $ | 1 |
| | $ | (753 | ) |
Other comprehensive income/(loss) before reclassifications | 151 |
| | (14 | ) | | (1 | ) | | 136 |
|
Amounts reclassified from accumulated other comprehensive (income)/loss | — |
| | 11 |
| | — |
| | 11 |
|
Other comprehensive income/(loss) | 151 |
| | (3 | ) | | (1 | ) | | 147 |
|
Balance at September 30, 2017 | $ | (605 | ) | | $ | (1 | ) | | $ | — |
| | $ | (606 | ) |
| | | | | | | |
Nine Months Ended September 30, 2016 | | | | | | | |
Balance at December 31, 2015 | $ | (897 | ) | | $ | — |
| | $ | — |
| | $ | (897 | ) |
Other comprehensive income/(loss) before reclassifications | 102 |
| | (15 | ) | | (1 | ) | | 86 |
|
Amounts reclassified from accumulated other comprehensive (income)/loss | — |
| | 13 |
| | — |
| | 13 |
|
Other comprehensive income/(loss) | 102 |
| | (2 | ) | | (1 | ) | | 99 |
|
Balance at September 30, 2016 | $ | (795 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | (798 | ) |
| | | | | | | |
Nine Months Ended September 30, 2017 | | | | | | | |
Balance at December 31, 2016 | $ | (994 | ) | | $ | (1 | ) | | $ | — |
| | $ | (995 | ) |
Other comprehensive income/(loss) before reclassifications | 389 |
| | (41 | ) | | — |
| | 348 |
|
Amounts reclassified from accumulated other comprehensive (income)/loss | — |
| | 41 |
| | — |
| | 41 |
|
Other comprehensive income/(loss) | 389 |
| | — |
| | — |
| | 389 |
|
Balance at September 30, 2017 | $ | (605 | ) | | $ | (1 | ) | | $ | — |
| | $ | (606 | ) |
| | | | | | | |
6.Segment Information
The effect of the reclassifications out of Accumulated other comprehensive income/(loss) on the Consolidated Statements of Profit was as follows:
|
| | | | | | | | | | | | | | | | | |
(Millions of dollars) | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Classification of income (expense) | | 2017 | | 2016 | | 2017 | | 2016 |
Cross currency contracts | Other income (expense) | | $ | (20 | ) | | $ | (10 | ) | | $ | (69 | ) | | $ | (16 | ) |
Cross currency contracts | Interest expense | | 1 |
| | — |
| | 3 |
| | — |
|
Interest rate contracts | Interest expense | | 1 |
| | — |
| | 2 |
| | (3 | ) |
Reclassifications before tax | | | (18 | ) | | (10 | ) | | (64 | ) | | (19 | ) |
Tax (provision) benefit | | | 7 |
| | 3 |
| | 23 |
| | 6 |
|
Total reclassifications from Accumulated other comprehensive income/(loss) | | $ | (11 | ) | | $ | (7 | ) | | $ | (41 | ) | | $ | (13 | ) |
| | | | | | | | | |
A. Basis for Segment Information
We report information internally for operating segments based on management responsibility. Our operating segments offerprovide financing alternatives to customers and dealers foraround the purchase and lease of Caterpillar and other equipment, as well as financingworld for Caterpillar sales to dealers.products and services and vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products. Financing plansproducts include operating and finance leases, installment sale contracts,retail loans, working capital loans to Caterpillar dealers and wholesale financing plans within each of the respectiveoperating segments. Certain operating segments also purchase short-term trade receivables from Caterpillar.
B. Description of Segments
We have fivesix operating segments that offer financing services. Following is a brief description of our segments:
•North America - Includes our operations in the United States and Canada.
Europe •EAME - Includes our operations in Europe, Africa, the Middle East and the Commonwealth of Independent States.
•Asia/Pacific - Includes our operations in Australia, New Zealand, China, Japan, Southeast Asia and Southeast Asia.
India.•Latin Americaand Caterpillar Power Finance - Includes our operations in Mexico and Central and South American countries. This segment also includes
•Mining - Provides financing for large mining customers worldwide.
•Caterpillar Power Finance (CPF), which finances- Provides financing worldwide for marine vessels with Caterpillar engines worldwide and also provides financing for Caterpillar electrical power generation, gas compression and co-generation systems and non-Caterpillar equipment that is powered by these systems worldwide.
systems.Mining - Serves large mining customers worldwide and provides project financing in various countries.
C. Segment Measurement and Reconciliations
Cash, debt and other expenses are allocated to our segments based on their respective portfolios. The related Interest expense is calculated based on the amount of allocated debt and the rates associated with that debt. The performance of each segment is assessed based on a consistent leverage ratio. The Provision for credit losses is based on each segment'ssegment’s respective finance receivable portfolio. Capital expenditures include expenditures for equipment on operating leases and other miscellaneous capital expenditures.
Reconciling items are created based on accounting differences between segment reporting and consolidated external reporting. For the reconciliation of profitProfit before income taxes, we have grouped the reconciling items as follows:
•Unallocated - This item is related to corporate requirements and strategies that are considered to be for the benefit of the entire organization. Also included are the consolidated results of the special purpose corporation (see Note 7 for additional information) and other miscellaneous items.
•Timing - Timing differences in the recognition of costs between segment reporting and consolidated external reporting.
•Methodology - Methodology differences between segment reporting and consolidated external reporting are as follows:
◦Segment assets include off-balance sheet managed assets for which we maintain servicing responsibilities.
◦The impact of differences between the actual leverage and the segment leverage ratios.
◦Interest expense includes realized forward points on foreign currency forward contracts.
◦The net gain or loss from interest rate derivatives is excluded from segment reporting.
