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 June 30, 2005

Commission File No. 0-13295




CATERPILLAR FINANCIAL SERVICES CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware
37-1105865
(State of incorporation)
(IRS Employer I.D. No.)


2120 West End Ave.
Nashville, Tennessee
 
37203-0001
(Address of principal executive offices)
(Zip Code)


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


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.


Indicate by a 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   x No o  

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

At August 4, 2005, one share of common stock of the Registrant was outstanding, which is owned by Caterpillar Inc.





Caterpillar Financial Services Corporation


Form 10-Q for the Quarter Ended June 30, 2005





PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statement of Financial Position
Consolidated Statement of Profit
Consolidated Statement of Changes in Stockholder’s Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview: Second Quarter 2005 vs. Second Quarter 2004
Forward-Looking Statements
Critical Accounting Policies
Three Months Ended June 30, 2005 vs. Three Months Ended June 30, 2004
Six Months Ended June 30, 2005 vs. Six Months Ended June 30, 2004
Capital Resources and Liquidity
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 6. Exhibits
Signatures




 
Part I. FINANCIAL INFORMATION
 
Item 1. Consolidated Financial Statements (Unaudited)

In addition to our accompanying unaudited consolidated financial statements, we suggest that you read our 2004 Annual Report on Form 10-K. A copy of this annual report is available by writing to: Legal Dept., Caterpillar Financial Services Corp.; 2120 West End Ave.; Nashville, TN 37203-0001. Although not incorporated by reference in this document, additional information about us is available at http://www.catfinancial.com.







Caterpillar Financial Services Corporation

Consolidated Statement of Financial Position  
(Unaudited)
(Dollars in Millions, except share data)
     
June 30,
   
December 31,
   
June 30,
 
     
2005
   
2004
   
2004
 
Assets:
                   
Cash and cash equivalents
 
$
187
 
$
98
 
$
87
 
Finance receivables
                   
Retail notes receivable
   
4,681
   
4,580
   
4,315
 
Wholesale notes receivable
   
5,008
   
4,789
   
1,817
 
Notes receivable from Caterpillar
   
129
   
120
   
412
 
Finance leases and installment sale contracts - Retail
   
12,035
   
11,769
   
9,920
 
Finance leases and installment sale contracts - Wholesale
   
214
   
185
   
189
 
     
22,067
   
21,443
   
16,653
 
Less: Unearned income
   
1,328
   
1,261
   
1,018
 
Allowance for credit losses
   
284
   
278
   
255
 
Total net finance receivables
   
20,455
   
19,904
   
15,380
 
                     
Retained interests in securitized wholesale receivables
   
-
   
-
   
2,163
 
                     
Equipment on operating leases,
                   
less accumulated depreciation
   
2,552
   
2,569
   
2,277
 
Deferred income taxes
   
33
   
28
   
18
 
Other assets
   
1,002
   
973
   
1,220
 
Total assets
 
$
24,229
 
$
23,572
 
$
21,145
 
                     
                     
Liabilities and stockholder's equity:
                   
Payable to dealers and others
 
$
245
 
$
221
 
$
182
 
Payable to Caterpillar - other
   
30
   
23
   
24
 
Accrued expenses
   
221
   
179
   
155
 
Income taxes payable
   
65
   
23
   
92
 
Payable to Caterpillar - borrowings
   
378
   
333
   
265
 
Short-term borrowings
   
4,893
   
5,464
   
4,314
 
Current maturities of long-term debt
   
3,204
   
3,519
   
3,728
 
Long-term debt
   
12,039
   
10,713
   
9,691
 
Deferred income taxes and other liabilities
   
377
   
377
   
283
 
Total liabilities
   
21,452
   
20,852
   
18,734
 
                     
Common stock - $1 par value
                   
Authorized: 2,000 shares; Issued and
                   
outstanding: one share (at paid in amount)
   
745
   
745
   
745
 
Retained earnings
   
1,863
   
1,690
   
1,538
 
Accumulated other comprehensive income
   
169
   
285
   
128
 
Total stockholder's equity
   
2,777
   
2,720
   
2,411
 
                     
Total liabilities and stockholder's equity
 
$
24,229
 
$
23,572
 
$
21,145
 

See Notes to Consolidated Financial Statements (unaudited).
 

