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 September 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 (I.R.S. Employer
jurisdiction of Identification
incorporation or No.)
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 September 30, 2000 one share of common stock of the Registrant was
outstanding.
HIGHLIGHTS: THIRD QUARTER 2000 VS. THIRD QUARTER 1999
Revenues for the third quarter of 2000 were a record $378 million, an increase
of $75 million or 25 percent compared with the same period last year.
Profit after tax was a record $43 million, a $6 million or 16 percent increase
from third-quarter 1999.
New retail financing business for the third-quarter of 2000 was $1,287 million,
a decrease of $82 million or 6 percent from third-quarter 1999.
Past dues over 30 days are 3.8 percent compared with 2.5 percent at the end of
the same period one year ago.
"We are pleased with our record results," said James S. Beard, vice president of
Caterpillar Inc. and president of Caterpillar Financial Services Corporation.
"However, we continue to work hard to improve our services and responsiveness
through innovative technologies and process improvements."
Caterpillar Financial Services Corporation
Form 10-Q for the Quarter Ended September 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 14
Signatures 15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
In addition to our accompanying unaudited consolidated financial statements,
we suggest that you read our Annual Report on Form 10-K. Although not
incorporated by reference in this document, additional information about us is
available in our 1999 Annual Report and on our web page http://www.CAT.com. The
documents mentioned above are available by writing to: Legal Dept., Caterpillar
Financial Services Corp.; 2120 West End Ave.; Nashville, TN 37203.
We believe this information reflects normal and recurring adjustments
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)
September December September
30, 31, 30,
2000 1999 1999
Assets:
Cash and cash equivalents $ 60 $ 85 $ 52
Finance receivables
Retail notes receivable 2,791 2,657 2,481
Wholesale notes receivable 2,596 1,983 2,366
Notes receivable from Caterpillar Inc. 376 333 226
Finance lease receivables 7,517 7,225 6,961
13,280 12,198 12,034
Less: Unearned income 1,086 971 934
Allowance for credit losses 148 134 144
12,046 11,093 10,956
Equipment on operating leases,
less accumulated depreciation 1,054 870 787
Deferred income taxes 11 9 9
Other assets 396 437 361
Total assets $13,567 $12,494 $12,165
Liabilities and stockholder's equity:
Payable to dealers and others $ 101 $ 127 $ 119
Payable to Caterpillar Inc. - Other 9 7 6
Accrued interest payable 139 94 127
Income taxes payable 22 9 14
Other liabilities 41 28 26
Payable to Caterpillar Inc. - Borrowings 306 311 214
Short-term borrowings 2,627 2,963 2,090
Current maturities of long-term debt 2,703 2,937 2,885
Long-term debt 6,127 4,585 5,284
Deferred income taxes 57 48 34
Total liabilities 12,132 11,109 10,799
Common stock - $1 par value
Authorized: 2,000 shares
Issued and outstanding: One share 745 745 745
Retained Earnings 798 683 658
Accumulated other comprehensive income (108) (43) (37)
Total stockholder's equity 1,435 1,385 1,366
Total liabilities and stockholder's equity $13,567 $12,494 $12,165
Caterpillar Financial Services Corporation
Consolidated Results of Operations
(Unaudited)
(Millions of Dollars)
Three Months Ended Nine months Ended
September September September September
30, 30, 30, 30,
2000 1999 2000 1999
Revenues:
Retail notes $ 62 $ 52 $ 177 $ 145
Wholesale notes 68 47 168 127
Finance lease 142 121 407 364
Rental 80 62 225 182
Other 26 21 68 62
Total revenues 378 303 1,045 880
Expenses:
Interest 197 144 535 416
Depreciation 62 49 177 142
General, operating and
administrative 39 38 112 109
Provision for credit losses 13 13 43 50
Other expense 1 1 2 1
Total expenses 312 245 869 718
Profit before income taxes 66 58 176 162
Provision for income taxes 23 21 61 58
Net profit $ 43 $ 37 $ 115 $ 104
Caterpillar Financial Services Corporation
Consolidated Statement Of Changes in Equity
(Unaudited)
(Millions of Dollars)
Nine Months Ended
September 30, September 30,
2000 1999
Retained earnings:
Balance at January 1 $ 683 $ 554
Net profit 115 $115 104 $104
Balance at September 30 798 658
Accumulated other comprehensive income:
Balance at January 1 (43) (28)
Foreign currency translation adj. (65) (65) (9) (9)
Comprehensive income $50 $95
Balance at September 30 (108) (37)
Paid-in capital:
Balance at January 1 745 675
Equity capital from Caterpillar - 70
Balance at September 30 745 745
Total equity $1,435 $1,366
Caterpillar Financial Services Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Millions of Dollars)
Nine months Ended
September September
30, 30,
2000 1999
Cash flows from operating activities:
Net profit $ 115 $ 104
Adjustments for non-cash items:
Depreciation 177 142
Provision for credit losses 42 50
Other 24 (9)
Change in assets and liabilities:
Receivables from customers and others (120) (71)
Deferred income taxes 9 2
Payable to dealers and others (23) 7
Accrued interest payable 45 42
Income taxes payable 14 (93)
Other, net 13 (3)
Net cash provided by operating activities 296 171
Cash flows from investing activities:
Additions to property and equipment (480) (298)
Disposals of equipment 144 132
Additions to finance receivables (11,889) (11,990)
Collections of finance receivables 9,174 10,029
Proceeds from sales of receivables 1,510 921
Notes receivable from Caterpillar Inc. (43) 21
Other, net - 1
Net cash used for investing activities (1,584) (1,184)
Cash flows from financing activities:
Additional paid-in capital - 70
Payable to Caterpillar Inc. - borrowings 19 52
Proceeds from long-term debt 3,612 3,477
Payments on long-term debt (2,255) (1,544)
Short-term borrowings, net (113) (1,035)
Net cash provided by financing activities 1,263 1,020
Effect of exchange rate changes on cash and
cash equivalents - (4)
Net change in cash and cash equivalents (25) 3
Cash and cash equivalents at beginning of 85 49
period
Cash and cash equivalents at end of period $ 60 $ 52
Cash paid for interest $ 491 $ 361
Cash paid for income taxes $ 41 $ 21
NOTES TO FINANCIAL STATEMENTS
A. Supplemental segment data for the three months ended September 30,
2000 North Diversified
America Europe Services Total
Revenue from external customers $ 257 69 52 $ 378
Inter-segment revenue $ 10 1 - $ 11
Net profit $ 36 4 3 $ 43
Assets $9,550 3,209 2,270 $15,029
1999 North Diversified
America Europe Services Total
Revenue from external customers $ 194 59 50 $ 303
Inter-segment revenue $ 17 1 - $ 18
Net profit $ 28 6 3 $ 37
Assets $9,360 2,736 2,127 $14,223
Supplemental segment data for the nine months ended September 30,
2000 North Diversified
America Europe Services Total
Revenue from external customers $ 691 196 158 $ 1,045
Inter-segment revenue $ 33 2 - $ 35
Net profit $ 92 13 10 $ 115
1999 North Diversified
America Europe Services Total
Revenue from external customers $ 575 165 140 $ 880
Inter-segment revenue $ 33 2 - $ 35
Net profit $ 82 14 8 $ 104
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 (FASB) issued
Statement of Financial Accounting Standards (SFAS) 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.
Changes in fair value are to be recorded in current earnings or other
comprehensive income depending on the purpose and characteristics of the
derivative.
SFAS 137 deferred implementation of SFAS 133 until January 1, 2001. The
impact SFAS 133 will have on our financial statements is dependent on market
conditions, changes in our derivative portfolio and additional guidance to be
issued by the FASB among other factors. Based upon current conditions and our
current portfolio, implementation of this standard will not have a material
impact on our financial statements.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. THREE MONTHS ENDED SEPTEMBER 30, 2000
REVENUES
Total revenues for the third quarter of 2000 were a record $378 million.
The increase of $75 million over the same period last year was primarily the
result of continued portfolio growth and a higher yield on contracts.
The annualized interest rate on finance receivables was 9.10% for the third
quarter of 2000 compared with 8.03% for the third 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 of $26 million for the third quarter of 2000, an increase of $5
million from the same period last year, included:
Increases of: Interest income from Caterpillar $5 million
Gain on sale of receivables $3 million
Gain on sale of equipment returned from lease $2 million
Decreases of: Securitization related revenue $5 million
EXPENSES
Interest expense for the third quarter of 2000 increased $53 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 6.57% for the third quarter of 2000 as compared to 5.28% for the third
quarter of 1999.
Depreciation expense increased $13 million over the third quarter of 1999
due to new operating lease business.
General, operating and administrative expenses increased $1 million during
the third quarter of 2000 as compared to the same period last year. Employment
increased by 65 from last year's third quarter to 992 employees at September 30,
2000.
The provision for credit losses was the same for both the third quarter of
1999 and the third quarter of 2000.
NET PROFIT
Net profit for the third quarter of 2000 was a record $43 million. The $6
million increase from the third quarter of 1999 is primarily the result of a
larger portfolio and gains on sale of receivables.
PORTFOLIO
The portfolio was $13,176 million at September 30, 2000, an increase of
$1,380 million over the same period last year.
During the third quarter of 2000, we financed new retail business
transactions totaling $1,287 million as compared to $1,369 million during the
third quarter of 1999. The $82 million decline is principally related to lower
Caterpillar sales in the United States and a lower average amount financed per
unit in the United States and Europe.
