Company Quick10K Filing
Caterpillar Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 0 $-0
10-Q 2019-10-31 Quarter: 2019-09-30
10-Q 2019-08-01 Quarter: 2019-06-30
10-Q 2019-05-06 Quarter: 2019-03-31
10-K 2019-02-14 Annual: 2018-12-31
10-Q 2018-10-31 Quarter: 2018-09-30
10-Q 2018-08-07 Quarter: 2018-06-30
10-Q 2018-05-02 Quarter: 2018-03-31
10-K 2018-02-15 Annual: 2017-12-31
10-Q 2017-11-01 Quarter: 2017-09-30
10-Q 2017-08-02 Quarter: 2017-06-30
10-Q 2017-05-03 Quarter: 2017-03-31
10-K 2017-02-15 Annual: 2016-12-31
10-Q 2016-11-02 Quarter: 2016-09-30
10-Q 2016-08-03 Quarter: 2016-06-30
10-Q 2016-05-02 Quarter: 2016-03-31
10-K 2016-02-16 Annual: 2015-12-31
10-Q 2015-10-30 Quarter: 2015-09-30
10-Q 2015-07-31 Quarter: 2015-06-30
10-Q 2015-05-01 Quarter: 2015-03-31
10-K 2015-02-17 Annual: 2014-12-31
10-Q 2014-08-01 Quarter: 2014-06-30
10-Q 2014-05-02 Quarter: 2014-03-31
10-Q 2014-11-14 Quarter: 2013-12-31
10-K 2014-02-18 Annual: 2013-12-31
10-Q 2013-11-01 Quarter: 2013-09-30
10-Q 2013-08-02 Quarter: 2013-06-30
10-Q 2013-05-02 Quarter: 2013-03-31
10-K 2013-02-19 Annual: 2012-12-31
10-Q 2012-11-02 Quarter: 2012-09-30
10-Q 2012-08-06 Quarter: 2012-06-30
10-Q 2012-05-07 Quarter: 2012-03-31
10-K 2012-02-21 Annual: 2011-12-31
10-Q 2011-11-04 Quarter: 2011-09-30
10-Q 2011-08-04 Quarter: 2011-06-30
10-Q 2011-05-09 Quarter: 2011-03-31
10-K 2011-02-22 Annual: 2010-12-31
10-Q 2010-11-04 Quarter: 2010-09-30
10-Q 2010-07-30 Quarter: 2010-06-30
10-Q 2010-05-03 Quarter: 2010-03-31
10-K 2010-02-19 Annual: 2010-02-12
8-K 2020-01-13 Other Events, Exhibits
8-K 2019-11-08 Other Events, Exhibits
8-K 2019-11-08 Other Events, Exhibits
8-K 2019-10-23 Earnings, Exhibits
8-K 2019-10-04 Other Events, Exhibits
8-K 2019-09-06 Other Events, Exhibits
8-K 2019-09-05 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-07-24 Earnings, Exhibits
8-K 2019-06-19 Other Events, Exhibits
8-K 2019-05-17 Exhibits
8-K 2019-04-24 Earnings, Exhibits
8-K 2019-03-08 Exhibits
8-K 2019-02-26 Exhibits
8-K 2019-01-28 Earnings, Exhibits
8-K 2018-12-07 Exhibits
8-K 2018-10-23
8-K 2018-09-07 Exhibits
8-K 2018-09-06 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-30 Exhibits
8-K 2018-07-30
8-K 2018-05-16 Exhibits
8-K 2018-04-24
8-K 2018-03-15 Other Events, Exhibits
8-K 2018-01-25
CFSC 2019-09-30
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-09302019x10qxex311.htm
EX-31.2 cfsc-09302019x10qxex312.htm
EX-32 cfsc-09302019x10qxex32.htm

