FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-13295
CATERPILLAR FINANCIAL SERVICES CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 37-1105865
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)
2120 WEST END AVENUE, NASHVILLE, TENNESSEE 37203-0001
(Address of principal executive offices)
Registrant's telephone number, including area code: (615) 341-1000
The Registrant complies with the conditions set forth in General
Instruction (H)(1)(a) and (b) of Form 10-Q is therefore filing this
form with the reduced disclosure format.
Indicate by a check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
At June 30, 2000 one share of common stock of the Registrant
was outstanding.
HIGHLIGHTS: SECOND QUARTER 2000 VS. SECOND QUARTER 1999
Revenues for the second quarter of 2000 were a record $347 million,
an increase of $53 million or 18 percent compared with the same
period last year.
Profit after tax was a second-quarter record $34 million, a $3
million or 10 percent increase from second quarter 1999.
New retail financing business for the second quarter was $1,578
million, a decrease of $75 million or 5 percent from the same
period last year.
The portfolio increased $1,267 million or 11 percent over the same
period last year.
Past due receivables over 30 days were 3.2 percent compared to 2.2
percent at the end of the same period last year.
James S. Beard, vice president of Caterpillar Inc. and president of
Cat Financial, said, "We continue to be pleased with our
performance. Higher past dues are due primarily to a few large
accounts which are expected to be resolved without significant
loss."
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended June 30, 2000
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Financial Position 4
Consolidated Results of Operations 5
Consolidated Statement of Changes in Equity 6
Consolidated Statement of Cash Flows 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 8-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
In addition to our accompanying unaudited consolidated financial
statements, we suggest that you read our Annual Report on Form 10-
K. Although not incorporated by reference in this document,
additional information about us is available in our 1999 Annual
Report and on our web page http://www.CAT.com. The documents
mentioned above are available by writing to: Legal Dept.,
Caterpillar Financial Services Corp.; 2120 West End Ave.;
Nashville, TN 37203-0001.
We believe this information reflects all adjustments, including
normal and recurring accruals, necessary to fairly present the
consolidated statements of financial position, results of
operations, changes in equity and cash flows for the periods
presented. The results for interim periods do not necessarily
indicate the results we expect for the year.
Caterpillar Financial Services Corporation
Consolidated Statement of Financial Position
(Unaudited)
(Millions of Dollars)
June 30, Dec. 31, June 30,
2000 1999 1999
Assets:
Cash and cash equivalents $ 73 $ 85 $ 72
Finance receivables
Retail notes receivable 2,711 2,657 2,508
Wholesale notes receivable 2,744 1,983 2,511
Notes receivable from Caterpillar 432 333 223
Investment in finance receivables 7,614 7,225 7,108
13,501 12,198 12,350
Less: Unearned income 1,109 971 953
Allowance for credit losses 144 134 138
12,248 11,093 11,259
Equipment on operating leases,
less accumulated depreciation 1,004 870 756
Deferred income taxes 11 9 9
Other assets 425 437 388
Total assets $13,761 $12,494 $12,484
Liabilities and stockholder's equity:
Payable to dealers and others $ 109 $ 127 $ 130
Payable to Caterpillar - Other 11 7 7
Accrued interest payable 108 94 82
Income taxes payable 35 9 19
Other liabilities 55 28 24
Notes payable to Caterpillar 503 311 207
Short-term borrowings 3,039 2,963 3,277
Current maturities of long-term debt 2,801 2,937 2,654
Long-term debt 5,619 4,585 4,781
Deferred income taxes 52 48 29
Total liabilities 12,332 11,109 11,210
Common stock - $1 par value
Authorized: 2,000 shares
Issued and outstanding: One Share 745 745 695
Retained Earnings 755 683 620
Accumulated other comprehensive income (71) (43) (41)
Total stockholder's equity 1,429 1,385 1,274
Total liabilities and stockholder's
equity $13,761 $12,494 $12,484
Caterpillar Financial Services Corporation
Consolidated Results of Operations
(Unaudited)
(Millions of Dollars)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
Revenues:
Wholesale finance $ 57 $ 43 $ 100 $ 80
Retail finance 194 170 380 335
Rental 75 61 145 120
Other 21 20 42 42
Total revenues 347 294 667 577
Expenses:
Interest 178 139 338 271
Depreciation 60 48 115 93
General, operating and
administrative 39 38 73 71
Provision for credit losses 19 20 30 37
Other expense - - 1 1
Total expenses 296 245 557 473
Profit before income taxes 51 49 110 104
