Transactions with Related Parties

12 Months Ended

Dec. 31, 2021

TRANSACTIONS WITH RELATED PARTIES

We have a Support Agreement with Caterpillar, which provides that Caterpillar will (1) remain, directly or indirectly, our sole owner; (2) cause us to maintain a tangible net worth of at least $20 million and (3) ensure that we maintain a ratio of profit before income taxes and interest expense to interest expense (as defined by the Support Agreement) of not less than 1.15 to 1, calculated on an annual basis. Although this agreement can be modified or terminated by either party, any termination or any modification which would adversely affect holders of our debt requires the consent of holders of 66-2/3 percent in principal amount of outstanding debt of each series so affected. Any modification or termination which would adversely affect the lenders under the Credit Facility requires their consent. Caterpillar’s obligation under this agreement is not directly enforceable by any of our creditors and does not constitute a guarantee of any of our obligations. Cash dividends of $850 million, $300 million and $25 million were paid to Caterpillar in 2021, 2020 and 2019, respectively.

We have variable amount and term lending agreements and other notes receivable with Caterpillar. Under these agreements, we may borrow up to $2.40 billion from Caterpillar, and Caterpillar may borrow up to $1.73 billion from us. The variable amount lending agreements are in effect for indefinite periods of time and may be changed or terminated by either party with 30 days notice. The term lending agreements have remaining maturities ranging up to ten years. We extended a $2 billion committed credit facility to Caterpillar, which expired in February 2019. Under this agreement, we received a fee from Caterpillar based on amounts drawn under the credit facility and a commitment fee for the undrawn amounts under the credit facility. Information concerning these agreements was as follows:


(Millions of dollars)	2021		2020		2019
Payable to Caterpillar - borrowings as of December 31,	$	22	$	1,022	$	618
Payable to Caterpillar - other as of December 31,	$	73	$	65	$	75
Notes receivable from Caterpillar as of December 31,	$	389	$	356	$	296
Other receivables from Caterpillar as of December 31,(2)	$	70	$	65	$	64
Interest expense	$	—	$	2	$	32
Interest income on Notes Receivable with Caterpillar(1)	$	14	$	14	$	26
Fees on committed credit facility extended to Caterpillar(1)	$	—	$	—	$	5

(1) Included in Other revenues, net in the Consolidated Statements of Profit.

(2) Included in Other assets in the Consolidated Statements of Financial Position.

We have agreements with Caterpillar to purchase certain trade receivables at a discount. In addition, we receive fee revenue from Caterpillar for our centralized activities benefiting the global factoring program. In the Consolidated Statements of Cash Flows, collection of the discount is included in investing activities as the receivables are collected. Information pertaining to these purchases was as follows:


(Millions of dollars)
	2021		2020		2019
Purchases made	$	40,140	$	32,937	$	42,817
Revenue earned	$	301	$	308	$	455
Purchased Receivables as of December 31,	$	4,462	$	3,646	$	4,448

We participate in certain marketing programs offered in conjunction with Caterpillar that allow us to periodically offer financing to customers at interest rates that are below market rates. Under these marketing programs, Caterpillar funds an amount at the outset of the transaction, which we then recognize as revenue over the term of the financing. During 2021, 2020 and 2019, relative to such programs, we received $351 million, $353 million and $351 million, respectively. We have Finance receivables, net and Equipment on operating leases, net with Caterpillar of $147 million and $141 million as of December 31, 2021 and 2020, respectively. For the years ended December 31, 2021, 2020 and 2019, we recognized revenues of $25 million, $22 million and $16 million, respectively, related to these finance receivables and operating leases. For the years ended December 31, 2021, 2020 and 2019, we recognized depreciation related to these operating leases of $17 million, $15 million and $11 million, respectively. At December 31, 2021 and 2020, $568 million and $596 million, respectively, of our portfolio was subject to guarantees by Caterpillar and affiliates.

Caterpillar provides defined benefit pension plans, defined contribution plans and other postretirement benefit plans to employees. We reimburse Caterpillar for these charges and other employee benefits paid by Caterpillar related to our employees. Caterpillar's U.S. defined benefit pension plans for support and management employees were frozen for certain employees on December 31, 2010 and were frozen for the remaining employees on December 31, 2019. On the respective transition dates employees moved to a retirement benefit that provided a frozen pension benefit and a 401(k) plan that includes a matching contribution and an annual employer contribution. We also participate in the Caterpillar stock incentive plans. In 2021, 2020 and 2019, Caterpillar allocated to us $8 million annually in expenses related to stock based compensation. Further information about these plans is available in Caterpillar’s 2021 Annual Report on Form 10-K filed separately with the Securities and Exchange Commission.

Caterpillar provides operational and administrative support, which is integral to the conduct of our business. In 2021, 2020 and 2019, these operational and support charges for which we reimburse Caterpillar amounted to $52 million, $46 million and $46 million, respectively. In addition, we provide administrative support services to certain Caterpillar subsidiaries. Caterpillar reimburses us for these charges. During 2021, 2020 and 2019, these charges amounted to $12 million, $10 million and $13 million, respectively.

We join Caterpillar in the filing of a consolidated U.S. Federal income tax return and certain state income tax returns. In accordance with our tax sharing agreement with Caterpillar, we generally pay to or receive from Caterpillar our allocated share of income taxes or credits reflected in these consolidated filings. This amount is calculated on a separate return basis by taking taxable income times the applicable statutory tax rate and includes payment for certain tax attributes earned during the year.