Caterpillar Financial Earnings 2019-09-30

CFSC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CNHC 12,949 11,626 877 0 149 771 5,714 0% 7.4 1%
RMES 1 1 0 0 -0 -0 -0 0.5 -13%
TCT 210 12 13 0 11 11 -200 0% -18.3 5%
VDI 1,766 1,288 779 0 465 632 222 0% 0.4 26%
POYE 0 0 0 0 -0 -0 -0 0.0 -1,973%
SCTF 0 0 0 0 -0 -0 -0 3.0 -33%
SEK 302,033 283,794 0 0 0 0 -0 0%
DAVEY 570 398 1,095 98 32 97 161 9% 1.7 6%
SLDV 25 6 2 0 13 19 -1 0% -0.0 53%
MBCC 216 243 112 0 -7 10 215 0% 21.5 -3%

10-Q 1 cfsc-09302019x10q.htm CFSC 2019 3RD 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 September 30, 2019
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 October 31, 2019, 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 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 14, 2019. 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
September 30,
 
Nine Months Ended
September 30,
 
2019

2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Retail finance
$
346

 
$
330

 
$
1,031

 
$
975

Operating lease
262

 
259

 
777

 
760

Wholesale finance
125

 
108

 
375

 
304

Other, net
15

 
38

 
58

 
109

Total revenues
748

 
735

 
2,241

 
2,148

 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 

 
 

Interest
198

 
194

 
599

 
558

Depreciation on equipment leased to others
205

 
208

 
611

 
616

General, operating and administrative
128

 
109

 
378

 
326

Provision for credit losses
20

 
47

 
144

 
218

Other
9

 
11

 
28

 
28

Total expenses
560

 
569

 
1,760

 
1,746

 
 
 
 
 
 
 
 
Other income (expense)
(4
)
 
(3
)
 
(14
)
 
(15
)
 
 
 
 
 
 
 
 
Profit before income taxes
184

 
163

 
467

 
387

 
 
 
 
 
 
 
 
Provision for income taxes
49

 
32

 
144

 
85

 
 
 
 
 
 
 
 
Profit of consolidated companies
135

 
131

 
323

 
302

 
 
 
 
 
 
 
 
Less:  Profit attributable to noncontrolling interests
6

 
6

 
17

 
15

 
 
 
 
 
 
 
 
Profit(1)
$
129

 
$
125

 
$
306

 
$
287

 
 
 
 
 
 
 
 
(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
September 30,
 
Nine Months Ended
September 30,
 
2019

2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Profit of consolidated companies
$
135

 
$
131

 
$
323

 
$
302

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation, net of tax (expense)/benefit of:
2019 $(22) three months, $(19) nine months;
2018 $(3) three months, $(18) nine months
(165
)
 
(50
)
 
(132
)
 
(241
)
Derivative financial instruments:
 
 
 
 
 
 
 
Gains (losses) deferred, net of tax (expense)/benefit of:
2019 $(20) three months, $(14) nine months;
2018 $(14) three months, $(36) nine months
68

 
42

 
46

 
115

(Gains) losses reclassified to earnings, net of tax expense/(benefit) of:
2019 $22 three months, $25 nine months;
2018 $14 three months, $37 nine months
(73
)
 
(42
)
 
(87
)
 
(118
)
Total Other comprehensive income (loss), net of tax
(170
)
 
(50
)
 
(173
)
 
(244
)
 


 
 
 
 
 
 
Comprehensive income (loss)
(35
)
 
81

 
150

 
58

 
 
 
 
 
 
 
 
Less: Comprehensive income (loss) attributable to the noncontrolling
interests
1

 

 
12

 
7

 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to Caterpillar Financial
Services Corporation
$
(36
)
 
$
81

 
$
138

 
$
51

 
 
 
 
 
 
 
 
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)
 
September 30,
2019
 
December 31,
2018
Assets:
 
 
 
Cash and cash equivalents
$
1,366

 
$
766

Finance receivables, net
27,186

 
27,923

Notes receivable from Caterpillar
469

 
662

Equipment on operating leases, net
3,567

 
3,562

Other assets
1,319

 
1,268

Total assets
$
33,907

 
$
34,181

 
 
