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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1993 Commission File No. 0-
13295
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to
________________
CATERPILLAR FINANCIAL SERVICES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 37-
1105865
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identification Number)
3322 West End Avenue
Nashville, Tennessee 37203-
0983
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code: (615) 386-
5800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] Not Applicable.
At December 31, 1993, there was (1) share of common stock of
the Registrant outstanding, which is owned by Caterpillar Inc.
The Registrant complies with the conditions set forth in
General Instruction (J)(1)(a) and (b) of Form 10-K and is
therefore filing this Form with the reduced disclosure format.
Documents Incorporated by Reference
1993 None
PART I.
Item 1. Business
General
Caterpillar Financial Services Corporation (the "Company")
is a wholly owned finance subsidiary of Caterpillar Inc.
("Caterpillar"). The Company and its wholly owned subsidiaries in
North America, Australia, and Europe are principally engaged in
the business of financing sales and leases of Caterpillar products
and non-competitive related equipment through Caterpillar dealers
and is also engaged in extending loans to Caterpillar customers
and dealers. Unless the context otherwise requires, the term
"Company" includes subsidiary companies.
The Company's business is largely dependent upon the ability
of Caterpillar dealers to generate sales and leasing activity, the
willingness of the customers and the dealers to enter into
financing transactions with the Company, and the availability of
funds to the Company to finance such transactions. Additionally,
the Company's business is affected by changes in market interest
rates, which, in turn, are related to general economic conditions,
demand for credit, inflation, governmental policies, and other
factors.
The Company's retail financing business is highly
competitive. Financing for users of Caterpillar products is
available through a variety of competitive sources, principally
commercial banks and finance and leasing companies. The Company
emphasizes prompt and responsive service to meet customer
requirements and offers various financing plans designed to
increase the opportunity for sales of Caterpillar products and
financing income for the Company. In addition, the Company's
competitive position is improved by merchandising programs of
Caterpillar, its subsidiaries, and/or Caterpillar dealers.
The following types of retail financing plans are currently
offered:
Installment sale contracts. The Company finances
retail sales of equipment under installment sale
contracts with terms generally from one to five years.
Such contracts may be entered into (i) by dealers with
their customers and assigned to the Company, or (ii)
by the Company directly with equipment users.
Tax-oriented leases. Under these leases, the Company
is considered to be the owner of the equipment for tax
purposes during the term of the lease (generally from
two to seven years, except for special engine or
turbine applications which may range up to 15 years).
For financial accounting purposes, these leases are
classified as either financing or operating leases
depending upon the specific characteristics of the
lease. The Company establishes a specific residual
value on each product leased based on various factors
including the use and application, price, product
type, and lease term. Generally, the lessee, at the
end of the lease term, may continue to lease the
product or purchase the product for its fair market
value. The profitability of these leases is affected
by the Company's ability to realize estimated residual
values upon selling or re-leasing the equipment at the
termination of the leases.
Non-tax (financing) leases. Under these leases, the
lessee is considered to be the owner of the equipment
for tax and financial accounting purposes during the
term of the lease (generally from one to six years).
For financial accounting purposes, these leases are
classified as financing leases. The lessee
customarily has a fixed price purchase option
exercisable upon expiration of the lease term or will
be required to purchase the equipment at the end of
the lease term.
Customer and dealer loans. The Company offers loans
for working capital and other business purposes to
Caterpillar customers and dealers meeting the
Company's credit requirements. The loans may be
secured or unsecured and are repayable over terms
generally ranging from two to five years.
Governmental lease-purchase contracts. The Company
finances sales of products to cities, counties,
states, and other qualified governmental bodies for
terms generally from two to seven years. In general,
this form of financing is subject to termination if
the governmental body does not appropriate funds for
future payments. The reduced interest rate in these
transactions reflects the fact that interest income is
not subject to federal income tax.
The Company also provides wholesale financing of Caterpillar
dealer inventory in Germany and Caterpillar dealer rental fleets
in the United States. These receivables are secured by the
respective product which is fully insured against physical damage.
The amount of credit extended by the Company for each machine is
generally limited to the invoice price of the new equipment.
Maturities in Germany generally range from one to three months and
in the United States from six to twelve months.
The percentages of the total value of the Company's
portfolio represented by these financing plans at December 31 of
the past three years were as follows:
1993 1992
1991
Retail Financing:
Installment sale contracts 25% 25%
27%
Tax-oriented leases 20% 20%
21%
Non-tax (financing) leases 19% 19%
22%
Customer loans 19% 18%
13%
Dealer loans 10% 12%
12%
Governmental lease-purchase
contracts 3% 4%
5%
Wholesale Financing 4% 2%
-
The Company periodically offers below-market-rate financing
to customers which is subsidized by Caterpillar, its subsidiaries,
and/or Caterpillar dealers. In all such cases, the cost of such
subsidies is borne totally by Caterpillar, its subsidiaries,
and/or the dealer (and not by the Company) and is settled at the
time each transaction is executed.
Tax-oriented leases and governmental lease-purchase
contracts are currently offered at fixed interest rates and fixed
rental payments. Non-tax (financing) leases, installment sale
contracts, and customer and dealer loans are offered at either
fixed or floating interest rates. Approximately 80% of the
Company's portfolio involves financing with fixed interest rates
and fixed payments. In order to reduce the impact of interest
rate fluctuations on its operations, the Company has a match
funding policy of structuring the maturities of a substantial
percentage of its borrowed funds over periods which closely
correspond to the maturities of its portfolio.
The Company provides financing only when acceptable credit
standards and criteria are met. Decisions regarding credit
applications are based upon the customer's credit history and
financial strength, the intended use of the equipment being
financed, and other considerations. In general, the Company
obtains a security interest in the equipment being financed. Less
than five percent of the total value of the Company's portfolio
(excluding loans to dealers) is comprised of transactions in which
the Company has recourse to a dealer.
Management closely monitors past due accounts and regularly
evaluates the collectibility of receivable balances. The Company
maintains an allowance for credit losses which it believes is
sufficient to cover uncollectible accounts. Company policy is to
write off against such allowance that portion of the outstanding
receivable which cannot be recovered by leasing or selling the
related equipment. Management believes the allowance for credit
losses at December 31, 1993, is sufficient to provide for any
losses which may be sustained on outstanding receivables. For
more information on receivables and the allowance for credit
losses, see Note 2 of the Notes to the Consolidated Financial
Statements.
The following table summarizes the Company's delinquency
experience showing past-due receivables as a percentage of total
receivables:
Delinquency Experience
Decem ber 31,
1993
1992 1991
Past due 31 to 60 days ..................... .7%
0.6% 1.6%
Past due over 60 days ..................... 1.2%
1.9% 2.4%
At December 31, 1993, the largest single customer/dealer
account represented 3.5% of the Company's portfolio and the five
largest such customer/dealer accounts represented 11.1% of the
portfolio. With respect to dealer financing, at December 31,
1993, the largest single dealer account represented 3.5% of the
Company's portfolio and the five largest such dealer accounts
collectively represented 8.8% of the portfolio. In the opinion of
the Company, the loss of the business represented by any one of
these accounts would not have a material adverse effect on the
Company's overall business.
