Cat Financial Financing Activities

3 Months Ended

Mar. 31, 2012

Cat Financial Financing Activities

Cat Financial Financing Activities

15.Cat Financial Financing Activities

A.Credit quality of financing receivables and allowance for credit losses

Cat Financial applies a systematic methodology to determine the allowance for credit losses for finance receivables.  Based upon Cat Financial’s analysis of credit losses and risk factors, portfolio segments are as follows:

· Customer - Finance receivables with retail customers.

· Dealer - Finance receivables with Caterpillar dealers.

Cat Financial further evaluates 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, Cat Financial’s finance receivables within a geographic area have similar credit risk profiles and methods for assessing and monitoring credit risk.  Cat Financial’s classes, which align with management reporting, are as follows:

· North America - Finance receivables originated in the United States or Canada.

· Europe - Finance receivables originated in Europe, Africa, Middle East and the Commonwealth of Independent States.

· Asia Pacific - Finance receivables originated in Australia, New Zealand, China, Japan, South Korea and Southeast Asia.

· Mining - Finance receivables related to large mining customers worldwide.

· Latin America - Finance receivables originated in Central and South American countries and Mexico.

· Caterpillar Power Finance - Finance receivables related to marine vessels with Caterpillar engines worldwide and Caterpillar electrical power generation, gas compression and co-generation systems and non-Caterpillar equipment that is powered by these systems worldwide.

Impaired loans and finance leases

For all classes, a loan or finance lease is considered impaired, based on current information and events, if it is probable that Cat Financial will be unable to collect all amounts due according to the contractual terms of the loan or finance lease.  Loans and finance leases reviewed for impairment include loans and finance leases that are past due, non-performing or in bankruptcy. Recognition of income is suspended and the loan or finance lease is placed on non-accrual status when management determines that collection of future income is not probable (generally after 120 days past due).  Accrual is resumed, and previously suspended income is recognized, when the loan or finance lease becomes contractually current and/or collection doubts are removed.  Cash receipts on impaired loans or finance leases are recorded against the receivable and then to any unrecognized income.

There were no impaired loans or finance leases as of March 31, 2012 and December 31, 2011, for the Dealer portfolio segment.  The average recorded investment for impaired loans and finance leases for the Dealer portfolio segment was zero for the three months ended March 31, 2012 and 2011.

Individually impaired loans and finance leases for customers were as follows:

	March 31, 2012						December 31, 2011
(Millions of dollars)	RecordedInvestment		UnpaidPrincipalBalance		RelatedAllowance		RecordedInvestment		UnpaidPrincipalBalance		RelatedAllowance
Impaired Loans and Finance Leases With No Allowance Recorded(1)
Customer
North America	$	56	$	55	$	—	$	83	$	80	$	—
Europe	45		44		—		47		46		—
Asia Pacific	4		4		—		4		4		—
Mining	8		8		—		8		8		—
Latin America	4		4		—		9		9		—
Caterpillar Power Finance	214		210		—		175		170		—
Total	$	331	$	325	$	—	$	326	$	317	$	—
Impaired Loans and Finance Leases With An Allowance Recorded
Customer
North America	$	72	$	67	$	15	$	69	$	64	$	15
Europe	44		42		12		36		33		12
Asia Pacific	24		24		5		13		13		3
Mining	13		13		4		13		13		4
Latin America	26		26		6		25		25		6
Caterpillar Power Finance	79		78		12		93		92		16
Total	$	258	$	250	$	54	$	249	$	240	$	56
Total Impaired Loans and Finance Leases
Customer
North America	$	128	$	122	$	15	$	152	$	144	$	15
Europe	89		86		12		83		79		12
Asia Pacific	28		28		5		17		17		3
Mining	21		21		4		21		21		4
Latin America	30		30		6		34		34		6
Caterpillar Power Finance	293		288		12		268		262		16
Total	$	589	$	575	$	54	$	575	$	557	$	56

(1) No related allowance for credit losses due to sufficient collateral value.