 
 
Liabilities and shareholder’s equity:
 

 
 

Payable to dealers and others
$
129

 
$
117

Payable to Caterpillar - borrowings and other
871

 
1,601

Accrued expenses
286

 
259

Short-term borrowings
4,268

 
5,723

Current maturities of long-term debt
8,025

 
5,820

Long-term debt
16,454

 
16,995

Other liabilities
875

 
817

Total liabilities
30,908

 
31,332

 
 
 
 
Commitments and contingent liabilities (Notes 8 and 10)


 


 
 
 
 
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
3,083

 
2,874

Accumulated other comprehensive income/(loss)
(996
)
 
(925
)
Noncontrolling interests
165

 
153

Total shareholder’s equity
2,999

 
2,849

 
 
 
 
Total liabilities and shareholder’s equity
$
33,907

 
$
34,181

 
 
 
 
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 September 30, 2018
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income/(loss)
 
Noncontrolling
interests
 
Total
Balance at June 30, 2018
$
745

 
$
2

 
$
3,131

 
$
(784
)
 
$
147

 
$
3,241

Profit of consolidated companies
 
 
 
 
125

 
 
 
6

 
131

Foreign currency translation, net of tax
 
 
 
 
 
 
(44
)
 
(6
)
 
(50
)
Derivative financial instruments, net of tax
 
 
 
 
 
 

 
 
 

Balance at September 30, 2018
$
745

 
$
2

 
$
3,256

 
$
(828
)
 
$
147

 
$
3,322

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2019
$
745

 
$
2

 
$
2,954

 
$
(831
)
 
$
164

 
$
3,034

Profit of consolidated companies
 
 
 
 
129

 
 
 
6

 
135

Foreign currency translation, net of tax
 
 
 
 
 
 
(160
)
 
(5
)
 
(165
)
Derivative financial instruments, net of tax
 
 
 
 
 
 
(5
)
 
 
 
(5
)
Balance at September 30, 2019
$
745

 
$
2

 
$
3,083

 
$
(996
)
 
$
165

 
$
2,999

 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
745

 
$
2

 
$
2,969

 
$
(592
)
 
$
140

 
$
3,264

Profit of consolidated companies
 

 
 

 
287

 
 

 
15

 
302

Foreign currency translation, net of tax
 

 
 

 
 

 
(233
)
 
(8
)
 
(241
)
Derivative financial instruments, net of tax
 

 
 

 
 

 
(3
)
 
 

 
(3
)
Balance at September 30, 2018
$
745

 
$
2

 
$
3,256

 
$
(828
)
 
$
147

 
$
3,322

 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 

 
 

 
 

 
 

 
 

 
 

Balance at December 31, 2018
$
745

 
$
2

 
$
2,874

 
$
(925
)
 
$
153

 
$
2,849

Profit of consolidated companies
 

 
 

 
306

 
 

 
17

 
323

Foreign currency translation, net of tax
 

 
 

 
 

 
(127
)
 
(5
)
 
(132
)
Derivative financial instruments, net of tax
 

 
 

 
 

 
(41
)
 
 

 
(41
)
Adjustment to adopt new accounting
guidance(1)
 
 
 
 
(97
)
 
97

 
 
 

Balance at September 30, 2019
$
745

 
$
2

 
$
3,083

 
$
(996
)
 
$
165

 
$
2,999

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

See Notes to Consolidated Financial Statements (Unaudited).