Relationship with Caterpillar
Caterpillar provides the Company with certain operational
and financial support which is integral to the conduct of the
Company's business. The employees of the Company are covered by
various benefit plans, including pension/post-retirement plans,
administered by Caterpillar. The Company reimburses Caterpillar
for certain corporate services and pays rent for space occupied on
Caterpillar premises. For more information on payments for
services, see Note 10 of the Notes to the Consolidated Financial
Statements.
The Company, in conjunction with Caterpillar and its
subsidiaries, periodically offers below-market-rate financing to
customers under merchandising programs. Caterpillar, at the
outset of the transaction, remits to the Company an amount equal
to the interest differential which is recognized as income over
the term of the contracts. For more information on the interest
differential payments, see Note 10 of the Notes to the
Consolidated Financial Statements.
The Company entered into agreements with a subsidiary of
Caterpillar to purchase, at a discount, some or all of the
subsidiary's receivables generated by sales of products to
Caterpillar dealers in Germany, Austria, and the Czech Republic.
These purchases (wholesale financing) in 1993 and 1992 totaled
$210.2 million and $201.7 million, respectively.
Through December 31, 1993, Caterpillar had invested a total
of $250.0 million in the equity of the Company. The Company and
Caterpillar have also entered into an agreement (the "Support
Agreement") which provides, among other things, that Caterpillar
will (i) remain, directly or indirectly, the sole owner of the
Company, (ii) ensure that the Company will maintain a tangible net
worth of at least $20.0 million, and (iii) permit the Company to
use (and the Company is required to use) the name "Caterpillar" in
the conduct of its business. The Support Agreement provides that
it may be modified, amended, or terminated by either party.
However, no such modification or amendment, which adversely
affects the holders of any debt outstanding at the execution
thereof, is binding on or in any manner becomes effective with
respect to (i) any then outstanding commercial paper, or (ii) any
other debt then outstanding unless such modification or amendment
is approved in writing by the holders of 66-2/3% of the aggregate
principal amount of such other debt. The obligations of
Caterpillar under the Support Agreement are to the Company only
and are not directly enforceable by any creditor of the Company,
nor do such obligations constitute a guarantee by Caterpillar of
the payment of any debt or obligation of the Company.
To supplement external debt financing sources, the Company
has variable amount lending agreements with Caterpillar (including
one of its subsidiaries). Under these agreements, which may be
amended from time to time, the Company may borrow up to $53.8
million from Caterpillar, and Caterpillar may borrow up to $83.8
million from the Company. All of the variable amount lending
agreements are effective for indefinite terms and may be
terminated by either party upon 30 days' notice. At December 31,
1993, the Company had no outstanding borrowings or loans
receivable under these agreements.
To hedge the U.S. dollar denominated borrowings in Australia
against currency fluctuations, the Company has entered into
forward exchange contracts with Caterpillar. All of these
contracts generally have maturities not exceeding 90 days. At
December 31, 1993, the Company had contracts with Caterpillar
totaling $143.1 million.
The Company has an agreement (the "Tax Sharing Agreement")
with Caterpillar in which the Company consented to the filing of
consolidated income tax returns with Caterpillar, and Caterpillar
agreed, among other things, to collect from or pay to the Company,
within 45 days of realization, its allocated share of any
consolidated income tax liability or credit applicable to any
period for which the Company is included in Caterpillar's
consolidated federal income tax return. The Tax Sharing Agreement
sets forth the method by which the Company's allocated share shall
be determined and provides that Caterpillar will indemnify the
Company for any related tax liability in excess of that amount.
Similar agreements were executed between Caterpillar Financial
Australia Limited and Caterpillar of Australia Ltd. with respect
to taxes payable in Australia, and between the Company and
Caterpillar with respect to taxes payable in Germany.
Item 2. Properties
The Company does not own any real estate. Its principal
executive offices are comprised of approximately 49,000 square
feet of office space at 3322 West End Avenue, Nashville,
Tennessee.
As of December 31, 1993, the Company had additional offices
in or near Phoenix, Arizona; Dallas, Texas; Atlanta, Georgia;
Baltimore, Maryland; Chicago, Illinois; Melbourne, Australia;
Calgary, Alberta; Toronto, Ontario; Munich, Germany; Leipzig,
Germany; Stockholm, Sweden; Oslo, Norway; Arhus, Denmark; Paris,
France; London, England; and Madrid, Spain. For more information
on leases, see Note 11 of the Notes to the Consolidated Financial
Statements.
Item 3. Legal Proceedings
The Company is a party to various litigation matters and
claims, and, while the results of litigation and claims cannot be
predicted with certainty, management believes the final outcome of
such matters and claims will not have a material adverse effect on
the consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
Information for this Item 4 is not required. See General
Instruction J.
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's common stock is owned entirely by Caterpillar
and is not publicly traded. In its three most recent fiscal
years, the Company has not declared or paid cash dividends on its
common stock.
Item 6. Selected Financial Data
Information on this Item 6 is not required. See General
Instruction J.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The Company derives its earnings primarily from financing
sales and leases of Caterpillar products and from loans extended
to Caterpillar customers and dealers.
New retail financing during 1993 totaled $1,967.4 million, a
28% increase over the $1,531.8 million financed in 1992 and a 59%
increase over the 1991 new business of $1,240.0 million. New
retail financing volume for 1993 exceeded 1992 and 1991 levels due
to increased machine financing in the United States and Europe.
New business volume for 1992 exceeded the 1991 level primarily as
the result of financing activity in Germany. The Company had
wholesale financing during 1993 of $228.2 million.
New retail financing in 1994 is expected to remain at about
1993 levels. Wholesale financing in 1994 is expected to exceed
1993 levels due to expansion of the Caterpillar dealer rental
fleet financing program in the United States. In 1994, the
Company will offer financial services to the customers of the
Caterpillar dealer in Spain through a new subsidiary, Alquiler de
Equipos Industriales, S.A.
Revenues from operations in the United States were more than
80% of total revenues in 1993, 1992, and 1991. Net income from
operations in the United States was more than 90% of total net
income in 1993, 1992, and 1991. For more geographic segment
information, see Note 12 of the Notes to the Consolidated
Financial Statements.
Past due percentages decreased in 1993 primarily as a result
of an improving U.S. economy and collection efforts. The
allowance for credit losses will continue to be monitored to
provide for an amount which, in management's judgement, will be
adequate to cover uncollectible receivables.
The composition of the Company's portfolio (see "Item 1.
Business") by financing plans did not change significantly from
1992 to 1993. The Company's wholesale financing increased due to
a higher floor planning receivable balance in Germany and the
addition of receivables from dealers under the inventory rental
assistance program in the United States.
1993 Compared With 1992
Total revenues for 1993 were $363.6 million, a 6% increase
over 1992 revenues of $342.4 million. The increase in revenues,
limited by a low interest rate environment, was primarily the
result of earnings from the larger portfolio which increased to
$3,522.1 million at December 31, 1993 from $2,812.7 million at
December 31, 1992.
The annualized interest rate on finance receivables
(computed by dividing finance income by the average monthly
finance receivable balances) was 9.1% for 1993 compared with 10.3%
for 1992. Tax benefits associated with governmental lease-
purchase contracts and a portion of tax benefits associated with
long-term tax-oriented leases are not reflected in such annualized
interest rates. The decrease in the annualized interest rate
reflected a decrease in the interest rates charged to customers.
Other income, net, of $15.7 million for 1993 included fees,
gains on sales of equipment returned from lease, and other
miscellaneous income. The increase of $1.3 million for 1993 was
primarily due to a higher amount of fees collected and earned.