 
Caterpillar Financial Services Corporation

(Unaudited)
(Dollars in Millions)

 
   
  Three Months Ended  
   Six Months Ended   
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
     
2005
   
2004
   
2005
   
2004
 
Revenues:
                         
Wholesale finance
 
$
87
 
$
49
 
$
159
 
$
91
 
Retail finance
   
257
   
203
   
510
   
410
 
Operating lease
   
192
   
176
   
380
   
354
 
Other
   
51
   
39
   
81
   
69
 
Total revenues
   
587
   
467
   
1,130
   
924
 
                           
Expenses:
                         
Interest
   
188
   
121
   
361
   
242
 
Depreciation on assets leased to others
   
154
   
140
   
306
   
282
 
General, operating, and administrative
   
85
   
74
   
161
   
139
 
Provision for credit losses
   
20
   
32
   
36
   
52
 
Other
   
2
   
3
   
4
   
5
 
Total expenses
   
449
   
370
   
868
   
720
 
                           
Profit before income taxes
   
138
   
97
   
262
   
204
 
                           
Provision for income taxes
   
48
   
34
   
89
   
69
 
Profit
 
$
90
 
$
63
 
$
173
 
$
135
 
                           


See Notes to Consolidated Financial Statements (unaudited).






Caterpillar Financial Services Corporation

Consolidated Statement of Changes in Stockholder's Equity
(Unaudited)
(Dollars in Millions)

   
Six months Ended
 
 
June 30,
June 30,
   
    2005    
     2004    
                           
Common stock at paid-in amount:
                         
Balance at beginning of year
 
$
745
       
$
745
       
Balance at end of period
   
745
         
745
       
                           
Retained earnings:
                         
Balance at beginning of year
   
1,690
         
1,403
       
Profit
   
173
 
$
173
   
135
 
$
135
 
Balance at end of period
   
1,863
         
1,538
       
                           
Accumulated other comprehensive income/(loss):
                         
Foreign currency translation adjustment
                         
Balance at beginning of year
   
278
         
163
       
Aggregate adjustment for the period
   
(119
)
 
(119
)
 
(37
)
 
(37
)
Balance at end of period
   
159
         
126
       
Interest rate derivative instruments (net of tax)
                         
Balance at beginning of year net of tax of: 2005 - $2; 2004 - $(9)
   
-
         
(18
)
     
Losses deferred during the period net of tax of: 2005 - $(2); 2004 - $(7)
   
(7
)
 
(7
)
 
(16
)
 
(16
)
Losses reclassed to earnings during the period net of tax of: 2005 - $4; 2004 - $14
   
11
   
11
   
32
   
32
 
Balance at end of period net of tax of: 2005 - $4; 2004 - $(2)
   
4
         
(2
)
     
Other instruments (net of tax)
                         
Balance at beginning of year
   
7
         
5
       
Aggregate adjustment for the period
   
(1
)
 
(1
)
 
(1
)
 
(1
)
Balance at end of period
   
6
         
4
       
Total accumulated other comprehensive income
   
169
         
128
       
                           
Comprehensive income
       
$
57
       
$
113
 
                           
                           
Total stockholder’s equity
 
$
2,777
       
$
2,411
       


See Notes to Consolidated Financial Statements (unaudited).




 
Caterpillar Financial Services Corporation

Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in Millions)

   
       Six Months Ended    
 
     
June 30,
   
June 30,
 
     
2005
   
2004
 
Cash flows from operating activities:
             
Profit
 
$
173
 
$
135
 
Adjustments for non-cash items:
             
Depreciation of equipment on operating leases and non-leased equipment
   
317
   
293
 
Amortization of purchased discount
   
(103
)
 
(62
)
Provision for credit losses
   
36
   
52
 
Gain on sale of receivables
   
(16
)
 
(16
)
Other
   
(61
)
 
(21
)
Change in assets and liabilities:
             
Receivables from customers and others
   
(30
)
 
(32
)
Other receivables/payables with Caterpillar
   
1
   
18
 
Payable to dealers and others
   
31
   
7
 
Accrued expenses
   
104
   
(1
)
Income taxes payable
   
44
   
38
 
Net cash provided by operating activities
   
496
   
411
 
               
Cash flows from investing activities:
             
Expenditures for equipment on operating leases and for non-leased equipment
   
(624
)
 