| |
◦ | Segment assets include off-balance sheet managed assets for which we maintain servicing responsibilities. |
| |
◦ | The impact of differences between the actual leverage and the segment leverage ratios. |
| |
◦ | Interest expense includes realized forward points on foreign currency forward contracts. |
| |
◦ | The net gain or loss from interest rate derivatives. |
| |
◦ | The profit attributable to noncontrolling interests is considered a component of segment profit. |
Supplemental segment data and reconciliations to consolidated external reporting for the three months ended September 30March 31 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars)
2022 | External Revenues | | Profit before income taxes | | Interest Expense | | Depreciation on equipment leased to others | | Provision for credit losses | | Assets at March 31, 2022 | | Capital expenditures |
North America | $ | 359 | | | $ | 127 | | | $ | 54 | | | $ | 128 | | | $ | 6 | | | $ | 15,846 | | | $ | 199 | |
EAME | 67 | | | — | | | 7 | | | 14 | | | 26 | | | 4,959 | | | 14 | |
Asia/Pacific | 75 | | | 37 | | | 17 | | | 1 | | | 1 | | | 4,255 | | | 2 | |
Latin America | 58 | | | 19 | | | 26 | | | 2 | | | (1) | | | 2,541 | | | 2 | |
Mining | 72 | | | 20 | | | 8 | | | 38 | | | (2) | | | 2,679 | | | 22 | |
Caterpillar Power Finance | 19 | | | 15 | | | 3 | | | 1 | | | (3) | | | 909 | | | — | |
Total Segments | 650 | | | 218 | | | 115 | | | 184 | | | 27 | | | 31,189 | | | 239 | |
Unallocated | 5 | | | (72) | | | 42 | | | — | | | — | | | 1,477 | | | 2 | |
Timing | (3) | | | 1 | | | — | | | — | | | — | | | 16 | | | — | |
Methodology | — | | | 46 | | | (51) | | | — | | | — | | | 82 | | | — | |
Inter-segment Eliminations (1) | — | | | — | | | — | | | — | | | — | | | (169) | | | — | |
Total | $ | 652 | | | $ | 193 | | | $ | 106 | | | $ | 184 | | | $ | 27 | | | $ | 32,595 | | | $ | 241 | |
| | | | | | | | | | | | | |
2021 | External Revenues | | Profit before income taxes | | Interest Expense | | Depreciation on equipment leased to others | | Provision for credit losses | | Assets at December 31, 2021 | | Capital expenditures |
North America | $ | 347 | | | $ | 99 | | | $ | 69 | | | $ | 137 | | | $ | 1 | | | $ | 15,755 | | | $ | 178 | |
EAME | 67 | | | 30 | | | 5 | | | 15 | | | (4) | | | 5,192 | | | 10 | |
Asia/Pacific | 92 | | | 51 | | | 23 | | | 2 | | | — | | | 4,117 | | | 3 | |
Latin America | 47 | | | 16 | | | 14 | | | 2 | | | 3 | | | 2,405 | | | 7 | |
Mining | 71 | | | 18 | | | 10 | | | 35 | | | (3) | | | 2,672 | | | 26 | |
Caterpillar Power Finance | 13 | | | 11 | | | 4 | | | 1 | | | (7) | | | 957 | | | — | |
Total Segments | 637 | | | 225 | | | 125 | | | 192 | | | (10) | | | 31,098 | | | 224 | |
Unallocated | 5 | | | (72) | | | 50 | | | — | | | — | | | 1,458 | | | 4 | |
Timing | (3) | | | 1 | | | — | | | — | | | — | | | 15 | | | — | |
Methodology | — | | | 42 | | | (50) | | | — | | | — | | | 18 | | | — | |
Inter-segment Eliminations (1) | — | | | — | | | — | | | — | | | — | | | (202) | | | — | |
Total | $ | 639 | | | $ | 196 | | | $ | 125 | | | $ | 192 | | | $ | (10) | | | $ | 32,387 | | | $ | 228 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars)
2017 | External Revenues | | Profit before income taxes | | Interest Expense | | Depreciation on equipment leased to others | | Provision for credit losses | | Assets at September 30, 2017 | | Capital expenditures |
North America | $ | 338 |
| | $ | 90 |
| | $ | 77 |
| | $ | 130 |
| | $ | 11 |
| | $ | 14,703 |
| | $ | 187 |
|
Europe | 68 |
| | 20 |
| | 9 |
| | 19 |
| | 2 |
| | 4,084 |
| | 25 |
|
Asia/Pacific | 68 |
| | 25 |
| | 22 |
| | 5 |
| | 1 |
| | 3,924 |
| | 2 |
|
Latin America and CPF | 101 |
| | 2 |
| | 41 |
| | 10 |
| | 20 |
| | 6,371 |
| | 6 |
|
Mining | 71 |
| | 12 |
| | 12 |
| | 36 |
| | 4 |
| | 2,372 |
| | 88 |
|
Total Segments | 646 |
| | 149 |
| | 161 |
| | 200 |
| | 38 |
| | 31,454 |
| | 308 |
|
Unallocated | 35 |
| | (47 | ) | | 50 |
| | — |
| | — |
| | 2,718 |
| | — |
|
Timing | (8 | ) | | (13 | ) | | — |
| | 1 |
| | 10 |
| | 16 |
| | — |
|
Methodology | — |
| | 37 |
| | (42 | ) | | — |
| | — |
| | (225 | ) | | — |
|
Inter-segment Eliminations (1) | — |
| | — |
| | — |
| | — |
| | — |
| | (280 | ) | | — |
|
Total | $ | 673 |
| | $ | 126 |
| | $ | 169 |
| | $ | 201 |
| | $ | 48 |
| | $ | 33,683 |
| | $ | 308 |
|
| | | | | | | | | | | | | |
2016 | External Revenues | | Profit before income taxes | | Interest Expense | | Depreciation on equipment leased to others | | Provision for credit losses | | Assets at December 31, 2016 | | Capital expenditures |
North America | $ | 310 |
| | $ | 79 |
| | $ | 70 |
| | $ | 123 |
| | $ | 10 |
| | $ | 14,925 |
| | $ | 281 |
|
Europe | 68 |
| | 21 |
| | 8 |
| | 21 |
| | 1 |
| | 3,834 |
| | 44 |
|
Asia/Pacific | 65 |
| | 20 |
| | 21 |
| | 8 |
| | 1 |
| | 3,620 |
| | 4 |
|
Latin America and CPF | 122 |
| | 31 |
| | 36 |
| | 15 |
| | 17 |
| | 7,270 |
| | 11 |
|
Mining | 73 |
| | 14 |
| | 11 |
| | 45 |
| | (3 | ) | | 2,734 |
| | 19 |
|
Total Segments | 638 |
| | 165 |
| | 146 |
| | 212 |
| | 26 |
| | 32,383 |
| | 359 |
|
Unallocated | 21 |
| | (35 | ) | | 32 |
| | — |
| | — |
| | 1,688 |
| | (3 | ) |
Timing | (8 | ) | | (7 | ) | | — |
| | 1 |
| | 3 |
| | 27 |
| | — |
|
Methodology | — |
| | 23 |
| | (27 | ) | | — |
| | — |
| | (220 | ) | | — |
|
Inter-segment Eliminations (1) | — |
| | — |
| | — |
| | — |
| | — |
| | (263 | ) | | — |
|
Total | $ | 651 |
| | $ | 146 |
| | $ | 151 |
| | $ | 213 |
| | $ | 29 |
| | $ | 33,615 |
| | $ | 356 |
|
| | | | | | | | | | | | | |
(1) Eliminations are Elimination is primarily related to intercompany loans.loans
.
UNAUDITED
7.Commitments and Contingent Liabilities
Supplemental segment data and reconciliations to consolidated external reporting for the nine months ended September 30 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars)
2017 | External Revenues | | Profit before income taxes | | Interest Expense | | Depreciation on equipment leased to others | | Provision for credit losses | | Assets at September 30, 2017 | | Capital expenditures |
North America | $ | 989 |
| | $ | 262 |
| | $ | 224 |
| | $ | 388 |
| | $ | 25 |
| | $ | 14,703 |
| | $ | 722 |
|
Europe | 200 |
| | 62 |
| | 27 |
| | 60 |
| | — |
| | 4,084 |
| | 71 |
|
Asia/Pacific | 197 |
| | 73 |
| | 64 |
| | 19 |
| | (5 | ) | | 3,924 |
| | 5 |
|
Latin America and CPF | 335 |
| | 48 |
| | 124 |
| | 33 |
| | 56 |
| | 6,371 |
| | 48 |
|
Mining | 213 |
| | 57 |
| | 37 |
| | 107 |
| | (5 | ) | | 2,372 |
| | 168 |
|
Total Segments | 1,934 |
| | 502 |
| | 476 |
| | 607 |
| | 71 |
| | 31,454 |
| | 1,014 |
|
Unallocated | 100 |
| | (128 | ) | | 139 |
| | — |
| | — |
| | 2,718 |
| | 4 |
|
Timing | (23 | ) | | (20 | ) | | — |
| | 1 |
| | 11 |
| | 16 |
| | — |
|
Methodology | — |
| | 103 |
| | (116 | ) | | — |
| | — |
| | (225 | ) | | — |
|
Inter-segment Eliminations (1) | — |
| | — |
| | — |
| | — |
| | — |
| | (280 | ) | | — |
|
Total | $ | 2,011 |
| | $ | 457 |
| | $ | 499 |
| | $ | 608 |
| | $ | 82 |
| | $ | 33,683 |
| | $ | 1,018 |
|
| | | | | | | | | | | | | |
2016 | External Revenues | | Profit before income taxes | | Interest Expense | | Depreciation on equipment leased to others | | Provision for credit losses | | Assets at December 31, 2016 | | Capital expenditures |
North America | $ | 927 |
| | $ | 255 |
| | $ | 216 |
| | $ | 350 |
| | $ | 23 |
| | $ | 14,925 |
| | $ | 933 |
|
Europe | 202 |
| | 63 |
| | 25 |
| | 62 |
| | 3 |
| | 3,834 |
| | 120 |
|
Asia/Pacific | 190 |
| | 56 |
| | 62 |
| | 21 |
| | 6 |
| | 3,620 |
| | 73 |
|
Latin America and CPF | 367 |
| | 76 |
| | 118 |
| | 47 |
| | 59 |
| | 7,270 |
| | 35 |
|
Mining | 232 |
| | 35 |
| | 35 |
| | 145 |
| | 3 |
| | 2,734 |
| | 105 |
|
Total Segments | 1,918 |
| | 485 |
| | 456 |
| | 625 |
| | 94 |
| | 32,383 |
| | 1,266 |
|
Unallocated | 60 |
| | (99 | ) | | 81 |
| | — |
| | 1 |
| | 1,688 |
| | — |
|
Timing | (25 | ) | | (13 | ) | | — |
| | 2 |
| | 1 |
| | 27 |
| | (1 | ) |
Methodology | — |
| | 66 |
| | (79 | ) | | — |
| | — |
| | (220 | ) | | — |
|
Inter-segment Eliminations (1) | — |
| | — |
| | — |
| | — |
| | — |
| | (263 | ) | | — |
|
Total | $ | 1,953 |
| | $ | 439 |
| | $ | 458 |
| | $ | 627 |
| | $ | 96 |
| | $ | 33,615 |
| | $ | 1,265 |
|
| | | | | | | | | | | | | |
(1) Eliminations are primarily related to intercompany loans.
