Company Quick10K Filing
Caterpillar Financial
Price-1.00 EPS341,000,000
Shares0 P/E-0
MCap-0 P/FCF-0
Net Debt23,109 EBIT1,084
TEV23,109 TEV/EBIT21
TTM 2019-09-30, in MM, except price, ratios
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CFSC 10Q Quarterly Report

Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 cfsc-03312020x10qxex311.htm
EX-31.2 cfsc-03312020x10qxex312.htm
EX-32 cfsc-03312020x10qxex32.htm

Caterpillar Financial Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
40322416802012201420172020
Assets, Equity
0.80.60.50.30.20.02016201720182020
Rev, G Profit, Net Income
1.10.5-0.1-0.6-1.2-1.82012201420172020
Ops, Inv, Fin

10-Q 1 cfsc-03312020x10q.htm CFSC 2020 1ST QUARTER 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
catfincolor3a16.jpg
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, 2020
Commission File No. 001-11241
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
Securities registered pursuant to Section 12(b) of the Act:
 
 Title of each class
 
Trading 
Symbol(s)
 
Name of each exchange
  on which registered 
 
Medium-Term Notes, Series H,
3.300% Notes Due 2024
CAT/24
 
New York Stock Exchange

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 [ü ] No [    ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ü ] No [    ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[    ]
 
Accelerated filer
[    ]
Non-accelerated filer
[ü ]
 
Smaller reporting company
[    ]
 
 
 
Emerging growth company
[    ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [    ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [    ] No [
ü ]

As of May 6, 2020, one share of common stock of the registrant was outstanding, which is owned by Caterpillar Inc.

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.


UNAUDITED


PART I. FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

In addition to the accompanying unaudited consolidated financial statements for Caterpillar Financial Services Corporation (together with its subsidiaries, "Cat Financial," "the Company," "we," "us" or "our"), we suggest that you read our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 19, 2020. The Company files electronically with the SEC required reports on Form 8-K, Form 10-Q, Form 10-K; registration statements on Form S-3; and other forms or reports as required.  The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  Copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports filed or furnished with the SEC are available free of charge through Caterpillar’s website (www.caterpillar.com/secfilings) as soon as reasonably practicable after filing with the SEC.  In addition, the public may obtain more detailed information about our parent company, Caterpillar, by visiting its website (www.caterpillar.com).  None of the information contained at any time on our website or Caterpillar’s website is incorporated by reference into this document.


2

UNAUDITED


Caterpillar Financial Services Corporation
 CONSOLIDATED STATEMENTS OF PROFIT
(Unaudited)
(Dollars in Millions)
 
Three Months Ended
March 31,
 
2020

2019
 
 
 
 
Revenues:
 
 
 
Retail finance
$
329

 
$
335

Operating lease
257

 
258

Wholesale finance
99

 
119

Other, net
10

 
24

Total revenues
695

 
736

 
 
 
 
Expenses:
 

 
 

Interest
175

 
201

Depreciation on equipment leased to others
201

 
202

General, operating and administrative
108

 
124

Provision for credit losses
61

 
53

Other
13

 
10

Total expenses
558

 
590

 
 
 
 
Other income (expense)
(10
)
 
(4
)
 
 
 
 
Profit before income taxes
127

 
142

 
 
 
 
Provision for income taxes
33

 
38

 
 
 
 
Profit of consolidated companies
94

 
104

 
 
 
 
Less:  Profit attributable to noncontrolling interests
4

 
6

 
 
 
 
Profit(1)
$
90

 
$
98

 
 
 
 
(1) Profit attributable to Caterpillar Financial Services Corporation.

See Notes to Consolidated Financial Statements (Unaudited).

3

UNAUDITED


Caterpillar Financial Services Corporation
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in Millions)

 
Three Months Ended
March 31,
 
2020

2019
 
 
 
 
Profit of consolidated companies
$
94

 
$
104

 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation, net of tax (expense)/benefit of:
2020 $(12); 2019 $(4)
(307
)
 
15

Derivative financial instruments:
 
 
 
Gains (losses) deferred, net of tax (expense)/benefit of:
2020 $(19); 2019 $1
67

 
(3
)
(Gains) losses reclassified to earnings, net of tax expense/(benefit) of:
2020 $16; 2019 $3
(61
)
 
(11
)
Total Other comprehensive income (loss), net of tax
(301
)
 
1

 


 
 
Comprehensive income (loss)
(207
)
 
105

 
 
 
 
Less: Comprehensive income (loss) attributable to the noncontrolling interests
3

 
8

 
 
 
 
Comprehensive income (loss) attributable to Caterpillar Financial Services Corporation
$
(210
)
 
$
97

 
 
 
 
See Notes to Consolidated Financial Statements (Unaudited).

