Cat Financial Financing Activities

12 Months Ended

Dec. 31, 2012

Receivables [Abstract]

Cat Financial Financing Activities

Cat Financial Financing Activities

A. Wholesale inventory receivables

Wholesale inventory receivables are receivables of Cat Financial that arise when Cat Financial provides financing for a dealer’s purchase of inventory. These receivables are included in Receivables—trade and other and Long-term receivables—trade and other in Statement 3 and were $2,152 million, $1,990 million, and $1,361 million at December 31, 2012, 2011 and 2010, respectively.

Contractual maturities of outstanding wholesale inventory receivables:
(Millions of dollars)	December 31, 2012
Amounts Due In	Wholesale Installment Contracts			Wholesale Finance Leases			Wholesale Notes			Total
2013	$	398		$	146		$	727		$	1,271
2014	96			100			167			363
2015	58			74			181			313
2016	28			42			13			83
2017	12			14			6			32
Thereafter	2			—			—			2
	594			376			1,094			2,064
Guaranteed residual value	—			102			—			102
Unguaranteed residual value	—			35			—			35
Less: Unearned income	(7		)	(35		)	(7		)	(49		)
Total	$	587		$	478		$	1,087		$	2,152

Please refer to Note 17 and Table III for fair value information.

B. Finance receivables

Finance receivables are receivables of Cat Financial, which generally can be repaid or refinanced without penalty prior to contractual maturity. Total finance receivables reported in Statement 3 are net of an allowance for credit losses.

Cat Financial provides financing only when acceptable criteria are met. Credit decisions are based on, among other things, the customer’s credit history, financial strength and intended use of equipment. Cat Financial typically maintains a security interest in retail financed equipment and requires physical damage insurance coverage on financed equipment.

Contractual maturities of outstanding finance receivables:
(Millions of dollars)	December 31, 2012
Amounts Due In	Retail Installment Contracts			Retail Finance Leases			Retail Notes			Total
2013	$	1,819		$	3,192		$	4,068		$	9,079
2014	1,357			2,144			1,836			5,337
2015	911			1,225			1,714			3,850
2016	466			600			1,175			2,241
2017	171			241			1,454			1,866
Thereafter	29			125			861			1,015
	4,753			7,527			11,108			23,388
Guaranteed residual value	—			374			—			374
Unguaranteed residual value	—			462			—			462
Less: Unearned income	(67		)	(762		)	(87		)	(916		)
Total	$	4,686		$	7,601		$	11,021		$	23,308

Please refer to Note 17 and Table III for fair value information.

C. 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 for credit losses, 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 except in locations where local regulatory requirements dictate a different method, or in instances in which relevant information is known that warrants placing the loan or finance lease on non-accrual status).  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.

At December 31, 2012, 2011 and 2010, there were no impaired loans or finance leases for the Dealer portfolio segment.  The average recorded investment for impaired loans and finance leases within the dealer portfolio segment was zero during 2012 and 2011 and $19 million during 2010. 

Individually impaired loans and finance leases for the customer portfolio segment were as follows:

	December 31, 2012
(Millions of dollars)	Recorded Investment		Unpaid Principal Balance		Related Allowance
Impaired Loans and Finance Leases With No Allowance Recorded
Customer
North America	$	28	$	27	$	—
Europe	45		45		—
Asia Pacific	2		2		—
Mining	1		1		—
Latin America	7		7		—
Caterpillar Power Finance	295		295		—
Total	$	378	$	377	$	—
Impaired Loans and Finance Leases With An Allowance Recorded
Customer
North America	$	47	$	43	$	10
Europe	40		37		14
Asia Pacific	35		35		8
Mining	23		23		5
Latin America	43		43		12
Caterpillar Power Finance	116		112		24
Total	$	304	$	293	$	73
Total Impaired Loans and Finance Leases
Customer
North America	$	75	$	70	$	10
Europe	85		82		14
Asia Pacific	37		37		8
Mining	24		24		5
Latin America	50		50		12
Caterpillar Power Finance	411		407		24
Total	$	682	$	670	$	73

	December 31, 2011
(Millions of dollars)	Recorded Investment		Unpaid Principal Balance		Related Allowance
Impaired Loans and Finance Leases With No Allowance Recorded
Customer
North America	$	83	$	80	$	—
Europe	47		46		—
Asia Pacific	4		4		—
Mining	8		8		—
Latin America	9		9		—
Caterpillar Power Finance	175		170		—
Total	$	326	$	317	$	—
Impaired Loans and Finance Leases With An Allowance Recorded
Customer
North America	$	69	$	64	$	15
Europe	36		33		12
Asia Pacific	13		13		3
Mining	13		13		4
Latin America	25		25		6
Caterpillar Power Finance	93		92		16
Total	$	249	$	240	$	56
Total Impaired Loans and Finance Leases
Customer
North America	$	152	$	144	$	15
Europe	83		79		12
Asia Pacific	17		17		3
Mining	21		21		4
Latin America	34		34		6
Caterpillar Power Finance	268		262		16
Total	$	575	$	557	$	56

