UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.  20549





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 March 31, 2019


Commission File No. 001-11241


CATERPILLAR FINANCIAL SERVICES CORPORATION


(Exact name of Registrant as specified in its charter)


Delaware37-1105865(State of incorporation)(IRS Employer I.D. No.)2120 West End Ave., Nashville, Tennessee37203-0001(Address of principal executive offices)(Zip Code)


Registrant's telephone number, including area code:  (615) 341-1000


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 ]


Securities registered pursuant to Section 12(b) of the Act:Title of each classTradingSymbol(s)Name of each exchangeon which registeredMedium-Term Notes, Series H,3.300% Notes Due 2024CAT/24New York Stock Exchange





As of May 6, 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.







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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 Inc.’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 Inc., 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


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UNAUDITED





Caterpillar Financial Services Corporation


CONSOLIDATED STATEMENTS OF PROFIT


(Unaudited)


(Dollars in Millions)


Three Months EndedMarch 31,20192018Revenues:Retail finance$335$317Operating lease258244Wholesale finance11991Other, net2438Total revenues736690Expenses:Interest201174Depreciation on equipment leased to others202199General, operating and administrative124110Provision for credit losses5367Other109Total expenses590559Other income (expense)(4)(7)Profit before income taxes142124Provision for income taxes3829Profit of consolidated companies10495Less:  Profit attributable to noncontrolling interests64Profit(1)$98$91


(1) Profit attributable to Caterpillar Financial Services Corporation.





See Notes to Consolidated Financial Statements (unaudited).





3


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UNAUDITED





Caterpillar Financial Services Corporation


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(Unaudited)


(Dollars in Millions)





Three Months EndedMarch 31,20192018Profit of consolidated companies$104$95Other comprehensive income (loss), net of tax:Foreign currency translation, net of tax (expense)/benefit of: 2019 $(4); 2018 $161571Derivative financial instruments:Gains (losses) deferred, net of tax (expense)/benefit of: 2019 $1; 2018 $7(3)(26)(Gains) losses reclassified to earnings, net of tax expense/(benefit) of: 2019 $3; 2018 $(5)(11)20Total Other comprehensive income (loss), net of tax165Comprehensive income (loss)105160Less:  Comprehensive income (loss) attributable to the noncontrolling interests810Comprehensive income (loss) attributable to Caterpillar Financial Services Corporation$97$150


See Notes to Consolidated Financial Statements (unaudited).





4


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UNAUDITED





Caterpillar Financial Services Corporation


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


(Unaudited)


(Dollars in Millions, except share data)


March 31, 2019December 31, 2018Assets:Cash and cash equivalents$658$766Finance receivables, net27,78527,923Notes receivable from Caterpillar645662Equipment on operating leases, net3,4713,562Other assets1,2651,268Total assets$33,824$34,181Liabilities and shareholder’s equity:Payable to dealers and others$116$117Payable to Caterpillar - borrowings and other1,5441,601Accrued expenses267259Short-term borrowings5,5865,723Current maturities of long-term debt5,9395,820Long-term debt16,59016,995Other liabilities828817Total liabilities30,87031,332Commitments and contingent liabilities (Notes 8 and 10)Common stock - $1 par valueAuthorized:  2,000 shares; Issued andoutstanding: one share (at paid-in amount)745745Additional paid-in capital22Retained earnings2,8752,874Accumulated other comprehensive income/(loss)(829)(925)Noncontrolling interests161153Total shareholder’s equity2,9542,849Total liabilities and shareholder’s equity$33,824$34,181


See Notes to Consolidated Financial Statements (unaudited).





5


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UNAUDITED





Caterpillar Financial Services Corporation


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY


(Unaudited)


(Dollars in Millions)


Three Months EndedMarch 31, 2018CommonstockAdditionalpaid-incapitalRetainedearningsAccumulatedothercomprehensiveincome/(loss)NoncontrollinginterestsTotalBalance at December 31, 2017$745$2$2,969$(592)$140$3,264Profit of consolidated companies91495Foreign currency translation, net of tax65671Derivative financial instruments, net of tax(6)(6)Balance at March 31, 2018$745$2$3,060$(533)$150$3,424Three Months EndedMarch 31, 2019Balance at December 31, 2018$745$2$2,874$(925)$153$2,849Profit of consolidated companies986104Foreign currency translation, net of tax13215Derivative financial instruments, net of tax(14)(14)Adjustment to adopt new accountingguidance(1)(97)97—Balance at March 31, 2019$745$2$2,875$(829)$161$2,954


(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


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UNAUDITED





Caterpillar Financial Services Corporation


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(Dollars in Millions)


Three Months EndedMarch 31,20192018Cash flows from operating activities:Profit of consolidated companies$104$95Adjustments for non-cash items:Depreciation and amortization206202Amortization of receivables purchase discount(109)(82)Provision for credit losses5367Other, net3322Changes in assets and liabilities:Other assets2(2)Payable to dealers and others1316Accrued expenses(11)(27)Other payables with Caterpillar4—Other liabilities4(37)Net cash provided by operating activities299254Cash flows from investing activities:Expenditures for equipment on operating leases(242)(269)Capital expenditures - excluding equipment on operating leases(4)(92)Proceeds from disposals of equipment182205Additions to finance receivables(2,971)(2,955)Collections of finance receivables3,0963,171Net changes in Caterpillar purchased receivables(16)(489)Proceeds from sales of receivables4469Net change in variable lending to Caterpillar18Additions to other notes receivable with Caterpillar—(90)Collections on other notes receivable with Caterpillar1620Settlements of undesignated derivatives(25)(1)Net cash provided by (used for) investing activities81(423)Cash flows from financing activities:Net change in variable lending from Caterpillar(63)(107)Proceeds from debt issued (original maturities greater than three months)2,6641,541Payments on debt issued (original maturities greater than three months)(2,565)(2,408)Short-term borrowings, net (original maturities three months or less)(525)1,145Net cash provided by (used for) financing activities(489)171Effect of exchange rate changes on cash, cash equivalents and restricted cash(2)4Increase/(decrease) in cash, cash equivalents and restricted cash(111)6Cash, cash equivalents and restricted cash at beginning of year(1)773732Cash, cash equivalents and restricted cash at end of period(1)$662$738


(1) As of March 31, 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


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UNAUDITED





Notes to Consolidated Financial Statements


(Unaudited)








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|-- | ---------------------
|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 months ended March 31, 2019 and 2018 , (b) the consolidated comprehensive income for the three months ended March 31, 2019 and 2018 , (c) the consolidated financial position as of March 31, 2019 and December 31, 2018 , (d) the consolidated changes in shareholder's equity for the three months ended March 31, 2019 and 2018 and (e) the consolidated cash flows for the three months ended March 31, 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.





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|-- | -----------------------------
|2. | New Accounting Pronouncements




Lease accounting – 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 to not 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.








8


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UNAUDITED





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.





In March 2019, the FASB issued accounting guidance 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.





Measurement of credit losses on financial instruments – 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.  The new guidance is effective January 1, 2020, with early adoption permitted beginning January 1, 2019.  An implementation team is currently evaluating data requirements and methodologies to assess the effect of the new guidance on our financial statements.  We plan to adopt the new guidance effective January 1, 2020.





Derivatives and hedging – In August 2017, the FASB issued accounting guidance to better align hedge accounting with a company’s risk management activities, simplify the application of hedge accounting and improve the disclosures of hedging arrangements.  The guidance was effective January 1, 2019.  This presentation change was applied prospectively and did not have a material impact on our financial statements.





Reclassification of certain tax effects from accumulated other comprehensive income – 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 .