	Three Months Ended March 31, 2012				Three Months Ended March 31, 2011
(Millions of dollars)	Average RecordedInvestment		Interest IncomeRecognized		Average RecordedInvestment		Interest IncomeRecognized
Impaired Loans and Finance Leases With No Allowance Recorded(1)
Customer
North America	$	67	$	1	$	84	$	1
Europe	46		—		7		—
Asia Pacific	3		—		5		—
Mining	8		—		8		—
Latin America	6		—		4		—
Caterpillar Power Finance	185		1		211		1
Total	$	315	$	2	$	319	$	2
Impaired Loans and Finance Leases With An Allowance Recorded
Customer
North America	$	72	$	—	$	191	$	2
Europe	40		—		64		1
Asia Pacific	20		1		27		—
Mining	13		—		—		—
Latin America	26		—		47		1
Caterpillar Power Finance	87		—		48		—
Total	$	258	$	1	$	377	$	4
Total Impaired Loans and Finance Leases
Customer
North America	$	139	$	1	$	275	$	3
Europe	86		—		71		1
Asia Pacific	23		1		32		—
Mining	21		—		8		—
Latin America	32		—		51		1
Caterpillar Power Finance	272		1		259		1
Total	$	573	$	3	$	696	$	6

(1) No related allowance for credit losses due to sufficient collateral value.

Non-accrual and past due loans and finance leases

For all classes, Cat Financial considers a loan or finance lease past due if any portion of a contractual payment is due and unpaid for more than 30 days.  Recognition of income is suspended and the loan or finance lease is placed on non-accrual status when management determines that collection of future income is not probable (generally after 120 days past due).  Accrual is resumed, and previously suspended income is recognized, when the loan or finance lease becomes contractually current and/or collection doubts are removed.

As of March 31, 2012 and December 31, 2011, there were no loans or finance leases on non-accrual status for the Dealer portfolio segment.

The investment in customer loans and finance leases on non-accrual status was as follows:

(Millions of dollars)	March 31, 2012		December 31, 2011
Customer
North America	$	103	$	112
Europe	56		58
Asia Pacific	33		24
Mining	12		12
Latin America	162		108
Caterpillar Power Finance	157		158
Total	$	523	$	472

Past due loans and finance leases were as follows:

	March 31, 2012
(Millions of dollars)	31-60		61-90		91+		Total PastDue		Current		TotalFinanceReceivables		91+ StillAccruing
Customer
North America	$	49	$	19	$	106	$	174	$	5,374	$	5,548	$	12
Europe	36		25		61		122		2,185		2,307		13
Asia Pacific	55		33		57		145		2,751		2,896		24
Mining	—		—		12		12		1,660		1,672		—
Latin America	43		24		147		214		2,441		2,655		—
Caterpillar Power Finance	43		55		105		203		2,927		3,130		13
Dealer
North America	—		—		—		—		1,709		1,709		—
Europe	—		—		—		—		56		56		—
Asia Pacific	—		—		—		—		180		180		—
Mining	—		—		—		—		1		1		—
Latin America	—		—		—		—		581		581		—
Total	$	226	$	156	$	488	$	870	$	19,865	$	20,735	$	62

	December 31, 2011
(Millions of dollars)	31-60		61-90		91+		Total Past Due		Current		Total Finance Receivables		91+ StillAccruing
Customer
North America	$	74	$	39	$	111	$	224	$	5,378	$	5,602	$	9
Europe	27		11		57		95		2,129		2,224		10
Asia Pacific	47		23		38		108		2,769		2,877		14
Mining	—		—		12		12		1,473		1,485		—
Latin America	32		15		99		146		2,339		2,485		—
Caterpillar Power Finance	14		16		125		155		2,765		2,920		25
Dealer
North America	—		—		—		—		1,689		1,689		—
Europe	—		—		—		—		57		57		—
Asia Pacific	—		—		—		—		161		161		—
Mining	—		—		—		—		—		—		—
Latin America	—		—		—		—		480		480		—
Caterpillar Power Finance	—		—		—		—		—		—		—
Total	$	194	$	104	$	442	$	740	$	19,240	$	19,980	$	58

