Financing Activities

3 Months Ended

Mar. 31, 2012

Financing Activities [Abstract]

Financing Activities

Financing Activities

A. Credit Quality of Financing Receivables and Allowance for Credit Losses

We apply a systematic methodology to determine the allowance for credit losses for finance receivables. Based upon our analysis of credit losses and risk factors, our portfolio segments are as follows:

• Customer - Finance receivables with retail customers.

• Dealer - Finance receivables with Caterpillar dealers.

• Caterpillar Purchased Receivables - Trade receivables purchased from Caterpillar entities.

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 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 we 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 and Caterpillar Purchased Receivables portfolio segments. The average recorded investment for impaired loans and finance leases for the Dealer and Caterpillar Purchased Receivables portfolio segments was zero for the three months ended March 31, 2012 and 2011.

Individually impaired loans and finance leases for customers were as follows:
(Millions of dollars)
	As of March 31, 2012						As of December 31, 2011
Impaired Loans and Finance Leases With No Allowance Recorded(1)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment(2)		Unpaid Principal Balance(2)		Related Allowance
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⁾There was no related allowance for credit losses due to sufficient collateral value.

⁽²⁾Amounts previously disclosed for the North America and Europe classes have been revised due to immaterial errors.

(Millions of dollars)
	Three Months Ended March 31, 2012				Three Months Ended March 31, 2011
Impaired Loans and Finance Leases With No Allowance Recorded(1)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
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⁾There was no related allowance for credit losses due to sufficient collateral value. 

Non-accrual and past due loans and finance leases

For all classes, we consider 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 or Caterpillar Purchased Receivables portfolio segments.

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: 

(Millions of dollars)
	March 31, 2012
	31-60		61-90		91+		Total Past Due		Current		Total Finance Receivables		91+ Still Accruing
Customer
North America	$	49	$	19	$	106	$	174	$	5,439	$	5,613	$	12
Europe	36		25		61		122		2,185		2,307		13
Asia/Pacific	56		33		57		146		3,086		3,232		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	—		—		—		—		2,357		2,357		—
Europe	—		—		—		—		329		329		—
Asia/Pacific	—		—		—		—		532		532		—
Mining	—		—		—		—		1		1		—
Latin America	—		—		—		—		806		806		—
Caterpillar Power Finance	—		—		—		—		—		—		—
Caterpillar Purchased Receivables
North America	15		2		1		18		1,823		1,841		1
Europe	1		—		—		1		496		497		—
Asia/Pacific	—		—		—		—		454		454		—
Mining	—		—		—		—		—		—		—
Latin America	—		—		—		—		354		354		—
Caterpillar Power Finance	—		—		—		—		30		30		—
Total	$	243	$	158	$	489	$	890	$	24,920	$	25,810	$	63

(Millions of dollars)
	December 31, 2011
	31-60		61-90		91+		Total Past Due		Current		Total Finance Receivables		91+ Still Accruing
Customer
North America	$	75	$	39	$	111	$	225	$	5,448	$	5,673	$	9
Europe	27		11		57		95		2,129		2,224		10
Asia/Pacific	48		23		38		109		3,102		3,211		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	—		—		2		2		2,412		2,414		2
Europe	—		—		—		—		334		334		—
Asia/Pacific	—		—		—		—		516		516		—
Mining	—		—		—		—		—		—		—
Latin America	—		—		—		—		709		709		—
Caterpillar Power Finance	—		—		—		—		—		—		—
Caterpillar Purchased Receivables
North America	25		4		6		35		1,801		1,836		6
Europe	3		—		—		3		399		402		—
Asia/Pacific	—		—		—		—		465		465		—
Mining	—		—		—		—		—		—		—
Latin America	—		—		—		—		422		422		—
Caterpillar Power Finance	—		—		—		—		29		29		—
Total	$	224	$	108	$	450	$	782	$	24,343	$	25,125	$	66

Allowance for credit losses In estimating the Allowance for credit losses, we review 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:
(Millions of dollars)
	March 31, 2012
Allowance for Credit Losses:	Customer			Dealer		Caterpillar Purchased Receivables		Total
Balance at beginning of year	$	360		$	6	$	3	$	369
Receivables written off	(24		)	—		—		(24		)
Recoveries on receivables previously written off	13			—		—		13
Provision for credit losses	18			1		—		19
Adjustment due to sale of receivables	(1		)	—		—		(1		)
Foreign currency translation adjustment	3			—		—		3
Balance at end of period	$	369		$	7	$	3	$	379
Individually evaluated for impairment	$	54		$	—	$	—	$	54
Collectively evaluated for impairment	315			7		3		325
Ending Balance	$	369		$	7	$	3	$	379
Recorded Investment in Finance Receivables:
Individually evaluated for impairment	$	589		$	—	$	—	$	589
Collectively evaluated for impairment	18,020			4,025		3,176		25,221
Ending Balance	$	18,609		$	4,025	$	3,176	$	25,810

(Millions of dollars)
	December 31, 2011
Allowance for Credit Losses:	Customer			Dealer		Caterpillar Purchased Receivables		Total
Balance at beginning of year	$	357		$	5	$	1	$	363
Receivables written off	(210		)	—		—		(210		)
Recoveries on receivables previously written off	52			—		—		52
Provision for credit losses	167			1		2		170
Adjustment due to sale of receivables	(3		)	—		—		(3		)
Foreign currency translation adjustment	(3		)	—		—		(3		)
Balance at end of year	$	360		$	6	$	3	$	369
Individually evaluated for impairment	$	56		$	—	$	—	$	56
Collectively evaluated for impairment	304			6		3		313
Ending Balance	$	360		$	6	$	3	$	369
Recorded Investment in Finance Receivables(1):
Individually evaluated for impairment	$	575		$	—	$	—	$	575
Collectively evaluated for impairment	17,423			3,973		3,154		24,550
Ending Balance	$	17,998		$	3,973	$	3,154	$	25,125

⁽¹⁾Amounts previously disclosed for the customer segment have been revised due to immaterial errors.