6

UNAUDITED


Caterpillar Financial Services Corporation
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
 
Nine Months Ended
September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Profit of consolidated companies
$
323

 
$
302

Adjustments for non-cash items:
 

 
 

Depreciation and amortization
621

 
626

Amortization of receivables purchase discount
(346
)
 
(274
)
Provision for credit losses
144

 
218

Other, net
128

 
93

Changes in assets and liabilities:
 

 
 

Other assets
65

 
11

Payable to dealers and others
26

 
(32
)
Accrued expenses
(44
)
 
5

Other payables with Caterpillar
(14
)
 
(27
)
Other liabilities
51

 
(40
)
Net cash provided by operating activities
954

 
882

 
 
 
 
Cash flows from investing activities:
 

 
 

Expenditures for equipment on operating leases
(1,079
)
 
(1,093
)
Capital expenditures - excluding equipment on operating leases
(14
)
 
(99
)
Proceeds from disposals of equipment
548

 
619

Additions to finance receivables
(10,633
)
 
(10,151
)
Collections of finance receivables
10,161

 
9,132

Net changes in Caterpillar purchased receivables
763

 
(484
)
Proceeds from sales of receivables
183

 
416

Net change in variable lending to Caterpillar
51

 
(18
)
Additions to other notes receivable with Caterpillar
(80
)
 
(390
)
Collections on other notes receivable with Caterpillar
222

 
300

Settlements of undesignated derivatives
(38
)
 
(2
)
Net cash provided by (used for) investing activities
84

 
(1,770
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Net change in variable lending from Caterpillar
(627
)
 
(63
)
Payments on borrowings with Caterpillar
(93
)
 

Proceeds from debt issued (original maturities greater than three months)
7,348

 
7,026

Payments on debt issued (original maturities greater than three months)
(6,054
)
 
(5,636
)
Short-term borrowings, net (original maturities three months or less)
(1,006
)
 
(479
)
Net cash provided by (used for) financing activities
(432
)
 
848

 
 
 
 
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(9
)
 
(13
)
 
 
 
 
Increase/(decrease) in cash, cash equivalents and restricted cash
597

 
(53
)
Cash, cash equivalents and restricted cash at beginning of year(1)
773

 
732

Cash, cash equivalents and restricted cash at end of period(1)
$
1,370

 
$
679

 
 
 
 
(1) As of September 30, 2019 and December 31, 2018, restricted cash, which is included in Other assets in the Consolidated Statements of Financial Position, was $4 million and $7 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.
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 and nine months ended September 30, 2019 and 2018, (b) the consolidated comprehensive income for the three and nine months ended September 30, 2019 and 2018, (c) the consolidated financial position as of September 30, 2019 and December 31, 2018, (d) the consolidated changes in shareholder's equity for the three and nine months ended September 30, 2019 and 2018 and (e) the consolidated cash flows for the nine months ended September 30, 2019 and 2018. The preparation of financial statements, in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), requires management to make estimates and assumptions that affect 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, 2018 (2018 Form 10-K) filed with the SEC on February 14, 2019. The December 31, 2018 financial position data included herein was derived from the audited consolidated financial statements included in the 2018 Form 10-K but does not include all disclosures required by U.S. GAAP. 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 8 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 inherently present in the financial support that we have provided. These risks are evaluated and reflected in our financial statements as part of our overall portfolio of finance receivables and related allowance for credit losses.
2.
New Accounting Pronouncements
 
A.
Adoption of New Accounting Standards

Lease accounting (Accounting Standards Update (ASU) 2016-02) – In February 2016, the Financial Accounting Standards Board (FASB) issued accounting guidance that revises the accounting for leases. Under the new guidance, lessees are required to recognize a right-of-use asset and a lease liability for substantially all leases. The new guidance will continue to classify leases as either financing or operating, with classification affecting the pattern of expense recognition. The accounting applied by a lessor under the new guidance will be substantially equivalent to current lease accounting guidance. The new guidance was effective January 1, 2019 and was applied using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of January 1, 2019. The prior period comparative information has not been recasted and continues to be reported under the accounting guidance in effect for those periods.

The new guidance provides a number of optional practical expedients in transition. We elected the "package of practical expedients," which allows us not to reassess under the new guidance our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight practical expedient. In addition, the new guidance provides practical expedients for an entity’s ongoing lessee accounting. We have elected not to separate lease and non-lease components for the majority of our asset classes.  We have elected the short-term lease recognition exemption for all leases that qualify, which means we will not recognize right-of-use assets or lease liabilities for these leases with a term of twelve months or less. 