Interest expense for 1993 was $173.1 million, $1.3 million
less than 1992. Although there were increased borrowings to
support the larger portfolio, interest expense decreased due to
lower borrowing rates as the average cost of borrowed funds was
6.5% in 1993 compared with 7.8% in 1992.
Depreciation expense increased from $63.1 million in 1992 to
$69.6 million in 1993 due to the increase in equipment on
operating leases which, computed as a monthly average balance,
increased 9%.
General, operating, and administrative expenses increased
$8.8 million over 1992 primarily due to staff-related and other
expenses required to service the larger portfolio and expansion
into Europe. The Company's full-time employment increased from
324 at the end of 1992 to 361 at
December 31, 1993.
Provision for credit losses during 1993 increased from $20.4
million in 1992 to $20.8 million in 1993. This increase,
partially offset by a higher provision taken in 1992 for the U.S.,
Australian, and Canadian companies, reflected increased levels of
new business for 1993. Receivables, net of recoveries, of $18.8
million were written off against the allowance for credit losses
during 1993 compared with $14.3 million during 1992 due to an
acceleration of write-offs from point of sale to point of
repossession. Receivables past due over 30 days were 1.9% of
total receivables at December 31, 1993 compared with 2.5% at
December 31, 1992. Past due percentages decreased primarily as a
result of an improving U.S. economy and collection efforts. The
allowance for credit losses is monitored to provide for an amount
which, in management's judgment, will be adequate to cover
uncollectible receivables. At December 31, 1993, the allowance
for credit losses was $41.5 million which was 1.3% of finance
receivables, net of unearned income, compared with $36.5 million
and 1.4% at December 31, 1992, respectively.
The effective income tax rate for 1993 was 36% compared with
34% for 1992. For information on this change, see Note 8 of the
Notes to the Consolidated Financial Statements.
Consolidated net income in 1993 was $37.8 million, compared
with $34.0 million, excluding the cumulative effect of the change
in accounting for income taxes in 1992. The increase in net
income generally reflected the increased revenues from a larger
portfolio and lower cost of borrowed funds, partially offset by
increased costs to support the larger portfolio and European
expansion.
1992 Compared With 1991
Total revenues for 1992 were $342.4 million, an 8% increase
over 1991 revenues of $316.4 million. The increase in revenues,
limited by a low interest rate environment, was primarily the
result of earnings from the larger portfolio, which increased to
$2,812.7 million at December 31, 1992 from $2,437.1 million at
December 31, 1991.
The annualized interest rate on finance receivables
(computed by dividing finance income by the average monthly
finance receivable balances) was 10.3% for 1992 compared with
11.1% for 1991. Tax benefits associated with governmental lease-
purchase contracts and a portion of tax benefits associated with
long-term tax-oriented leases are not reflected in such annualized
interest rates. The decrease in the annualized interest rate
reflected a decrease in interest rates charged to customers.
Other income, net, of $14.4 million for 1992 included fees,
gains on sales of equipment returned from lease, and other
miscellaneous income. The increase of $3.7 million for 1992 was
primarily due to larger gains on sales of equipment returned from
lease, more commitment fees earned, and more late charge fees
collected.
Interest expense for 1992 was $174.4 million, $1.9 million
less than 1991. Although there were increased borrowings to
support the larger portfolio, interest expense decreased due to
lower borrowing rates as the average cost of borrowed funds was
7.8% in 1992 compared with 8.9% in 1991.
Depreciation expense increased from $54.4 million in 1991 to
$63.1 million in 1992 due to the increase in equipment on
operating leases which, computed as a monthly average balance,
increased 12%.
General, operating, and administrative expenses increased
11% over 1991 primarily due to staff-related and other expenses
required to service the larger portfolio and expansion into
Europe. The Company's full-time employment increased from 310 at
the end of 1991 to 324 at December 31, 1992.
Provision for credit losses during 1992 increased from $13.2
million in 1991 to $20.4 million in 1992. This increase reflected
increased levels of new business and a higher provision taken for
the U.S., Australian, and Canadian companies. Receivables, net of
recoveries, of $14.3 million were written off against the
allowance for credit losses during 1992 compared with $13.0
million during 1991. Receivables past due over 30 days were 2.5%
of total receivables at December 31, 1992, compared with 4.0% at
December 31, 1991. Past due percentages decreased primarily as a
result of increased collection efforts. The allowance for credit
losses is monitored to provide for an amount which, in
management's judgement, will be adequate to cover uncollectible
receivables. At December 31, 1992, the allowance for credit
losses was $36.5 million which was 1.4% of finance receivables,
net of unearned income, compared with $31.0 million and 1.4% at
December 31, 1991, respectively.
The effective income tax rate for 1992 and 1991 was 34%. In
the fourth quarter of 1992, effective January 1, 1992, the Company
adopted Statement of Financial Accounting Standards (SFAS) 109,
"Accounting for Income Taxes." SFAS 109 requires changing the
method of accounting for income taxes from the deferred method to
the liability method. The effect of adopting SFAS 109, as of
January 1, 1992, was a benefit of $2.6 million and is excluded
from the effective income tax rate calculation. For more
information on this accounting change, see Note 8 of the Notes to
the Consolidated Financial Statements.
Consolidated net income in 1992, excluding the cumulative
effect of the change in accounting for income taxes, was $34.0
million, compared with $28.5 million in 1991. The increase in net
income generally reflected the increased revenues from a larger
portfolio and lower cost of borrowed funds, partially offset by
the increase in the provision for credit losses.
Capital Resources and Liquidity
The Company's operations were primarily funded with a
combination of medium-term notes, commercial paper, bank
borrowings, retained earnings, and additional equity capital of
$30.0 million invested by Caterpillar. Additional short-term
funding was available from Caterpillar (see Note 10 of the Notes
to the Consolidated Financial Statements); however, no
intercompany borrowings were outstanding at December 31, 1993.
Total debt outstanding as of December 31, 1993, was $3,041.1
million, an increase of $639.7 million over that at December 31,
1992, and was primarily comprised of $1,854.8 million of medium-
term notes, $797.2 million of commercial paper, and $335.7 million
of notes payable to banks. Interest rate swaps were contracted in
the United States, Australia, Canada, and Germany to reduce the
exposure to interest rate fluctuations. See Notes 6 and 7 of the
Notes to the Consolidated Financial Statements for more
information on short-term and long-term debt.
At December 31, 1993, the Company had available in the
United States, Australia, Canada, Germany, Sweden, and the United
Kingdom a total of $990.7 million of short-term credit lines,
which expire at various dates in 1994, and $64.7 million of long-
term credit lines, which expire at various dates from January 1996
to May 1996. These credit lines are with a number of banks and
are considered support for the Company's outstanding commercial
paper, commercial paper guarantees, the discounting of bank and
trade bills, and bank borrowings at various interest rates. At
December 31, 1993, there were $326.1 million of these lines
utilized for bank borrowings in Australia, Germany, Sweden, and
the United Kingdom.
The Company also has a $455.0 million revolving credit
agreement with a group of banks. This agreement is also
considered support for the Company's outstanding commercial paper
and commercial paper guarantees. The agreement terminates in 1996
and provides for borrowings at interest rates which vary according
to LIBOR or money market rates. At December 31, 1993, there were
no borrowings under this agreement.