4

UNAUDITED


Caterpillar Financial Services Corporation
 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(Dollars in Millions, except share data)
 
March 31,
2020
 
December 31,
2019
Assets:
 
 
 
Cash and cash equivalents
$
670

 
$
690

Finance receivables, net of Allowance for credit losses of $457 and $424
26,570

 
27,832

Notes receivable from Caterpillar
290

 
296

Equipment on operating leases, net
3,396

 
3,583

Other assets
1,406

 
1,292

Total assets
$
32,332

 
$
33,693

 
 
 
 
Liabilities and shareholder’s equity:
 

 
 

Payable to dealers and others
$
118

 
$
135

Payable to Caterpillar - borrowings and other
112

 
693

Accrued expenses
233

 
241

Short-term borrowings
4,789

 
5,161

Current maturities of long-term debt
7,792

 
6,194

Long-term debt
15,371

 
17,140

Other liabilities
901

 
893

Total liabilities
29,316

 
30,457

 
 
 
 
Commitments and contingent liabilities (Note 7)


 


 
 
 
 
Common stock - $1 par value
 
 
 

Authorized:  2,000 shares; Issued and
 

 
 

outstanding: one share (at paid-in amount)
745

 
745

Additional paid-in capital
2

 
2

Retained earnings
3,239

 
3,162

Accumulated other comprehensive income/(loss)
(1,145
)
 
(845
)
Noncontrolling interests
175

 
172

Total shareholder’s equity
3,016

 
3,236

 
 
 
 
Total liabilities and shareholder’s equity
$
32,332

 
$
33,693

 
 
 
 
See Notes to Consolidated Financial Statements (Unaudited).

5

UNAUDITED


Caterpillar Financial Services Corporation
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(Unaudited)
(Dollars in Millions)
Three Months Ended March 31, 2019
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income/(loss)
 
Noncontrolling
interests
 
Total
Balance at December 31, 2018
$
745

 
$
2

 
$
2,874

 
$
(925
)
 
$
153

 
$
2,849

Profit of consolidated companies
 
 
 
 
98

 
 
 
6

 
104

Foreign currency translation, net of tax
 
 
 
 
 
 
13

 
2

 
15

Derivative financial instruments, net of tax
 
 
 
 
 
 
(14
)
 
 
 
(14
)
Adjustment to adopt new accounting guidance(1)
 
 
 
 
(97
)
 
97

 
 
 

Balance at March 31, 2019
$
745

 
$
2

 
$
2,875

 
$
(829
)
 
$
161

 
$
2,954

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
745

 
$
2

 
$
3,162

 
$
(845
)
 
$
172

 
$
3,236

Profit of consolidated companies
 
 
 
 
90

 
 
 
4

 
94

Foreign currency translation, net of tax
 
 
 
 
 
 
(306
)
 
(1
)
 
(307
)
Derivative financial instruments, net of tax
 
 
 
 
 
 
6

 
 
 
6

Adjustment to adopt new accounting guidance(2)
 
 
 
 
(13
)
 
 
 
 
 
(13
)
Balance at March 31, 2020
$
745

 
$
2

 
$
3,239

 
$
(1,145
)
 
$
175

 
$
3,016

 
 
 
 
 
 
 
 
 
 
 
 
(1) Adjustment to adopt new accounting guidance related to reclassification of certain tax effects from accumulated other comprehensive income/(loss).
(2) Adjustment to adopt new accounting guidance related to credit losses (See Note 2).

See Notes to Consolidated Financial Statements (Unaudited).

6

UNAUDITED


Caterpillar Financial Services Corporation
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
 
Three Months Ended
March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Profit of consolidated companies
$
94

 
$
104

Adjustments for non-cash items:
 

 
 

Depreciation and amortization
205

 
206

Amortization of receivables purchase discount
(91
)
 
(109
)
Provision for credit losses
61

 
53

Other, net
150

 
33

Changes in assets and liabilities:
 

 
 

Other assets
(42
)
 
2

Payable to dealers and others
35

 
13

Accrued expenses
(17
)
 
(11
)
Other payables with Caterpillar
9

 
4

Other liabilities
(3
)
 
4

Net cash provided by operating activities
401

 
299

 
 
 
 
Cash flows from investing activities:
 

 
 

Expenditures for equipment on operating leases
(246
)
 
(242
)
Capital expenditures - excluding equipment on operating leases
(1
)
 
(4
)
Proceeds from disposals of equipment
155

 
182

Additions to finance receivables
(3,213
)
 