The most significant effects of adoption relate to the recognition of right-of-use assets and lease liabilities on our balance sheet for operating leases and providing new disclosures about our leasing activities.  The adoption did not have a material impact on our results of operations.

8

UNAUDITED



In March 2019, the FASB issued Leases - Codification improvements (ASU 2019-01) which amended the new leasing guidance. Under these amendments, lessors that are not manufacturers or dealers will use their cost, less any discounts that may apply, as the fair value of the underlying asset, and lessors within the scope of Financial Services-Depository and Lending guidance will present all principal payments received under leases within investment activities on the statement of cash flows.  We adopted the new guidance effective January 1, 2019, and the adoption did not have a material impact to our financial statements.

See Note 4 for additional information.

Reclassification of certain tax effects from accumulated other comprehensive income (ASU 2018-02) – In February 2018, the FASB issued accounting guidance to allow a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from U.S. tax reform legislation. We adopted the guidance effective January 1, 2019 and the resulting reclassification was included in the period of adoption. The reclassification resulted in decreased retained earnings and increased AOCI of $97 million

We adopted the following ASU effective January 1, 2019, which did not have a material impact on our financial statements:
ASU
Description
2017-12
Derivatives and hedging - Targeted improvements

B.
Accounting Standards Issued But Not Yet Adopted

Credit losses (ASU 2016-13) – In June 2016, the FASB issued 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 will apply 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 will also apply to debt securities and other financial assets measured at fair value through other comprehensive income. We will adopt the new guidance effective January 1, 2020.  An implementation team is continuing to work on the design of new processes and controls as well as assessing the effects of the new guidance.  While we are still evaluating the impact of the new guidance, we do not expect a material impact to our financial statements.

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

3.
Finance Receivables

A summary of finance receivables included in the Consolidated Statements of Financial Position was as follows:
(Millions of dollars)
 
September 30,
2019
 
December 31,
2018
Retail loans, net(1)
 
$
15,180

 
$
15,509

Retail leases, net(2)
 
7,531

 
7,499

Caterpillar purchased receivables, net
 
4,175

 
4,691

Wholesale loans, net(1)
 
664

 
626

Wholesale leases, net
 
70

 
109

Recorded investment in finance receivables
 
27,620

 
28,434

Less: Allowance for credit losses
 
(434
)
 
(511
)
Total finance receivables, net(3)
 
$
27,186


$
27,923

 
 
 
 
 
(1) Includes failed sale leasebacks.
(2) Includes $11 million and $9 million of finance leases with Caterpillar as of September 30, 2019 and December 31, 2018, respectively.
(3) Includes $22 million and $0 million of finance receivables classified as held for sale as of September 30, 2019 and December 31, 2018, respectively.


9

UNAUDITED



Allowance for Credit Losses 
The allowance for credit losses is an estimate of the losses inherent in our finance receivable portfolio and includes consideration of accounts that have been individually identified as impaired, as well as pools of finance receivables where it is probable that certain receivables in the pool are impaired but the individual accounts cannot yet be identified.   In identifying and measuring impairment, management takes into consideration past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of underlying collateral and current economic conditions.  

Accounts are identified for individual review 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 and determined to be impaired 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. The allowance for credit losses attributable to the remaining accounts not yet individually identified as impaired is estimated based on loss forecast models utilizing probabilities of default, our estimate of the loss emergence period and the estimated loss given default.  In addition, qualitative factors not able to be fully captured in our loss forecast models including industry trends, macroeconomic factors and model imprecision are considered in the evaluation of the adequacy of the allowance for credit losses.  These qualitative factors are subjective and require a degree of management judgment.
 