The above-mentioned credit agreements require the Company to
maintain its consolidated ratio of profit before taxes plus fixed
charges to fixed charges at no less than 1.1 to 1 for each
quarter; the Company's total liabilities to total stockholder's
equity may not exceed 8.0 to 1; and the Company's tangible net
worth must be at least $20.0 million.
The Company's funding requirements were met primarily
through the sale of commercial paper and medium-term notes,
discounting of bank and trade bills, and through bank borrowings.
During 1993, the average outstanding commercial paper balance, net
of discount, was $782.3 million at an average interest rate of
3.7%. At year-end 1993, the face value of commercial paper
outstanding was $798.6 million. During 1993, $417.1 million of
fixed-rate medium-term notes were sold at an average interest rate
of 4.9% and $475.2 million of floating-rate medium-term notes were
sold at rates indexed to LIBOR, prime, or commercial paper rates.
Medium-term notes outstanding at year-end 1993 were $1,854.8
million. During the year, bank bills totaling $154.4 million and
trade bills totaling $184.2 million were discounted at an average
interest rate of 5.6% and 8.0%, respectivly. In connection with
its match funding objectives, the Company entered into a variety
of interest rate contracts including interest rate swap and cap
agreements. Interest rate swap agreements totaled $2,047.3
million and interest rate cap agreements totaled $500.0 million at
year-end 1993.
The Company has entered into forward exchange contracts to
hedge its U.S. dollar denominated obligations in Australia and
Canada against currency fluctuations. At December 31, 1993, the
outstanding forward exchange contracts totaled $146.6 million.
On a consolidated basis, equity capital at the end of 1993
was $418.0 million, an increase of $64.0 million during the year.
This increase included $30.0 million of additional equity
investment made by Caterpillar and $37.8 million of retained
earnings from operations. The increase in debt, the equity
investment from Caterpillar, and the funds provided by operations
were used to finance the increase in the portfolio. The ratio of
debt to equity at December 31, 1993 was 7.3 to 1, compared with
6.8 to 1 for 1992 and 6.7 to 1 for 1991.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is included as a part of
this report on pages 16 through 29.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant
Information for Item 10 is not required. See General
Instruction J.
Item 11. Executive Compensation
Information for Item 11 is not required. See General
Instruction J.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information for Item 12 is not required. See General
Instruction J.
Item 13. Certain Relationships and Related Transactions
Information for Item 13 is not required. See General
Instruction J.
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as part of this
report:
1. Financial Statements
Report of Independent Accountants
Consolidated Statement of Financial Position at
December 31, 1993, 1992, and 1991
Consolidated Statement of Income and Retained
Earnings for the Years Ended December 31,
1993, 1992, and 1991
Consolidated Statement of Cash Flows for the
Years Ended December 31, 1993, 1992, and
1991
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule IX - Short-term Borrowings
All other schedules are omitted because they are
not applicable or required information is shown
in the financial statements or the notes
thereto.
(b) Reports on Form 8-K
None
(c) Exhibits
3.1 Certificate of Incorporation of the Company
(incorporated by reference from Exhibit 3.1 to
the Company's Form 10, as amended, Commission
File No. 0-13295).
3.2 Bylaws of the Company (incorporated by reference
from Exhibit 3.2 to the Company's Annual Report
on Form 10-K, for the year ended December 31,
1990, Commission File No.
0-13295).
4.1 Indenture, dated as of April 15, 1985, between
the Company and Morgan Guaranty Trust Company of
New York, as Trustee, including form of Debt
Security (see Table of Contents to
Indenture)(incorporated by reference from
Exhibit 4.1 to the Company's Registration
Statement on Form S-3, Commission File No. 33-
2246).
4.2 First Supplemental Indenture, dated as of May
22, 1986, amending the Indenture dated as of
April 15, 1985 between the Company and Morgan
Guaranty Trust Company of New York, as Trustee
(incorporated by reference from Exhibit 4.1 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended June 20, 1986, Commission File
No. 0-13295).
4.3 Second Supplemental Indenture, dated as of March
15, 1987, amending the Indenture dated as of
April 15, 1985 between the Company and Morgan
Guaranty Trust Company of New York, as Trustee
(incorporated by reference from Exhibit 4.3 to
the Company's Current Report on Form 8-K dated
April 24, 1987, Commission File No. 0-13295).
4.4 Third Supplemental Indenture, dated as of
October 2, 1989, amending the Indenture dated as
of April 15, 1985, between the Company and
Morgan Guaranty Trust Company of New York, as
Trustee (incorporated by reference from Exhibit
4.3 to the Company's Current Report on Form 8-K,
dated
October 16, 1989, Commission File No. 0-13295).
4.5 Fourth Supplemental Indenture, dated as of
October 1, 1990, amending the Indenture dated
April 15, 1985, between the Company and Morgan
Guaranty Trust Company of New York, as Trustee
(incorporated by reference from Exhibit 4.3 to
the Company's Current Report on Form 8-K, dated
October 29, 1990, Commission File No. 0-13295).
4.6 Indenture, dated as of July 15, 1991, between
the Company and Continental Bank, National
Association, as Trustee (incorporated by
reference from Exhibit 4.1 to the Company's
Current Report on Form 8-K, dated July 25, 1991,
Commission File No. 0-13295).
4.7 Support Agreement, dated as of December 21,
1984, between the Company and Caterpillar
(incorporated by reference from Exhibit 4.2 to
the Company's Form 10, as amended, Commission
File No. 0-13295).
10.1 Tax Sharing Agreement, dated as of June 21,
1984, between the Company and Caterpillar
(incorporated by reference from Exhibit 10.3 to
the Company's Form 10, as amended, Commission
File No. 0-13295).
10.2 Revolving Credit Agreement, dated as of February
22, 1991, among the Company, as the Borrower,
the several financial institutions parties
thereto (the "Banks"), and The First National
Bank of Chicago, as agent for the Banks
(incorporated by reference from Exhibit 10.2 to
the Company's Annual Report on Form 10-K, for
the year ended December 31, 1990, Commission
File No. 0-13295).
10.3 Amendment to the Revolving Credit Agreement,
described in Exhibit 10.2 of the Company's
Annual Report on Form 10-K for the year ending
December 31, 1990, extending the Termination
Date from February 20, 1994 to February 20, 1995
(incorporated by reference from Exhibit 10.3 to
the Company's Annual Report on Form 10-K, for
the year ended December 31, 1991, Commission
File No. 0-13295).
10.4 Amendment to the Revolving Credit Agreement,
described in Exhibit 10.2 of the Company's
Annual Report on Form 10-K for the year ending
December 31, 1990, extending the Termination
Date from February 20, 1995 as amended by
Exhibit 10.3 of the Company's Annual Report on
Form 10-K for the year ending December 31, 1991,
to February 20, 1996 (incorporated by reference
from Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June
30, 1993, Commission File No. 013295).
12 Statement Setting Forth Computation of Ratio of
Profit to Fixed Charges.
(The ratios of profit to fixed charges for the
years ending December 31, 1993, 1992, and 1991
were 1.33, 1.28, and 1.23, respectively.)
23 Consent of Price Waterhouse
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Caterpillar Financial Services Corporation
(Registrant)
Dated: March 4, 1994 By: /s/ Nancy L.
Snowden
Nancy L. Snowden, Secretary
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Company and in the capacities and on the
dates indicated.