At September 30, 2000, we serviced $1,293 million in receivables sold to
others, which consist of $750 million in wholesale receivables under revolving,
asset-backed securitization agreements, $444 million of installment sale
contracts and $99 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 third
quarter of 2000, we sold $160 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 ended:
September September
30, 2000 30, 1999
Balance at beginning of quarter $ 144 $ 138
Provision for credit losses 13 13
Receivables written off, net of recoveries (5) (4)
Adjustment for sale of receivables - (5)
Foreign currency translation adjustment (4) 2
$ 148 $ 144
Receivables that were past due over 30 days were 3.83% of the total
receivables at September 30, 2000, as compared to 2.49% at September 30, 1999.
The increase is primarily related to increased past due receivables in Latin
America and the United States. Bad debt write-offs, net of recoveries, were $5
million for the quarter compared with $4 million for the same period one year
ago. 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.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. NINE MONTHS ENDED SEPTEMBER 30, 2000
REVENUES
Total revenues for the first nine months of 2000 were $1,045 million. The
increase of $165 million over the same period last year was primarily the result
of continued portfolio growth and a higher yield.
The annualized interest rate on finance receivables was 8.74% for the first
nine months of 2000 compared with 8.08% for the first nine 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 was $68 million for the first nine months of 2000, an increase
of $6 million from the same period last year and included:
Increases of: Gain on sale of receivables $10 million
Interest income from Caterpillar $ 9 million
Gain on sale of equipment returned from lease $ 2 million
Decreases of: Securitization related revenue $16 million
EXPENSES
Interest expense for the first nine months of 2000 increased $119 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 6.30% for the first nine months of 2000 as compared to 5.44%
for the first nine months of 1999.
Depreciation expense increased $35 million over the first nine months of
1999 due to new operating lease business.
General, operating and administrative expenses increased $3 million during
the first nine months of 2000 as compared to the same period last year. This
increase is primarily due to staff-related expenses.
The provision for credit losses decreased $7 million compared to the first
nine 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.
NET PROFIT
Net profit for the first nine months of 2000 was $115 million, an $11 million
increase from the first nine months of 1999.
PORTFOLIO
During the first nine months of 2000, we financed new retail business
transactions totaling $4,037 million as compared to $4,233 million during the
first nine months of 1999. The $196 million decline is principally related to
lower Caterpillar sales in the United States and a lower average amount financed
per unit in the United States and Europe.
ALLOWANCE FOR CREDIT LOSSES
The following table shows activity related to the Allowance for Credit Losses
for the nine months ended:
September September
30, 2000 30, 1999
Balance at beginning of year $ 134 $ 111
Provision for credit losses 43 50
Receivables written off, net of recoveries (21) (12)
Adjustments for sale of receivables - (5)
Foreign currency translation adjustment (8) -
$ 148 $ 144
CAPITAL RESOURCES AND LIQUIDITY
Operations for the first nine months of 2000 were funded with a combination
of bank borrowings, commercial paper, medium-term notes, proceeds from the sale
of receivables and retained earnings.
At September 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 $3,250
million, are shared with Caterpillar under the following allocation:
Five-year 364-day
Facility Facility Total
Caterpillar $ 200 $ 200 $ 400
Caterpillar Financial Services Corp. 1,740 1,110 2,850
Total $1,940 $1,310 $3,250
The five-year facility expires on Oct. 5, 2002; the 364-day facility expires
on Sept. 27, 2001.
At September 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. Under this program,
commercial paper is issued by our subsidiary, Caterpillar International
Finance, Plc. with our guarantee, or by us. At September 30, 2000, there were
no borrowings under this credit line.
Short-term credit lines from banks. These credit lines total $365 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 September 30, 2000, we had $74 million
outstanding against these credit lines.
Variable amount lending agreements with Caterpillar. Under these agreements, we
may borrow up to $824 million from Caterpillar, and Caterpillar may borrow up
to $667 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 $306 million and notes receivable of $376 million
outstanding at September 30, 2000.
Total outstanding borrowings. At September 30, 2000, total outstanding
borrowings were $11,763 million, an increase of $967 million over December 31,
1999. Outstanding borrowings primarily include:
$8,767 million of medium-term notes
$2,430 million of commercial paper
$ 306 million of notes payable to Caterpillar
$ 74 million of bank borrowings
Our debt-to-equity ratio at September 30, 2000 was 8.2 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 September 30, 2000, we had interest rate swap
contracts outstanding with notional amounts totaling $3,096 million and terms
up to fifteen years. These contracts change:
$2,519 million of floating rate debt to fixed rate debt
$ 578 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 September 30, 2000, we had foreign
exchange contracts totaling $1,504 million. 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
We filed an 8-K on September 8, 2000 relating to Registration Statement (Form S-
3), registration No. 333-35460.
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: October 20, 2000 By: /s/K.C. Springer
K.C. Springer, Controller and Principal
Accounting Officer
Date: October 20, 2000 By: /s/J.S. Beard
J.S. Beard, President