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|3. | Finance Receivables




A summary of finance receivables included in the Consolidated Statements of Financial Position was as follows:


(Millions of dollars)March 31, 2019December 31, 2018Retail loans, net(1)$15,207$15,509Retail leases, net(2)7,4837,499Caterpillar purchased receivables, net4,8144,691Wholesale loans, net(1)714626Wholesale leases, net101109Recorded investment in finance receivables28,31928,434Less: Allowance for credit losses(534)(511)Total finance receivables, net$27,785$27,923


(1) Includes failed sale leasebacks.


(2) Includes $9 million of finance leases with Caterpillar as of March 31, 2019 and December 31, 2018.





9


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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:





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|- | ------------------------------------------------------
|• | Customer- Finance receivables with end-user customers.

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|- | -----------------------------------------------------
|• | Dealer- Finance receivables with Caterpillar dealers.

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|- | -----------------------------------------------------------------------------------------
|• | 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:





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|- | ------------------------------------------------------------------------------
|• | North America- Finance receivables originated in the United States and Canada.

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

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|- | ---------------------------------------------------------------------------------------------------------------
|• | Asia/Pacific- Finance receivables originated in Australia, New Zealand, China, Japan, Southeast Asia and India.

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|- | -------------------------------------------------------------------------------------------------------------------
|• | Mining- Finance receivables related to large mining customers worldwide and project financing in various countries.

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

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|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | 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


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UNAUDITED





Our allowance for credit losses as of March 31, 2019 was $534 million or 1.89 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)March 31, 2019Allowance for Credit Losses:CustomerDealerCaterpillarPurchasedReceivablesTotalBalance at beginning of year$486$21$4$511Receivables written off(38)——(38)Recoveries on receivables previously written off8——8Provision for credit losses3913153Adjustment due to sale of receivables————Foreign currency translation adjustment————Balance at end of period$495$34$5$534Individually evaluated for impairment$302$27$—$329Collectively evaluated for impairment19375205Ending Balance$495$34$5$534Recorded Investment in Finance Receivables:Individually evaluated for impairment$813$78$—$891Collectively evaluated for impairment18,4434,1714,81427,428Ending Balance$19,256$4,249$4,814$28,319





(Millions of dollars)December 31, 2018Allowance for Credit Losses:CustomerDealerCaterpillarPurchasedReceivablesTotalBalance at beginning of year$353$9$3$365Receivables written off(235)——(235)Recoveries on receivables previously written off46——46Provision for credit losses337121350Adjustment due to sale of receivables(7)——(7)Foreign currency translation adjustment(8)——(8)Balance at end of year$486$21$4$511Individually evaluated for impairment$288$14$—$302Collectively evaluated for impairment19874209Ending Balance$486$21$4$511Recorded Investment in Finance Receivables:Individually evaluated for impairment$859$78$—$937Collectively evaluated for impairment18,7244,0824,69127,497Ending Balance$19,583$4,160$4,691$28,434





11


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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)March 31, 201931-60DaysPast Due61-90DaysPast Due91+DaysPast DueTotalPast DueCurrentRecordedInvestment inFinanceReceivables91+ StillAccruingCustomerNorth America$89$18$44$151$7,848$7,999$10Europe31171582062,7943,0007Asia/Pacific281312532,9503,0038Mining——20201,6631,68310Latin America4842731631,3851,548—Caterpillar Power Finance1483653871,6362,0232DealerNorth America————2,3092,309—Europe————574574—Asia/Pacific————566566—Mining————33—Latin America117880713793—Caterpillar Power Finance————44—Caterpillar Purchased Receivables(1)North America14816383,0653,103Europe1—12606608Asia/Pacific6219761770Mining——————Latin America————328328Caterpillar Power Finance————55Total$232$109$768$1,109$27,210$28,319$37


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





12


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UNAUDITED





(Millions of dollars)December 31, 201831-60DaysPast Due61-90DaysPast Due91+DaysPast DueTotalPast DueCurrentRecordedInvestment inFinanceReceivables91+ StillAccruingCustomerNorth America$65$18$84$167$7,883$8,050$14Europe1991531812,8503,0315Asia/Pacific2598422,9232,9655Mining2819381,6421,680—Latin America3829711381,4211,559—Caterpillar Power Finance1013843951,9032,298—DealerNorth America————2,2102,210—Europe————619619—Asia/Pacific————514514—Mining————44—Latin America——7878731809—Caterpillar Power Finance————44—Caterpillar Purchased Receivables(1)North America221218522,9823,034Europe1—12546548Asia/Pacific5117756763Mining——————Latin America————338338Caterpillar Power Finance————88Total$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


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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 $27 million and $14 million as of March 31, 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 March 31, 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 March 31, 2019As of December 31, 2018Impaired Finance Receivables WithNo Allowance RecordedRecordedInvestmentUnpaidPrincipalBalanceRelatedAllowanceRecordedInvestmentUnpaidPrincipalBalanceRelatedAllowanceNorth America$9$9$—$10$10$—Europe11—11—Asia/Pacific———11—Mining2929—3333—Latin America2020—2929—Caterpillar Power Finance4848—6983—Total$107$107$—$143$157$—Impaired Finance Receivables WithAn Allowance RecordedNorth America$41$38$16$40$41$14Europe939357929257Asia/Pacific993442Mining323114565526Latin America767627757525Caterpillar Power Finance455468185449455164Total$706$715$302$716$722$288Total Impaired Finance ReceivablesNorth America$50$47$16$50$51$14Europe949457939357Asia/Pacific993552Mining616014898826Latin America96962710410425Caterpillar Power Finance503516185518538164Total$813$822$302$859$879$288








14


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UNAUDITED





(Millions of dollars)Three Months EndedMarch 31, 2019Three Months EndedMarch 31, 2018Impaired Finance Receivables WithNo Allowance RecordedAverageRecordedInvestmentInterestIncomeRecognizedAverageRecordedInvestmentInterestIncomeRecognizedNorth America$10$—$17$—Europe1—36—Asia/Pacific——321Mining31—1031Latin America24—451Caterpillar Power Finance6011722Total$126$1$405$5Impaired Finance Receivables WithAn Allowance RecordedNorth America$40$1$51$1Europe94119—Asia/Pacific7—7—Mining43117—Latin America771871Caterpillar Power Finance45133601Total$712$7$541$3Total Impaired Finance ReceivablesNorth America$50$1$68$1Europe95155—Asia/Pacific7—391Mining7411201Latin America10111322Caterpillar Power Finance51145323Total$838$8$946$8





Recognition of income is suspended and the finance receivable is placed on non-accrual status when management determines that collection of future income is not probable (generally after 120 days past due).  Recognition is resumed and previously suspended income is recognized when the finance receivable becomes current and collection of remaining amounts is considered probable.  Payments received while the finance receivable is on non-accrual status are applied to interest and principal in accordance with the contractual terms.





As of March 31, 2019 and December 31, 2018 , there were $78 million in finance receivables on non-accrual status for the Dealer portfolio segment.  The recorded investment in Customer finance receivables on non-accrual status was as follows:


(Millions of dollars)March 31, 2019December 31, 2018North America$73$77Europe171154Asia/Pacific64Mining1850Latin America118106Caterpillar Power Finance442416Total$828$807








15


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UNAUDITED





Troubled debt restructurings


A restructuring of a finance 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, extended skip payment periods and reduction of principal and/or accrued interest.





As of March 31, 2019 and December 31, 2018 , there were no additional funds committed to lend to a borrower whose terms have been modified in a TDR.