Date Signature
Title
March 4, 1994 /s/ James S. Beard President,
Director and
(James S. Beard) Principal
Executive
Officer
March 4, 1994 /S/ F. Lynn McPheeters Executive
Vice President
(F. Lynn McPheeters) and
Director
March 4, 1994 /s/ James W. Wogsland Director
(James W. Wogsland)
March 4, 1994 /s/ Kenneth C. Springer Controller
and Principal
(Kenneth C. Springer) Accounting
Officer
March 4, 1994 /s/ Frank C. Carder Treasurer
and Principal
(Frank C. Carder) Financial
Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Caterpillar Financial Services Corporation
In our opinion, the consolidated financial statements listed in
the index appearing under Item 14(a)(1) and (2) on page 11 present
fairly, in all material respects, the financial position of
Caterpillar Financial Services Corporation and its subsidiaries at
December 31, 1993, 1992, and 1991, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 8 to the consolidated financial statements,
in 1992 the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) 109, "Accounting for Income
Taxes."
PRICE WATERHOUSE
Peoria, Illinois
January 21, 1994
CATERPILLAR FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Millions of dollars)
December
31,
1993 1992
1991
Assets:
Cash and cash equivalents $ 15.6 $ 11.5
$ 20.4
Finance receivables (Notes 2,3, and 5):
Wholesale notes receivable 142.8 49.3
-
Retail notes receivable 1,035.5 858.5
623.9
Investment in finance receivables 2,350.8 1,970.1
1,840.8
3,529.1 2,877.9
2,464.7
Less: Unearned income 348.2 315.8
288.7
Allowance for credit losses 41.5 36.5
31.0
3,139.4 2,525.6
2,145.0
Equipment on operating leases,
less accumulated depreciation (Note 4) 364.6 276.7
283.0
Other assets 45.1 29.5
40.6
Total assets $3,564.7 $2,843.3
$2,489.0
Liabilities and stockholder's equity:
Payable to dealers and customers $ 13.7 $ 11.1
$ 1.5
Payable to Caterpillar Inc. (Note 10) 3.9 2.9
3.5
Accrued interest payable 33.6 28.0
27.4
Income tax payable (Note 8) 36.0 30.0
8.8
Other liabilities 5.4 3.2
1.1
Short-term borrowings (Note 6) 1,138.2 913.1
672.5
Current maturities of long-term debt
(Note 7) 492.5 492.4
562.7
Long-term debt (Note 7) 1,410.4 995.9
876.3
Deferred income taxes (Note 8) 13.0 12.7
22.3 Total liabilities 3,146.7
2,489.3 2,176.1
Commitments and contingent liabilities
(Note 7)
Common stock - $1 par value
Authorized: 2,000 shares
Issued and outstanding: one share 250.0 220.0
210.0
Profit employed in the business 175.5 137.7
101.1
Foreign currency translation
adjustment (Note 1G) (7.5) (3.7)
1.8
Total stockholder's equity 418.0 354.0
312.9
Total liabilities and stockholder's equity $3,564.7 $2,843.3
$2,489.0
(See Notes to Consolidated Financial Statements)
CATERPILLAR FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31,
(Millions of dollars)
1993 1992
1991
Revenues:
Wholesale finance income $ 5.8
$ 4.1 $ -
Retail finance income 246.4 235.2
227.7
Rental income 95.7 88.7
78.0
Other income, net 15.7 14.4
10.7
Total revenues 363.6 342.4
316.4
Expenses:
Interest (Notes 6 & 7) 173.1 174.4
176.3
Depreciation 69.6 63.1
54.4
General, operating, and administrative 41.7 32.9
29.6
Provision for credit losses 20.8 20.4
13.2
Total expenses 305.2 290.8
273.5
Income before income taxes, minority
interest, and cumulative effect of
change in accounting for income
taxes 58.4 51.6
42.9
Provision for income taxes (Note 8) 21.3 17.6
14.4
Minority interest in earnings (losses)
of subsidiary (0.7) -
-
Income before cumulative effect of change
in accounting for income taxes 37.8 34.0
28.5
Cumulative effect of change in accounting
for income taxes - 2.6
-
Net income 37.8 36.6
28.5
Retained earnings - beginning of year 137.7 101.1
72.6
Retained earnings - end of year $175.5 $137.7
$101.1
(See Notes to Consolidated Financial Statements)
CATERPILLAR FINANCIAL
SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(Millions of dollars)
1993 1992
1991
Cash flows from operating activities:
Net income $ 37.8 $ 36.6
$ 28.5
Adjustments for noncash items:
Depreciation 69.6 63.1
54.4
Provision for credit losses 20.8 20.4
13.2
Other (4.4) (6.1)
(5.7)
Change in assets and liabilities:
Receivables from customers and others (15.3) 14.9
(14.6)
Deferred and refundable income taxes - (9.5)
2.2
Payable to dealers and customers 2.8 10.1
(2.0)
Payable to Caterpillar Inc. 1.0 (.6)
(7.0)
Accrued interest payable 5.5 .7
9.5
Income tax payable 6.0 21.4
(2.6)
Other, net 2.1 2.1
(2.5)
Net cash provided by operating
activities 125.9 153.1
73.4
Cash flows from investing activities:
Additions to equipment (204.1) (121.2)
(118.7)
Disposals of equipment 32.6 31.2
19.5
Additions to finance receivables (2,023.0) (1,601.5)
(1,268.6)
Collections of finance receivables 1,388.8 1,197.8
999.3
Other, net .2 (.3)
.2
Net cash used for investing
activities (805.5) (494.0)
(368.3)
Cash flows from financing activities:
Additional paid in capital 30.0 10.0
10.0
Proceeds from long-term debt issues 918.4 617.0
691.3
Payments on long-term debt (517.4) (567.7)
(410.7)
Short-term borrowings, net 253.5 275.0
2.8
Net cash provided by financing
activities 684.5 334.3
293.4
Effect of exchange rate changes on cash (.8) (2.3)
(.4)
Net change in cash and cash equivalents 4.1 (8.9)
(1.9)
Cash and cash equivalents at beginning
of year 11.5 20.4
22.3
Cash and cash equivalents at end of year $ 15.6 $ 11.5
$ 20.4
(See Notes to Consolidated Financial Statements)
CATERPILLAR FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Operations and basis of consolidation
Caterpillar Financial Services Corporation (the "Company")
is a wholly owned finance subsidiary of Caterpillar Inc.
("Caterpillar"). The Company provides financing of earthmoving,
construction, and materials handling machinery and engines sold by
Caterpillar dealers, and turbine engines sold by Solar Turbines
Incorporated through offices located in North America, Australia,
and Europe. The Company also provides customer and dealer loans
for various business purposes.
The accompanying financial statements include the accounts
of Caterpillar Financial Services Corporation and its foreign
subsidiaries.
Certain amounts in the prior period financial statements
have been reclassified to conform to the 1993 presentation.
B. Recognition of earned income
Retail finance income - Income on retail finance receivables
(financing leases, installment sale contracts, and customer and
dealer loans) is recognized over the term of the contract at a
constant rate of return on the scheduled uncollected principal
balance.
Wholesale finance income - Income on wholesale finance
receivables (dealer floor planning in Germany and rental fleet
financing in the United States) is recognized based on the daily
balance of wholesale receivables outstanding and the applicable
effective interest rate.
Rental income - Income on operating leases is reported over
the life of the operating lease in the period earned.