Our allowance for credit losses is segregated into three portfolio segments:

Customer - Finance receivables with end-user customers.
Dealer - Finance receivables with Caterpillar dealers.
Caterpillar Purchased Receivables - Trade receivables purchased from Caterpillar entities.

A portfolio segment is the level at which the Company develops a systematic methodology for determining its allowance for credit losses.

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.


10

UNAUDITED


Our allowance for credit losses as of September 30, 2019 was $434 million or 1.57 percent of our recorded investment in finance receivables compared with $511 million or 1.80 percent as of December 31, 2018. An analysis of the allowance for credit losses was as follows:
(Millions of dollars)
 
 
 
 
 
 
 
 
September 30, 2019
Allowance for Credit Losses:
Customer
 
Dealer
 
Caterpillar
Purchased
Receivables
 
Total
Balance at beginning of year
$
486

 
$
21

 
$
4

 
$
511

Receivables written off
(238
)
 

 

 
(238
)
Recoveries on receivables previously written off
31

 

 

 
31

Provision for credit losses
120

 
24

 

 
144

Adjustment due to sale of receivables
(11
)
 

 

 
(11
)
Foreign currency translation adjustment
(3
)
 

 

 
(3
)
Balance at end of period
$
385

 
$
45

 
$
4

 
$
434

 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
182

 
$
39

 
$

 
$
221

Collectively evaluated for impairment
203

 
6

 
4

 
213

Ending Balance
$
385

 
$
45

 
$
4

 
$
434

 
 
 
 
 
 
 
 
Recorded Investment in Finance Receivables:
 

 
 

 
 

 
 

Individually evaluated for impairment
$
665

 
$
78

 
$

 
$
743

Collectively evaluated for impairment
18,301

 
4,401

 
4,175

 
26,877

Ending Balance
$
18,966

 
$
4,479

 
$
4,175

 
$
27,620

 
 
 
 
 
 
 
 

(Millions of dollars)
 
 
 
 
 
 
 
 
December 31, 2018
Allowance for Credit Losses:
Customer
 
Dealer
 
Caterpillar
Purchased
Receivables
 
Total
Balance at beginning of year
$
353

 
$
9

 
$
3

 
$
365

Receivables written off
(235
)
 

 

 
(235
)
Recoveries on receivables previously written off
46

 

 

 
46

Provision for credit losses
337

 
12

 
1

 
350

Adjustment due to sale of receivables
(7
)
 

 

 
(7
)
Foreign currency translation adjustment
(8
)
 

 

 
(8
)
Balance at end of year
$
486

 
$
21

 
$
4

 
$
511

 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
288

 
$
14

 
$

 
$
302

Collectively evaluated for impairment
198

 
7

 
4

 
209

Ending Balance
$
486

 
$
21

 
$
4

 
$
511

 
 
 
 
 
 
 
 
Recorded Investment in Finance Receivables:
 

 
 

 
 

 
 

Individually evaluated for impairment
$
859

 
$
78

 
$

 
$
937

Collectively evaluated for impairment
18,724

 
4,082

 
4,691

 
27,497

Ending Balance
$
19,583

 
$
4,160

 
$
4,691

 
$
28,434

 
 
 
 
 
 
 
 

11

UNAUDITED



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 and other internal metrics. On an ongoing basis, we monitor credit quality based on past-due status and collection experience 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 recorded investment in finance receivables past due when any installment is over 30 days past due. The tables below summarize our recorded investment in finance receivables by aging category.
(Millions of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
31-60
Days
Past Due
 
61-90
Days
Past Due
 
91+
Days
Past Due
 
Total
Past Due
 
Current
 
Recorded
Investment in
Finance
Receivables
 
91+ Still
Accruing
Customer
 

 
 

 
 

 
 
 
 
 
 
 
 
North America
$
73

 
$
16

 
$
48

 
$
137

 
$
7,875

 
$
8,012

 
$
15

EAME
33

 
10

 
136

 
179

 
2,853

 
3,032

 
4

Asia/Pacific
36

 
21

 
24

 
81

 
2,972

 
3,053

 
6

Mining
1

 
24

 
19

 
44

 
1,810

 
1,854

 