Allowance for credit loss activity

In estimating the allowance for credit losses, Cat Financial reviews loans and finance leases that are past due, non-performing or in bankruptcy. The allowance for credit losses as of March 31, 2012 and December 31, 2011 was as follows:

	March 31, 2012
(Millions of dollars)	Customer			Dealer		Total
Allowance for Credit Losses:
Balance at beginning of year	$	360		$	6	$	366
Receivables written off	(24		)	—		(24		)
Recoveries on receivables previously written off	13			—		13
Provision for credit losses	18			1		19
Other	2			—		2
Balance at end of period	$	369		$	7	$	376
Allowance for Credit Losses:
Individually evaluated for impairment	$	54		$	—	$	54
Collectively evaluated for impairment	315			7		322
Ending Balance	$	369		$	7	$	376
Recorded Investment in Finance Receivables:
Individually evaluated for impairment	$	589		$	—	$	589
Collectively evaluated for impairment	17,619			2,527		20,146
Ending Balance	$	18,208		$	2,527	$	20,735

	December 31, 2011
(Millions of dollars)	Customer			Dealer		Total
Allowance for Credit Losses:
Balance at beginning of year	$	357		$	5	$	362
Receivables written off	(210		)	—		(210		)
Recoveries on receivables previously written off	52			—		52
Provision for credit losses	167			1		168
Other	(6		)	—		(6		)
Balance at end of year	$	360		$	6	$	366
Allowance for Credit Losses:
Individually evaluated for impairment	$	56		$	—	$	56
Collectively evaluated for impairment	304			6		310
Ending Balance	$	360		$	6	$	366
Recorded Investment in Finance Receivables:
Individually evaluated for impairment	$	575		$	—	$	575
Collectively evaluated for impairment	17,018			2,387		19,405
Ending Balance	$	17,593		$	2,387	$	19,980

Credit quality of finance receivables

The credit quality of finance receivables is reviewed on a monthly basis.  Credit quality indicators include performing and non-performing.  Non-performing is defined as finance receivables currently over 120 days past due and/or on non-accrual status or in bankruptcy.  Finance receivables not meeting the criteria listed above are considered performing.  Non-performing receivables have the highest probability for credit loss.  The allowance for credit losses attributable to non-performing receivables is based on the most probable source of repayment, which is normally the liquidation of collateral.  In determining collateral value, Cat Financial estimates the current fair market value of the collateral. In addition, Cat Financial considers credit enhancements such as additional collateral and contractual third-party guarantees in determining the allowance for credit losses attributable to non-performing receivables.

The recorded investment in performing and non-performing finance receivables was as follows:

	March 31, 2012						December 31, 2011
(Millions of dollars)	Customer		Dealer		Total		Customer		Dealer		Total
Performing
North America	$	5,445	$	1,709	$	7,154	$	5,490	$	1,689	$	7,179
Europe	2,251		56		2,307		2,166		57		2,223
Asia Pacific	2,863		180		3,043		2,853		161		3,014
Mining	1,660		1		1,661		1,473		—		1,473
Latin America	2,493		581		3,074		2,377		480		2,857
Caterpillar Power Finance	2,973		—		2,973		2,762		—		2,762
Total Performing	$	17,685	$	2,527	$	20,212	$	17,121	$	2,387	$	19,508
Non-Performing
North America	$	103	$	—	$	103	$	112	$	—	$	112
Europe	56		—		56		58		—		58
Asia Pacific	33		—		33		24		—		24
Mining	12		—		12		12		—		12
Latin America	162		—		162		108		—		108
Caterpillar Power Finance	157		—		157		158		—		158
Total Non-Performing	$	523	$	—	$	523	$	472	$	—	$	472
Performing & Non-Performing
North America	$	5,548	$	1,709	$	7,257	$	5,602	$	1,689	$	7,291
Europe	2,307		56		2,363		2,224		57		2,281
Asia Pacific	2,896		180		3,076		2,877		161		3,038
Mining	1,672		1		1,673		1,485		—		1,485
Latin America	2,655		581		3,236		2,485		480		2,965
Caterpillar Power Finance	3,130		—		3,130		2,920		—		2,920
Total	$	18,208	$	2,527	$	20,735	$	17,593	$	2,387	$	19,980