There were no finance receivables modified as TDRs during the three months ended March 31, 2019 and 2018 for the Dealer or Caterpillar Purchased Receivables portfolio segments.  Our recorded investment in finance receivables in the Customer portfolio segment modified as TDRs were as follows:


(Dollars in millions)Three Months EndedMarch 31, 2019Three Months EndedMarch 31, 2018Number ofContractsPre-TDRRecordedInvestmentPost-TDRRecordedInvestmentNumber ofContractsPre-TDRRecordedInvestmentPost-TDRRecordedInvestmentNorth America—$—$—13$6$6Europe19117———Asia/Pacific——————Mining———12929Latin America———133Caterpillar Power Finance85150333Total27$62$5718$41$41








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|-- | ------
|4. | Leases







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|-- | -------------------
|A. | Lessor Arrangements




We lease Caterpillar equipment, machinery, engines and other equipment to customers primarily through sales-type (non-tax) leases, where the lessee for tax purposes is considered to be the owner of the equipment during the term of the lease.  We also offer tax leases that are classified as either operating or direct finance leases for financial accounting purposes, depending on the characteristics of the lease. For tax purposes, we are considered the owner of the equipment.





Our lease agreements may include options for the lessee to purchase the underlying asset at the end of the lease term for either a stated fixed price or fair market value.





The residual values for leased assets, which are an estimate of the market value of leased equipment at the end of the lease term, are based on an analysis of historical wholesale market sales prices, projected forward on a level trend line without consideration for inflation or possible future pricing action. At the inception of the lease, residual values are estimated with consideration of the following critical factors: market size and demand, any known significant market/product trends, total expected hours of usage, machine configuration, application, location, model changes, quantities, past remarketing experience, third-party residual guarantees and contractual customer purchase options. Many of these factors are gathered in an application survey that is completed prior to quotation. The lease agreement also clearly defines applicable return conditions and remedies for non-compliance, to ensure that the leased equipment will be in good operating condition upon return. Model changes and updates, as well as market strength and product acceptance, are monitored and adjustments are made to residual values in accordance with the significance of any such changes. Remarketing sales staff works closely with customers and dealers to manage the sale of lease returns and the recovery of residual exposure.





The residuals for leases classified as operating leases are included in Equipment on operating leases, net in the Consolidated Statements of Financial Position. The residuals for leases classified as finance leases are included in Finance receivables, net in the Consolidated Statements of Financial Position.





During the term of the equipment on operating leases, we evaluate our depreciation on a regular basis taking into consideration expected residual values at lease termination.  Adjustments to depreciation expense reflecting revised estimates of expected residual values at the end of the lease terms are recorded prospectively on a straight-line basis.  For finance leases, residual value adjustments are recognized through a reduction of finance revenue.





16


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Contractual maturities for finance lease receivables (classified as sales-type and direct finance leases) were as follows:


(Millions of dollars)March 31, 2019Amounts due inRetailleasesWholesaleleasesTotalRemaining nine months of 2019$2,423$22$2,44520202,303212,32420211,282131,2952022564657020232262228Thereafter80282Total6,878666,944Guaranteed residual value39639435Unguaranteed residual value8492851Unearned income(640)(6)(646)Total$7,483$101$7,584


(Millions of dollars)December 31, 2018Amounts due inRetailleasesWholesaleleasesTotal2019$3,024$29$3,05320202,055212,07620211,092121,1042022465547020231712173Thereafter62264Total6,869716,940Guaranteed residual value41642458Unguaranteed residual value8543857Unearned income(640)(7)(647)Total$7,499$109$7,608





Our finance lease receivables generally may be repaid or refinanced without penalty prior to contractual maturity and we also sell finance lease receivables to third parties to mitigate the concentration of credit risk with certain customers.  Accordingly, this presentation should not be regarded as a forecast of future cash collections.





Components of equipment on operating leases, less accumulated depreciation, were as follows:


(Millions of dollars)March 31, 2019December 31, 2018Equipment on operating leases, at cost$5,120$5,201Less: Accumulated depreciation(1,649)(1,639)Equipment on operating leases, net(1)$3,471$3,562


(1) Includes $52 million and $45 million of operating leases with Caterpillar as of March 31, 2019 and December 31, 2018, respectively.





The carrying amount of residual assets covered by residual value guarantees and subject to operating leases was $23 million and $25 million as of March 31, 2019 and December 31, 2018, respectively.








17


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At March 31, 2019 , payments due for operating leases were as follows:


(Millions of dollars)Remaining NineMonths of 20192020202120222023ThereafterTotal$629$553$294$131$52$20$1,679





At December 31, 2018, scheduled minimum rental payments for operating leases were as follows:


(Millions of dollars)20192020202120222023ThereafterTotal$808$503$257$115$41$15$1,739





Revenue from finance and operating leases were as follows:


(Millions of dollars)Three Months EndedMarch 31, 2019Finance lease revenue (included in retail and wholesale finance revenue)$118Operating lease revenue258Total$376





We typically pay property taxes on tax leases directly to the taxing authorities and invoice the lessee for reimbursement.  These property tax reimbursements are accounted for as variable lease payments and are included in Operating lease revenues in the Consolidated Statements of Profit.








|   |                    
|-- | -------------------
|B. | Lessee Arrangements




We lease certain property, vehicles and other equipment primarily through operating leases.  We recognize a lease liability and corresponding right-of-use asset based on the present value of lease payments.  To determine the present value of lease payments for most of our leases, we use our incremental borrowing rate based on information available on the lease commencement date.  We have elected to not separate payments for lease components from non-lease components for our lease asset classes.  Our lease agreements may include options to extend or terminate the lease.  When it is reasonably certain that we will exercise that option, we have included the option in the recognition of right-of-use assets and lease liabilities.  Our variable lease costs primarily include maintenance, taxes and insurance.  We have elected not to recognize right-of-use assets or lease liabilities for leases that qualify for the short-term lease recognition exemption (leases with a term of twelve months or less).





The components of lease cost were as follows:


(Millions of dollars)Three Months EndedMarch 31, 2019Operating lease cost$2Short-term lease cost$—Variable lease cost$—








18


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Supplemental information related to operating leases was as follows:


(Millions of dollars)Consolidated Statements ofFinancial Position LocationMarch 31, 2019January 1, 2019Right-of-use assetsOther assets$21$22Lease liabilitiesOther liabilities$21$23Weighted average remaining lease term4 years4 yearsWeighted average discount rate2.6%2.6%





At March 31, 2019 , maturities of operating lease liabilities were as follows:


(Millions of dollars)Remaining nine months of 2019$620206202142022220232Thereafter2Total lease payments22Less: imputed interest(1)Total$21





At December 31, 2018, minimum payments for operating leases having initial non-cancelable terms in excess of one year were as follows:


(Millions of dollars)2019$820206202142022220232Thereafter2Total$24





Supplemental cash flow information related to operating leases was as follows:


(Millions of dollars)Three Months EndedMarch 31, 2019Cash paid for amounts included in the measurement of operating lease liabilities$2Right-of-use assets obtained in exchange for new operating lease obligations$23








|   |                                                     
|-- | ----------------------------------------------------
|5. | Derivative Financial Instruments and Risk Management




Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates and interest rates.  Our Risk Management Policy (policy) allows for the use of derivative financial instruments to manage foreign currency exchange rate and interest rate exposures.  Our policy specifies that derivatives are not to be used for speculative purposes.  Derivatives that we use are primarily foreign currency forward, option and cross currency contracts and interest rate contracts.  Our derivative activities are subject to the management, direction and control of our senior financial officers.  Risk management practices, including the use of financial derivative instruments, are presented to our Board of Directors and the Audit Committee of the Caterpillar Inc. Board of Directors at least annually.





19


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All derivatives are recognized on the Consolidated Statements of Financial Position at their fair value.  On the date the derivative contract is entered into, the derivative instrument is (1) designated as a hedge of the fair value of a recognized asset or liability (fair value hedge), (2) designated as a hedge of a forecasted transaction or the variability of cash flows (cash flow hedge) or (3) undesignated.  Changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged recognized asset or liability that is attributable to the hedged risk, are recorded in current earnings.  Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in Accumulated other comprehensive income/(loss) (AOCI), to the extent effective, on the Consolidated Statements of Financial Position until they are reclassified to earnings in the same period or periods during which the hedged transaction affects earnings.  Changes in the fair value of undesignated derivative instruments are reported in current earnings.  Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged on the Consolidated Statements of Cash Flows.  Cash flows from undesignated derivative financial instruments are included in the investing category on the Consolidated Statements of Cash Flows.