We provide loancredit guarantees to third-party lenders for financing associated with machinery purchased by customers. These guarantees have varying terms and are secured by the machinery being financed. We also provide residual value guarantees to third-party lendersthird parties for financing and leasing associated with machinery leased to customers. These guarantees have varying terms.Caterpillar machinery. In addition, we participate inprovide standby letters of credit issued to third parties on behalf of our customers. These guarantees and standby letters of credit have varying terms and beneficiaries and are generally secured by customer assets.
No significant loss has been experienced or is anticipated under any of these guarantees. At September 30, 2017March 31, 2022 and December 31, 2016,2021, the related recorded liability was less than $1 million and $1 million, respectively.million. The maximum potential amount of future payments (undiscounted and without reduction for any amounts that may possibly be recovered under recourse or collateralized provisions) we could be required to make under the guarantees was $87$35 million and $43$36 million at September 30, 2017March 31, 2022 and December 31, 2016,2021, respectively.
We provide guarantees to repurchasepurchase certain loans of Caterpillar dealers from a special purposespecial-purpose corporation (SPC) that qualifies as a VIE (see Note 1 for additional information regarding the accounting guidance on the consolidation of VIEs). The purpose of the SPC is to provide short-term working capital loans to Caterpillar dealers. This SPC issues commercial paper and uses the proceeds to fund its loan program. We have a loan purchase agreement with the SPC that obligates us to purchase certain loans that are not paid at maturity. We receive a fee for providing this guarantee, which provides a source of liquidity for the SPC.guarantee. We are the primary beneficiary of the SPC as our guarantees result in us having both the power to direct the activities that most significantly impact the SPC'sSPC’s economic performance and the obligation to absorb losses and therefore we have consolidated the financial statements of the SPC. As of September 30, 2017March 31, 2022 and December 31, 2016,2021, the SPC’s assets of $1.10 billion$839 million and $1.09 billion,$888 million, respectively, were primarily comprised of loans to dealers, which are included in Finance receivables, net in the Consolidated Statements of Financial Position, and the SPC'sSPC’s liabilities of $1.10 billion$838 million and $1.09 billion,$888 million, respectively, were primarily comprised of commercial paper, which is included in Short-term borrowings in the Consolidated Statements of Financial Position. The assets of the SPC are not available to pay our creditors. We may be obligated to perform under the guarantee if the SPC experiences losses. No loss has been experienced or is anticipated under this loan purchase agreement.
| |
8. | Fair Value Measurements |
We are involved in unresolved legal actions that arise in the normal course of business. Although it is not possible to predict with certainty the outcome of our unresolved legal actions, we believe that these unresolved legal actions will neither individually nor in the aggregate have a material adverse effect on our consolidated results of operations, financial position or liquidity. | |
A. | Fair Value Measurements |
8.Fair Value Measurements
A.Fair Value Measurements
The guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:
•Level 1 – Quoted prices for identical instruments in active markets.
•Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.
•Level 3 – Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.
When available, we use quoted market prices to determine fair value and we classify such measurements within Level 1. In some cases where market prices are not available, we make use of observable market-based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon valuations in which one or more significant inputs are unobservable, including internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates. These measurements are classified within Level 3.
FairWe classify fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurementWe may therefore be classifiedclassify a measurement within Level 3 even though there may be significant inputs that are readily observable.
Fair value measurement includes the consideration of nonperformance risk. Nonperformance risk refers to the risk that an obligation (either by a counterparty or us) will not be fulfilled. For financial assets traded in an active market, (Level 1), the nonperformance risk is included in the market price. For certain other financial assets and liabilities, (Level 2 and 3), our fair value calculations have been adjusted accordingly.
Derivative financial instruments
The fair value of interest rate contracts is primarily based on a standard industry accepted modelsvaluation model that utilizeutilizes the appropriate market-based forward swap curves and zero-coupon interest rates to determine discounted cash flows. The fair value of foreign currency forward and cross currency contracts is based on a standard industry accepted valuation modelmodels that discountsdiscount cash flows resulting from the differential between the contract price and the market-based forward rate.
Derivative financial instruments are measured on a recurring basis at fair value and are classified as Level 2 measurements. We had derivative financial instruments in a net asset position included in our Consolidated Statements of Financial Position in a net asset position of $3$23 million and $64$125 million as of September 30, 2017March 31, 2022 and December 31, 2016,2021, respectively.
UNAUDITEDSee Note 4 for additional information.
Loans measured at fair value
Impaired loans
Our impairedCertain loans are subject to measurement at fair value on a nonrecurring basis and are classified as Level 3 measurements. A loan is considered impairedmeasured at fair value when management determines that collection of contractual amounts due is not probable.probable and the loan is individually evaluated. In these cases, an allowance for credit losses may be established based either on the present value of expected future cash flows discounted at the receivables'receivables’ effective interest rate, the fair value of the collateral for collateral-dependent receivables or the observable market price of the receivable. In determining collateral value, we estimate the current fair market value of the collateral less selling costs. We had impaired loans carried at the fair value of $251$108 million and $137$100 million as of September 30, 2017March 31, 2022 and December 31, 2016,2021, respectively.
B.Fair Values of Financial Instruments
In addition to the methodsCash and assumptions we use to record the fair value of financial instruments as discussedcash equivalents, Restricted cash and cash equivalents (included in Other Assets in the Fair Value Measurements section above, we usedConsolidated Statements of Financial Position) and Short-term borrowings are classified as Level 1 measurements and carrying amount approximates fair value. We use the following methods and assumptions to estimate the fair value of our financial instruments.instruments not carried at fair value:
Cash and cash equivalents – carrying amount approximated fair value.
Finance receivables, net – we estimate fair value was estimated by discounting the future cash flows using current rates representative of receivables with similar remaining maturities.
Restricted cash and cash equivalents – carrying amount approximated fair value.
Short-term borrowings – carrying amount approximated fair value.
Long-term debt – we estimate fair value for fixed and floating-rate debt was estimated based on quoted market prices.
Guarantees – fair value of guarantees is based on our estimate of the premium a market participant would require to issue the same guarantee in a stand-alone, arms-length transaction with an unrelated party. If quoted or observable market prices are not available, fair value is based upon internally developed models that utilize current market-based assumptions.