	December 31, 2010
(Millions of dollars)	Recorded Investment		Unpaid Principal Balance		Related Allowance
Impaired Loans and Finance Leases With No Allowance Recorded
Customer
North America	$	87	$	87	$	—
Europe	6		4		—
Asia Pacific	5		5		—
Mining	8		8		—
Latin America	3		3		—
Caterpillar Power Finance	174		174		—
Total	$	283	$	281	$	—
Impaired Loans and Finance Leases With An Allowance Recorded
Customer
North America	$	191	$	185	$	44
Europe	62		57		15
Asia Pacific	27		27		7
Mining	—		—		—
Latin America	44		43		9
Caterpillar Power Finance	34		33		4
Total	$	358	$	345	$	79
Total Impaired Loans and Finance Leases
Customer
North America	$	278	$	272	$	44
Europe	68		61		15
Asia Pacific	32		32		7
Mining	8		8		—
Latin America	47		46		9
Caterpillar Power Finance	208		207		4
Total	$	641	$	626	$	79

	Years ended December 31,
	2012				2011				2010
(Millions of dollars)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired Loans and Finance Leases With No Allowance Recorded
Customer
North America	$	50	$	3	$	91	$	4	$	39	$	2
Europe	45		1		11		—		7		—
Asia Pacific	3		—		5		—		6		—
Mining	8		—		8		1		3		—
Latin America	6		—		9		1		5		—
Caterpillar Power Finance	220		2		221		6		92		—
Total	$	332	$	6	$	345	$	12	$	152	$	2
Impaired Loans and Finance Leases With An Allowance Recorded
Customer
North America	$	58	$	1	$	142	$	5	$	271	$	11
Europe	43		2		50		2		85		4
Asia Pacific	27		2		17		1		34		3
Mining	38		2		6		—		6		—
Latin America	43		2		39		2		39		3
Caterpillar Power Finance	99		—		83		—		17		—
Total	$	308	$	9	$	337	$	10	$	452	$	21
Total Impaired Loans and Finance Leases
Customer
North America	$	108	$	4	$	233	$	9	$	310	$	13
Europe	88		3		61		2		92		4
Asia Pacific	30		2		22		1		40		3
Mining	46		2		14		1		9		—
Latin America	49		2		48		3		44		3
Caterpillar Power Finance	319		2		304		6		109		—
Total	$	640	$	15	$	682	$	22	$	604	$	23

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 except in locations where local regulatory requirements dictate a different method, or in instances in which relevant information is known that warrants placing the loan or finance lease on non-accrual status).  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 December 31, 2012, 2011 and 2010, 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:

	December 31,
(Millions of dollars)	2012		2011		2010
Customer
North America	$	59	$	112	$	217
Europe	38		58		89
Asia Pacific	36		24		24
Mining	12		12		7
Latin America	148		108		139
Caterpillar Power Finance	220		158		163
Total	$	513	$	472	$	639

Aging related to loans and finance leases was as follows:

(Millions of dollars)	December 31, 2012
	31-60 Days Past Due		61-90 Days Past Due		91+ Days Past Due		Total Past Due		Current		Total Finance Receivables		91+ Still Accruing
Customer
North America	$	35	$	8	$	52	$	95	$	5,872	$	5,967	$	—
Europe	23		9		36		68		2,487		2,555		6
Asia Pacific	53		19		54		126		2,912		3,038		18
Mining	—		1		12		13		1,960		1,973		—
Latin America	62		19		138		219		2,500		2,719		—
Caterpillar Power Finance	15		14		126		155		3,017		3,172		4
Dealer
North America	—		—		—		—		2,063		2,063		—
Europe	—		—		—		—		185		185		—
Asia Pacific	—		—		—		—		751		751		—
Mining	—		—		—		—		1		1		—
Latin America	—		—		—		—		884		884		—
Caterpillar Power Finance	—		—		—		—		—		—		—
Total	$	188	$	70	$	418	$	676	$	22,632	$	23,308	$	28

(Millions of dollars)	December 31, 2011
	31-60 Days Past Due		61-90 Days Past Due		91+ Days Past Due		Total Past Due		Current		Total Finance Receivables		91+ Still Accruing
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