We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions.  This process includes linking all derivatives that are designated as fair value hedges to specific assets and liabilities on the Consolidated Statements of Financial Position and linking cash flow hedges to specific forecasted transactions or variability of cash flow.





We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flow of hedged items.  When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, we discontinue hedge accounting prospectively in accordance with derecognition criteria for hedge accounting.





Foreign currency exchange rate risk


We have balance sheet positions and expected future transactions denominated in foreign currencies, thereby creating exposure to movements in exchange rates.  In managing foreign currency risk, our objective is to minimize earnings volatility resulting from conversion and the remeasurement of net foreign currency balance sheet positions and future transactions denominated in foreign currencies.  Our policy allows the use of foreign currency forward, option and cross currency contracts to offset the risk of currency mismatch between our assets and liabilities and exchange rate risk associated with future transactions denominated in foreign currencies.  Our foreign currency forward and option contracts are primarily undesignated.  We designate fixed-to-fixed cross currency contracts as cash flow hedges to protect against movements in exchange rates on foreign currency fixed-rate assets and liabilities.





Interest rate risk


Interest rate movements create a degree of risk by affecting the amount of our interest payments and the value of our fixed-rate debt.  Our practice is to use interest rate contracts to manage our exposure to interest rate changes.





We have a match-funding policy that addresses interest rate risk by aligning the interest rate profile (fixed or floating rate and duration) of our debt portfolio with the interest rate profile of our finance receivable portfolio within predetermined ranges on an ongoing basis.  In connection with that policy, we use interest rate derivative instruments to modify the debt structure to match assets within the finance receivable portfolio.  This matched funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move.





Our policy allows us to use fixed-to-floating, floating-to-fixed and floating-to-floating interest rate contracts to meet the match-funding objective.  We designate fixed-to-floating interest rate contracts as fair value hedges to protect debt against changes in fair value due to changes in the benchmark interest rate.  We designate most floating-to-fixed interest rate contracts as cash flow hedges to protect against the variability of cash flows due to changes in the benchmark interest rate.





As of March 31, 2019 , $1 million of deferred net gains, net of tax, included in equity (AOCI in the Consolidated Statements of Financial Position), related to our floating-to-fixed interest rate contracts, are expected to be reclassified to Interest expense over the next twelve months.  The actual amount recorded in Interest expense will vary based on interest rates at the time the hedged transactions impact earnings.





We have, at certain times, liquidated fixed-to-floating interest rate contracts that resulted in deferred gains at the time of liquidation.  The deferred gains associated with these interest rate contracts are included in Long-term debt in the Consolidated Statements of Financial Position and are being amortized to Interest expense over the remaining term of the previously designated hedged item.








20


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The location and fair value of derivative instruments reported in the Consolidated Statements of Financial Position were as follows:


(Millions of dollars)Asset (Liability) Fair ValueConsolidated Statements ofFinancial Position LocationMarch 31, 2019December 31, 2018Designated derivativesInterest rate contractsOther assets$3$4Interest rate contractsAccrued expenses(58)(40)Cross currency contractsOther assets8888Cross currency contractsAccrued expenses(5)(9)$28$43Undesignated derivativesForeign exchange contractsOther assets$9$15Foreign exchange contractsAccrued expenses(12)(12)Cross currency contractsOther assets65Cross currency contractsAccrued expenses(1)(2)$2$6





The total notional amount of our derivative instruments was $9.00 billion and $10.21 billion as of March 31, 2019 and December 31, 2018 , respectively.  The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties.  The amounts exchanged by the parties are calculated by reference to the notional amounts and by other terms of the derivatives, such as foreign currency exchange rates and interest rates.





The effect of derivatives designated as hedging instruments on the Consolidated Statements of Profit was as follows:


Cash Flow Hedges(Millions of dollars)Three Months Ended March 31, 2019Recognized in EarningsAmounts of Gains(Losses) Recognizedin AOCIClassificationReclassified fromAOCI to EarningsAmount of the lineitems in the ConsolidatedStatements of ProfitInterest rate contracts$(26)Interest expense$1$(201)Cross currency contracts22Other income (expense)6(4)Interest expense7(201)$(4)$14Three Months Ended March 31, 2018Recognized in EarningsAmounts of Gains(Losses) Recognized inAOCI (Effective Portion)ClassificationReclassified fromAOCI to Earnings(Effective Portion)Recognized inEarnings(Ineffective Portion)Interest rate contracts$—Interest expense$1$—Cross currency contracts(33)Other income (expense)(29)—Interest expense3—$(33)$(25)$—








21


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The effect of derivatives not designated as hedging instruments on the Consolidated Statements of Profit was as follows: (Millions of dollars)Three Months Ended March 31,Classification20192018Foreign exchange contractsOther income (expense)$(29)$(7)Cross currency contractsOther income (expense)——$(29)$(7)





We enter into International Swaps and Derivatives Association (ISDA) master netting agreements that permit the net settlement of amounts owed under their respective derivative contracts.  Under these master netting agreements, net settlement generally permits us or the counterparty to determine the net amount payable for contracts due on the same date and in the same currency for similar types of derivative transactions.  The master netting agreements generally also provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event.





Collateral is generally not required of the counterparties or us under the master netting agreements.  As of March 31, 2019 and December 31, 2018 , no cash collateral was received or pledged under the master netting agreements.





The effect of net settlement provisions of the master netting agreements on our derivative balances upon an event of default or a termination event was as follows:


Offsetting of Derivative Assets and Liabilities(Millions of dollars)March 31, 2019December 31, 2018Derivative AssetsGross Amount of Recognized Assets$106$112Gross Amounts Offset——Net Amount of Assets(1)106112Gross Amounts Not Offset(22)(34)Net Amount$84$78Derivative LiabilitiesGross Amount of Recognized Liabilities$(76)$(63)Gross Amounts Offset——Net Amount of Liabilities(1)(76)(63)Gross Amounts Not Offset2234Net Amount$(54)$(29)


(1) As presented in the Consolidated Statements of Financial Position.





22


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|   |                                              
|-- | ---------------------------------------------
|6. | Accumulated Other Comprehensive Income/(Loss)




Comprehensive income/(loss) and its components are presented in the Consolidated Statements of Comprehensive Income.  Changes in Accumulated other comprehensive income/(loss), net of tax, included in the Consolidated Statements of Changes in Shareholder's Equity, consisted of the following:


(Millions of dollars)ForeigncurrencytranslationDerivativefinancialinstrumentsTotalThree Months Ended March 31, 2018Balance at December 31, 2017$(587)$(5)$(592)Other comprehensive income/(loss) before reclassifications65(26)39Amounts reclassified from accumulated other comprehensive (income)/loss—2020Other comprehensive income/(loss)65(6)59Balance at March 31, 2018$(522)$(11)$(533)Three Months Ended March 31, 2019Balance at December 31, 2018$(889)$(36)$(925)Other comprehensive income/(loss) before reclassifications13(3)10Amounts reclassified from accumulated other comprehensive (income)/loss—(11)(11)Adjustment to adopt new accounting guidance(1)98(1)97Other comprehensive income/(loss)111(15)96Balance at March 31, 2019$(778)$(51)$(829)


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





The effect of the reclassifications out of Accumulated other comprehensive income/(loss) on the Consolidated Statements of Profit was as follows:


(Millions of dollars)Three Months EndedMarch 31,Derivative financial instrumentsClassification ofincome (expense)20192018Cross currency contractsOther income (expense)$6$(29)Cross currency contractsInterest expense73Interest rate contractsInterest expense11Reclassifications before tax14(25)Tax (provision) benefit(3)5Total reclassifications from Accumulated other comprehensive income/(loss)$11$(20)








23


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|   |                    
|-- | -------------------
|7. | Segment Information




A.       Basis for Segment Information





We report information internally for operating segments based on management responsibility.  Our operating segments offer financing to customers and dealers for the purchase and lease of Caterpillar and other equipment, as well as financing for Caterpillar sales to dealers.  Financing plans include operating and finance leases, installment sale contracts, working capital loans and wholesale financing plans within each of the respective segments.