Fee income - Loan origination fees are amortized to finance
income using the interest method over the contractual terms of the
finance receivables. Commitments fees are amortized to other
income using the straight-line method over the commitment period.
Recognition of income is suspended when management
determines that collection of future income is not probable.
Accrual is resumed if the receivable becomes contractually current
and collection doubts are removed; previously suspended income is
recognized at that time.
C. Depreciation
Depreciation on operating leases is recognized using the
straight-line method over the lease term. The depreciable basis
is the original cost of the equipment less the estimated residual
value of the equipment at the end of the lease term. Depreciation
on property and equipment, other than equipment on operating
leases, that the Company owns, was less than $1.3 million for
1993.
D. Cash and cash equivalents
Cash and cash equivalents include cash on hand or on deposit
with banks and highly liquid short-term investments with
maturities of three months or less at the time of purchase.
E. Allowance for credit losses
Management regularly evaluates factors affecting the
collectibility of receivable balances and maintains an allowance
for credit losses, which it believes is sufficient to cover
uncollectible accounts. Uncollectible receivable balances are
written off against the allowance for credit losses when the
underlying collateral is repossessed. Prior to 1993,
uncollectible receivable balances were written off when the
underlying collateral was sold.
F. Income taxes
The Company has a tax sharing agreement with Caterpillar in
which the Company consents to the filing of consolidated income
tax returns with Caterpillar, and Caterpillar agrees, among other
things, to collect from or pay to the Company its allocated share
of any consolidated income tax liability or credit applicable to
any period for which the Company is included as a member of the
consolidated group in a manner determined as if each company in
the consolidated group had computed its tax on a separate return
basis. Similar agreements exist between Caterpillar Financial
Australia Limited and Caterpillar of Australia Ltd. with respect
to taxes payable in Australia, and between the Company and
Caterpillar with respect to taxes payable in Germany.
G. Foreign currency translation
Assets and liabilities of foreign subsidiaries are
translated at current exchange rates, and the effects of
translation adjustments are reported as a separate component of
stockholder's equity entitled "Foreign currency translation
adjustment."
NOTE 2 - RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
The contractual maturities of outstanding receivables at
December 31, 1993, were:
Installment Financing
Amounts due in contracts leases Notes
Total
1994 $ 415.9 $ 392.5 $ 362.2
$1,170.6
1995 304.1 296.6 288.1
888.8
1996 189.7 198.5 219.6
607.8
1997 70.8 116.7 115.2
302.7
1998 14.0 56.4 123.2
193.6
Thereafter 1.0 74.7 70.0
145.7
995.5 1,135.4 1,178.3
3,309.2
Residual Value - 219.9 -
219.9
Total $ 995.5 $1,355.3 $1,178.3
$3,529.1
Receivables generally may be repaid or refinanced without
penalty prior to contractual maturity. Accordingly, this
presentation should not be regarded as a forecast of future cash
collections. At December 31, 1993, the recognition of finance
income had been suspended on $20.1 million of finance
receivables compared with $23.4 million at December 31, 1992, and
$40.4 million at December 31, 1991.
Activity relating to the allowance for credit losses is
shown below:
1993 1992
1991
Balance at beginning of year $36.5 $31.0
$30.8
Provision for credit losses 20.8 20.4
13.2
Aquisition of Spanish subsidiary 3.5 -
-
Less: Receivables written off, net of
recoveries 18.8 14.3
13.0
Foreign currency translation
adjustment .5 .6
-
Balance at end of year $41.5 $36.5
$31.0
NOTE 3 - INVESTMENT IN FINANCING LEASES
1993 1992
1991
Total minimum lease payments receivable $1,135.4 $ 982.3
$ 893.3
Estimated residual value of leased assets:
Guaranteed 71.4 55.1
65.1
Unguaranteed 148.5 123.7
97.7
1,355.3 1,161.1
1,056.1
Less: Unearned income 229.5 212.2
182.0
Net investment in financing leases $1,125.8 $ 948.9
$ 874.1
NOTE 4 - EQUIPMENT ON OPERATING LEASES
Components of the Company's investment in equipment on
operating leases, less accumulated depreciation, at December 31
were as follows:
1993 1992
1991
Equipment on operating leases, at cost $503.5 $402.0
$402.5
Less:
Accumulated depreciation 138.9 125.2
119.2
Unearned investment tax credits - .1
.3
Equipment on operating leases, net $364.6 $276.7
$283.0
At December 31, 1993, scheduled minimum rental payments for
operating leases were as follows:
Amounts due in:
1994 $103.1
1995 83.2
1996 55.5
1997 29.2
1998 15.0
Thereafter 8.5
Total $294.5
NOTE 5 - CONCENTRATION OF CREDIT RISK
The Company's receivables are primarily composed of
receivables under installment sale contracts, receivables arising
from leasing transactions, and notes receivable. The Company
generally maintains a secured interest in equipment financed, and
a substantial portion of its business activity is with customers
located within the United States. Receivables from customers in
construction-related industries made up approximately one-third of
total finance receivables as of December 31, 1993, 1992 and 1991,
respectively. However, no single customer or region represents a
significant concentration of credit risk.
NOTE 6 - SHORT-TERM BORROWINGS
Total average short-term borrowings during 1993, 1992, and
1991 were $1,038.3 million, $776.9 million, and $662.8 million,
respectively. Commercial paper and bank borrowings outstanding at
December 31, 1993, generally had maturities not exceeding 90 days
with average discount rates of 3.6% and 7.0%, respectively. The
approximate weighted average interest rate on short-term
borrowings was 4.8%, 5.2%, and 7.2% for 1993, 1992, and 1991,
respectively. Interest paid on short-term borrowings was $58.3
million in 1993, $60.3 million in 1992, and $62.3 million in 1991.
Short-term borrowings at December 31, consisted of the
following:
1993 1992
1991
Notes payable to banks, net $ 335.7 $195.5
$ 32.3
Commercial paper, net 797.2 714.0
638.8
Other 5.3 3.6
1.4
Total $1,138.2 $913.1
$672.5
At December 31, 1993, the Company had available in the
United States, Australia, Canada, Germany, Sweden, and the United
Kingdom, a total of $990.7 million of short-term credit lines
which expire at various dates in 1994, and $64.7 million of long-
term credit lines which expire at various dates from January 1996
to May 1996. These credit lines are with a number of banks and
are considered support for the Company's outstanding commercial
paper, commercial paper guarantees, the discounting of bank and
trade bills, and bank borrowings at various interest rates. At
December 31, 1993, there were $326.1 million of these lines
utilized for bank borrowings in Australia, Germany, Sweden, and
the United Kingdom.
The Company also has a $455.0 million revolving credit
agreement with a group of banks. This agreement is also
considered support for the Company's outstanding commercial paper
and commercial paper guarantees. The agreement terminates in 1996
and provides for borrowings at interest rates which vary according
to LIBOR or money market rates. At December 31, 1993, there were
no borrowings under this agreement.
The above-mentioned credit agreements require the Company to
maintain its consolidated ratio of profit before taxes plus fixed
charges to fixed charges at no less than 1.1 to 1 for each
quarter; the Company's total liabilities to total stockholder's
equity may not exceed 8.0 to 1; and the Company's tangible net
worth must be at least $20.0 million.