Latin America
43

 
29

 
93

 
165

 
1,152

 
1,317

 
1

Caterpillar Power Finance
1

 
1

 
241

 
243

 
1,455

 
1,698

 
14

Dealer
 

 
 

 
 

 
 
 
 
 
 
 
 
North America

 

 

 

 
2,481

 
2,481

 

EAME

 

 

 

 
624

 
624

 

Asia/Pacific

 

 

 

 
472

 
472

 

Mining

 

 

 

 
4

 
4

 

Latin America

 

 
81

 
81

 
814

 
895

 

Caterpillar Power Finance

 

 

 

 
3

 
3

 

Caterpillar Purchased Receivables(1)
 

 
 

 
 

 
 
 
 
 
 
 
 
North America
12

 
5

 
17

 
34

 
2,675

 
2,709

 
 
EAME
1

 

 
2

 
3

 
507

 
510

 
 
Asia/Pacific
1

 

 
1

 
2

 
467

 
469

 
 
Mining

 

 

 

 

 

 
 
Latin America

 

 

 

 
471

 
471

 
 
Caterpillar Power Finance

 

 

 

 
16

 
16

 
 
Total
$
201

 
$
106

 
$
662

 
$
969

 
$
26,651

 
$
27,620

 
$
40

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Caterpillar Purchased Receivables are non-interest bearing trade receivables purchased at a discount.

12

UNAUDITED


(Millions of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
31-60
Days
Past Due
 
61-90
Days
Past Due
 
91+
Days
Past Due
 
Total
Past Due
 
Current
 
Recorded
Investment in
Finance
Receivables
 
91+ Still
Accruing
Customer
 

 
 

 
 

 
 
 
 
 
 
 
 
North America
$
65

 
$
18

 
$
84

 
$
167

 
$
7,883

 
$
8,050

 
$
14

EAME
19

 
9

 
153

 
181

 
2,850

 
3,031

 
5

Asia/Pacific
25

 
9

 
8

 
42

 
2,923

 
2,965

 
5

Mining
28

 
1

 
9

 
38

 
1,642

 
1,680

 

Latin America
38

 
29

 
71

 
138

 
1,421

 
1,559

 

Caterpillar Power Finance
10

 
1

 
384

 
395

 
1,903

 
2,298

 

Dealer
 

 
 

 
 

 
 
 
 
 
 
 
 
North America

 

 

 

 
2,210

 
2,210

 

EAME

 

 

 

 
619

 
619

 

Asia/Pacific

 

 

 

 
514

 
514

 

Mining

 

 

 

 
4

 
4

 

Latin America

 

 
78

 
78

 
731

 
809

 

Caterpillar Power Finance

 

 

 

 
4

 
4

 

Caterpillar Purchased Receivables(1)
 

 
 

 
 

 
 
 
 
 
 
 
 
North America
22

 
12

 
18

 
52

 
2,982

 
3,034

 
 
EAME
1

 

 
1

 
2

 
546

 
548

 
 
Asia/Pacific
5

 
1

 
1

 
7

 
756

 
763

 
 
Mining

 

 

 

 

 

 
 
Latin America

 

 

 

 
338

 
338

 
 
Caterpillar Power Finance

 

 

 

 
8

 
8

 
 
Total
$
213

 
$
80

 
$
807

 
$
1,100

 
$
27,334

 
$
28,434

 
$
24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Caterpillar Purchased Receivables are non-interest bearing trade receivables purchased at a discount.


13

UNAUDITED


Impaired finance receivables
For all classes, 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.