(2,971
)
Collections of finance receivables
3,422

 
3,096

Net changes in Caterpillar purchased receivables
376

 
(16
)
Proceeds from sales of receivables
31

 
44

Net change in variable lending to Caterpillar

 
1

Collections on other notes receivable with Caterpillar
6

 
16

Settlements of undesignated derivatives
35

 
(25
)
Net cash provided by (used for) investing activities
565

 
81

 
 
 
 
Cash flows from financing activities:
 

 
 

Net change in variable lending from Caterpillar
(596
)
 
(63
)
Proceeds from debt issued (original maturities greater than three months)
2,126

 
2,664

Payments on debt issued (original maturities greater than three months)
(2,460
)
 
(2,565
)
Short-term borrowings, net (original maturities three months or less)
(35
)
 
(525
)
Net cash provided by (used for) financing activities
(965
)
 
(489
)
 
 
 
 
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(22
)
 
(2
)
 
 
 
 
Increase/(decrease) in cash, cash equivalents and restricted cash
(21
)
 
(111
)
Cash, cash equivalents and restricted cash at beginning of year(1)
695

 
773

Cash, cash equivalents and restricted cash at end of period(1)
$
674

 
$
662

 
 
 
 
(1) As of March 31, 2020 and December 31, 2019, restricted cash, which is included in Other assets in the Consolidated Statements of Financial Position, was $4 million and $5 million, respectively. Restricted cash primarily includes cash related to syndication activities.

See Notes to Consolidated Financial Statements (Unaudited).

7

UNAUDITED


Notes to Consolidated Financial Statements
(Unaudited)

1.
Summary of Significant Accounting Policies

A.
Basis of Presentation
 
In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of (a) the consolidated profit for the three months ended March 31, 2020 and 2019, (b) the consolidated comprehensive income for the three months ended March 31, 2020 and 2019, (c) the consolidated financial position as of March 31, 2020 and December 31, 2019, (d) the consolidated changes in shareholder's equity for the three months ended March 31, 2020 and 2019 and (e) the consolidated cash flows for the three months ended March 31, 2020 and 2019. The preparation of financial statements, in conformity with generally accepted accounting principles and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), requires management to make estimates and assumptions that affect the reported amounts.  Significant estimates include residual values for leased assets, allowance for credit losses and income taxes. Actual results may differ from these estimates.

Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2019 (2019 Form 10-K). The December 31, 2019 financial position data included herein was derived from the audited consolidated financial statements included in the 2019 Form 10-K but does not include all disclosures required by generally accepted accounting principles. Certain amounts for prior periods have been reclassified to conform with current period financial statement presentation.

We consolidate all variable interest entities (VIEs) where we are the primary beneficiary. For VIEs, we assess whether we are the primary beneficiary as prescribed by the accounting guidance on the consolidation of VIEs. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. Please refer to Note 7 for more information.

We have customers and dealers that are VIEs of which we are not the primary beneficiary. Although we have provided financial support to these entities and therefore have a variable interest, we do not have the power to direct the activities that most significantly impact their economic performance. Our maximum exposure to loss from our involvement with these VIEs is limited to the credit risk of the financial support that we have provided. Credit risk is evaluated and reflected in our financial statements as part of our overall portfolio of finance receivables and related allowance for credit losses.
B.
Accounting Policy Updates

For a discussion of our significant accounting policies, see Note 1 in our 2019 Annual Report on Form 10-K. Significant accounting policies that have been revised since our 2019 Annual Report on Form 10-K are shown below. These accounting policy changes were effective January 1, 2020 with the adoption of the new credit loss accounting guidance discussed in Note 2. Prior period comparative information has not been recast and continues to be reported under the accounting guidance in effect for those periods.

Finance Receivables
Finance receivables are generally classified as held for investment and recorded at amortized cost given that we have the intent and ability to hold them for the foreseeable future. Amortized cost is the principal balance outstanding plus accrued interest less write-downs, net of unamortized purchase discounts and deferred fees and costs.

Allowance for Credit Losses
The allowance for credit losses is management’s estimate of expected losses over the life of our finance receivable portfolio calculated using loss forecast models that take into consideration historical credit loss experience, current economic conditions and forecasts and scenarios that capture country and industry-specific economic factors. In addition, qualitative factors not able to be fully captured in our loss forecast models, including borrower-specific and Company-specific macro-economic factors, are considered in the evaluation of the adequacy of our allowance for credit losses.