(542
)
Proceeds from disposals of equipment
   
380
   
368
 
Additions to finance receivables
   
(16,034
)
 
(7,709
)
Collections of finance receivables
   
13,894
   
5,670
 
Additions to retained interests in securitized wholesale receivables
   
-
   
(5,038
)
Collections of retained interests in securitized wholesale receivables
   
-
   
4,476
 
Proceeds from sales of receivables
   
859
   
1,181
 
Notes receivable from Caterpillar
   
(9
)
 
(43
)
Investment in partnerships
   
(1
)
 
6
 
Other, net
   
10
   
14
 
Net cash used for investing activities
   
(1,525
)
 
(1,617
)
               
Cash flows from financing activities:
             
Payable to Caterpillar - borrowings
   
67
   
(201
)
Proceeds from long-term debt
   
3,589
   
3,047
 
Payments on long-term debt
   
(2,358
)
 
(1,540
)
Short-term borrowings, net
   
(184
)
 
(88
)
Net cash provided by financing activities
   
1,114
   
1,218
 
               
Effect of exchange rate changes on cash
   
4
   
6
 
               
Net change in cash and cash equivalents
   
89
   
18
 
               
Cash and cash equivalents at beginning of year
   
98
   
69
 
               
Cash and cash equivalents at end of period
 
$
187
 
$
87
 
               
See Notes to Consolidated Financial Statements (unaudited).




Notes to Consolidated Financial Statements  
(Unaudited; Dollars in Millions )

A.
Use of estimates in the preparation of financial statements

We believe this information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the consolidated statements of financial position, profit, changes in equity, and cash flows for the periods presented. The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts. The most significant estimates are the allowance for credit losses and residual values for leased assets. Other significant estimates are the assumptions used to determine the fair value of derivatives and retained interests in securitizations. Actual results may differ from these estimates and the results for interim periods do not necessarily indicate the results we expect for the year.

Certain amounts for prior periods have been reclassified to conform to the current period presentation.


B.
Supplemental segment data

Our segment data is based on disclosure requirements of Statement of Financial Accounting Standards No. 131, which requires that financial information be reported on the basis that is used internally for measuring segment performance. Internally, we report information for operating segments based on management responsibility. The five segments offer primarily the same types of services.

On January 1, 2005, a portion of Cat Power Finance was reclassified to the North America segment. Prior year data has been reclassified to conform to the new structure. We segregate information as follows:


  s
North America: We have offices in the United States and Canada that serve local dealers and customers. This segment also provides project financing in various countries.
  s
Europe: We have offices in Europe to serve European dealers and customers. This segment also includes our office in Russia, which serves dealers and customers in the Commonwealth of Independent States.
  s
Asia-Pacific: We have offices in Australia, New Zealand, and Asia that serve local dealers and customers.
  s
Diversified Services: Included is our Global Accounts Division, which primarily provides cross-border financing to customers in countries in which we have no local presence; Marine Services Division, which primarily finances marine vessels with Caterpillar engines for all countries; and our offices in Latin America that serve local dealers and customers.
  s
Cat Power Finance: This segment primarily provides debt financing for Caterpillar  electrical power generation, gas compression ,  and co-generation systems (including the related non-Caterpillar equipment included in said systems), as well as   non-Caterpillar equipment that is powered by Caterpillar engines, for all countries.


Debt and other expenses for the Global Accounts, Marine Services, and Cat Power Finance divisions are allocated to their respective segments from the North America, Europe, and/or Asia-Pacific 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. Inter-segment revenues are based on the amount of respective portfolio and the rates associated with that portfolio.




Supplemental segment data for the three months ended June 30,

2005
   
North America
   
Europe
   
Diversified Services
   
Asia-Pacific
   
Cat Power Finance
   
Total
 
External revenue
 
$
357
   
89
   
76
   
49
   
16
 
$
587
 
Inter-segment revenue
 
$
8
   
-
   
-
   
-
   
-
 
$
8
 
Profit
 
$
53
   
15
   
13
   
4
   
5
 
$
90
 
Assets at June 30, 2005
 
$
13,738
   
4,341
   
4,855
   
1,978
   
1,219
 
$
26,131
 
                                       
2004
   
North America
   
Europe
   
Diversified Services
   
Asia- Pacific
   
Cat Power Finance
   
Total
 
External revenue
 
$
279
   
84
   
55
   
32
   
17
 
$
467
 
Inter-segment revenue
 
$
5
   
-
   
-
   
-
   
-
 
$
5
 
Profit
 
$
36
   
12
   
7
   
3
   
5
 
$
63
 
Assets at June 30, 2004
 
$
12,112
   
4,108
   
4,615
   
1,287
   
1,256
 
$
23,378
 


Reconciliation of assets:
 