B.       Description of Segments





We have six operating segments that offer financing services.  Following is a brief description of our segments:





|  |                                                                        
|- | -----------------------------------------------------------------------
|• | North America- Includes our operations in the United States and Canada.

|  |                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------
|• | Europe- Includes our operations in Europe, Africa, the Middle East and the Commonwealth of Independent States.

|  |                                                                                                         
|- | --------------------------------------------------------------------------------------------------------
|• | Asia/Pacific- Includes our operations in Australia, New Zealand, China, Japan, Southeast Asia and India.

|  |                                                                                           
|- | ------------------------------------------------------------------------------------------
|• | Latin America- Includes our operations in Mexico and Central and South American countries.

|  |                                                                                                                                                                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Caterpillar Power Finance- Provides financing worldwide for marine vessels with Caterpillar engines and for Caterpillar electrical power generation, gas compression and co-generation systems and non-Caterpillar equipment that is powered by these systems.

|  |                                                                                                     
|- | ----------------------------------------------------------------------------------------------------
|• | Mining- Serves large mining customers worldwide and provides project financing in various countries.




C.       Segment Measurement and Reconciliations





Cash, debt and other expenses are allocated to our segments based on their respective portfolios.  The related Interest expense is calculated based on the amount of allocated debt and the rates associated with that debt.  The performance of each segment is assessed based on a consistent leverage ratio. The Provision for credit losses is based on each segment's respective finance receivable portfolio.  Capital expenditures include expenditures for equipment on operating leases and other miscellaneous capital expenditures.





Reconciling items are created based on accounting differences between segment reporting and consolidated external reporting. For the reconciliation of profit before income taxes, we have grouped the reconciling items as follows:





|  |                                                                                                                                                                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Unallocated- This item is related to corporate requirements and strategies that are considered to be for the benefit of the entire organization.  Also included are the consolidated results of the special purpose corporation (see Note 8 for additional information) and other miscellaneous items.

|  |                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------
|• | Timing- Timing differences in the recognition of costs between segment reporting and consolidated external reporting.

|  |                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------
|• | Methodology- Methodology differences between segment reporting and consolidated external reporting are as follows:

|  |                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------
|◦ | Segment assets include off-balance sheet managed assets for which we maintain servicing responsibilities.

|  |                                                                                       
|- | --------------------------------------------------------------------------------------
|◦ | The impact of differences between the actual leverage and the segment leverage ratios.

|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|◦ | Interest expense includes realized forward points on foreign currency forward contracts.

|  |                                                     
|- | ----------------------------------------------------
|◦ | The net gain or loss from interest rate derivatives.










24


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Supplemental segment data and reconciliations to consolidated external reporting for the three months ended March 31 was as follows:


(Millions of dollars)2019ExternalRevenuesProfitbeforeincometaxesInterestExpenseDepreciationon equipmentleased toothersProvisionforcreditlossesAssets atMarch 31,2019CapitalexpendituresNorth America$401$116$97$144$7$15,677$179Europe72241417(1)4,80023Asia/Pacific944230334,7566Latin America603236162,9232Caterpillar Power Finance29(16)13—261,964—Mining6912143222,23033Total Segments7251811912025332,350243Unallocated19(83)64——1,9523Timing(8)(5)———25—Methodology—49(54)——(176)—Inter-segment Eliminations(1)—————(327)—Total$736$142$201$202$53$33,824$2462018ExternalRevenuesProfitbeforeincometaxesInterestExpenseDepreciationon equipmentleased toothersProvisionforcreditlossesAssets atDecember 31,2018CapitalexpendituresNorth America$361$95$82$135$17$15,632$210Europe6871020114,86214Asia/Pacific8240256(4)4,6394Latin America694297122,9728Caterpillar Power Finance34(3)121182,259—Mining625153062,23433Total Segments6761481731996032,598269Unallocated22(67)58——1,95792Timing(8)(3)——755—Methodology—46(57)——(159)—Inter-segment Eliminations(1)—————(270)—Total$690$124$174$199$67$34,181$361
  (1) Elimination is primarily related to intercompany loans.








|   |           
|-- | ----------
|8. | Guarantees




We provide loan guarantees to third-party lenders for financing associated with machinery purchased by customers.  These guarantees have varying terms and are secured by the machinery being financed. We also provide residual value guarantees to third-party lenders associated with machinery leased to customers. These guarantees have varying terms. In addition, we participate in standby letters of credit issued to third parties on behalf of our customers.  These standby letters of credit have varying terms and beneficiaries and are secured by customer assets.





No significant loss has been experienced or is anticipated under any of these guarantees.  At March 31, 2019 and December 31, 2018 , the related recorded liability was $3 million and less than $1 million, respectively.  The maximum potential amount of future payments (undiscounted and without reduction for any amounts that may possibly be recovered under recourse or collateralized provisions) we could be required to make under the guarantees was $103 million and $97 million at March 31, 2019 and December 31, 2018 , respectively.





25


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We provide guarantees to repurchase certain loans of Caterpillar dealers from a special purpose corporation (SPC) that qualifies as a VIE (see Note 1 for additional information regarding the accounting guidance on the consolidation of VIEs).  The purpose of the SPC is to provide short-term working capital loans to Caterpillar dealers.  This SPC issues commercial paper and uses the proceeds to fund its loan program.  We have a loan purchase agreement with the SPC that obligates us to purchase certain loans that are not paid at maturity.  We receive a fee for providing this guarantee, which provides a source of liquidity for the SPC.  We are the primary beneficiary of the SPC as our guarantees result in us having both the power to direct the activities that most significantly impact the SPC's economic performance and the obligation to absorb losses and therefore we have consolidated the financial statements of the SPC.  As of March 31, 2019 and December 31, 2018 , the SPC’s assets of $1.17 billion and $1.15 billion , respectively, were primarily comprised of loans to dealers, which are included in Finance receivables, net in the Consolidated Statements of Financial Position, and the SPC's liabilities of $1.17 billion and $1.15 billion , respectively, were primarily comprised of commercial paper, which is included in Short-term borrowings in the Consolidated Statements of Financial Position.  The assets of the SPC are not available to pay our creditors.  We may be obligated to perform under the guarantee if the SPC experiences losses.  No loss has been experienced or is anticipated under this loan purchase agreement.








|   |                        
|-- | -----------------------
|9. | Fair Value Measurements




|   |                        
|-- | -----------------------
|A. | Fair Value Measurements

The guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.  This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques.  Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions.  In accordance with this guidance, fair value measurements are classified under the following hierarchy:





|  |                                                                    
|- | -------------------------------------------------------------------
|• | Level 1– Quoted prices for identical instruments in active markets.

|  |                                                                                                                                                                                                                                                                                 
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Level 2– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

|  |                                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------
|• | Level 3– Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.




When available, we use quoted market prices to determine fair value and we classify such measurements within Level 1.  In some cases where market prices are not available, we make use of observable market-based inputs to calculate fair value, in which case the measurements are classified within Level 2.  If quoted or observable market prices are not available, fair value is based upon valuations in which one or more significant inputs are unobservable, including internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates.  These measurements are classified within Level 3.





Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation.  A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.