Please refer to the table below for the fairFair values of our financial instruments.instruments not carried at fair value were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | March 31, 2022 | | December 31, 2021 | | | | |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Fair Value Levels | | Reference |
Assets | | | | | | | | | | | |
Finance receivables, net (excluding finance leases(1)) | $ | 19,433 | | | $ | 19,180 | | | $ | 19,068 | | | $ | 19,047 | | | 3 | | Note 3 |
Liabilities | | | | | | | | | | | |
Long-term debt | $ | 23,320 | | | $ | 23,010 | | | $ | 22,594 | | | $ | 22,797 | | | 2 | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | September 30, 2017 | | December 31, 2016 | | | | |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Fair Value Levels | | Reference |
Cash and cash equivalents | $ | 710 |
| | $ | 710 |
| | $ | 1,795 |
| | $ | 1,795 |
| | 1 | | |
Finance receivables, net (excluding finance leases(1)) | $ | 19,797 |
| | $ | 19,787 |
| | $ | 20,101 |
| | $ | 19,949 |
| | 3 | | Note 3 |
Interest rate contracts: | | | | | | | | | | | |
In a net receivable position | $ | 3 |
| | $ | 3 |
| | $ | 4 |
| | $ | 4 |
| | 2 | | Note 4 |
In a net payable position | $ | (1 | ) | | $ | (1 | ) | | $ | (1 | ) | | $ | (1 | ) | | 2 | | Note 4 |
Cross currency contracts: | | | | | | | | | | | |
In a receivable position | $ | 33 |
| | $ | 33 |
| | $ | 56 |
| | $ | 56 |
| | 2 | | Note 4 |
In a payable position | $ | (41 | ) | | $ | (41 | ) | | $ | (3 | ) | | $ | (3 | ) | | 2 | | Note 4 |
Foreign currency contracts: | | | | | | | | | | | |
In a receivable position | $ | 17 |
| | $ | 17 |
| | $ | 12 |
| | $ | 12 |
| | 2 | | Note 4 |
In a payable position | $ | (8 | ) | | $ | (8 | ) | | $ | (4 | ) | | $ | (4 | ) | | 2 | | Note 4 |
Restricted cash and cash equivalents(2) | $ | 31 |
| | $ | 31 |
| | $ | 29 |
| | $ | 29 |
| | 1 | | |
Short-term borrowings | $ | (5,459 | ) | | $ | (5,459 | ) | | $ | (7,094 | ) | | $ | (7,094 | ) | | 1 | | |
Long-term debt | $ | (21,629 | ) | | $ | (21,854 | ) | | $ | (20,537 | ) | | $ | (20,724 | ) | | 2 | | |
Guarantees | $ | — |
| | $ | — |
| | $ | (1 | ) | | $ | (1 | ) | | 3 | | Note 7 |
| | | | | | | | | | | |
(1)AsRepresents finance leases and failed sale leasebacks of September 30, 2017$7.92 billion and $8.11 billion as of March 31, 2022 and December 31, 2016, represents finance leases with a net carrying value of $6.80 billion and $6.11 billion,2021, respectively.
(2) Included in Other assets in the Consolidated Statements of Financial Position.
We are involved in unresolved legal actions that arise in the normal course of business. Although it is not possible to predict with certainty the outcome of our unresolved legal actions, we believe that these unresolved legal actions will neither individually nor in the aggregate have a material adverse effect on our consolidated results of operations, financial position or liquidity.
The Provisionprovision for income taxes reflectsreflected an estimated annual tax rate of 3025 percent in the thirdfirst quarter of 2017,2022, compared with 3127 percent in the thirdfirst quarter of 2016.2021. The decrease in the estimated annual tax rate was primarily due to changes in the geographic mix of profits.
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited financial statements and related notes included elsewhere in this report and our discussion of significant risks to the company’s business under Part I, Item 1A. Risk Factors of the 2021 Form 10-K.
OVERVIEW
We reported third-quarter 2017first-quarter 2022 revenues of $673$652 million, an increase of $22$13 million, or 32 percent, compared with the thirdfirst quarter of 2016. 2021. First-quarter 2022 profit was $143 million, a $3 million, or 2 percent, increase from the first quarter of 2021.
The increase in revenues was primarily due to a $15$36 million favorable impact from higher average financing rates and a $14 million favorable impact from lending activity with Caterpillar,returned or repossessed equipment, partially offset by a $6$29 million unfavorable impact from lower average earning assets.financing rates.
ProfitFirst-quarter 2022 profit before income taxes was $126$193 million, fora $3 million, or 2 percent, decrease from the thirdfirst quarter of 2017, compared with $146 million for the third quarter of 2016.2021. The decrease was primarily due to a $19$37 million increase in provision for credit losses, and a $16 million increase in general, operating and administrative expenses primarily due to higher incentive compensation. These unfavorable impacts were partially offset by a $9$36 million favorable impact from lending activity with Caterpillar and an $8 million increase in net yield onreturned or repossessed equipment. The impact of lower average earning assets.financing rates was mostly offset by lower interest expense.
The Provisionprovision for income taxes reflectsreflected an estimated annual tax rate of 3025 percent in the thirdfirst quarter of 2017,2022, compared with 3127 percent in the thirdfirst quarter of 2016.2021.
During the thirdfirst quarter of 2017,2022, retail new business volume was $2.78 billion, an increasea decrease of $83$30 million, or 31 percent, from the thirdfirst quarter of 2016.2021. The increasedecrease was primarily related to higherdriven by lower volume in Asia/Pacific and Mining, partially offset by decreasesincreases in LatinNorth America and Caterpillar Power Finance.Latin America.
At the end of the thirdfirst quarter of 2017,2022, past dues were 2.732.05 percent, compared with 2.772.90 percent at the end of the thirdfirst quarter of 2016.2021. The decrease in past dues was mostly driven by the North America, Caterpillar Power Finance and EAME portfolios. Write-offs, net of recoveries, were $47$8 million for the thirdfirst quarter of 2017,2022, compared with $29$24 million for the thirdfirst quarter of 2016. The increase in write-offs, net of recoveries, was primarily due to the Latin America and marine portfolios.2021. As of September 30, 2017,March 31, 2022, the allowance for credit losses totaled $343$357 million, or 1.271.29 percent of finance receivables, compared with $346$337 million, or 1.281.22 percent of finance receivables at September 30, 2016.December 31, 2021. The increase in allowance for credit losses at year-end 2016 was $343included a higher reserve for the Russia and Ukraine portfolios.
Global Business Conditions
Caterpillar continues to monitor a variety of external factors including the ongoing impact of the COVID-19 pandemic around the world, supply chain disruptions and associated cost and labor pressures. We are monitoring the potential downstream impacts from these factors on our business, while remaining focused on portfolio health and continuing to provide qualified customers and dealers with new loans and leases to support their current and future business needs.
We are closely monitoring the events in Russia and Ukraine and have evaluated our exposure in these countries. We have increased the Allowance for credit losses for our associated portfolios to $32 million or 1.29 percent of finance receivables.due to the increased risk.
THIRDFIRST QUARTER 20172022 COMPARED WITH THIRDFIRST QUARTER 20162021
Consolidated Total Revenues
The chart above graphically illustrates reasons for the change in Consolidated Total Revenuesconsolidated total revenues between thirdfirst quarter 20162021 (at left) and thirdfirst quarter 20172022 (at right). Items favorably impacting total revenues appear as upward stair steps with corresponding dollar amounts above each bar, while items negatively impacting total revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Management utilizes these charts internally to visually communicate results.
Retail revenue for the thirdfirst quarter of 20172022 was $309$290 million, an increasea decrease of $2$13 million from the same period in 2016. The increase was due to an $8 million favorable impact from higher interest rates on retail finance receivables, partially offset by a $6 million unfavorable impact from lower average earning assets. For the quarter ended September 30, 2017, retail average earning assets were $23.05 billion, a decrease of $544 million from the same period in 2016. The annualized average yield was 5.37 percent for the third quarter of 2017, compared with 5.20 percent for the third quarter of 2016.
Operating lease revenue for the third quarter of 2017 was $247 million, a decrease of $10 million from the same period in 2016.2021. The decrease was mostly due to a $12 million unfavorable impact from lower interest rates on retail finance receivables. For the quarter ended March 31, 2022, retail average earning assets were $22.54 billion, a decrease of $87 million from the same period in 2021. The annualized average yield was 5.14 percent for the first quarter of 2022, compared with 5.36 percent for the first quarter of 2021.