Provision for income taxes 17 18 38 38
Profit $ 34 $ 31 $ 72 $ 66
Caterpillar Financial Services Corporation
Consolidated Statement Of Changes in Equity
(Unaudited)
(Millions of Dollars)
Six Months Ended
June 30, June 30,
2000 1999
Retained earnings:
Balance at January 1 $ 683 $ 554
Profit 72 $ 72 66 $ 66
Balance at June 30 $ 755 $ 620
Accumulated other
comprehensive income:
Balance at January 1 $ (43) $ (28)
Foreign currency
translation Adjustment (28) (28) (13) (13)
Comprehensive income $ 44 $ 53
Balance at June 30 $ (71) $ (41)
Paid-in capital:
Balance at January 1 $ 745 $ 675
Equity capital from
Caterpillar - 20
Balance at June 30 $ 745 $ 695
Total equity $ 1,429 $ 1,274
Caterpillar Financial Services Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Millions of Dollars)
Six months Ended
June 30, June 30,
2000 1999
Cash flows from operating activities:
Profit $ 72 $ 66
Adjustments for non-cash items:
Depreciation 115 93
Provision for credit losses 30 37
Other 3 (6)
Change in assets and liabilities:
Receivables from customers and others (56) (75)
Deferred income taxes 3 (3)
Payable to dealers and others (15) 21
Accrued interest payable 14 (3)
Income taxes payable 27 (87)
Other, net 21 (7)
Net cash provided by operating activities 214 36
Cash flows from investing activities:
Additions to property and equipment (319) (185)
Disposals of equipment 101 85
Additions to finance receivables (8,172) (7,750)
Collections of finance receivables 5,728 5,646
Proceeds from sales of receivables 1,251 702
Notes receivable from Caterpillar Inc. (98) 23
Other, net (1) 2
Net cash used for investing activities (1,510) (1,477)
Cash flows from financing activities:
Additional paid-in capital - 20
Payable to Caterpillar Inc. - Borrowings 206 -
Proceeds from long-term debt 2,408 2,220
Payments on long-term debt (1,501) (1,022)
Short-term borrowings, net 171 247
Net cash provided by financing activities 1,284 1,465
Effect of exchange rate changes on cash and
cash equivalents - (1)
Net change in cash and cash equivalents (12) 23
Cash and cash equivalents at beginning of period 85 49
Cash and cash equivalents at end of period $ 73 $ 72
Cash paid for interest $ 337 $ 271
Cash paid for income taxes $ 12 $ 125
NOTES TO FINANCIAL STATEMENTS
A. Supplemental segment data for the three months ended June 30,
2000 North Diversified
America Europe Services Total
Revenue from
external customers $ 228 64 55 $ 347
Inter-segment revenue $ 11 - - $ 11
Profit $ 28 2 4 $ 34
Assets $ 9,425 3,210 2,384 $ 15,019
1999 North Diversified
America Europe Services Total
Revenue from
external customers $ 197 54 43 $ 294
Inter-segment revenue $ 8 - - $ 8
Profit $ 28 3 - $ 31
Assets $ 9,201 2,523 2,058 $13,782
Supplemental segment data for the six months ended June 30,
2000 North Diversified
America Europe Services Total
Revenue from
external customers $ 434 127 106 $ 667
Inter-segment revenue $ 23 1 - $ 24
Profit $ 56 9 7 $ 72
1999 North Diversified
America Europe Services Total
Revenue from
external customers $ 381 106 90 $ 577
Inter-segment revenue $ 16 1 - $ 17
Profit $ 54 8 4 $ 66
We segregate information based on management responsibility:
North America: We have offices in the United States and Canada
that serve local dealers and customers.
Europe: We have offices throughout Europe that serve European
dealers and customers. Our Marine services division, which
primarily finances marine vessels with Caterpillar engines, is
also included in this segment.
Diversified Services: We have offices in Asia, Australia and Latin
America that serve local dealers and customers. Our Global
accounts division, which primarily provides cross-border
financing to customers in countries in which we have no local
presence, is also included in this segment.
Due to accounting differences in the presentation of
supplemental data and our GAAP-based external statements, total
segment information may not equal amounts reflected in our GAAP
statements.
B. New accounting standard
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This Statement
requires that entities recognize all derivatives as either assets
or liabilities in the statement of financial position and measure
those instruments at fair value. During the second quarter of
2000, an amendment to the Statement changed the implementation date
of this standard to January 1, 2001. We have not elected early
adoption. We continue to assess the impact this requirement will
have on our financial position and results of operations.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
THREE MONTHS ENDED JUNE 30, 1999 VS. THREE MONTHS ENDED JUNE 30,
2000
REVENUES
Total revenues for the second quarter of 2000 were a record $347
million. The increase of $53 million over the same period last
year was primarily the result of a higher interest rate and
continued portfolio growth.