Troubled Debt Restructurings

A restructuring of a loan or finance lease receivable constitutes a troubled debt restructuring (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, and extended skip payment periods.

TDRs are reviewed along with other receivables as part of management’s ongoing evaluation of the adequacy of the allowance for credit losses.  The allowance for credit losses attributable to TDRs is based on the most probable source of repayment, which is normally the liquidation of collateral.  In determining collateral value, Cat Financial estimates the current fair market value of the collateral. In addition, Cat Financial factors in credit enhancements such as additional collateral and contractual third-party guarantees in determining the allowance for credit losses attributable to TDRs.

There were no loans or finance lease receivables modified as TDRs during the three months ended March 31, 2012 and 2011 for the Dealer portfolio segment.

Customer loan and finance lease receivables modified as TDRs during the three months ended March 31, 2012 and 2011, were as follows:

	Three Months Ended March 31, 2012					Three Months Ended March 31, 2011
(Dollars in millions)	NumberofContracts	Pre-TDROutstanding RecordedInvestment		Post-TDROutstandingRecordedInvestment		NumberofContracts	Pre-TDROutstandingRecordedInvestment		Post-TDROutstandingRecordedInvestment
Customer
North America	23	$	2	$	2	24	$	5	$	5
Europe	7	7		7		1	1		1
Latin America	—	—		—		8	5		5
Caterpillar Power Finance (1),(2)	5	32		32		6	53		53
Total (3)	35	$	41	$	41	39	$	64	$	64

(1) During the three months ended March 31, 2012, $9 million of additional funds were subsequently loaned to a borrower whose terms had been modified in a TDR.  The $9 million of additional funds is not reflected in the table above.   At March 31, 2012, remaining commitments to lend additional funds to a borrower whose terms have been modified in a TDR were $14 million.

(2) Three customers comprise $32 million of the pre-TDR and post-TDR outstanding recorded investment for the three months ended March 31, 2012. Four customers comprise the $53 million pre-TDR and post-TDR outstanding recorded investment for the three months ended March 31, 2011.

(3) Modifications include extended contract maturities, inclusion of interest only periods, below market interest rates, and extended skip payment periods.

Customer TDRs with a payment default during the three months ended March 31, 2012 and 2011, which had been modified within twelve months prior to the default date, were as follows:

	Three Months Ended March 31,  2012			Three Months Ended March 31,  2011
(Dollars in millions)	Number ofContracts	Post-TDRRecordedInvestment		Number ofContracts	Post-TDRRecordedInvestment
Customer
North America	11	$	1	34	$	6
Caterpillar Power Finance (1)	14	19		6	5
Total	25	$	20	40	$	11

(1) Two customers comprise the $19 million post-TDR recorded investment for the three months ended March 31, 2012.

B.Securitized Retail Installment Sale Contracts and Finance Leases

Cat Financial has periodically transferred certain finance receivables relating to retail installment sale contracts and finance leases to SPEs as part of their asset-backed securitization program.

On April 25, 2011, Cat Financial exercised a clean-up call on their only outstanding asset-backed securitization transaction.  As a result, Cat Financial had no assets or liabilities related to their securitization program as of March 31, 2012 and December 31, 2011.