8

UNAUDITED


The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist and on an individual basis when it is determined that similar risk characteristics do not exist. Finance receivables are identified for individual evaluation based on past-due status and information available about the customer, such as financial statements, news reports and published credit ratings, as well as general information regarding industry trends and the economic environment in which our customers operate. The allowance for credit losses attributable to finance receivables that are individually evaluated is based on the present value of expected future cash flows discounted at the receivables' effective interest rate, the fair value of the collateral for collateral-dependent receivables or the observable market price of the receivable.  In determining collateral value, we estimate the current fair market value of the collateral less selling costs. We also consider credit enhancements such as additional collateral and contractual third-party guarantees. See Note 3 for a description of our portfolio segments and allowance methodologies.

Receivable balances, including accrued interest, are written off against the allowance for credit losses when, in the judgment of management, they are considered uncollectible (generally upon repossession of the collateral). The amount of the write-off is determined by comparing the fair value of the collateral, less cost to sell, to the amortized cost. Subsequent recoveries, if any, are credited to the allowance for credit losses when received.

2.
New Accounting Pronouncements
 
A.
Adoption of New Accounting Standards

Credit losses (Accounting Standards Update (ASU) 2016-13) – In June 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance to introduce a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new guidance applies to loans, accounts receivable, trade receivables, other financial assets measured at amortized cost, loan commitments and other off-balance sheet credit exposures. The new guidance also applies to debt securities and other financial assets measured at fair value through other comprehensive income. The new guidance was effective January 1, 2020 and was applied using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of January 1, 2020. Prior period comparative information has not been recast and continues to be reported under the accounting guidance in effect for those periods.

The most significant effects of adoption relate to the change in methodology for estimating our Allowance for credit losses from an incurred loss model to a current expected credit loss model. We elected to present accrued interest receivable related to our finance receivables in Finance receivables, net. In prior period comparative information, accrued interest receivable continues to be reported in Other assets. The adoption did not have a material impact on our financial statements.

The cumulative effect of initially applying the new credit loss guidance to our consolidated financial statements on January 1, 2020 was as follows:
Consolidated Statement of Financial Position
(Millions of dollars)
Balance as of
December 31, 2019
 
Cumulative Impact
from Adopting New
Credit Loss Standard
 
Balance as of
January 1, 2020
Assets:
 
 
 
 
 
Finance receivables, net
$
27,832

 
$
42

 
$
27,874

Other assets
$
1,292

 
$
(53
)
 
$
1,239

 
 
 
 
 

Liabilities:
 
 
 
 

Other liabilities
$
893

 
$
2

 
$
895

 
 
 
 
 

Shareholder's equity
 
 
 
 

Retained earnings
$
3,162

 
$
(13
)
 
$
3,149

 
 
 
 
 
 

See Note 3 for additional information.


9

UNAUDITED


We adopted the following ASUs effective January 1, 2020, none of which had a material impact on our financial statements:
ASU
Description
2018-13
Fair value measurement
2018-15
Internal-use software
2018-19
Codification improvements - Credit losses
2019-04
Codification improvements - Credit losses, Derivatives & hedging, and Financial instruments
2019-05
Financial instruments - Credit losses
2019-11
Codification improvements - Credit losses
2019-12
Simplifying accounting for income taxes
2020-02
Financial instruments - Credit losses
2020-03
Codification improvements - Financial instruments

B.
Accounting Standards Issued But Not Yet Adopted

We consider the applicability and impact of all ASUs. The ASUs were assessed and either determined to be not applicable or not expected to have a material impact on our financial statements.

3.
Finance Receivables

Effective January 1, 2020, we implemented the new credit loss guidance using a modified retrospective approach. Prior period comparative information has not been recast and continues to be reported under the accounting guidance in effect for those periods. See Note 2 for additional information.

A summary of finance receivables included in the Consolidated Statements of Financial Position was as follows:
(Millions of dollars)
 
March 31,
2020
 
December 31,
2019
Retail loans, net(1)
 
$
15,061

 
$
15,424

Retail leases, net
 
7,207

 
7,660

Caterpillar purchased receivables, net
 
4,055

 
4,448

Wholesale loans, net(1)
 
655

 
664

Wholesale leases, net
 
49

 
60

Total finance receivables
 
27,027

 
28,256

Less: Allowance for credit losses
 
(457
)
 
(424
)
Total finance receivables, net
 
$
26,570


$
27,832

 
 
 
 
 
(1) Includes failed sale leasebacks.

Finance leases
Revenues from finance leases were $125 million and $118 million for the three months ended March 31, 2020 and 2019, respectively, and are included in retail and wholesale finance revenue in the Consolidated Statements of Profit. The residual values for leases classified as finance leases are included in Finance receivables, net in the Consolidated Statements of Financial Position. For finance leases, residual value adjustments are recognized through a reduction of finance revenue over the remaining lease term.

