CATERPILLAR FINANCIAL SERVICES CORP - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

Commission File No. 0-13295

CATERPILLAR FINANCIAL SERVICES CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware	37-1105865
(State of incorporation)	(IRS Employer I.D. No.)

2120 West End Ave. Nashville, Tennessee	37203-0001
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (615) 341-1000

The Registrant is a wholly-owned subsidiary of Caterpillar Inc. and meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q, and 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 o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

At May 2, 2005, one share of common stock of the Registrant was outstanding, which is owned by Caterpillar Inc.

Caterpillar Financial Services Corporation

Form 10-Q for the Quarter Ended March 31, 2005

PART I FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

Consolidated Statement of Financial Position

Consolidated Statement of Profit

Consolidated Statement of Changes in Stockholder’s Equity

Consolidated Statement of Cash Flows

Notes to Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview: First quarter 2005 vs. First Quarter 2004

Critical Accounting Policies

Three Months Ended March 31, 2005 Vs. Three Months Ended March 31, 2004

Capital Resources and Liquidity

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 6. Exhibits

Signatures

Part I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

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 2004 Annual Report and at http://www.catfinancial.com. The documents mentioned above are available by writing to: Legal Dept., Caterpillar Financial Services Corp.; 2120 West End Ave.; Nashville, TN 37203-0001.

Caterpillar Financial Services Corporation

Consolidated Statement of Financial Position

(Unaudited)

(Dollars in Millions, except share data)

		March 31,		December 31,		March 31,
		2005		2004		2004
Assets:
Cash and cash equivalents	$	104	$	98	$	89
Finance receivables
Retail notes receivable		4,604		4,580		4,368
Wholesale notes receivable		4,854		4,789		1,623
Notes receivable from Caterpillar		697		120		381
Finance leases and installment sale contracts - Retail		12,171		11,769		9,763
Finance leases and installment sale contracts - Wholesale		179		185		154
		22,505		21,443		16,289
Less: Unearned income		1,317		1,261		999
Allowance for credit losses		283		278		248
Total net finance receivables		20,905		19,904		15,042

Retained interests in securitized wholesale receivables		-		-		1,895

Equipment on operating leases,
less accumulated depreciation		2,509		2,569		2,274
Deferred income taxes		28		28		20
Other assets		997		973		1,242
Total assets	$	24,543	$	23,572	$	20,562


Liabilities and stockholder's equity:
Payable to dealers and others	$	220	$	221	$	151
Payable to Caterpillar - other		38		23		28
Accrued expenses		210		179		158
Income taxes payable		47		23		82
Payable to Caterpillar - borrowings		434		333		268
Short-term borrowings		5,364		5,464		4,599
Current maturities of long-term debt		3,225		3,519		3,392
Long-term debt		11,834		10,713		9,284
Deferred income taxes and other liabilities		398		377		255
Total liabilities		21,770		20,852		18,217

Common stock - $1 par value
Authorized: 2,000 shares; Issued and
outstanding: one share (at paid in amount)		745		745		745
Retained earnings		1,773		1,690		1,475
Accumulated other comprehensive income		255		285		125
Total stockholder's equity		2,773		2,720		2,345

Total liabilities and stockholder's equity	$	24,543	$	23,572	$	20,562

See Notes to Consolidated Financial Statements (unaudited).

Caterpillar Financial Services Corporation

Consolidated Statement of Profit

(Unaudited)

(Dollars in Millions)

	Three Months Ended
		March 31,		March 31,
		2005		2004
Revenues:
Wholesale	$	72	$	42
Retail finance		253		207
Operating lease		188		178
Other		30		30
Total revenues		543		457

Expenses:
Interest		173		121
Depreciation on assets leased to others		152		142
General, operating, and administrative		76		65
Provision for credit losses		16		20
Other		2		2
Total expenses		419		350

Profit before income taxes		124		107

Provision for income taxes		41		35
Profit	$	83	$	72

See Notes to Consolidated Financial Statements (unaudited).