Operating lease revenue for the first quarter of 2022 was $225 million, a decrease of $19 million from the same period in 2021. The decrease was primarily due to a $16 million unfavorable impact from lower average earning assets.
Wholesale revenue for the first quarter of 2022 was $84 million, an increase of $6 million from the same period in 2021. The increase was due to a $9 million favorable impact from higher average earning assets, partially offset by a $2$3 million favorableunfavorable impact from higher average rentallower interest rates on operating leases.
Wholesale revenue forwholesale finance receivables. For the third quarter of 2017 was $79 million,ended March 31, 2022, wholesale average earning assets were $4.63 billion, an increase of $17$468 million from the same period in 2016. The increase was due to an $11 million favorable impact from higher interest rates on wholesale finance receivables and a $6 million favorable impact from higher average earning assets. For the quarter ended September 30, 2017, wholesale average earning assets were $3.94 billion, an increase of $366 million from the same period in 2016.2021. The annualized average yield was 8.077.25 percent for the thirdfirst quarter of 2017,2022, compared with 6.917.51 percent for the thirdfirst quarter of 2016.2021.
Other revenue, net items were as follows: | | (Millions of dollars) | Three Months Ended September 30, | (Millions of dollars) | Three Months Ended March 31, |
| 2017 |
| 2016 | | $ Change | | 2022 | | 2021 | | Change |
Interest income on Notes Receivable from Caterpillar(1) | $ | 21 |
| | $ | 9 |
| | $ | 12 |
| |
| Net gain (loss) on returned or repossessed equipment | | Net gain (loss) on returned or repossessed equipment | $ | 30 | | | $ | (6) | | | $ | 36 | |
Finance receivable and operating lease fees (including late charges)(2) | 21 |
|
| 19 |
| | 2 |
| 15 | | | 13 | | | 2 | |
Fees on committed credit facility extended to Caterpillar | 10 |
|
| 10 |
| | — |
| |
Net loss on returned or repossessed equipment | (20 | ) | | (16 | ) | | (4 | ) | |
Interest income on Notes receivable from Caterpillar | | Interest income on Notes receivable from Caterpillar | 4 | | | 4 | | | — | |
Miscellaneous other revenue, net | 6 |
|
| 3 |
| | 3 |
| Miscellaneous other revenue, net | 4 | | | 3 | | | 1 | |
Total Other revenue, net | $ | 38 |
|
| $ | 25 |
| | $ | 13 |
| Total Other revenue, net | $ | 53 | | | $ | 14 | | | $ | 39 | |
| | | | | | | | | | | |
(1)For the three months ended September 30, 2017 and 2016, includes
There was a $7 million unfavorable impact from currency on revenues in the first quarter of 2022. Currency represents the net translation impact resulting from changes in foreign currency exchange rates versus the U.S. dollar and $9 million, respectively,is included in all financial statement line items and each of portfolio-related revenues.the items included in the above analysis.
(2)Portfolio-related revenues.
Consolidated Profit Before Income Taxes
(1) Analysis excludes $4 million and $5 million in offsetting revenues and expenses for property taxes on operating leases for the first quarter of 2022 and 2021, respectively.
The chart above graphically illustrates reasons for the change in Consolidated Profit Before Income Taxesconsolidated profit before income taxes between thirdfirst quarter 20162021 (at left) and thirdfirst quarter 20172022 (at right). Items favorably impacting profit before income taxes appear as upward stair steps with corresponding dollar amounts above each bar, while items negatively impacting profit before income taxes appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Management utilizes these charts internally to visually communicate results.
ProfitFirst-quarter 2022 profit before income taxes was $126$193 million, compared with $196 million for the thirdfirst quarter of 2017, compared with $146 million for the third quarter of 2016.2021. The decrease was primarily due to a $19$37 million increase in provision for credit losses, and a $16 million increase in general, operating and administrative expenses primarily due to higher incentive compensation. These unfavorable impacts were partially offset by a $9$36 million favorable impact from lending activity with Caterpillarreturned or repossessed equipment. The impact of lower average financing rates was mostly offset by lower interest expense.
There was a $4 million unfavorable impact from currency on profit before income taxes in the first quarter of 2022. Currency represents the net translation impact resulting from changes in foreign currency exchange rates versus the U.S. dollar and an $8 million increaseis included in net yield on average earning assets.all financial statement line items and each of the items included in the above analysis.
Provision for income taxesIncome Taxes
The Provisionprovision for income taxes reflectsreflected an estimated annual tax rate of 3025 percent in the thirdfirst quarter of 2017,2022, compared with 3127 percent in the thirdfirst quarter of 2016.2021.
NINE MONTHS ENDED SEPTEMBER 30, 2017 VS. NINE MONTHS ENDED SEPTEMBER 30, 2016
Consolidated Total Revenues
The chart above graphically illustrates reasons for the change in Consolidated Total Revenues between September YTD 2016 (at left) and September YTD 2017 (at right). Items favorably impacting total revenues appear as upward stair steps with corresponding dollar amounts above each bar, while items negatively impacting total revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Management utilizes these charts internally to visually communicate results.
Retail revenue for the first nine months of 2017 was $924 million, an increase of $10 million from the same period in 2016. The increase was due to a $29 million favorable impact from higher interest rates on retail finance receivables, partially offset by a $19 million unfavorable impact from lower average earning assets. For the nine months ended September 30, 2017, retail average earning assets were $23.09 billion, a decrease of $493 million from the same period in 2016. The annualized average yield was 5.34 percent for the first nine months of 2017, compared with 5.17 percent for the same period in 2016.
Operating lease revenue for the first nine months of 2017 was $737 million, a decrease of $19 million from the same period in 2016. The decrease was due to a $16 million unfavorable impact from lower average earning assets and a $3 million unfavorable impact from lower average rental rates on operating leases.
Wholesale revenue for the first nine months of 2017 was $222 million, an increase of $20 million from the same period in 2016. The increase was due to a $27 million favorable impact from higher interest rates on wholesale finance receivables, partially offset by a $7 million unfavorable impact from lower average earning assets. For the nine months ended September 30, 2017, wholesale average earning assets were $3.70 billion, a decrease of $135 million from the same period in 2016. The annualized average yield was 8.01 percent for the first nine months of 2017, compared with 7.00 percent for the same period in 2016.
Other revenue, net, items were as follows: |
| | | | | | | | | | | |
(Millions of dollars) | Nine Months Ended September 30, |
| 2017 | | 2016 | | $ Change |
Interest income on Notes Receivable from Caterpillar(1) | $ | 59 |
| | $ | 23 |
| | $ | 36 |
|
Finance receivable and operating lease fees (including late charges)(2) | 57 |
| | 55 |
| | 2 |
|
Fees on committed credit facility extended to Caterpillar | 30 |
| | 30 |
| | — |
|
Net loss on returned or repossessed equipment | (30 | ) | | (36 | ) | | 6 |
|
Miscellaneous other revenue, net | 12 |
| | 9 |
| | 3 |
|
Total Other revenue, net | $ | 128 |
| | $ | 81 |
| | $ | 47 |
|
| | | | | |
(1)For the nine months ended September 30, 2017 and 2016, includes $20 million and $23 million, respectively, of portfolio-related revenues.
(2)Portfolio-related revenues.
Consolidated Profit Before Income Taxes
The chart above graphically illustrates reasons for the change in Consolidated Profit Before Income Taxes between September YTD 2016 (at left) and September YTD 2017 (at right). Items favorably impacting profit before income taxes appear as upward stair steps with corresponding dollar amounts above each bar, while items negatively impacting profit before income taxes appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Management utilizes these charts internally to visually communicate results.