Allowance for credit losses

Portfolio segments
A portfolio segment is the level at which we develop a systematic methodology for determining our allowance for credit losses. Our portfolio segments and related methods for estimating expected credit losses are as follows:

Customer
We provide loans and finance leases to end-user customers primarily for the purpose of financing new and used Caterpillar machinery, engines and equipment for commercial use, the majority of which operate in construction-related industries. We also provide financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products.

10

UNAUDITED


The average original term of our customer finance receivable portfolio is approximately 48 months with an average remaining term of approximately 22 months.

We typically maintain a security interest in financed equipment and we require physical damage insurance coverage on the financed equipment, both of which provide us with certain rights and protections. If our collection efforts fail to bring a defaulted account current, we generally can repossess the financed equipment, after satisfying local legal requirements, and sell it within the Caterpillar dealer network or through third party auctions.

We estimate the allowance for credit losses related to our customer finance receivables based on loss forecast models utilizing probabilities of default and our estimated loss given default based on past loss experience adjusted for current conditions and reasonable and supportable forecasts capturing country and industry-specific macro-economic factors.

As of March 31, 2020, our forecasts for the markets in which we operate reflected a decline in economic conditions resulting from a contracting economy, elevated unemployment rates and an increase in the level and trend of delinquencies due to the COVID-19 pandemic. We believe the economic forecasts employed represent reasonable and supportable forecasts, followed by a reversion to long term trends.

Dealer
We provide financing to Caterpillar dealers in the form of wholesale financing plans. Our wholesale financing plans provide assistance to dealers by financing their new Caterpillar equipment inventory and rental fleets and are generally secured by the financed equipment. In addition, we provide unsecured loans to Caterpillar dealers for working capital.
    
We estimate the allowance for credit losses for dealer finance receivables based on historical loss rates with consideration of current economic conditions and reasonable and supportable forecasts.

Although forecasts indicate a decline in economic conditions, our Dealer portfolio segment has not historically resulted in increased credit losses during prior economic downturns due to our close working relationships with the dealers and their financial strength. Therefore, no adjustments to historical loss rates were made during the three-month period ended March 31, 2020.

Caterpillar Purchased Receivables
We purchase receivables from Caterpillar, primarily related to the sale of equipment and parts to dealers. Caterpillar purchased receivables are non-interest-bearing short-term trade receivables that are purchased at a discount.

We estimate the allowance for credit losses for Caterpillar purchased receivables based on historical loss rates with consideration of current economic conditions and reasonable and supportable forecasts.

Although forecasts indicate a decline in economic conditions, our Caterpillar Purchased Receivables portfolio segment has not historically resulted in increased credit losses during prior economic downturns due to the short-term maturities of the receivables, our close working relationships with the dealers and their financial strength. Therefore, no adjustments to historical loss rates were made during the three-month period ended March 31, 2020.

Classes of finance receivables
We further evaluate our portfolio segments by the class of finance receivables, which is defined as a level of information (below a portfolio segment) in which the finance receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit risk. Typically, our finance receivables within a geographic area have similar credit risk profiles and methods for assessing and monitoring credit risk. Our classes, which align with management reporting for credit losses, are as follows:

North America - Finance receivables originated in the United States and Canada.
EAME - Finance receivables originated in Europe, Africa, the Middle East and the Commonwealth of Independent States.
Asia/Pacific - Finance receivables originated in Australia, New Zealand, China, Japan, Southeast Asia and India.
Mining - Finance receivables related to large mining customers worldwide.
Latin America - Finance receivables originated in Mexico and Central and South American countries.
Caterpillar Power Finance - Finance receivables originated worldwide related to marine vessels with Caterpillar engines and Caterpillar electrical power generation, gas compression and co-generation systems and non-Caterpillar equipment that is powered by these systems.


11

UNAUDITED


An analysis of the allowance for credit losses was as follows:
(Millions of dollars)
March 31, 2020
Allowance for Credit Losses:
Customer
 
Dealer
 
Caterpillar
Purchased
Receivables
 
Total
Balance at beginning of year
$
375

 
$
45

 
$
4

 
$
424

Adjustment to adopt new accounting guidance(1)
12

 

 

 
12

Receivables written off
(37
)
 

 

 
(37
)
Recoveries on receivables previously written off
7

 

 

 
7

Provision for credit losses
60

 

 

 
60

Foreign currency translation adjustment
(9
)
 

 

 
(9
)
Balance at end of period
$
408

 
$
45

 
$
4

 
$
457

 
 
 
 
 
 
 
 
Individually evaluated
$
176

 
$
39

 
$

 
$
215

Collectively evaluated
232

 
6

 
4

 
242

Ending Balance
$
408

 
$
45

 
$
4

 
$
457

 
 
 
 
 
 
 
 
Finance Receivables:
 

 
 

 
 

 
 

Individually evaluated
$
570

 
$
78

 
$

 
$
648

Collectively evaluated
18,111

 
4,213

 
4,055

 
26,379

Ending Balance
$
18,681

 
$
4,291

 
$
4,055

 
$
27,027

 
 
 
 
 
 
 
 
(1) See Note 2 regarding new accounting guidance related to credit losses.