The annualized interest rate on finance receivables was 8.78%
for the second quarter of 2000 compared with 8.01% for the second
quarter of 1999. The tax benefits of governmental lease purchase
contracts and tax-oriented leases are not included in these
annualized interest rates.
Other revenue for the second quarter of 2000 was $21 million, an
increase of $1 million from the same period last year, significant
items included:
Increases of: Interest income from Caterpillar $3 million
Gain on sale of receivables $6 million
Decreases of: Securitization related revenue $8 million
EXPENSES
Interest expense for the second quarter of 2000 increased $39
million over the same period last year. This increase was
primarily the result of increased borrowings and a higher borrowing
rate. The average interest rate on borrowed funds was 6.32% for
the second quarter of 2000 as compared to 5.44% for the second
quarter of 1999.
Depreciation expense increased $12 million over the second
quarter of 1999 due to new operating lease business.
General, operating and administrative expenses increased $1
million during the second quarter of 2000 as compared to the same
period last year. This increase is primarily due to staff-related
expenses and other expenses incurred due to the larger portfolio
and geographical expansion. There were 946 employees at June 30,
2000, an increase of 53 from last year's second quarter.
The provision for credit losses decreased $1 million over the
second quarter of 1999.
PROFIT
Profit for the second quarter of 2000 was $34 million, a $3
million increase from the second quarter of 1999. This increase is
primarily the result of a larger portfolio.
PORTFOLIO
The portfolio value was $13,323 million at June 30, 2000, an
increase of $1,267 million over the same period last year.
During the second quarter of 2000, we financed new retail
business transactions totaling $1,578 million as compared to $1,653
million during the second quarter of 1999. Increases in Europe,
Asia and Canada were more than offset by decreases in the United
States and Latin America. The decrease in the United States was
primarily due to lower sales of Caterpillar equipment to end users.
At June 30, 2000, we serviced $1,427 million in receivables sold
to others, which consist of $750 million in wholesale receivables
under a revolving, asset-backed securitization agreement, $559
million of installment sale contracts and $118 million of finance
leases.
On January 1, 2000, Caterpillar Inc. replaced an inventory
merchandising program for North American Caterpillar dealers with a
new merchandising program. U.S. Accounts receivable generated from
the old program were securitized under a $750 million, private-
placement, revolving facility. The old securitization facility is
being replaced with a new, similar facility for U.S. accounts
receivable generated under the new merchandising program. During
the second quarter of 2000, we sold $350 million into the new
facility to maintain a combined balance of $750 million between the
two securitization facilities.
ALLOWANCE FOR CREDIT LOSSES
The following table shows activity related to the Allowance for
Credit Losses for the three months ending:
June 30, June 30,
2000 1999
Balance at beginning of quarter $ 141 $ 125
Provision for credit losses 19 20
Receivables written off, net of recoveries (13) (7)
Foreign currency translation adjustment (3) -
$ 144 $ 138
Receivables that were past due over 30 days were 3.16% of the
total receivables at June 30, 2000, as compared to 2.21% at June
30, 1999. The increase is primarily related to increased past due
receivables in the U.S. and Latin America. We will continue to
monitor the allowance for credit losses to provide for an amount we
believe is adequate, after considering the value of any collateral,
to cover uncollectible receivables.
SIX MONTHS ENDED JUNE 30, 1999 VS. SIX MONTHS ENDED JUNE 30, 2000
REVENUES
Total revenues for the first six months of 2000 were a record
$667 million. The increase of $90 million over the same period
last year was primarily the result of continued portfolio growth
and a higher interest rate.
The annualized interest rate on finance receivables was 8.56%
for the first six months of 2000 compared with 8.07% for the first
six months of 1999. The tax benefits of governmental lease
purchase contracts and tax-oriented leases are not included in
these annualized interest rates.
Other revenue for the first six months of 2000 was $42 million,
unchanged from the same period last year, significant items
included:
Increases of: Interest income from Caterpillar $4 million
Gain on sale of receivables $7 million
Decreases of: Securitization related revenue $11 million
Exchange gain $2 million
EXPENSES
Interest expense for the first six months of 2000 increased $67
million over the same period last year. This increase was
primarily the result of increased borrowings and a higher borrowing
rate. The average interest rate on borrowed funds was 6.16% for
the first six months of 2000 as compared to 5.53% for the first six
months of 1999.
Depreciation expense increased $22 million over the first six
months of 1999 due to new operating lease business.
General, operating and administrative expenses increased $2
million during the first six months of 2000 as compared to the same
period last year. This increase is primarily due to staff-related
expenses and other expenses incurred due to the larger portfolio
and geographical expansion.
The provision for credit losses decreased $7 million over the
first six months of 1999. The decrease is primarily attributable to
our valuation and assessment of the portfolio and the adequacy of
our allowance for credit losses.