In connection with its match funding objectives, the Company
entered into a variety of interest rate contracts including
interest rate swap and cap agreements, options, and forward rate
agreements. These agreements are entered into with major
financial institutions to reduce the Company's exposure to changes
in interest rates by matching the maturities of interest- earning
assets with comparable maturities of long-term and short-term
funding. The interest differentials to be paid or received are
accrued as interest rates change and are recognized over the lives
of the agreements.
As of December 31, 1993, there were outstanding swap and cap
agreements with notional amounts totaling $2,047.3 million and
$500.0 million, respectively. These agreements have terms
generally ranging up to five years, which effectively changed
$1,050.6 million of floating rate debt to fixed rate debt, $629.1
million of fixed rate debt to floating rate debt, and $867.6
million of floating rate debt to floating rate debt having
different conditions. In connection with swap agreements having a
total notional amount of $95.1 million, the Company entered into
option agreements which would allow the counterparty to enter into
swap agreements at some future date or alter the conditions of
certain swap agreements. The Company's outstanding forward rate
agreements totaled $246.0 million at year end, and the premiums
paid or received on these agreements have been deferred and are
being recognized over the lives of the agreements.
The Company is exposed to possible credit loss in the event
of nonperformance by the counterparties to these above-mentioned
swap and cap agreements. The notional amounts of these agreements
are significantly greater than the amount subject to credit risk.
As of December 31, 1993, there was an accrued receivable of $2.8
million relating to these contracts. In addition, the Company may
incur additional costs in replacing at current market rates any
contracts for which a counterparty fails to perform.
The Company has entered into forward exchange contracts to
hedge its U.S. dollar denominated obligations in Australia and
Canada against currency fluctuations. These contracts have terms
generally ranging up to three months and do not subject the
Company to risk due to exchange rate movements, because the gains
and losses on the contracts offset the losses and gains on the
liabilities being hedged. At December 31, 1993, the Company had
forward exchange contracts totaling $146.6 million of which $143.1
million represent contracts with Caterpillar.
NOTE 7 - LONG-TERM DEBT
During 1993, the Company publicly issued $892.3 million of
medium-term notes, of which $417.1 million were at fixed interest
rates and $475.2 million were at floating interest rates indexed
to LIBOR, prime, or commercial paper rates. Interest rates on
fixed-rate medium-term notes are established by the Company as of
the date of issuance. The notes are offered on a continuous basis
through agents and have maturities ranging from nine months to 15
years. The weighted average interest rate on all outstanding
medium-term notes was 6.1% at December 31, 1993. Interest paid on
long-term debt in 1993, 1992, and 1991 was $102.1 million, $107.8
million, and $98.5 million, respectively.
Long-term debt outstanding at December 31, 1993, matures as
follows:
1994 $ 492.5
1995 486.8
1996 247.2
1997 240.2
1998 216.3
Thereafter 219.9
Total $1,902.9
At December 31, 1993, the Company was also contingently
liable under guarantees of securities of certain Caterpillar
dealers totaling
$249.6 million of which $173.5 million was outstanding. These
guarantees have terms ranging up to two years. At December 31,
1992, the Company was contingently liable for $48.1 million. No
loss is anticipated under these guarantees.
NOTE 8 - INCOME TAXES
Effective January 1, 1992, the Company adopted SFAS 109,
"Accounting for Income Taxes." Prior years' financial statements
have not been restated. For years prior to 1992, income taxes
were computed based on Accounting Principles Board Opinion (APB)
11. Net deferred tax liabilities as of January 1, 1992, were
reduced by $2.6 million as a result of the adoption of SFAS 109.
The 1992 tax provision was not materially different from the
amount which would have resulted from applying APB 11.
The components of the provision for income taxes were as
follows for the years ended December 31:
1993 1992
1991
Current tax provision (credit):
U.S. federal taxes $17.4 $13.6
$ 9.4
Foreign taxes 2.9 4.8
1.6
U.S. state taxes 2.5 2.8
1.5
22.8 21.2
12.5
Deferred tax provision (credit):
U.S. federal taxes (1.2) (.1)
-
Foreign taxes (.6) (3.8)
.7
U.S. state taxes .3 .3
1.2
(1.5) (3.6)
1.9
Total provision for income taxes $21.3 $17.6
$14.4
Current tax provision (credit) is the amount of income taxes
reported or expected to be reported on the Company's tax returns.
Income taxes paid in 1993, 1992, and 1991 totaled $14.8 million,
$2.2 million, and $14.8 million, respectively.
In August 1993, the U.S. federal income tax rate for
corporations was increased from 34% to 35% effective January 1,
1993. As a result of the rate increase, net U.S. deferred tax
liabilities and the 1993 provision for income taxes were increased
$0.9 million.
Differences between accounting rules and tax laws cause
differences between the bases of certain assets and liabilities
for financial reporting and tax purposes. The tax effects of
these differences, to the extent they are temporary, are recorded
as deferred tax assets and liabilities under SFAS 109 and
consisted of the following components at December 31:
1993 1992
U.S. federal, U.S. state, and foreign taxes:
Deferred tax assets:
Minimum tax credit carryforwards $ 22.0 $ 24.7
General business credit carryforwards - .2
22.0 24.9
Deferred tax liabilities - primarily
capital assets (35.0) (37.6)
Valuation allowance for deferred tax assets - -
Deferred taxes - net $(13.0) $(12.7)
No valuation allowance for the Company's deferred tax assets
was necessary at December 31, 1993. The Company's tax credit
carryforwards may be carried forward indefinitely.
For 1991 under APB 11, the tax effect of timing differences,
net of alternative minimum tax, represented deferred income tax
provision reported in the financial statements because the
following items were recognized in the results of operations in
different years than in the tax returns:
1991
U.S. federal, U.S. state, and foreign taxes:
Finance lease income and depreciation
$ 1.5
Provision for credit losses
-
Other - net
.4
Deferred tax provision
$ 1.9
The provision for income taxes was different than would
result from applying the U.S. statutory rate to income before
income taxes and minority interest for the reasons set forth in
the following reconciliation:
1993 1992
1991
Taxes computed at U.S. statutory rates $20.4 $17.5
$14.6
Increases (decreases) in taxes
resulting from:
Finance income not subject to federal
taxation (2.5) (2.7)
(2.6)
State income taxes - net of federal taxes 1.8 2.0
1.8
Subsidiaries' results subject to tax
rates other than U.S. statutory rates .9 .8
.6
Change in U.S. federal tax rate .9 -
-
Other, net (.2) -
-
Provision for income taxes $21.3 $17.6
$14.4
The domestic and foreign components of income before income
taxes and minority interest of consolidated companies were as
follows:
1993 1992
1991
Domestic $54.4 $51.0
$38.4
Foreign 4.0 .6
4.5
Total $58.4 $51.6
$42.9
The foreign component of income before taxes and minority
interest is comprised of the profit of all consolidated
subsidiaries located outside the United States.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments:
Cash and cash equivalents, Other assets, Liabilities other
than long-term debt and deferred income taxes, Forward exchange
contracts, and Guarantees of securities. For these items, the
carrying amount is a reasonable estimate of fair value.
Finance receivables - net. Fair value of the outstanding
receivables (excluding tax-oriented leases) is estimated by
discounting the future cash flows using the Company's current
rates for new receivables with similar remaining maturities.
Historical experience of bad debts is also factored into the
calculation.
Long-term debt. Fair value is estimated by discounting the
future cash flows using the Company's current borrowing rates for
similar types and maturities of debt.