Profit before income taxes was $457 million for the first nine months of 2017, compared with $439 million for the same period in 2016. The increase was primarily due to a $26 million favorable impact from lending activity with Caterpillar, a $17 million increase in net yield on average earning assets and a $14 million decrease in provision for credit losses. These favorable impacts were partially offset by a $27 million increase in general, operating and administrative expenses primarily due to higher incentive compensation and an $18 million unfavorable impact from lower average earning assets.
Provision for income taxes
The Provision for income taxes reflects an estimated annual tax rate of 30 percent for the nine months ended September 30, 2017, compared with 31 percent for the nine months ended September 30, 2016.
Finance Receivables and Equipment on Operating Leases
New Business Volume
| | | | | | | | | | | | | | | | | |
(Millions of dollars) | Three Months Ended March 31, |
| 2022 | | 2021 | | Change |
New retail financing | $ | 2,536 | | | $ | 2,579 | | | $ | (43) | |
New operating lease activity | 243 | | | 230 | | | 13 | |
New wholesale financing | 10,743 | | | 9,638 | | | 1,105 | |
Total | $ | 13,522 | | | $ | 12,447 | | | $ | 1,075 | |
| | | | | |
|
| | | | | | | | | | | |
(Millions of dollars) | Nine Months Ended September 30, |
| 2017 | | 2016 | | $ Change |
New retail financing | $ | 6,785 |
| | $ | 6,771 |
| | $ | 14 |
|
New operating lease activity | 1,029 |
| | 1,295 |
| | (266 | ) |
New wholesale financing | 26,349 |
| | 23,194 |
| | 3,155 |
|
Total | $ | 34,163 |
| | $ | 31,260 |
| | $ | 2,903 |
|
| | | | | |
New retail financing increased primarily due to higher volume in Asia/Pacific, partially offset by lower volume across all other regions. New operating lease activity (which is substantially related to retail) decreased primarily due to lower rentals of Cat equipmentvolume in Asia/Pacific and Mining, partially offset by increases in North America Europe and Asia/Pacific.Latin America. New wholesale financing increased primarily due to higher purchases of trade receivables from Caterpillar.
Total Managed Portfolio
We define total portfolio as financeFinance receivables, net plus equipmentEquipment on operating leases, less accumulated depreciation.net. We also manage and service receivables and leases that have been sold by us to third parties with limited or no recourse in order to mitigate our concentration of credit risk with certain customers. These assets are not available to pay our creditors. Total managed portfolio was as follows:
| | | | | | | | | | | | | | | | | |
(Millions of dollars) | March 31, 2022 | | December 31, 2021 | | Change |
Finance receivables, net | $ | 27,355 | | | $ | 27,177 | | | $ | 178 | |
Equipment on operating leases, net | 3,043 | | | 3,123 | | | (80) | |
Total portfolio | $ | 30,398 | | | $ | 30,300 | | | $ | 98 | |
| | | | | |
Retail loans, net | $ | 101 | | | $ | 107 | | | $ | (6) | |
Operating leases | 27 | | | 23 | | | 4 | |
Retail leases, net | 16 | | | 19 | | | (3) | |
Total off-balance sheet managed assets | $ | 144 | | | $ | 149 | | | $ | (5) | |
| | | | | |
Total managed portfolio | $ | 30,542 | | | $ | 30,449 | | | $ | 93 | |
| | | | | |
|
| | | | | | | | | | | |
(Millions of dollars) | September 30, 2017 | | December 31, 2016 | | $ Change |
Finance receivables, net | $ | 26,597 |
| | $ | 26,212 |
| | $ | 385 |
|
Equipment on operating leases, less accumulated depreciation | 3,580 |
| | 3,708 |
| | (128 | ) |
Total portfolio | $ | 30,177 |
| | $ | 29,920 |
| | $ | 257 |
|
| | | | | |
Retail finance leases | $ | 91 |
| | $ | 41 |
| | $ | 50 |
|
Retail installment sale contracts | 75 |
| | 79 |
| | (4 | ) |
Retail notes receivable | 58 |
| | 87 |
| | (29 | ) |
Operating leases | 43 |
| | 79 |
| | (36 | ) |
Total off-balance sheet managed assets | $ | 267 |
| | $ | 286 |
| | $ | (19 | ) |
| | | | | |
Total managed portfolio | $ | 30,444 |
| | $ | 30,206 |
| | $ | 238 |
|
| | | | | |
Total Portfolio Metrics
At the end of the thirdfirst quarter of 2017,2022, past dues were 2.732.05 percent, compared with 2.772.90 percent at the end of the thirdfirst quarter of 2016.2021. The decrease in past dues was mostly driven by the North America, Caterpillar Power Finance and EAME portfolios. Total non-performing finance receivables, which represent finance receivables currently on non-accrual status, were $692$289 million and $580$288 million at September 30, 2017March 31, 2022 and December 31, 2016,2021, respectively. Total non-performing finance receivables as a percentage of our recorded investment in finance receivables were 2.571.04 percent and 2.181.05 percent at September 30, 2017March 31, 2022 and December 31, 2016,2021, respectively.
Our allowance for credit losses as of September 30, 2017March 31, 2022 was $343$357 million, or 1.271.29 percent of finance receivables, compared with $343$337 million, or 1.291.22 percent, as of December 31, 2016.2021. The increase in allowance for credit losses included a higher reserve for the Russia and Ukraine portfolios. The allowance is subject to an ongoing evaluation based on many quantitative and qualitative factors, including past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of underlying collateral and current economic conditions.forecasts. We believe our allowance is sufficient to provide for losses inherent inover the remaining life of our existing finance receivable portfolio as of September 30, 2017.March 31, 2022.
CAPITAL RESOURCES AND LIQUIDITY
Capital resources and liquidity provide us with the ability to meet our financial obligations on a timely basis. Maintaining and managing adequate capital and liquidity resources includes management of funding sources and their utilization based on current, future and contingent needs. Throughout the thirdfirst quarter of 2017,2022, we experienced favorable liquidity conditions. We ended the thirdfirst quarter of 20172022 with $710$664 million of cash, a decreasean increase of $1.09 billion$54 million from year-end 2016.2021. Our cash balances are held in numerous locations throughout the world with approximately $385$179 million held by our non-U.S. subsidiaries. Amounts held by non-U.S. subsidiaries are available for general corporate use and could be used in the U.S. without incurring significant additional U.S. taxes. We expect to meet our U.S. funding needs without repatriating undistributed profits that are indefinitely reinvested outside the U.S.
BORROWINGS
Borrowings consist primarily of medium-term notes and commercial paper, the combination of which is used to manage interest rate risk and funding requirements.
We receive debt ratings from the major credit rating agencies. In December 2016, Moody's Investors Service downgraded our long-term ratings to A3 from A2,Moody’s, Fitch and short-term ratings to Prime-2 from Prime-1. The Moody’s downgrade did not haveS&P maintain a material impact on our borrowing costs or our overall financial health.“mid-A” debt rating. A further downgrade of our credit ratings by Moody's or oneany of the other major credit rating agencies would result in increased borrowing costs and could make access to certain credit markets more difficult. However, our long-term ratings with Fitch and S&P continue to be "mid-A". In the event economic conditions deteriorate such that access to debt markets becomes unavailable, we would rely on cash flows from our existing portfolio, existing cash balances, access to our revolvingcommitted credit facilities and our other credit line facilities, and potential borrowings from Caterpillar. In addition, Caterpillar maintains a support agreement with us, which requires Caterpillar to remain as our sole owner and may, under certain circumstances, require Caterpillar to make payments to us should we fail to maintain certain financial ratios.