There were $78 million in impaired finance receivables with a related allowance of $39 million and $14 million as of September 30, 2019 and December 31, 2018, respectively, for the Dealer portfolio segment, all of which was in Latin America. There were no impaired finance receivables as of September 30, 2019 and December 31, 2018, for the Caterpillar Purchased Receivables portfolio segment. Our recorded investment in impaired finance receivables and the related unpaid principal balances and allowance for the Customer portfolio segment were as follows:
(Millions of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2019
 
As of December 31, 2018
Impaired Finance Receivables With
No Allowance Recorded
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
North America
$
9

 
$
9

 
$

 
$
10

 
$
10

 
$

EAME

 

 

 
1

 
1

 

Asia/Pacific

 

 

 
1

 
1

 

Mining
23

 
23

 

 
33

 
33

 

Latin America
25

 
25

 

 
29

 
29

 

Caterpillar Power Finance
71

 
113

 

 
69

 
83

 

Total
$
128

 
$
170

 
$

 
$
143

 
$
157

 
$

Impaired Finance Receivables With
An Allowance Recorded
 

 
 

 
 

 
 

 
 

 
 

North America
$
31

 
$
30

 
$
9

 
$
40

 
$
41

 
$
14

EAME
60

 
60

 
27

 
92

 
92

 
57

Asia/Pacific
10

 
10

 
4

 
4

 
4

 
2

Mining
61

 
59

 
18

 
56

 
55

 
26

Latin America
66

 
64

 
22

 
75

 
75

 
25

Caterpillar Power Finance
309

 
322

 
102

 
449

 
455

 
164

Total
$
537

 
$
545

 
$
182

 
$
716

 
$
722

 
$
288

Total Impaired Finance Receivables
 

 
 

 
 

 
 

 
 

 
 

North America
$
40

 
$
39

 
$
9

 
$
50

 
$
51

 
$
14

EAME
60

 
60

 
27

 
93

 
93

 
57

Asia/Pacific
10

 
10

 
4

 
5

 
5

 
2

Mining
84

 
82

 
18

 
89

 
88

 
26

Latin America
91

 
89

 
22

 
104

 
104

 
25

Caterpillar Power Finance
380

 
435

 
102

 
518

 
538

 
164

Total
$
665

 
$
715

 
$
182

 
$
859

 
$
879

 
$
288

 
 
 
 
 
 
 
 
 
 
 
 
 

14

UNAUDITED


(Millions of dollars)
 
 
 
 
 
 
 
 
Three Months Ended
September 30, 2019
 
Three Months Ended
September 30, 2018
Impaired Finance Receivables With
No Allowance Recorded
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
North America
$
10

 
$

 
$
19

 
$

EAME
15

 

 
4

 

Asia/Pacific

 

 
30

 
1

Mining
26

 

 
35

 

Latin America
22

 

 
37

 
1

Caterpillar Power Finance
57

 
1

 
94

 
2

Total
$
130

 
$
1

 
$
219

 
$
4

Impaired Finance Receivables With
An Allowance Recorded
 

 
 

 
 

 
 

North America
$
30

 
$

 
$
47

 
$

EAME
80

 
1

 
59

 

Asia/Pacific
12

 
1

 
2

 

Mining
65

 
1

 
60

 
1

Latin America
69

 
1

 
51

 
1

Caterpillar Power Finance
376

 
1

 
374

 
4

Total
$
632

 
$
5

 
$
593

 
$
6

Total Impaired Finance Receivables
 

 
 

 
 

 
 

North America
$
40

 
$

 
$
66

 
$

EAME
95

 
1

 
63

 

Asia/Pacific
12

 
1

 
32

 
1

Mining
91

 
1

 
95

 
1

Latin America
91

 
1

 
88

 
2

Caterpillar Power Finance
433

 
2

 
468

 
6

Total
$
762

 
$
6

 
$
812

 
$
10

 
 
 
 
 
 
 
 


15

UNAUDITED


(Millions of dollars)
 
 
 
 
 
 
 
 
Nine Months Ended
September 30, 2019
 
Nine Months Ended
September 30, 2018
Impaired Finance Receivables With
No Allowance Recorded
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
North America
$
10

 
$