(Millions of dollars)
December 31, 2019
Allowance for Credit Losses:
Customer
 
Dealer
 
Caterpillar
Purchased
Receivables
 
Total
Balance at beginning of year
$
486

 
$
21

 
$
4

 
$
511

Receivables written off
(281
)
 

 

 
(281
)
Recoveries on receivables previously written off
44

 

 

 
44

Provision for credit losses
138

 
24

 

 
162

Adjustment due to sale of receivables
(11
)
 

 

 
(11
)
Foreign currency translation adjustment
(1
)
 

 

 
(1
)
Balance at end of year
$
375

 
$
45

 
$
4

 
$
424

 
 
 
 
 
 
 
 
Individually evaluated
$
178

 
$
39

 
$

 
$
217

Collectively evaluated
197

 
6

 
4

 
207

Ending Balance
$
375

 
$
45

 
$
4

 
$
424

 
 
 
 
 
 
 
 
Finance Receivables:
 

 
 

 
 

 
 

Individually evaluated
$
594

 
$
78

 
$

 
$
672

Collectively evaluated
18,770

 
4,366

 
4,448

 
27,584

Ending Balance
$
19,364

 
$
4,444

 
$
4,448

 
$
28,256

 
 
 
 
 
 
 
 

Credit quality of finance receivables
At origination, we evaluate credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit-rating agency ratings, loan-to-value ratios, probabilities of default, industry trends, macroeconomic factors and other internal metrics. On an ongoing basis, we monitor credit quality based on past-due status as there is a meaningful correlation between the past-due status of customers and the risk of loss. In determining past-due status, we consider the entire finance receivable past due when any installment is over 30 days past due.


12

UNAUDITED


Customer
The table below summarizes the aging category of our amortized cost of finance receivables in the Customer portfolio segment by origination year.
(Millions of dollars)
March 31, 2020
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Revolving
Finance
Receivables
 
Total
Finance
Receivables
North America
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
934

 
$
3,277

 
$
2,015

 
$
952

 
$
455

 
$
155

 
$
157

 
$
7,945

31-60 days past due
6

 
55

 
52

 
29

 
21

 
5

 

 
168

61-90 days past due

 
11

 
11

 
10

 
3

 
1

 

 
36

91+ days past due

 
14

 
21

 
15

 
10

 
6

 

 
66

EAME
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
249

 
1,164

 
773

 
358

 
133

 
44

 

 
2,721

31-60 days past due
2

 
11

 
5

 
4

 
2

 

 

 
24

61-90 days past due

 
7

 
3

 
2

 
1

 
1

 

 
14

91+ days past due

 
8

 
22

 
23

 
53

 
61

 

 
167

Asia/Pacific
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
259

 
1,249

 
688

 
240

 
61

 
30

 
32

 
2,559

31-60 days past due
2

 
26

 
25

 
9

 

 
1

 

 
63

61-90 days past due

 
14

 
14

 
5

 
1

 

 

 
34

91+ days past due

 
15

 
17

 
8

 
1

 

 

 
41

Mining
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
85

 
711

 
413

 
267

 
139

 
217

 
199

 
2,031

31-60 days past due

 

 
1

 

 

 
1

 

 
2

61-90 days past due

 
3

 
12

 
6

 

 

 

 
21

91+ days past due

 
12

 
12

 
23

 

 

 
1

 
48

Latin America
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
175

 
483

 
253

 
88

 
23

 
49

 

 
1,071

31-60 days past due

 
15

 
10

 
8

 
4

 
2

 

 
39

61-90 days past due

 
5

 
7

 
5

 
2

 

 

 
19

91+ days past due

 
11

 
29

 
24

 
9

 
7

 

 
80

Caterpillar Power Finance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
3

 
301

 
221

 
287

 
158

 
158

 
160

 
1,288

31-60 days past due

 

 
11

 

 
4

 
11

 

 
26

61-90 days past due

 

 

 
1

 

 

 

 
1

91+ days past due

 

 
20

 
11

 
37

 
149

 

 
217

Total
$
1,715

 
$
7,392

 
$
4,635

 
$
2,375

 
$
1,117

 
$
898

 
$
549

 
$
18,681

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Finance receivables in the Customer portfolio segment are substantially secured by collateral, primarily in the form of Caterpillar and other machinery. For those contracts where the borrower is experiencing financial difficulty, repayment of the outstanding amounts is generally expected to be provided through the operation or repossession and sale of the machinery.