(Millions of dollars)	December 31, 2010
	31-60 Days Past Due		61-90 Days Past Due		91+ Days Past Due		Total Past Due		Current		Total Finance Receivables		91+ Still Accruing
Customer
North America	$	139	$	44	$	228	$	411	$	6,037	$	6,448	$	27
Europe	27		12		106		145		2,365		2,510		26
Asia Pacific	63		17		37		117		2,537		2,654		12
Mining	—		—		—		—		875		875		—
Latin America	44		16		144		204		2,222		2,426		1
Caterpillar Power Finance	18		17		54		89		2,978		3,067		25
Dealer
North America	—		—		—		—		1,291		1,291		—
Europe	—		—		—		—		41		41		—
Asia Pacific	—		—		—		—		151		151		—
Mining	—		—		—		—		—		—		—
Latin America	—		—		—		—		457		457		—
Caterpillar Power Finance	—		—		—		—		3		3		—
Total	$	291	$	106	$	569	$	966	$	18,957	$	19,923	$	91

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. An analysis of the allowance for credit losses during 2012, 2011 and 2010 was as follows:

(Millions of dollars)	December 31, 2012
	Customer			Dealer		Total
Allowance for Credit Losses:
Balance at beginning of year	$	360		$	6	$	366
Receivables written off	(149		)	—		(149		)
Recoveries on receivables previously written off	47			—		47
Provision for credit losses	157			3		160
Other	(1		)	—		(1		)
Balance at end of year	$	414		$	9	$	423
Individually evaluated for impairment	$	73		$	—	$	73
Collectively evaluated for impairment	341			9		350
Ending Balance	$	414		$	9	$	423
Recorded Investment in Finance Receivables:
Individually evaluated for impairment	$	682		$	—	$	682
Collectively evaluated for impairment	18,742			3,884		22,626
Ending Balance	$	19,424		$	3,884	$	23,308

(Millions of dollars)	December 31, 2011
	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
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

(Millions of dollars)	December 31, 2010
Allowance for Credit Losses:
Balance at beginning of year	$	376
Receivables written off	(288		)
Recoveries on receivables previously written off	51
Provision for credit losses	205
Adjustment to adopt consolidation of variable-interest entities	18
Other–net	—
Balance at end of year	$	362

(Millions of dollars)	December 31, 2010
	Customer		Dealer		Total
Individually evaluated for impairment	$	79	$	—	$	79
Collectively evaluated for impairment	278		5		283
Ending Balance	$	357	$	5	$	362
Recorded Investment in Finance Receivables:
Individually evaluated for impairment	$	641	$	—	$	641
Collectively evaluated for impairment	17,339		1,943		19,282
Ending Balance	$	17,980	$	1,943	$	19,923

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:

(Millions of dollars)	December 31, 2012
	Customer		Dealer		Total
Performing
North America	$	5,908	$	2,063	$	7,971
Europe	2,517		185		2,702
Asia Pacific	3,002		751		3,753
Mining	1,961		1		1,962
Latin America	2,571		884		3,455
Caterpillar Power Finance	2,952		—		2,952
Total Performing	$	18,911	$	3,884	$	22,795
Non-Performing
North America	$	59	$	—	$	59
Europe	38		—		38
Asia Pacific	36		—		36
Mining	12		—		12
Latin America	148		—		148
Caterpillar Power Finance	220		—		220
Total Non-Performing	$	513	$	—	$	513
Performing & Non-Performing
North America	$	5,967	$	2,063	$	8,030
Europe	2,555		185		2,740
Asia Pacific	3,038		751		3,789
Mining	1,973		1		1,974
Latin America	2,719		884		3,603
Caterpillar Power Finance	3,172		—		3,172
Total	$	19,424	$	3,884	$	23,308

(Millions of dollars)	December 31, 2011
	Customer		Dealer		Total
Performing
North America	$	5,490	$	1,689	$	7,179
Europe	2,166		57		2,223
Asia Pacific	2,853		161		3,014
Mining	1,473		—		1,473
Latin America	2,377		480		2,857
Caterpillar Power Finance	2,762		—		2,762
Total Performing	$	17,121	$	2,387	$	19,508
Non-Performing
North America	$	112	$	—	$	112
Europe	58		—		58
Asia Pacific	24		—		24
Mining	12		—		12
Latin America	108		—		108
Caterpillar Power Finance	158		—		158
Total Non-Performing	$	472	$	—	$	472
Performing & Non-Performing
North America	$	5,602	$	1,689	$	7,291
Europe	2,224		57		2,281
Asia Pacific	2,877		161		3,038
Mining	1,485		—		1,485
Latin America	2,485		480		2,965
Caterpillar Power Finance	2,920		—		2,920
Total	$	17,593	$	2,387	$	19,980