PROFIT
Profit for the first six months of 2000 was $72 million, a $6
million increase from the first six months of 1999.
PORTFOLIO
During the first six months of 2000, we financed new retail
business transactions totaling $2,750 million as compared to $2,865
million during the first six months of 1999. Increases in Europe
were more than offset by decreases in North America and Latin
America. The decrease in North America is primarily due to lower
sales of Caterpillar equipment to end users.
ALLOWANCE FOR CREDIT LOSSES
The following table shows activity related to the Allowance for
Credit Losses for the six months ended:
June 30, June 30,
2000 1999
Balance at beginning of year $ 134 $ 111
Provision for credit losses 30 37
Receivables written off, net of recoveries (16) (8)
Foreign currency translation adjustment (4) (2)
$ 144 $ 138
CAPITAL RESOURCES AND LIQUIDITY
Operations for the first half of 2000 were funded with a
combination of bank borrowings, commercial paper, medium-term notes
and retained earnings.
At June 30, 2000, we had the following credit lines available:
Two syndicated revolving credit lines. Two revolving credit lines,
used to support our commercial paper and commercial paper
guarantees totaling $2,900 million, are shared with Caterpillar
under the following allocation:
Five-year 364-day
Facility Facility Total
Caterpillar $ 187 $ 113 $ 300
Caterpillar Financial Services Corp. 1,688 912 2,600
Total $ 1,875 $ 1,025 $ 2,900
The five-year facility expires on Oct. 5, 2002; the 364-day
facility expires on Sept. 28, 2000.
At June 30, 2000, there were no borrowings under these lines.
European revolving credit line. This $1.0 billion credit line,
which expires May 1, 2003, supports our Euro-commercial paper and
certificate of deposit program. Under this program, commercial
paper and certificates of deposit are issued by us, or by our
Irish subsidiaries with our guarantee. At June 30, 2000, there
were no borrowings under this credit line.
Short-term credit lines from banks. These credit lines total $509
million and will be eligible for renewal at various dates
throughout 2000. They are used for bank borrowings and as
support for our outstanding commercial paper and commercial paper
guarantees. At June 30, 2000, we had $56 million outstanding
against these credit lines.
Variable amount lending agreements with Caterpillar. Under these
agreements, we may borrow up to $830 million from Caterpillar,
and Caterpillar may borrow up to $670 million from us. The
agreements are in effect for indefinite periods of time and may
be changed or terminated by either party with 30 days' notice.
We had notes payable of $503 million and notes receivable of $432
million outstanding at June 30, 2000 and notes payable of $311
million and notes receivable of $333 million at December 31,
1999.
Total outstanding borrowings. At June 30, 2000, total outstanding
borrowings $11,962 million, an increase of $1,166 million over
December 31, 1999. Outstanding borrowings primarily include:
$8,359 million of medium-term notes
$2,877 million of commercial paper
$ 503 million of notes payable to Caterpillar
$ 56 million of bank borrowings
Our debt-to-equity ratio at June 30, 2000 was 8.4 to 1 as
compared to 7.8 to 1 at December 31, 1999.
DERIVATIVES
We use interest rate derivative financial instruments and
currency derivative financial instruments to manage interest rate
and foreign currency exchange risks that we may encounter as a part
of our normal business. We do not use these instruments for
trading purposes.
Interest rate derivatives. We use interest rate swap agreements to
manage the risk of changes in interest rates, allowing us to gain
competitive and economic advantages by minimizing funding costs
regardless of the direction interest rates move. At June 30,
2000, we had interest rate swap contracts outstanding with
notional amounts totaling $3,144 million and terms up to fifteen
years. These contracts change:
$2,576 million of floating rate debt to fixed rate debt
$ 568 million of fixed rate debt to floating rate debt
Foreign currency derivatives. We use foreign exchange contracts to
minimize potential risk of fluctuating exchange rates. These
contracts have terms that generally range up to three months. At
June 30, 2000, we had foreign exchange contracts totaling $1,706
million, $2 million of which were with Caterpillar. They hedge
foreign currency denominated receivables and debt of
international subsidiaries.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
12 Statement setting forth computation of Ratio of
Profit to Fixed Charges.
27 Financial Data Schedule
(b) Reports on Form 8-K
On June 1, 2000, in connection with our Registration
Statement (Form S-3), Registration No. 333-35460, we filed a
Form 8-K containing the opinion of Orrick, Herrington &
Sutcliffe LLP, as to certain tax matters.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Caterpillar Financial Services Corporation
(Registrant)
Date: July 21, 2000 By: /s/K.C. Springer
K.C. Springer,Controller and
Principal Accounting Officer
Date: July 21, 2000 By: /s/J.S. Beard
J.S. Beard, President