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, we estimate the current fair market value of the collateral. In addition, we consider 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)
	March 31, 2012
	Customer		Dealer		Caterpillar Purchased Receivables		Total
Performing
North America	$	5,510	$	2,357	$	1,841	$	9,708
Europe	2,251		329		497		3,077
Asia/Pacific	3,199		532		454		4,185
Mining	1,660		1		—		1,661
Latin America	2,493		806		354		3,653
Caterpillar Power Finance	2,973		—		30		3,003
Total Performing	$	18,086	$	4,025	$	3,176	$	25,287
Non-Performing
North America	$	103	$	—	$	—	$	103
Europe	56		—		—		56
Asia/Pacific	33		—		—		33
Mining	12		—		—		12
Latin America	162		—		—		162
Caterpillar Power Finance	157		—		—		157
Total Non-Performing	$	523	$	—	$	—	$	523
Total Performing and Non-Performing
North America	$	5,613	$	2,357	$	1,841	$	9,811
Europe	2,307		329		497		3,133
Asia/Pacific	3,232		532		454		4,218
Mining	1,672		1		—		1,673
Latin America	2,655		806		354		3,815
Caterpillar Power Finance	3,130		—		30		3,160
Total	$	18,609	$	4,025	$	3,176	$	25,810

(Millions of dollars)
	December 31, 2011
	Customer		Dealer		Caterpillar Purchased Receivables		Total
Performing
North America	$	5,561	$	2,414	$	1,836	$	9,811
Europe	2,166		334		402		2,902
Asia/Pacific	3,187		516		465		4,168
Mining	1,473		—		—		1,473
Latin America	2,377		709		422		3,508
Caterpillar Power Finance	2,762		—		29		2,791
Total Performing	$	17,526	$	3,973	$	3,154	$	24,653
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
Total Performing and Non-Performing
North America	$	5,673	$	2,414	$	1,836	$	9,923
Europe	2,224		334		402		2,960
Asia/Pacific	3,211		516		465		4,192
Mining	1,485		—		—		1,485
Latin America	2,485		709		422		3,616
Caterpillar Power Finance	2,920		—		29		2,949
Total	$	17,998	$	3,973	$	3,154	$	25,125

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, we estimate the current fair market value of the collateral. In addition, we consider 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 or Caterpillar Purchased Receivables portfolio segments.

Customer loan and finance lease receivables modified as TDRs during the three months ended March 31, 2012 and 2011, were as follows:
(Dollars in millions)
	Three Months Ended March 31, 2012					Three Months Ended March 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	23	$	2	$	2	24	$	5	$	5
Europe	7	7		7		1	1		1
Asia/Pacific	—	—		—		—	—		—
Mining	—	—		—		—	—		—
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⁾Three customers comprise the $32 million 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.

⁽²⁾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.

⁽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:

(Dollars in millions)
	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011
	Number of Contracts	Post-TDR Recorded Investment		Number of Contracts	Post-TDR Recorded Investment
Customer
North America	11	$	1	34	$	6
Europe	—	—		—	—
Asia/Pacific	—	—		—	—
Mining	—	—		—	—
Latin America	—	—		—	—
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. Sales and Servicing of Finance Receivables

Individual loans and leases are sold to third parties with limited or no recourse to us to mitigate the concentration of credit risk with certain customers. In accordance with accounting for transfers and servicing of financial assets, the transfers to the third parties are accounted for as sales. We typically maintain servicing responsibilities for these third-party assets, which totaled $256 million and $235 million as of March 31, 2012 and December 31, 2011, respectively. Since we do not receive a servicing fee for these assets, a servicing liability is recorded. As of March 31, 2012 and December 31, 2011, these liabilities were not significant.

In addition, we have periodically securitized certain finance receivables relating to our retail installment sale contracts and finance leases as part of our asset-backed securitization program. On April 25, 2011, we exercised a cleanup call on our only outstanding asset-backed securitization transaction.  As a result, we had no assets or liabilities related to our securitization program as of March 31, 2012 and December 31, 2011.

These transactions provide a source of liquidity and allow for better management of our balance sheet capacity. None of the receivables that are directly or indirectly sold or transferred to third parties in any of the foregoing transactions are available to pay our creditors.

C. Purchases of trade receivables from Caterpillar entities

We purchase trade receivables from Caterpillar entities at a discount. The discount is an estimate of the amount of financing revenue that would be earned at a market rate on these trade receivables over their expected life. The discount is amortized into revenue on an effective yield basis over the life of the receivables and recognized as Wholesale finance revenue. Amortized discounts for the trade receivables were $57 million and $45 million for the three months ended March 31, 2012 and 2011, respectively. In the Consolidated Statements of Cash Flows, collection of the discount is included in investing activities as the receivables are collected.