Caterpillar Financial Services Corporation

Consolidated Statement of Changes in Stockholder's Equity

(Unaudited)

(Dollars in Millions)

	Three Months Ended
	March 31,						March 31,
	2005						2004

Common stock at paid-in amount:
Balance at beginning of year	$	745					$	745
Balance at end of period		745						745

Retained earnings:
Balance at beginning of year		1,690						1,403
Profit		83		$	83			72		$	72
Balance at end of period		1,773						1,475

Accumulated other comprehensive income/(loss):
Foreign currency translation adjustment
Balance at beginning of year		278						163
Aggregate adjustment for the period		(49	)		(49	)		(19	)		(19	)
Balance at end of period		229						144
Interest rate derivative instruments (net of tax)
Balance at beginning of year [net of tax of: 2005 - $1; 2004 - $(9)]		-						(18	)
Losses deferred during the period [net of tax of: 2005 - $(2); 2004 - $(8)]		(3	)		(3	)		(15	)		(15	)
Losses reclassed to earnings during the period [net of tax of: 2005 - $14; 2004 - $4]		23			23			8			8
Balance at end of period [net of tax: 2005 - $13; 2004 - $(13)]		20						(25	)
Other instruments (net of tax)
Balance at beginning of year		7						5
Aggregate adjustment for the period		(1	)		(1	)		1			1
Balance at end of period		6						6
Total accumulated other comprehensive income		255						125

Comprehensive income				$	53					$	47


Total stockholder’s equity	$	2,773					$	2,345

See Notes to Consolidated Financial Statements (unaudited).

Caterpillar Financial Services Corporation

Consolidated Statement of Cash Flows

(Unaudited)

(Dollars in Millions)

	Three Months Ended
		March 31,			March 31,
		2005			2004
Cash flows from operating activities:
Profit	$	83		$	72
Adjustments for non-cash items:
Depreciation of equipment on operating leases and non-leased equipment		157			147
Amortization of purchased discount		(45	)		(29	)
Provision for credit losses		16			20
Gain on sale of receivables		(1	)		(2	)
Other		(10	)		(19	)
Change in assets and liabilities:
Receivables from customers and others		(3	)		(5	)
Other receivables/payables with Caterpillar		12			21
Payable to dealers and others		2			(25	)
Accrued expenses		30			(3	)
Income taxes payable		24			28
Other assets and liabilities, net		-			2
Net cash provided by operating activities		265			207

Cash flows from investing activities:
Expenditures for equipment on operating leases and for non-leased equipment		(244	)		(245	)
Proceeds from disposals of equipment		175			199
Additions to finance receivables		(7,090	)		(3,399	)
Collections of finance receivables		6,414			2,731
Additions to retained interests in securitized wholesale receivables		-			(2,322	)
Collections of retained interests in securitized wholesale receivables		-			2,001
Proceeds from sales of receivables		10			264
Notes receivable from Caterpillar		(577	)		(3	)
Investment in partnerships		(2	)		7
Other, net		4			3
Net cash used for investing activities		(1,310	)		(764	)

Cash flows from financing activities:
Payable to Caterpillar - borrowings		109			(209	)
Proceeds from long-term debt		2,319			1,552
Payments on long-term debt		(1,357	)		(886	)
Short-term borrowings, net		(19	)		129
Net cash provided by financing activities		1,052			586

Effect of exchange rate changes on cash		(1	)		(9	)

Net change in cash and cash equivalents		6			20

Cash and cash equivalents at beginning of year		98			69

Cash and cash equivalents at end of period	$	104		$	89

See Notes to Consolidated Financial Statements (unaudited).

Notes to Consolidated Financial Statements

(Unaudited; Dollars in Millions)

A.	Use of estimates in the preparation of financial statements

We believe this information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the consolidated statements of financial position, profit, changes in equity, and cash flows for the periods presented. The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts. The most significant estimates are the allowance for credit losses and residual values for leased assets. Other significant estimates are the assumptions used to determine the fair value of derivatives and retained interests in securitizations. Actual results may differ from these estimates and the results for interim periods do not necessarily indicate the results we expect for the year.

Certain amounts for prior periods have been reclassified to conform to the current period presentation.