Fair value measurement includes the consideration of nonperformance risk.  Nonperformance risk refers to the risk that an obligation (either by a counterparty or us) will not be fulfilled.  For financial assets traded in an active market (Level 1), the nonperformance risk is included in the market price.  For certain other financial assets and liabilities (Level 2 and 3), our fair value calculations have been adjusted accordingly.





Derivative financial instruments


The fair value of interest rate contracts is primarily based on standard industry accepted models that utilize the appropriate market-based forward swap curves and zero-coupon interest rates to determine discounted cash flows.  The fair value of foreign currency forward and cross currency contracts is based on standard industry accepted valuation models that discount cash flows resulting from the differential between the contract price and the market-based forward rate.





Derivative financial instruments are measured on a recurring basis at fair value and are classified as Level 2 measurements.   We had derivative financial instruments in a net asset position included in our Consolidated Statements of Financial Position of $30 million and $49 million as of March 31, 2019 and December 31, 2018 , respectively.








26


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Impaired loans


Our impaired loans are subject to measurement at fair value on a nonrecurring basis and are classified as Level 3 measurements.  A loan is considered impaired when management determines that collection of contractual amounts due is not probable.  In these cases, an allowance for credit losses may be established based either 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 had impaired loans carried at the fair value of $426 million and $469 million as of March 31, 2019 and December 31, 2018 , respectively.





|   |                                     
|-- | ------------------------------------
|B. | Fair Values of Financial Instruments

In addition to the methods and assumptions we use to record the fair value of financial instruments as discussed in the Fair Value Measurements section above, we used the following methods and assumptions to estimate the fair value of our financial instruments:





Cash and cash equivalents – carrying amount approximated fair value.


Finance receivables, net – fair value was estimated by discounting the future cash flows using current rates representative of receivables with similar remaining maturities.


Restricted cash and cash equivalents – carrying amount approximated fair value.


Short-term borrowings – carrying amount approximated fair value.


Long-term debt – fair value for fixed and floating-rate debt was estimated based on quoted market prices.


Guarantees – fair value of guarantees is based on our estimate of the premium a market participant would require to issue the same guarantee in a stand-alone, arms-length transaction with an unrelated party.  If quoted or observable market prices are not available, fair value is based upon internally developed models that utilize current market-based assumptions.





Please refer to the table below for the fair values of our financial instruments.


(Millions of dollars)March 31, 2019December 31, 2018CarryingAmountFairValueCarryingAmountFairValueFair ValueLevelsReferenceCash and cash equivalents$658$658$766$7661Restricted cash and cash equivalents(2)$4$4$7$71Finance receivables, net (excluding finance leases(1))$20,281$20,392$20,451$20,5103Note 3Interest rate contracts:In a receivable position$3$3$4$42Note 5In a payable position$(58)$(58)$(40)$(40)2Note 5Cross currency contracts:In a receivable position$94$94$93$932Note 5In a payable position$(6)$(6)$(11)$(11)2Note 5Foreign exchange contracts:In a receivable position$9$9$15$152Note 5In a payable position$(12)$(12)$(12)$(12)2Note 5Short-term borrowings$(5,586)$(5,586)$(5,723)$(5,723)1Long-term debt$(22,529)$(22,633)$(22,815)$(22,684)2Guarantees$(3)$(3)$—$—3Note 8


(1) Represents finance leases and failed sale leasebacks of $7.50 billion as of March 31, 2019 and finance leases of  $7.47 billion as of December 31, 2018 .


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








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|    |              
|--- | -------------
|10. | Contingencies




We are involved in unresolved legal actions that arise in the normal course of business.  Although it is not possible to predict with certainty the outcome of our unresolved legal actions, we believe that these unresolved legal actions will neither individually nor in the aggregate have a material adverse effect on our consolidated results of operations, financial position or liquidity.








|    |             
|--- | ------------
|11. | Income Taxes




The provision for income taxes reflects an estimated annual tax rate of 27 percent in the first quarter of 2019 , compared with 23 percent in the first quarter of 2018 .  The increase in the estimated annual tax rate is primarily due to changes in the geographic mix of profits.








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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS











OVERVIEW





We reported first-quarter 2019 revenues of $736 million, an increase of $46 million, or 7 percent, compared with the first quarter of 2018.  First-quarter 2019 profit was $98 million, a $7 million, or 8 percent, increase from the first quarter of 2018.





The increase in revenues was primarily due to a $33 million favorable impact from higher average financing rates and a $19 million favorable impact from higher average earning assets, partially offset by an $8 million unfavorable impact from returned or repossessed equipment.





Profit before income taxes was $142 million for the first quarter of 2019, compared with $124 million for the first quarter of 2018.  The increase was primarily due to a $14 million increase in net yield on average earning assets, a $14 million decrease in provision for credit losses and an $8 million favorable impact from higher average earning assets.  These favorable impacts were partially offset by a $9 million increase in general, operating and administrative expenses and an $8 million unfavorable impact from returned or repossessed equipment.





The provision for income taxes reflects an estimated annual tax rate of 27 percent in the first quarter of 2019, compared with 23 percent in the first quarter of 2018.  The increase in the estimated annual tax rate is primarily due to changes in the geographic mix of profits.





During the first quarter of 2019, retail new business volume was $2.35 billion, a decrease of $190 million, or 7 percent, from the first quarter of 2018.  The decrease was primarily driven by lower volume in North America and Asia/Pacific.





At the end of the first quarter of 2019, past dues were 3.61 percent, compared with 3.17 percent at the end of the first quarter of 2018.  The increase in past dues was primarily driven by Cat Power Finance, concentrated in the marine portfolio.  Write-offs, net of recoveries, were $30 million for the first quarter of both 2019 and 2018.  As of March 31, 2019, the allowance for credit losses totaled $534 million, or 1.89 percent of finance receivables, compared with $511 million, or 1.80 percent of finance receivables at December 31, 2018.











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FIRST QUARTER 2019 COMPARED WITH FIRST QUARTER 2018





Consolidated Total Revenues








The chart above graphically illustrates reasons for the change in Consolidated Total Revenues between first quarter 2018 (at left) and first quarter 2019 (at right).  Items favorably impacting total revenues appear as upward stair steps with corresponding dollar amounts above each bar, while items negatively impacting total revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar.  Management utilizes these charts internally to visually communicate results.





Retail revenue for the first quarter of 2019 was $335 million , an increase of $18 million from the same period in 2018 .  The increase was due to a $21 million  favorable impact from higher interest rates on retail finance receivables, partially offset by a $3 million  unfavorable impact from lower average earning assets.  For the quarter ended March 31, 2019 , retail average earning assets were $22.92 billion , a decrease of $271 million from the same period in 2018 .  The annualized average yield was 5.85 percent for the first quarter of 2019 , compared with 5.48 percent for the first quarter of 2018 .





Operating lease revenue for the first quarter of 2019 was $258 million , an increase of $14 million from the same period in 2018 .  The increase was due to a $10 million  favorable impact from higher average rental rates on operating leases and a $5 million  favorable impact from property tax revenues on operating leases as a result of the new lease accounting guidance, partially offset by a $1 million  unfavorable impact from lower average earning assets.





Wholesale revenue for the first quarter of 2019 was $119 million , an increase of $28 million from the same period in 2018 .  The increase was due to a $24 million  favorable impact from higher average earning assets and a $4 million  favorable impact from higher interest rates on wholesale finance receivables.  For the quarter ended March 31, 2019 , wholesale average earning assets were $5.44 billion , an increase of $1.10 billion from the same period in 2018 .  The annualized average yield was 8.72 percent for the first quarter of 2019 , compared with 8.42 percent for the first quarter of 2018 .