Total borrowings outstanding as of September 30, 2017March 31, 2022 were $28.58$27.84 billion, a decrease of $687$168 million over December 31, 2016.2021. Outstanding borrowings were as follows:
| | | | | | | | | | | |
(Millions of dollars) | March 31, 2022 | | December 31, 2021 |
Medium-term notes, net | $ | 22,836 | | | $ | 22,246 | |
Commercial paper, net of unamortized discount | 4,044 | | | 4,896 | |
Bank borrowings and other – long-term | 484 | | | 348 | |
Bank borrowings and other – short-term | 183 | | | 213 | |
Variable denomination floating rate demand notes | 274 | | | 286 | |
Notes payable to Caterpillar | 22 | | | 22 | |
Total outstanding borrowings | $ | 27,843 | | | $ | 28,011 | |
| | | |
|
| | | | | | | |
(Millions of dollars) | September 30, 2017 | | December 31, 2016 |
Medium-term notes, net of unamortized discount and debt issuance costs | $ | 20,828 |
| | $ | 19,667 |
|
Commercial paper, net of unamortized discount | 4,227 |
| | 5,985 |
|
Bank borrowings – long-term | 801 |
| | 870 |
|
Bank borrowings – short-term | 755 |
| | 553 |
|
Variable denomination floating rate demand notes | 477 |
| | 556 |
|
Notes payable to Caterpillar | 1,493 |
| | 1,637 |
|
Total outstanding borrowings | $ | 28,581 |
| | $ | 29,268 |
|
| | | |
Medium-term notes
We issue medium-term unsecured notes through securities dealers or underwriters in the U.S., Canada, Europe, Australia, Japan, Hong Kong, China, Argentina and MexicoChina to both retail and institutional investors. These notes are offered in several currencies and with a variety of maturities. These notes are senior unsecured obligations of the Company. Medium-term notes issued totaled $5.77$2.00 billion and redeemed totaled $4.84$1.35 billion for the ninethree months ended September 30, 2017.March 31, 2022. Medium-term notes, net outstanding as of September 30, 2017,March 31, 2022 mature as follows:
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(Millions of dollars) | |
2022 | $ | 6,122 | |
2023 | 5,128 | |
2024 | 7,232 | |
2025 | 1,614 | |
2026 | 1,551 | |
Thereafter | 1,248 | |
Fair value adjustments | (59) | |
Total | $ | 22,836 | |
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(Millions of dollars) | |
2017 | $ | 1,045 |
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2018 | 5,884 |
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2019 | 4,534 |
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2020 | 4,186 |
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2021 | 1,640 |
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Thereafter | 3,539 |
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Total | $ | 20,828 |
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Commercial paper
We issue unsecured commercial paper in the U.S., Europe and other international capital markets. These short-term promissory notes are issued on a discounted basis and are payable at maturity. As of March 31, 2022, there was $4.04 billion outstanding in commercial paper.
Revolving credit facilities
We haveAs of March 31, 2022, we had three global credit facilities with a syndicate of banks totaling $10.50 billion (Credit Facility) available in the aggregate to both Caterpillar and us for general liquidity purposes. Based on management'smanagement’s allocation decision, which can be revised from time to time, the portion of the Credit Facility available to us as of September 30, 2017March 31, 2022 was $7.75 billion. Information on our Credit Facility is as follows:
In September 2017, we entered into a new 364-day facility. •The 364-day facility of $3.15 billion (of which $2.33 billion is available to us) expires in September 2018.2022.
In September 2017, we•The three-year facility, as amended and extended the three-year facility. The three-year facilityrestated in September 2021, of $2.73 billion (of which $2.01 billion is available to us) now expires in September 2020.2024.
In September 2017, we•The five-year facility, as amended and extended the five-year facility. The five-year facilityrestated in September 2021, of $4.62 billion (of which $3.41 billion is available to us) now expires in September 2022. 2026.
At September 30, 2017,March 31, 2022, Caterpillar’s consolidated net worth was $15.69$17.16 billion, which was above the $9.00 billion required under the Credit Facility. The consolidated net worth is defined in the Credit Facility as the consolidated shareholders'shareholders’ equity including preferred stock but excluding the pension and other postretirement benefits balance within Accumulated other comprehensive income/income (loss).
At September 30, 2017,March 31, 2022, our covenant interest coverage ratio was 1.882.56 to 1. This iswas above the 1.15 to 1 minimum ratio, calculated as (1) profit excluding income taxes, interest expense and net gain/gain (loss) from interest rate derivatives to (2) interest expense, calculated at the end of each calendar quarter for the rolling four quarter period then most recently ended, required by the Credit Facility.
In addition, at September 30, 2017,March 31, 2022, our six-month covenant leverage ratio was 7.207.53 to 1. This iswas below the maximum ratio of debt to net worth of 10 to 1, calculated (1) on a monthly basis as the average of the leverage ratios determined on the last day of each of the six preceding calendar months and (2) at each December 31, required by the Credit Facility.
In the event that either Caterpillar or we do not meet one or more of our respective financial covenants under the Credit Facility in the future (and are unable to obtain a consent or waiver), the syndicate of banks may terminate the commitments allocated to the party that does not meet its covenants. Additionally, in such event, certain of our other lenders under other loan agreements where similar financial covenants or cross default provisions are applicable, may, at their election, choose to pursue remedies under those loan agreements, including accelerating the repayment of outstanding borrowings. At September 30, 2017,March 31, 2022, there were no borrowings under the Credit Facility.
Bank borrowings
Available credit lines with banks as of September 30, 2017March 31, 2022 totaled $4.59$3.19 billion. These committed and uncommitted credit lines, which may be eligible for renewal at various future dates or have no specified expiration date, are used primarily by our non-U.S. subsidiaries for local funding requirements. We may guarantee subsidiary borrowings under these lines. As of September 30, 2017,March 31, 2022, we had $1.56 billion$666 million outstanding against these credit lines and were in compliance with all debt covenants under these credit lines. The remaining available credit commitments may be withdrawn any time at the lenders'lenders’ discretion.
Variable denomination floating rate demand notes
We obtain funding from the sale of variable denomination floating rate demand notes, which may be redeemed at any time at the option of the holder without any material restriction. We do not hold reserves to fund the payment of the demand notes. The notes are offered on a continuous basis. As of September 30, 2017,March 31, 2022, there was $477were $274 million of variable denomination floating rate demand notes outstanding. The maximum amount of variable denomination floating rate demand notes that we may have outstanding at any time may not exceed $1.25 billion.
Notes receivable from/payable to Caterpillar
Under our variable amount and term lending agreements and other notes receivable with Caterpillar, we may borrow up to $2.77$2.41 billion from Caterpillar and Caterpillar may borrow up to $2.64$1.76 billion from us. The variable amount lending agreements are in effect for indefinite periods of time and may be changed or terminated by either party with 30 days notice. The term lending agreements have remaining maturities ranging up to nineten years. We had notes payable of $1.49 billion$22 million and notes receivable of $1.58 billion$475 million outstanding under these agreements as of September 30, 2017.March 31, 2022.
Committed credit facility
We extended a $2 billion committed credit facility to Caterpillar, which expires in February 2019. We receive a fee from Caterpillar based on amounts drawn under the credit facility and a commitment fee for the undrawn amounts under the credit facility. At September 30, 2017, there were no borrowings under this credit facility.
OFF-BALANCE SHEET ARRANGEMENTS
We lease allare a party to certain off-balance sheet arrangements, primarily in the form of our facilities. In addition, we have potential payment exposureguarantees. Please refer to Note 7 of Notes to Consolidated Financial Statements for guarantees issued to third parties totaling $87 million as of September 30, 2017.further information.
CASH FLOWS
Operating cash flow was $919$322 million in the first ninethree months of 2017,2022, compared with $1.10 billion$335 million for the same period a year ago.in 2021. Net cash used for investing activities was $924$133 million for the first ninethree months of 2017,2022, compared with $776net cash used of $221 million for the same period in 2016.2021. The change was primarily due to the impact of intercompany purchased receivables, partially offset by higher proceeds from disposal of equipment and lower capital expenditures for equipment on operating leases.portfolio related activity. Net cash used for financing activities was $1.10 billion$142 million for the first ninethree months of 2017,2022, compared with $302net cash provided of $205 million for the same period in 2016.2021. The change was primarily due to the impactlower portfolio funding requirements related to Caterpillar purchased receivables.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of borrowings with Caterpillar.recent accounting pronouncements, see Part I, Item 1. Note 2 - New Accounting Pronouncements.