Interest rate swaps and options. Fair value is estimated
based upon the amount that the Company would receive or pay to
terminate the agreements as of the reporting date.
The estimated fair values of the Company's financial
instruments are as follows:
1993
1992
Carrying Fair Carrying
Fair
Amount Value Amount
Value
Cash and cash equivalents $ 15.6 $ 15.6 $ 11.5
$ 11.5 Finance receivables - net
(excluding tax-oriented leases) 2,806.2 2,821.5 2,253.1
2,275.4
Other assets 45.1 45.1 29.5
29.5
Liabilities other than long-term
debt and deferred income taxes 1,230.8 1,230.8 988.3
988.3
Long-term debt 1,902.9 1,941.6 1,488.3
1,520.3
Off-balance-sheet financial
instruments:
Interest rate swaps/caps/options:
In a net receivable position* 2.8 7.9 1.2
2.7
In a net payable position* (7.3) (24.1) (6.6)
(22.4) Forward exchange contracts* (1.5) (1.5)
.1 .1
Guarantees of securities (173.5) (173.5) (48.1)
(48.1)
*The amounts shown under "Carrying amount" represent accruals or
deferred
income (fees) arising from these off-balance-sheet financial
instruments.
NOTE 10 - TRANSACTIONS WITH RELATED PARTIES
Caterpillar has made capital contributions to the Company of
$250.0 million. The Company has also entered into a support
agreement with Caterpillar whereby the parent will cause the
Company to have at all times a net worth of at least $20.0
million.
To supplement external debt financing sources, the Company
has variable amount lending agreements with Caterpillar (including
one of its subsidiaries). Under these agreements, which may be
amended from time to time, the Company may borrow up to $53.8
million from Caterpillar, and Caterpillar may borrow up to $83.8
million from the Company. All of the variable amount lending
agreements are effective for indefinite terms and may be
terminated by either party upon 30 days' notice. At December 31,
1993, 1992, and 1991, the Company had no outstanding borrowings or
loans receivable under these agreements.
The Company has also entered into forward exchange contracts
with Caterpillar to hedge the U.S. dollar denominated borrowings
in Australia against currency fluctuations. All of these
contracts generally have maturities not exceeding 90 days. At
December 31, 1993, 1992, and 1991, the Company had contracts with
Caterpillar totaling $143.1 million, $116.4 million, and $119.9
million, respectively.
The Company entered into agreements with a subsidiary of
Caterpillar to purchase, at a discount, some or all of this
subsidiary's receivables generated by sales of products to
Caterpillar dealers in Germany, Austria, and the Czech Republic.
The total purchases (dealer floor planning) in 1993 and 1992
amounted to $210.2 million and $201.7 million, respectively, and
the cash discount earned was $4.4 million and $3.4 million,
respectively. At
December 31, 1993, wholesale notes receivable balances related to
floor planning were $124.1 million compared with $49.3 million at
December 31, 1992.
Periodically, the Company offers below-market-rate financing
to customers under merchandising programs. When such terms
provide less than the Company's standard interest rates,
Caterpillar and its subsidiaries remit an amount equal to the
interest differential to the Company which is recognized as income
over the term of the contract. During 1993, the Company received
$7.9 million from Caterpillar and its subsidiaries relative to
such programs, compared with $5.7 million in 1992 and $9.6 million
in 1991.
The Company reimburses Caterpillar and its subsidiaries for
services provided. The amount of such charges was $4.2 million,
$3.9 million, and $3.7 million for the years ended December 31,
1993, 1992, and 1991, respectively.
NOTE 11 - LEASES
The Company leases certain offices and other property
through operating leases. Lease expense on these leases is
charged to operations as incurred. Total rental expense for
operating leases was $3.7 million, $3.1 million, and $2.4 million
for 1993, 1992, and 1991, respectively. Minimum payments for
operating leases having initial or remaining noncancelable terms
in excess of one year are:
1994 $ 1.8
1995 1.7
1996 1.4
1997 1.4
1998 1.1
Thereafter 2.7
Total $10.1
NOTE 12 - SEGMENT INFORMATION
Although the majority of its business is done in the United
States, the Company also conducts its operations through foreign
subsidiaries in Australia, Canada, and Europe. Total assets,
revenues, and net income applicable to operations by geographic
segments were as follows:
1993 1992
1991
Assets:
Domestic $2,878.1 $2,401.4
$2,186.0
Foreign 779.9 507.9
354.3
3,658.0 2,909.3
2,540.3
Less: Investment in subsidiaries 93.1 63.0
50.3
Intercompany balances .2 3.0
1.0
Total assets $3,564.7 $2,843.3
$2,489.0
Revenues:
Domestic $ 293.0 $ 286.5
$ 265.0
Foreign 70.7 55.9
51.4
363.7 342.4
316.4
Less intercompany interest .1 -
-
Total revenues $ 363.6 $ 342.4
$ 316.4
Net income:
Domestic $ 35.4 $ 36.9
$ 26.3
Foreign 2.4 (.3)
2.2
Total net income $ 37.8 $ 36.6*
$ 28.5
*After restatement for the cumulative effect of $2.6 million ($2.5
million
domestic) which resulted from the change in accounting for income
taxes.
NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Financial data for the interim periods were as follows:
QUARTERS
FIRST SECOND THIRD
FOURTH
1993 1992 1993 1992 1993 1992
1993 1992
Total revenues $86.4 $82.4 $90.1 $84.7 $91.5 $87.5
$95.6 $87.8
Income before
income taxes, minority
interest, and cumulative
effect of change
in accounting
for income taxes 15.3 11.0 14.6 13.4 15.9 14.9
12.6 12.3
Net income 10.1 9.8* 9.4 8.8 9.0 9.9
9.3 8.1
*After restatement for the cumulative effect of $2.6 million which
resulted from the change in accounting for income taxes.
CATERPILLAR FINANCIAL SERVICE CORPORATION
Schedule IX - Short-Term Borrowings
(Dollars in millions)
At Dec 31,
Average for Year Weighted
Maximum Amount
Average Outstanding
Outstanding Weighted
Interest During the During the
Interest
Description Balance Rate Period Period
Rate
1993:
Notes payable to banks $336.0 7.0% $336.0 $251.8
8.1%
Commercial paper 798.6 3.6 821.8 782.3
3.7
The Caterpillar Money
Market Account 5.3 3.6 5.3 4.2
3.6
1992:
Notes Payable to banks $195.5 8.6% $195.5 $ 97.1
9.1%
Commercial paper 717.0 4.7 735.4 677.1
4.6
The Caterpillar Money
Market Account 3.6 3.8 3.6 2.7
4.2
1991:
Notes payable to banks $ 32.3 8.1% $ 34.0 $ 29.6
11.2%
Commercial paper 642.0 6.4 691.1 633.0
7.0
The Caterpillar Money
Market Account 1.4 5.6 1.4 .2
6.3
The weighted average interest rates were computed by relating
interest for the year to average daily borrowings.
Commercial paper and notes payable to banks balances represent
the face
amount. Unamortized discounts at December 31, 1993, 1992, and
1991 were $1.7
million, $3.0 million, and $3.2 million, respectively.
Commercial paper balances represent proceeds (face amount less
discount).
The rate does not reflect issue costs of the money market account
which was started in the third quarter of 1991. The rate
reflecting issue costs was 8.2%, 11.8%, and 46.9% for 1993,
1992, and 1991, respectively.