B.	Supplemental segment data

Our segment data is based on disclosure requirements of Statement of Financial Accounting Standards No. 131, which requires that financial information be reported on the basis that is used internally for measuring segment performance. Internally, we report information for operating segments based on management responsibility. The five segments offer primarily the same types of services.

On January 1, 2005, a portion of Cat Power Finance was reclassified to the North America segment. Prior year data has been reclassified to conform to the new structure. We segregate information as follows:

s	North America: We have offices in the United States and Canada that serve local dealers and customers. This segment also provides project financing in various countries.
s	Europe: We have offices in Europe to serve European dealers and customers. This segment also includes our office in Russia, which serves dealers and customers in the Commonwealth of Independent States.
s	Asia-Pacific: We have offices in Australia, New Zealand, and Asia that serve local dealers and customers.
s	Diversified Services: Included is our Global Accounts Division, which primarily provides cross-border financing to customers in countries in which we have no local presence; Marine Services Division, which primarily finances marine vessels with Caterpillar engines for all countries; and our offices in Latin America that serve local dealers and customers.
s	Cat Power Finance: This segment primarily provides debt financing for Caterpillar electrical power generation, gas compression, and co-generation systems (including the related non-Caterpillar equipment), as well as non-Caterpillar equipment that is powered by Caterpillar engines, for all countries.

Debt and other expenses for the Global Accounts, Marine Services, and Cat Power Finance divisions are allocated to their respective segments from the North America, Europe, and/or Asia-Pacific segments based on their respective portfolios. The related interest expense is calculated based on the amount of allocated debt at current market rates. Inter-segment revenues are also based on current market rates.

Supplemental segment data for the three months ended March 31,

2005	North America	Europe	Diversified Services	Asia-Pacific	Cat Power Finance	Total
External revenue	$ 326	90	67	43	17	$ 543
Inter-segment revenue	$ 6	-	-	-	-	$ 6
Profit	$ 48	17	9	4	5	$ 83
Assets at March 31, 2005	$14,200	4,408	4,821	1,830	1,219	$26,478

2004	North America	Europe	Diversified Services	Asia-Pacific	Cat Power Finance	Total
External revenue	$ 265	86	61	31	14	$ 457
Inter-segment revenue	$ 4	-	-	-	-	$ 4
Profit	$ 36	14	14	4	4	$ 72
Assets at March 31, 2004	$11,944	3,957	4,548	1,231	1,164	$22,844

Reconciliation of assets:		March 31, 2005			March 31, 2004
Assets from segments	$	26,478		$	22,844
Investment in subsidiaries		(926	)		(898	)
Inter-segment balances		(1,009	)		(1,384	)
Total assets	$	24,543		$	20,562

C.	Derivative Instruments and Hedging Activities

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 exposure. Our Policy specifies that derivatives are not to be used for speculative purposes. Derivatives that we use are primarily foreign currency forward and option contracts and interest rate swaps. Our derivative activities are subject to the management, direction, and control of our financial officers. Risk management practices, including the use of financial derivative instruments, are presented to the Audit Committee of the Caterpillar Inc. Board of Directors at least annually.

Foreign Currency Exchange Rate Risk

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. Our Policy allows the use of foreign currency forward contracts to offset the risk of currency mismatch between our receivables and debt. None of these foreign currency forward contracts are designated as a hedge. Other revenue included gains of $10 and $16 on the undesignated contracts for the three months ended March 31, 2005 and 2004, respectively, substantially offset by balance sheet remeasurement and conversion losses.

Due to the long-term nature of our net investments in foreign subsidiaries, we generally do not hedge the related currency exposure.

Interest Rate Risk

Interest rate movements create a degree of risk to our operations by affecting the amount of our interest payments and the value of our fixed rate debt. Our practice is to use interest rate swap agreements to manage our exposure to interest rate changes and lower the cost of borrowed funds.