CRITICAL ACCOUNTING POLICIESESTIMATES
For a discussion of the Company’s critical accounting policies,estimates, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2016 Annual Report on2021 Form 10-K.
UNAUDITED There have been no significant changes to our critical accounting estimates since our 2021 Form 10-K.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q may be considered "forward-looking statements" as that term is defined inrelate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may relate to future events or our future financial performance, which may involve known and unknown risks and uncertainties and other factors that may cause our actual results, levels of activity, performance or achievement to be materially different from those expressed or implied by any forward-looking statements. From time to time, we may also provide forward-looking statements in oral presentations to the public or in other materials we issue to the public. Forward-looking statements give current expectations or forecasts of future events about the company. You may identify these statements by the fact that they do not relate to historical or current facts and may use wordsWords such as "believes," "expects," "estimates," "anticipates," "will," "should," "plan," "project," "intend," "could" and“believe,” “estimate,” “will be,” “will,” “would,” “expect,” “anticipate,” “plan,” “project,” “intend,” “could,” “should” or other similar words or phrases.expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts, trend descriptions. These statements do not guarantee future performance and speak only as of the date they are only predictions. Actual events ormade, and we do not undertake to update our forward-looking statements.
Cat Financial’s actual results may differ materially due tofrom those described or implied in our forward-looking statements based on a number of factors, that affect international businesses, including, changesbut not limited to: (i) disruptions or volatility in economic conditions, disruptions in the global financial and credit markets and changes in laws, regulations and political stability, as well as factors specific to Cat Financial andlimiting our sources of liquidity or the markets we serve, including the market’s acceptance of our products and services, the creditworthinessliquidity of our customers, dealers and suppliers; (ii) failure to maintain our credit ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity, competitive position and access to capital markets; (iii) changes in interest rate andrates, currency rate fluctuations and estimatedor market liquidity conditions; (iv) an increase in delinquencies, repossessions or net losses of our customers; (v) residual values of leased equipment. These riskequipment; (vi) our compliance with financial and other restrictive covenants in debt agreements; (vii) government monetary or fiscal policies; (viii) political and economic risks, commercial instability and events beyond our control in the countries in which we operate; (ix) demand for Caterpillar products; (x) marketing, operational or administrative support received from Caterpillar; (xi) our ability to develop, produce and market quality products that meet our customers’ needs; (xii) information technology security threats and computer crime; (xiii) alleged or actual violations of trade or anti-corruption laws and regulations; (xiv) new regulations or changes in financial services regulations; (xv) additional tax expense or exposure; (xvi) changes in accounting guidance; (xvii) the ongoing global coronavirus pandemic; and (xviii) other factors may not be exhaustive. We operatedescribed in a continually changing business environment and new risk factors emerge from time to time. We cannot predict these new risk factors, nor can we assess the impact, if any, of these new risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. Moreover, we do not assume responsibility for the accuracy and completeness of those statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussedmore detail under the captions "Risk Factors" and "Management's Discussion and Analysissection entitled “Part I - Item 1A. Risk Factors” of Financial Condition and Results of Operations" in our annual reportCat Financial's Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 15, 2017 for the fiscal year ended December 31, 2016,2021, as supplementedsuch factors may be updated from time to time in our Form 10-QCat Financial's periodic filings with the SEC on May 3, 2017Securities and August 2, 2017 and in this Form 10-Q filing. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.Exchange Commission.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controlsDisclosure Controls and proceduresProcedures
An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this quarterly report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in internal controlInternal Control over financial reportingFinancial Reporting
There have been no changes in the Company'sCompany’s internal control over financial reporting during the thirdfirst quarter of 20172022 that materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in unresolved legal actions that arise in the normal course of business. Although it is not possible to predict with certainty the outcome of our unresolved legal actions, we believe that these unresolved legal actions will neither individually nor in the aggregate have a material adverse effect on our consolidated results of operations, financial position or liquidity.
ITEM 1A. RISK FACTORS
For a discussion of risks and uncertainties that may affect our business, please see Part I. Item 1A. Risk FactorsThere have been no material changes to the risk factors we previously disclosed in our annual reportAnnual Report on Form 10-K filed with the SEC on February 15, 2017 for the year ended December 31, 2016. There has been no material change in this information for the current quarter.2021.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.Disclosures Required Pursuant to Section 13(r) of the Securities Exchange Act of 1934
During the first quarter, Caterpillar Eurasia LLC, one of our affiliates, engaged in limited transactions or dealings with the Federal Security Service of Russia (the “FSB”). Specifically, Caterpillar Eurasia LLC, from time to time, directly or indirectly, makes required submissions to and receives regulatory authorizations from the FSB related to the importation of software used in the on-board telematics and control systems of Caterpillar machines that are imported into Russia. Caterpillar Eurasia LLC did not generate any net revenue or net profits from such approval activity and does not make any sales to or have other dealings with the FSB. Caterpillar Eurasia LLC plans to continue these activities as long as it remains lawful to do so.
ITEM 6. EXHIBITS
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Exhibit No. | Description of Exhibit |
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Exhibit
No.
| Description of Exhibit |
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10.131.1 | Credit Agreement (364-Day Facility), dated as of September 7, 2017, among the Company, Caterpillar Inc., Caterpillar International Finance Designated Activity Company and Caterpillar Finance Kabushiki Kaisha, certain financial institutions named therein, Citibank, N.A., as Agent, Citibank Europe PLC, UK Branch, as Local Currency Agent, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Japan Local Currency Agent (incorporated by reference from Exhibit 99.1 to the Company’s Current Report on Form 8-K filed September 12, 2017) |
10.2 | |
10.3 | |
10.4 | Omnibus Amendment No. 2 to Amended and Restated Credit Agreement (3-Year Facility) and Amendment No. 2 to Japan Local Currency Addendum, dated as of September 8, 2017, among the Company, Caterpillar Inc., Caterpillar International Finance Designated Activity Company and Caterpillar Finance Kabushiki Kaisha, certain financial institutions named therein, Citibank, N.A., as Agent, Citibank Europe PLC, UK Branch, as Local Currency Agent, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Japan Local Currency Agent (incorporated by reference from Exhibit 99.4 to the Company’s Current Report on Form 8-K filed September 12, 2017) |
10.5 | Omnibus Amendment No. 2 to Amended and Restated Credit Agreement (5-Year Facility) and Amendment No. 2 to Japan Local Currency Addendum, dated as of September 8, 2017, among the Company, Caterpillar Inc., Caterpillar International Finance Designated Activity Company and Caterpillar Finance Kabushiki Kaisha, certain financial institutions named therein, Citibank, N.A., as Agent, Citibank Europe PLC, UK Branch, as Local Currency Agent, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Japan Local Currency Agent (incorporated by reference from Exhibit 99.5 to the Company’s Current Report on Form 8-K filed September 12, 2017) |
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31.1 | |
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31.2 | |
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32 | |
101.INS | |
101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | Cover Page Interactive File (embedded within the Inline XBRL document and included in Exhibit 101) |
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The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time. |
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.
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| | Caterpillar Financial Services Corporation |
(Registrant) | | |
Date: | November 1, 2017May 4, 2022 | /s/David T. Walton |
| | David T. Walton, President, Director and Chief Executive Officer
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Date: | November 1, 2017May 4, 2022 | /s/James A. DuensingKristen R. Covey |
| | James A. Duensing,Kristen R. Covey, Executive Vice President and Chief
Financial Officer
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Date: | November 1, 2017May 4, 2022 | /s/Leslie S. ZmuggJames M. Rooney |
| | Leslie S. Zmugg,James M. Rooney, Secretary |
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Date: | November 1, 2017May 4, 2022 | /s/Jeffry D. EverettSumeet Puri |
| | Jeffry D. Everett,Sumeet Puri, Controller (Principal Accounting Officer) |