Dealer
As of March 31, 2020, our total amortized cost of finance receivables within the Dealer portfolio segment was current, with the exception of $78 million that was 91+ days past due in Latin America. These past due receivables were originated in 2017.


13

UNAUDITED


Caterpillar Purchased Receivables
The table below summarizes the aging category of our amortized cost of finance receivables in the Caterpillar Purchased Receivables portfolio segment.
(Millions of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2020
 
31-60
Days
Past Due
 
61-90
Days
Past Due
 
91+
Days
Past Due
 
Total
Past Due
 
Current
 

Total Finance
Receivables
North America
$
16

 
$
9

 
$
18

 
$
43

 
$
2,290

 
$
2,333

EAME
1

 

 
1

 
2

 
587

 
589

Asia/Pacific
2

 
1

 
1

 
4

 
686

 
690

Mining

 

 

 

 

 

Latin America

 

 

 

 
425

 
425

Caterpillar Power Finance
2

 
2

 
1

 
5

 
13

 
18

Total
$
21

 
$
12

 
$
21

 
$
54

 
$
4,001

 
$
4,055

 
 
 
 
 
 
 
 
 
 
 
 

The table below summarizes our recorded investment in finance receivables by aging category.
(Millions of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
31-60
Days
Past Due
 
61-90
Days
Past Due
 
91+
Days
Past Due
 
Total
Past Due
 
Current
 

Total Finance
Receivables
Customer
 

 
 

 
 

 
 
 
 
 
 
North America
$
72

 
$
23

 
$
55

 
$
150

 
$
8,085

 
$
8,235

EAME
30

 
31

 
141

 
202

 
2,882

 
3,084

Asia/Pacific
40

 
14

 
29

 
83

 
2,733

 
2,816

Mining
5

 

 
19

 
24

 
2,266

 
2,290

Latin America
41

 
23

 
80

 
144

 
1,131

 
1,275

Caterpillar Power Finance
10

 
10

 
225

 
245

 
1,419

 
1,664

Dealer
 

 
 

 
 

 
 
 
 
 
 
North America

 

 

 

 
2,514

 
2,514

EAME

 

 

 

 
600

 
600

Asia/Pacific

 

 

 

 
487

 
487

Mining

 

 

 

 
4

 
4

Latin America

 

 
78

 
78

 
758

 
836

Caterpillar Power Finance

 

 

 

 
3

 
3

Caterpillar Purchased Receivables
 

 
 

 
 

 
 
 
 
 
 
North America
15

 
6

 
18

 
39

 
2,450

 
2,489

EAME
1

 

 
2

 
3

 
574

 
577

Asia/Pacific
1

 

 

 
1

 
891

 
892

Mining

 

 

 

 

 

Latin America

 

 

 

 
475

 
475

Caterpillar Power Finance

 

 

 

 
15

 
15

Total
$
215

 
$
107

 
$
647

 
$
969

 
$
27,287

 
$
28,256

 
 
 
 
 
 
 
 
 
 
 
 


14

UNAUDITED


Impaired finance receivables
A finance receivable is considered impaired, based on current information and events, if it is probable that we will be unable to collect all amounts due according to the contractual terms. Impaired finance receivables include finance receivables that have been restructured and are considered to be troubled debt restructures.

In our Customer portfolio segment, impaired finance receivables and the related unpaid principal balances and allowance were as follows:
(Millions of dollars)
 
 
 
 
 
 
As of December 31, 2019
Impaired Finance Receivables With
No Allowance Recorded
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
North America
$
6

 
$
6

 
$

EAME

 

 

Asia/Pacific

 

 

Mining
22

 
22

 

Latin America
8

 
8

 

Caterpillar Power Finance
58

 
58

 

Total
$
94

 
$
94

 
$

Impaired Finance Receivables With
An Allowance Recorded
 

 
 

 
 

North America
$
30

 
$
30

 
$
11

EAME
61

 
61

 
29

Asia/Pacific
8

 
8

 
2

Mining
37

 
36

 
9

Latin America
58

 
58

 
20

Caterpillar Power Finance
306

 
319

 
107

Total
$
500

 
$
512

 
$
178

Total Impaired Finance Receivables
 

 
 

 
 