We have a match funding policy, whereby the interest rate profile (fixed rate or floating rate) of our debt portfolio largely matches the interest rate profile of our receivables within established guidelines. In connection with that policy, we use interest rate derivative instruments to modify the debt structure to match these assets. This match funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move. We also use these instruments to gain an economic and/or competitive advantage through a lower cost of borrowed funds. This is accomplished by changing the characteristics of existing debt instruments or entering into new agreements in combination with the issuance of new debt.

Our policy allows us to use floating-to-fixed, fixed-to-floating, and floating-to-floating interest rate swaps to meet our match funding objective. To support hedge accounting, we designate fixed-to-floating interest rate swaps as fair value hedges of the fair value of our fixed rate debt at the inception of the contract. Our policy is to designate most floating-to-fixed interest rate swaps as cash flow hedges of the variability of future cash flows at the inception of the swap contract. Designation as a hedge of the variability of cash flow is performed to support hedge accounting.

As our fixed-to-floating interest rate swaps are 100% effective, losses during the quarter ended March 31, 2005 on designated interest rate derivatives of $47 were offset completely by gains on hedged debt of $47 in Other revenue. Gains of $34 during the first quarter of 2004 were completely offset by losses of $34. During 2005, 2004, and 2002 we liquidated six, three, and four fixed-to-floating interest rate swaps, respectively. As a result, the fair value adjustment of the original debt is amortized to earnings ratably over the remaining life of the hedged debt. Gains of less than $1 were amortized to Interest expense for the three months ended March 31, 2005 and 2004. There were no circumstances where hedge treatment was discontinued during the three months ended March 31, 2005 or 2004.

For the first quarter of 2005 and 2004, a gain or loss of less than $1 was included in Other revenue for both the ineffectiveness of our floating-to-fixed interest rate swaps designated as cash flow hedges and our mark-to-market of floating-to-fixed interest rate swaps that are not designated as a hedge.

Based on current market conditions, $8 of deferred net gains included in Accumulated other comprehensive income at March 31, 2005 was expected to be reclassified to Interest expense over the next twelve months as interest expense is accrued on our floating-to-fixed interest rate swaps. No floating-to-fixed interest rate swaps were liquidated during the three months ended March 31, 2005 or 2004.

D.	Guarantees

We have guaranteed to repurchase loans of certain Caterpillar dealers from third party lenders in the event of default. These guarantees now generally have one-year terms and are secured primarily by dealer assets, including Caterpillar equipment. Most of our guarantees arose due to our relationship with Caterpillar dealers. We have also provided a limited indemnity to a third party bank with a current maximum payment amount of $43 resulting from the assignment of certain leases to that bank. The leases are supported by, among other things, political risk insurance. The indemnity is triggered only if a valid claim under the political risk insurance is filed by the insurer rated “A” or higher by A.M. Best and Company; the claim is accepted by such insurer when filed; and such insurer subsequently fails to pay such claim because the insurer then becomes insolvent. The indemnity is for eight years and is unsecured. No loss has been experienced or is anticipated under these guarantees. The related book value (liability) was $10 at March 31, 2005 and December 31, 2004. The maximum potential amount of future payments (undiscounted and without reduction for any amount that may possibly be recovered under recourse or collateralized provisions) we could be required to make under the guarantees are as follows:

	March 31, 2005	December 31, 2004
Guarantees with Caterpillar dealers	$ 388	$ 364
Guarantees - other	74	62
Total guarantees	$ 462	$ 426

E.	Subsequent Event

On April 28, 2005, we completed a public securitization of retail installment sale contracts and finance leases. The net proceeds, including cash proceeds and retained interests, were $850 and the net gain was $12.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in millions)

Overview: First Quarter 2005 vs. First Quarter 2004

We are very pleased with the continued growth in our business and the reduction in past dues and write-offs. We continue to invest in people, technology and process improvement through 6 Sigma to support our growth initiatives, efficiency improvement, and increased customer satisfaction.

§	Revenues were a record $543, an increase of $86 or 19% compared with the same period last year.
§	Profit was a record $83, up $11 or 15% from a year ago.
§	New retail financing was a first quarter record $2,443, an increase of $474 or 24% from the first quarter last year.
§	Past dues over 30 days were 1.94% of total receivables plus retained interests in securitized wholesale receivables compared with 2.82% at March 31, 2004.
§	Write-offs of bad debts exceeded recoveries by $5 during the first quarter of 2005 compared to $11 during the same period last year.