Other revenue, net, items were as follows: (Millions of dollars)Three Months EndedMarch 31,20192018$ ChangeFinance receivable and operating lease fees (including late charges)$15$18$(3)Fees on committed credit facility extended to Caterpillar510(5)Interest income on Notes Receivable from Caterpillar77—Net loss on returned or repossessed equipment(8)—(8)Miscellaneous other revenue, net532Total Other revenue, net$24$38$(14)





There was a $16 million unfavorable impact from currency on revenues in the first quarter of 2019 .  Currency represents the net translation impact resulting from changes in foreign currency exchange rates versus the U.S. dollar and is included in all financial statement line items and each of the items included in the above analysis.








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Consolidated Profit Before Income Taxes








(1) Analysis excludes $5 million in offsetting revenues and expenses for property taxes on operating leases.


The chart above graphically illustrates reasons for the change in Consolidated Profit Before Income Taxes between first quarter 2018 (at left) and first quarter 2019 (at right).  Items favorably impacting profit before income taxes appear as upward stair steps with corresponding dollar amounts above each bar, while items negatively impacting profit before income taxes appear as downward stair steps with dollar amounts reflected in parentheses above each bar.  Management utilizes these charts internally to visually communicate results.





Profit before income taxes was $142 million for the first quarter of 2019, compared with $124 million for the first quarter of 2018. The increase was primarily due to a $14 million increase in net yield on average earning assets, a $14 million decrease in provision for credit losses and an $8 million favorable impact from higher average earning assets. These favorable impacts were partially offset by a $9 million increase in general, operating and administrative expenses and an $8 million unfavorable impact from returned or repossessed equipment.





There was a $5 million unfavorable impact from currency on profit before income taxes in the first quarter of 2019 .  Currency represents the net translation impact resulting from changes in foreign currency exchange rates versus the U.S. dollar and is included in all financial statement line items and each of the items included in the above analysis.





Provision for Income Taxes


The provision for income taxes reflects an estimated annual tax rate of 27 percent in the first quarter of 2019, compared with 23 percent in the first quarter of 2018. The increase in the estimated annual tax rate is primarily due to changes in the geographic mix of profits.








Finance Receivables and Equipment on Operating Leases





New Business Volume


(Millions of dollars)Three Months EndedMarch 31,20192018$ ChangeNew retail financing$2,095$2,267$(172)New operating lease activity257274(17)New wholesale financing11,45710,544913Total$13,809$13,085$724





New retail financing decreased primarily due to lower volume in North America and Asia/Pacific.  New operating lease activity (which is substantially related to retail) decreased primarily due to lower rentals of Cat equipment in North America, partially offset by higher rentals in Europe.  New wholesale financing increased primarily due to higher purchases of trade receivables from Caterpillar.








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Total Managed Portfolio


We define total portfolio as finance receivables, net plus equipment on operating leases, less accumulated depreciation.  We also manage and service receivables and leases that have been sold by us to third parties with limited or no recourse in order to mitigate our concentration of credit risk with certain customers.  These assets are not available to pay our creditors.  Total managed portfolio was as follows:


(Millions of dollars)March 31, 2019December 31, 2018$ ChangeFinance receivables, net$27,785$27,923$(138)Equipment on operating leases, less accumulated depreciation3,4713,562(91)Total portfolio$31,256$31,485$(229)Retail installment sale contracts$119$107$12Retail finance leases90100(10)Retail notes receivable422319Operating leases2325(2)Total off-balance sheet managed assets$274$255$19Total managed portfolio$31,530$31,740$(210)





Total Portfolio Metrics


At the end of the first quarter of 2019, past dues were 3.61 percent, compared with 3.17 percent at the end of the first quarter of 2018.  The increase in past dues was primarily driven by Cat Power Finance, concentrated in the marine portfolio.  Total non-performing finance receivables, which represent finance receivables currently on non-accrual status, were $906 million and $885 million at March 31, 2019 and December 31, 2018 , respectively.  Total non-performing finance receivables as a percentage of our recorded investment in finance receivables were 3.20 percent and 3.11 percent at March 31, 2019 and December 31, 2018 , respectively.





Our allowance for credit losses as of March 31, 2019 was $534 million or 1.89 percent of our recorded investment in finance receivables compared with $511 million or 1.80 percent as of December 31, 2018 .  The allowance is subject to an ongoing evaluation based on many quantitative and qualitative factors, including 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.  We believe our allowance is sufficient to provide for losses inherent in our existing finance receivable portfolio as of March 31, 2019 .








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CAPITAL RESOURCES AND LIQUIDITY





Capital resources and liquidity provide us with the ability to meet our financial obligations on a timely basis.  Maintaining and managing adequate capital and liquidity resources includes management of funding sources and their utilization based on current, future and contingent needs.  Throughout the first quarter of 2019 , we experienced favorable liquidity conditions.  We ended the first quarter of 2019 with $658 million of cash, a decrease of $108 million from year-end 2018 .  Our cash balances are held in numerous locations throughout the world with approximately $174 million held by our non-U.S. subsidiaries. Amounts held by non-U.S. subsidiaries are available for general corporate use and could be used in the U.S. without incurring significant additional U.S. taxes.  We expect to meet our U.S. funding needs without repatriating undistributed profits that are indefinitely reinvested outside the U.S.








BORROWINGS


Borrowings consist primarily of medium-term notes and commercial paper, the combination of which is used to manage interest rate risk and funding requirements.





We receive debt ratings from the major credit rating agencies. Moody’s long- and short-term ratings of our debt is A3 and Prime-2, while Fitch and S&P maintain a “mid-A” debt rating. This split rating has not had a material impact on our borrowing costs or our overall financial health. However, a downgrade of our credit ratings by any of the major credit rating agencies would result in increased borrowing costs and could make access to certain credit markets more difficult. In the event economic conditions deteriorate such that access to debt markets becomes unavailable, we would rely on cash flows from our existing portfolio, existing cash balances, access to our revolving credit facilities and other credit line facilities and potential borrowings from Caterpillar. In addition, Caterpillar maintains a support agreement with us, which requires Caterpillar to remain our sole owner and may, under certain circumstances, require Caterpillar to make payments to us should we fail to maintain certain financial ratios.





Total borrowings outstanding as of March 31, 2019 were $29.57 billion , a decrease of $486 million over December 31, 2018 .  Outstanding borrowings were as follows:


(Millions of dollars)March 31, 2019December 31, 2018Medium-term notes, net of unamortized discount and debt issuance costs$21,882$22,169Commercial paper, net of unamortized discount4,7654,759Bank borrowings – long-term647646Bank borrowings – short-term388526Variable denomination floating rate demand notes433438Notes payable to Caterpillar1,4551,518Total outstanding borrowings$29,570$30,056





Medium-term notes


We issue medium-term unsecured notes through securities dealers or underwriters in the U.S., Canada, Europe, Australia, Japan, Hong Kong, and China to both retail and institutional investors.  These notes are offered in several currencies and with a variety of maturities.  These notes are senior unsecured obligations of the Company.  Medium-term notes issued totaled $1.61 billion and redeemed totaled $1.90 billion for the three months ended March 31, 2019 .  Medium-term notes outstanding as of March 31, 2019 , mature as follows:


(Millions of dollars)2019$3,68320206,96420214,75420222,83820232,152Thereafter1,491Total$21,882








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Commercial paper


We issue unsecured commercial paper in the U.S., Europe and other international capital markets.  These short-term promissory notes are issued on a discounted basis and are payable at maturity.





Revolving credit facilities


We have three global credit facilities with a syndicate of banks totaling $10.50 billion (Credit Facility) available in the aggregate to both Caterpillar and us for general liquidity purposes.  Based on management's allocation decision, which can be revised from time to time, the portion of the Credit Facility available to us as of March 31, 2019 was $7.75 billion.  Information on our Credit Facility is as follows:





|  |                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------
|• | The 364-day facility of $3.15 billion (of which $2.33 billion is available to us) expires in September 2019.

|  |                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------
|• | The three-year facility, as amended in September 2018, of $2.73 billion (of which $2.01 billion is available to us) expires in September 2021.

|  |                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------
|• | The five-year facility, as amended in September 2018, of $4.62 billion (of which $3.41 billion is available to us) expires in September 2023.