North America
$
36

 
$
36

 
$
11

EAME
61

 
61

 
29

Asia/Pacific
8

 
8

 
2

Mining
59

 
58

 
9

Latin America
66

 
66

 
20

Caterpillar Power Finance
364

 
377

 
107

Total
$
594

 
$
606

 
$
178

 
 
 
 
 
 
 

15

UNAUDITED


(Millions of dollars)
 
 
 
 
Three Months Ended
March 31, 2019
Impaired Finance Receivables With
No Allowance Recorded
Average
Recorded
Investment
 
Interest
Income
Recognized
North America
$
10

 
$

EAME
1

 

Asia/Pacific

 

Mining
31

 

Latin America
24

 

Caterpillar Power Finance
60

 
1

Total
$
126

 
$
1

Impaired Finance Receivables With
An Allowance Recorded
 

 
 

North America
$
40

 
$
1

EAME
94

 
1

Asia/Pacific
7

 

Mining
43

 
1

Latin America
77

 
1

Caterpillar Power Finance
451

 
3

Total
$
712

 
$
7

Total Impaired Finance Receivables
 

 
 

North America
$
50

 
$
1

EAME
95

 
1

Asia/Pacific
7

 

Mining
74

 
1

Latin America
101

 
1

Caterpillar Power Finance
511

 
4

Total
$
838

 
$
8

 
 
 
 

There were $78 million in impaired finance receivables with a related allowance of $39 million as of December 31, 2019 for the Dealer portfolio segment, all of which was in Latin America. There were no impaired finance receivables as of December 31, 2019 for the Caterpillar Purchased Receivables portfolio segment.

Non-accrual finance receivables
Recognition of income is suspended and the finance receivable is placed on non-accrual status when management determines that collection of future income is not probable. Contracts on non-accrual status are generally more than 120 days past due or have been restructured in a troubled debt restructuring (TDR). Recognition is resumed and previously suspended income is recognized when the finance receivable becomes current and collection of remaining amounts is considered probable. Payments received while the finance receivable is on non-accrual status are applied to interest and principal in accordance with the contractual terms. Interest earned but uncollected prior to the receivable being placed on non-accrual status is written off through Provision for credit losses when, in the judgment of management, it is considered uncollectible.
 



16

UNAUDITED


In our Customer portfolio segment, finance receivables which were on non-accrual status and finance receivables over 90 days past due and still accruing income were as follows:
(Millions of dollars)
March 31, 2020
 
Amortized Cost
 
Non-accrual
With an
Allowance
 
Non-accrual
Without an
Allowance
 
91+ Still
Accruing
North America
$
50

 
$

 
$
20

EAME
168

 
1

 
5

Asia/Pacific
29

 

 
12

Mining
40

 

 
9

Latin America
87

 

 

Caterpillar Power Finance
329

 

 
7

Total
$
703

 
$
1

 
$
53

 
 
 
 
 
 
    
There was less than $1 million of interest income recognized during the three months ended March 31, 2020 for customer finance receivables on non-accrual status.

(Millions of dollars)
December 31, 2019
 
Recorded Investment
 
Non-accrual
Finance
Receivables
 
91+ Still
Accruing
North America
$
44

 
$
15

EAME
165

 
4

Asia/Pacific
21

 
8

Mining
47

 

Latin America
89

 
2

Caterpillar Power Finance
361

 

Total
$
727

 
$
29

 
 
 
 

As of March 31, 2020 and December 31, 2019, there were $78 million in finance receivables on non-accrual status in our Dealer portfolio segment, all of which was in Latin America. There were no finance receivables in our Dealer portfolio segment more than 90 days past due and still accruing income as of March 31, 2020 and no interest income was recognized on dealer finance receivables on non-accrual status during the three months ended March 31, 2020.

Troubled debt restructurings
A restructuring of a finance receivable constitutes a TDR when the lender grants a concession it would not otherwise consider to a borrower experiencing financial difficulties. Concessions granted may include extended contract maturities, inclusion of interest only periods, below market interest rates, payment deferrals and reduction of principal and/or accrued interest.


17

UNAUDITED


There were no finance receivables modified as TDRs during the three months ended March 31, 2020 and 2019 for the Dealer or Caterpillar Purchased Receivables portfolio segments. Finance receivables in the Customer portfolio segment modified as TDRs were as follows:
(Dollars in millions)
Three Months Ended
March 31, 2020
 
Three Months Ended
March 31, 2019
 
Number of
Contracts
 
Pre-TDR
Amortized
Cost
 
Post-TDR
Amortized
Cost
 
Number of
Contracts
 
Pre-TDR
Recorded
Investment
 
Post-TDR
Recorded
Investment
EAME