Critical Accounting Policies

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect reported amounts. The most significant estimates include those related to our residual values for leased assets and for our allowance for credit losses. Actual results may differ from these estimates.

The residual value, which is the estimated future wholesale market value of leased equipment at the time of the expiration of the lease term, represents a careful analysis of historical wholesale market sales prices, projected forward on a level trend line without consideration for inflation or possible future pricing action. At the inception of the lease, the residual value is derived from consideration of the following critical factors: market size and demand, any known significant market/product trends, total expected hours of usage, machine configuration, application, location, model changes, quantities, and past re-marketing experience. Many impact factors are gathered in an application survey that is completed prior to quotation. The lease agreement also clearly defines applicable return conditions and remedies for non-compliance, in order to ensure that the leased equipment will be in good operating condition upon return. Model changes and updates, as well as market strength and product acceptance, are monitored, and residual adjustments are made in accordance with the significance of any such changes. Remarketing sales staff works closely with customers and dealers to manage the sale of lease returns and the recovery of residual exposure. During the term of the leases, residual amounts are monitored. If estimated market values significantly decline due to economic factors, obsolescence, or other adverse circumstances, the residuals are adjusted to the lower estimated values by a charge to earnings. For equipment on operating leases, the charge is recognized through depreciation expense. For finance leases, it is recognized through a reduction of finance revenue.

The allowance for credit losses is evaluated on a regular basis and adjusted based upon management's best estimate of probable losses inherent in our finance receivables. In estimating probable losses, we review accounts that are past due, non-performing, or in bankruptcy. We also review accounts that may be at risk using information available about the customer, such as financial statements, news reports, and published credit ratings. We also use general information regarding industry trends and the general economic environment. Using an estimate of current fair market value of collateral and factoring in credit enhancements, such as additional collateral and third party guarantees, we arrive at an estimated loss for specific accounts and estimate an additional amount for the remainder of the finance receivables based upon historical trends. Adverse economic conditions or other factors that might cause deterioration of the financial health of our customers could change the timing and level of payments received and thus necessitate a change in our estimated losses.

Three Months Ended March 31, 2005 Vs. Three Months Ended March 31, 2004

Revenues

Wholesale revenue (including revenues related to retained interests in securitized wholesale receivables) and retail finance revenue for the first quarter of 2005 was $325, an increase of $76 from the same period last year. The increase was due to a 21% increase in the average receivable plus the average retained interests in securitized wholesale receivables balance outstanding and a 50 basis point increase in the average interest rate. The annualized average interest rate on these assets was 6.41% for the first quarter of 2005 compared with 5.91% for the first quarter of 2004, including the annualized average interest rate on Notes receivable from Caterpillar.

Operating lease revenue for the first quarter of 2005 was $188, or $10 higher than the same period last year primarily due to an increase in equipment on operating leases that resulted from higher customer demand.

Other revenue for the first quarter of 2005 and 2004 was $30. Other revenue items for the three months ended March 31, included:

		2005		2004
Fees	$	7	$	6
Late charge income		7		6
Gain (loss) on sale of equipment returned from lease		4		5
Income related to retained interests in securitized receivables		3		2
Service fee income on securitized receivables		2		2
Forward points on FX contracts		2		(1	)
Gain on sale of receivables		1		2
Dividend income		1		4
Miscellaneous other revenue, net		3		4
Total other revenue	$	30	$	30

Expenses

Interest expense for the first quarter of 2005 was $173, an increase of $52 from the same period last year. This increase was primarily due to the increase in the average cost of funds of 62 basis points, to 3.50% for the first quarter of 2005 from 2.88% for the first quarter of 2004, and the impact of a 19% increase in average debt levels to fund new finance receivables and operating leases.

Depreciation expense on equipment leased to others was $152, up $10 over the first quarter of 2004 due to the increase in equipment on operating leases discussed in the Revenues section above.