At March 31, 2019 , Caterpillar’s consolidated net worth was $15.45 billion, which was above the $9.00 billion required under the Credit Facility.  The consolidated net worth is defined in the Credit Facility as the consolidated shareholders' equity including preferred stock but excluding the pension and other postretirement benefits balance within Accumulated other comprehensive income/(loss).





At March 31, 2019 , our covenant interest coverage ratio was 1.55 to 1. This is above the 1.15 to 1 minimum ratio, calculated as (1) profit excluding income taxes, interest expense and net gain/(loss) from interest rate derivatives to (2) interest expense, calculated at the end of each calendar quarter for the rolling four quarter period then most recently ended, required by the Credit Facility.





In addition, at March 31, 2019 , our six-month covenant leverage ratio was 8.10 to 1.  This is below the maximum ratio of debt to net worth of 10 to 1, calculated (1) on a monthly basis as the average of the leverage ratios determined on the last day of each of the six preceding calendar months and (2) at each December 31, required by the Credit Facility.





In the event that either Caterpillar or we do not meet one or more of our respective financial covenants under the Credit Facility in the future (and are unable to obtain a consent or waiver), the syndicate of banks may terminate the commitments allocated to the party that does not meet its covenants.  Additionally, in such event, certain of our other lenders under other loan agreements where similar financial covenants or cross default provisions are applicable, may, at their election, choose to pursue remedies under those loan agreements, including accelerating the repayment of outstanding borrowings.  At March 31, 2019 , there were no borrowings under the Credit Facility.





Bank borrowings


Available credit lines with banks as of March 31, 2019 totaled $4.74 billion.  These committed and uncommitted credit lines, which may be eligible for renewal at various future dates or have no specified expiration date, are used primarily by our non-U.S. subsidiaries for local funding requirements.  As of March 31, 2019 , we had $1.04 billion outstanding against these credit lines and were in compliance with all debt covenants under these credit lines.  The remaining available credit commitments may be withdrawn any time at the lenders' discretion.





Variable denomination floating rate demand notes


We obtain funding from the sale of variable denomination floating rate demand notes, which may be redeemed at any time at the option of the holder without any material restriction.  We do not hold reserves to fund the payment of the demand notes.  The notes are offered on a continuous basis.  As of March 31, 2019 , there was $433 million of variable denomination floating rate demand notes outstanding. The maximum amount of variable denomination floating rate demand notes that we may have outstanding at any time may not exceed $1.25 billion.





Notes receivable from/payable to Caterpillar


Under our variable amount and term lending agreements and other notes receivable with Caterpillar, we may borrow up to $2.79 billion from Caterpillar and Caterpillar may borrow up to $2.05 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 nine years.  We had notes payable of $1.46 billion and notes receivable of $645 million outstanding under these agreements as of March 31, 2019 .





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OFF-BALANCE SHEET ARRANGEMENTS


We have potential payment exposure for guarantees issued to third parties totaling $103 million as of March 31, 2019 .








CASH FLOWS


Operating cash flow was $299 million in the first three months of 2019, compared with $254 million for the same period in 2018.  Net cash provided by investing activities was $81 million for the first three months of 2019, compared with cash used for investing activities of $423 million for the same period in 2018.  The change was primarily due to the impact of Caterpillar purchased receivables.  Net cash used for financing activities was $489 million for the first three months of 2019, compared with cash provided by financing activities of $171 million for the same period in 2018. The change was primarily due to lower portfolio funding requirements.








CRITICAL ACCOUNTING POLICIES





For a discussion of the Company’s critical accounting policies, see Part II, Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Annual Report on Form 10-K .  There have been no significant changes to our critical accounting policies since our 2018 Annual Report on Form 10-K.





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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





Certain statements contained in this Form 10-Q may be considered "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995.  These statements may relate to future events or our future financial performance, which may involve known and unknown risks and uncertainties and other factors that may cause our actual results, levels of activity, performance or achievement to be materially different from those expressed or implied by any forward-looking statements.  From time to time, we may also provide forward-looking statements in oral presentations to the public or in other materials we issue to the public.





Forward-looking statements give current expectations or forecasts of future events about the company.  You may identify these statements by the fact that they do not relate to historical or current facts and may use words such as "believes," "expects," "estimates," "anticipates," "will," "should," "plan," "forecast," "target," "guide," "project," "intend," "could" and similar words or phrases.  These statements are only predictions.  Actual events or results may differ materially due to factors that affect international businesses, including changes in economic conditions, disruptions in the global financial and credit markets, and changes in laws, regulations and political stability, as well as factors specific to Cat Financial and the markets we serve, including the market’s acceptance of our products and services, the creditworthiness of our customers, interest rate and currency rate fluctuations and estimated residual values of leased equipment.  These risk factors may not be exhaustive.  We operate in a continually changing business environment, and new risk factors emerge from time to time.  We cannot predict these new risk factors, nor can we assess the impact, if any, of these new risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements.  Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.  All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the captions "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 14, 2019 for the fiscal year ended December 31, 2018, as supplemented by (i) this Form 10-Q filing and (ii) our Form 8-K reports filed with the SEC, and could cause results to differ materially from those projected in the forward-looking statements.  Cat Financial undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.








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ITEM 4. CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures


An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this quarterly report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.





Changes in Internal Control over Financial Reporting


There have been no changes in the Company's internal control over financial reporting during the first quarter of 2019 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.








PART II. OTHER INFORMATION








ITEM 1.  LEGAL PROCEEDINGS





We are involved in unresolved legal actions that arise in the normal course of business.  Although it is not possible to predict with certainty the outcome of our unresolved legal actions, we believe that these unresolved legal actions will neither individually nor in the aggregate have a material adverse effect on our consolidated results of operations, financial position or liquidity.








ITEM 1A.  RISK FACTORS





For a discussion of risks and uncertainties that may affect our business, please see Part I. Item 1A. Risk Factors in our annual report on Form 10-K filed with the SEC on February 14, 2019 for the year ended December 31, 2018 .  There has been no material change in this information for the current quarter.








ITEM 4.  MINE SAFETY DISCLOSURES





Not applicable.








ITEM 5.  OTHER INFORMATION





None.








ITEM 6.  EXHIBITS


ExhibitNo.Description of Exhibit31.1Certification of David T. Walton, President, Director and Chief Executive Officer of Caterpillar Financial Services Corporation, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2Certification of Patrick T. McCartan, Executive Vice President and Chief Financial Officer of Caterpillar Financial Services Corporation, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 200232Certifications of David T. Walton, President, Director and Chief Executive Officer of Caterpillar Financial Services Corporation, and Patrick T. McCartan, Executive Vice President and Chief Financial Officer of Caterpillar Financial Services Corporation, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INSXBRL Instance Document101.SCHXBRL Taxonomy Extension Schema Document101.CALXBRL Taxonomy Extension Calculation Linkbase Document101.DEFXBRL Taxonomy Extension Definition Linkbase Document101.LABXBRL Taxonomy Extension Label Linkbase Document101.PREXBRL Taxonomy Extension Presentation Linkbase Document





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Signatures





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





Caterpillar Financial Services Corporation(Registrant)Date:May 6, 2019/s/David T. WaltonDavid T. Walton, President, Director and Chief ExecutiveOfficer





Date:May 6, 2019/s/Patrick T. McCartanPatrick T. McCartan, Executive Vice President and ChiefFinancial Officer





Date:May 6, 2019/s/Michael G. SposatoMichael G. Sposato, Secretary





Date:May 6, 2019/s/Jeffry D. EverettJeffry D. Everett, Controller











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