(Millions of dollars)	December 31, 2010
	Customer		Dealer		Total
Performing
North America	$	6,231	$	1,291	$	7,522
Europe	2,421		41		2,462
Asia Pacific	2,630		151		2,781
Mining	868		—		868
Latin America	2,287		457		2,744
Caterpillar Power Finance	2,904		3		2,907
Total Performing	$	17,341	$	1,943	$	19,284
Non-Performing
North America	$	217	$	—	$	217
Europe	89		—		89
Asia Pacific	24		—		24
Mining	7		—		7
Latin America	139		—		139
Caterpillar Power Finance	163		—		163
Total Non-Performing	$	639	$	—	$	639
Performing & Non-Performing
North America	$	6,448	$	1,291	$	7,739
Europe	2,510		41		2,551
Asia Pacific	2,654		151		2,805
Mining	875		—		875
Latin America	2,426		457		2,883
Caterpillar Power Finance	3,067		3		3,070
Total	$	17,980	$	1,943	$	19,923

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 years ended December 31, 2012 and 2011 for the Dealer portfolio segment.

Loan and finance lease receivables in the customer portfolio segment modified as TDRs during the years ended December 31, 2012 and 2011, were as follows:

(Dollars in millions)	Year ended December 31, 2012					Year ended December 31, 2011
	Number of Contracts	Pre-TDR Outstanding Recorded Investment		Post-TDR Outstanding Recorded Investment		Number  of Contracts	Pre-TDR Outstanding Recorded Investment		Post-TDR Outstanding Recorded Investment
Customer
North America	98	$	15	$	15	71	$	13	$	13
Europe 1	21	8		8		7	44		44
Asia Pacific	12	3		3		—	—		—
Mining	—	—		—		—	—		—
Latin America	41	5		5		12	10		10
Caterpillar Power Finance 2,3	27	253		253		35	117		117
Total 4	199	$	284	$	284	125	$	184	$	184

¹  One customer comprises $43 million of the $44 million pre-TDR and post-TDR outstanding recorded investment for the year ended December 31, 2011.

²  Ten customers comprise $248 million of the $253 million pre-TDR and post-TDR outstanding recorded investment for the year ended December 31, 2012. Three customers comprise $104 million of the $117 million pre-TDR and post-TDR outstanding recorded investment for the year ended December 31, 2011.

³  During the years ended December 31, 2012 and 2011, $24 million and $15 million, respectively, of additional funds were subsequently loaned to a borrower whose terms had been modified in a TDR. The $24 million and $15 million of additional funds are not reflected in the table above as no incremental modifications have been made with the borrower during the periods presented. At December 31, 2012, remaining commitments to lend additional funds to a borrower whose terms have been modified in a TDR were $1 million.

⁴  Modifications include extended contract maturities, inclusion of interest only periods, below market interest rates, and extended skip payment periods.

TDRs in the customer portfolio segment with a payment default during the years ended December 31, 2012 and 2011, which had been modified within twelve months prior to the default date, were as follows:

(Dollars in millions)	Year ended December 31, 2012			Year ended December 31, 2011
	Number of Contracts	Post-TDR Recorded Investment		Number of Contracts	Post-TDR Recorded Investment
Customer
North America	49	$	4	48	$	26
Europe	—	—		1	1
Asia Pacific	2	1		—	—
Mining	—	—		—	—
Latin America	—	—		7	4
Caterpillar Power Finance 1	16	21		14	70
Total	67	$	26	70	$	101

¹  Two customers comprise $19 million of the $21 million post-TDR recorded investment for the year ended December 31, 2012. Two customers comprise $65 million of the $70 million post-TDR recorded investment for the year ended December 31, 2011.

D. Securitized Retail Installment Sale Contracts and Finance Leases

Cat Financial has periodically transfered certain finance receivables relating to their retail installment sale contracts and finance leases to special-purpose entities (SPEs) as part of their asset-backed securitization program.  These SPEs were concluded to be VIEs. Cat Financial determined that they were the primary beneficiary based on their power to direct activities through their role as servicer and their obligation to absorb losses and right to receive benefits and therefore consolidated these securitization SPEs.

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  December 31, 2012 or 2011.  The restricted assets (Receivables-finance, Long-term receivables-finance, Prepaid expenses and other current assets, and Other assets) of the consolidated SPEs totaled $136 million at December 31, 2010.  The liabilities (Accrued expenses and Long-term debt due within one year-Financial Products) of the consolidated SPEs totaled $73 million at December 31, 2010.