General, operating, and administrative expenses were $76 during the first quarter of 2005 compared to $65 the same period last year. The increase primarily resulted from increased costs to support growth in earning assets. There were 1,392 full-time employees at March 31, 2005, an increase of 108 from March 31, 2004.

The provision for credit losses decreased from $20 for the first quarter of 2004 to $16 for the first quarter of 2005. The allowance for credit losses was 1.38% of finance receivables, net of unearned income, plus retained interest in securitized wholesale receivables at March 31, 2005, compared to 1.48% at March 31, 2004. The decrease in the allowance as a percentage of finance receivables reflects continued improvement in past due receivables, and an overall improvement in general economic conditions. The Notes receivable from Caterpillar are not included in this calculation.

Profit

Profit for the first quarter of 2005 was $83, up $11 from the first quarter of 2004.

On a pre-tax basis, profit was up $17 from first quarter 2004, due to $30 from growth in earning assets and a $4 decrease in provision for credit losses, partially offset by higher operating expenses of $11 and by $6 from the decrease in the interest rate spread.

Assets

Total assets were $24,543 at March 31, 2005, an increase of $3,981 over March 31, 2004, principally due to growth in finance receivables (retail and wholesale).

During the first quarter of 2005, we financed record new retail business of $2,443, compared to $1,969 during the first quarter of 2004. The increase of $474 was primarily related to increased financing in our North America and Diversified Services segments.

Managed Assets

We also manage and service receivables/leases that have been transferred through securitization or sale. These receivables/leases are not available to pay our creditors.

Off-balance-sheet securitized receivables at March 31, were as follows:

		2005			2004
Wholesale receivables securitized	$	-		$	2,135
Less: Retained interests in securitized wholesale receivables		-			1,895
Off-balance-sheet securitized wholesale receivables	$	-	*	$	240

Installment sale contracts securitized		652			623
Finance leases securitized		39			56
Less: retained interests (included in Other assets)		72			71
Total securitized receivables	$	619		$	608

* Because the related trust did not meet the non-consolidation criteria for a qualifying special purpose entity at March 31, 2005, we consolidated the trust and included the assets in finance receivables in the Consolidated Statement of Financial Position.

Other off-balance-sheet managed receivables/leases at March 31, were as follows:

		2005		2004
Finance leases	$	56	$	-
Installment sale contracts		9		-
Operating leases		16		-
Total other managed receivables/leases	$	81	$	-

Allowance for Credit Losses

The following table shows activity related to the Allowance for credit losses for the three months ended

March 31:

		2005			2004
Balance at beginning of quarter	$	278		$	241
Provision for credit losses		16			20
Receivables written off		(9	)		(15	)
Recoveries on receivables previously written off		4			4
Adjustment related to sale of receivables		(1	)		-
Foreign currency translation adjustment		(5	)		(2	)
Balance at end of the period	$	283		$	248

Bad debt write-offs, net of recoveries, were $5 for the first quarter of 2005 compared with $11 for the first quarter of 2004. The decrease was primarily in the North America segment. 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.

Past Due Receivables Plus Retained Interests in Securitized Wholesale Receivables

Finance receivables (excluding Notes receivable from Caterpillar) plus retained interests in securitized wholesale receivables plus rents receivable for operating leases (included in Other assets) that were past due over 30 days were 1.94% of these receivables at March 31, 2005, compared to 2.82% at March 31, 2004. The improvement was due to improved performance in the Diversified Services and North America segments, where past dues improved 3.78 and .68 percentage points, respectively.

Capital Resources And Liquidity

Operations for the first three months of 2005 were funded with a combination of borrowings, proceeds from sales of receivables, and retained earnings. We do not generate material funding through structured finance transactions.

For the first quarter of 2005, there were no collections of retained interests in securitized wholesale receivables as presented in the first quarter of 2004. Because the related trust did not meet the non-consolidation criteria for a qualifying special purpose entity during the first quarter 2005, we consolidated the trust and included the assets and related cash flows in with our finance receivables in the consolidated statements of financial position and cash flows.

During the first quarter of 2005 we sold retail finance leases with servicing retained where the investor has no recourse to us. Proceeds of $10 were received from the sale of such contracts.

Total outstanding borrowings Total borrowings outstanding at March 31, 2005 were $20,857, an increase of $828 over December 31, 2004 due to financing a higher amount of assets. Outstanding borrowings at March 31, 2005 consisted of:

·	$14,814 of medium-term notes

·	$ 4,223 of commercial paper

·	$ 476 of variable denomination floating rate demand notes

·	$ 425 of short-term bank borrowings

·	$ 434 of notes payable to Caterpillar

·	$ 240 of collateralized trust obligation

·	$ 237 of long-term bank borrowings

·	$ 8 of loans from a company-owned partnership

Of the $4,223 of commercial paper, $326 has a built-in feature to extend the maturity a maximum of 390 days from the initial issue date.

Revolving credit lines We participate in two global credit facilities with a syndicate of banks totaling $5,000 available in the aggregate to both Caterpillar and Cat Financial to support commercial paper programs. Based on management's allocation decision, which can be revised at any time, the portion of the facility available to Cat Financial at March 31, 2005 was $4,400. The five-year facility of $2,500 expires in September 2009. The 364-day facility of $2,500 expires in September 2005 and contains a provision that allows Caterpillar or Cat Financial to obtain a one-year loan for up to the full amount of that facility in September 2005 that would mature in September 2006.

In addition to the syndicated global credit facilities, we also have an A$50 (USD equivalent = $39) credit facility with one bank to support our Australian subsidiary's commercial paper program.

At March 31, 2005, there were no borrowings under these lines, and we were in compliance with all debt covenants.

Short-term credit lines from banks These credit lines total $1,236 and will be eligible for renewal at various future dates or have no specified expiration date. They are used for local bank borrowings of subsidiaries. At March 31, 2005, we had $425 outstanding against these credit lines compared to $370 at December 31, 2004.

Variable amount lending agreements with Caterpillar Under these agreements, we may borrow up to $1,650 from Caterpillar, and Caterpillar may borrow up to $1,239 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 $434 and notes receivable of $697 outstanding at March 31, 2005, compared to notes payable of $333 and notes receivable of $120 at December 31, 2004.

Off-balance sheet arrangements Please refer to Note D of Notes to Consolidated Financial Statements for information on our guarantee contingent liabilities. Also, we lease all our facilities rather than acquire them, where the acquisition would require us to recognize a liability for the financing.

Cash flows Net cash provided by operating activities was $265, an increase of $58 from the first three months of 2004, primarily due to an increase in accrued interest expense payable on U.S. medium-term notes of $33 and an increase in payables to dealers and others related to our new Chinese subsidiary of $21. Net cash used for investing activities increased from $764 in the first three months of 2004 to $1,310 in the first three months of 2005 primarily due to the increase in Notes receivable from Caterpillar of $574. Net cash provided by financing activities was $1,052, an increase of $466 from the first three months of 2004, primarily due to an increase in proceeds from long-term debt of $767 and net proceeds from Caterpillar borrowings of $300, partially offset by an increase in payments on long-term debt of $471.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

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 of the end of the period covered by this quarterly report. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Although the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote, management’s evaluation provided reasonable assurance that these controls will be effective.

Changes in internal control over financial reporting

During the last fiscal quarter, there has been no significant change in our internal controls over financial reporting that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits

Exhibit No.	Description
12	Ratio of Profit to Fixed Charges
31	Certifications of Kent M. Adams, President, Director, and Chief Executive Officer of Caterpillar Financial Services Corporation, and Edward J. Scott, Executive Vice President and Chief Financial Officer of Caterpillar Financial Services Corporation, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Kent M. Adams, President, Director, and Chief Executive Officer of Caterpillar Financial Services Corporation, and Edward J. Scott, Executive Vice President and Chief Financial Officer of Caterpillar Financial Services Corporation, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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: May 10, 2005	By: /s/ Steven R. Elsesser
	Steven R. Elsesser, Controller

Date: May 10, 2005	By: /s/ Kent M. Adams
	Kent M. Adams, President, Director, and Chief Executive Officer