June 30, 2005
 
June 30, 2004
 
Assets from segments
 
$
26,131
 
$
23,378
 
Investment in subsidiaries
   
(934
)
 
(902
)
Inter-segment balances
   
(968
)
 
(1,331
)
Total assets
 
$
24,229
 
$
21,145
 


Supplemental segment data for the six months ended June 30,

2005
   
North America
   
Europe
   
Diversified Services
   
Asia-Pacific
   
Cat Power Finance
   
Total
 
External revenue
 
$
683
   
179
   
143
   
92
   
33
 
$
1,130
 
Inter-segment revenue
 
$
14
   
-
   
-
   
-
   
-
 
$
14
 
Profit
 
$
101
   
32
   
22
   
8
   
10
 
$
173
 
                                       
2004
   
North America
   
Europe
   
Diversified Services
   
Asia-Pacific
   
Cat Power Finance
   
Total
 
External revenue
 
$
544
   
170
   
116
   
63
   
31
 
$
924
 
Inter-segment revenue
 
$
9
   
-
   
-
   
-
   
-
 
$
9
 
Profit
 
$
72
   
26
   
21
   
7
   
9
 
$
135
 


C.
Derivative Instruments and Hedging Activities

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 prudently manage foreign currency exchange rate and interest rate exposure. Our Policy specifies that derivatives are not to be used for speculative purposes. Derivatives that we use are primarily foreign currency forward and option contracts and interest rate swaps. 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 the Audit Committee of the Caterpillar Inc. Board of Directors at least annually.

Foreign Currency Exchange Rate Risk
In managing foreign currency risk, our objective is to minimize earnings volatility resulting from conversion and the re-measurement of net foreign currency balance sheet positions. Our Policy allows the use of foreign currency forward contracts to offset the risk of currency mismatch between our receivables and debt. None of these foreign currency forward contracts are designated as a hedge. Other revenue included gains of $23 and $1 on the undesignated contracts for the three months ended (gains of $34 and $17 for the six months ended) June 30, 2005 and 2004, respectively, substantially offset by balance sheet re-measurement and conversion losses.

Due to the long-term nature of our net investments in foreign subsidiaries, we generally do not hedge the related currency exposure.

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 swap agreements to manage our exposure to interest rate changes and in some cases to lower the cost of borrowed funds.

We have a match funding policy that addresses interest rate risk by aligning the interest rate profile (fixed or floating rate) of our debt portfolio with the interest rate profile of our receivables portfolio within pre-determined 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 receivables portfolio. This match funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move. At times, the use of these instruments results in a lowered cost of borrowed funds. This is accomplished by changing the characteristics of existing debt instruments or entering into new agreements in combination with the issuance of new debt.

Our Policy allows us to use floating-to-fixed, fixed-to-floating, and floating-to-floating interest rate swaps to meet our match funding objective. To support hedge accounting, we designate fixed-to-floating interest rate swaps as fair value hedges of the fair value of our fixed rate debt at the inception of the contract. Our practice is to designate most floating-to-fixed interest rate swaps as cash flow hedges of the variability of future cash flows at the inception of the swap contract. Designation as a hedge of the variability of cash flow is performed to support hedge accounting.
 
We liquidated fixed-to-floating interest rate swaps during 2005, 2004, and 2002. As a result, the gain ($11 as of June 30, 2005) is being amortized to earnings ratably over the remaining life of the hedged debt.

Gains/(losses) on fixed-to-floating interest swaps included in current earnings for three months ended June 30, included:

     
2005
   
2004
 
Gain/(loss) on designated interest rate derivatives—included in Other revenues
 
$
50
 
$
(73
)
Gain/(loss) on hedged debt—included in Other revenues
   
(50
)
 
73
 
Gain on liquidated swaps—included in Interest expense
   
1
   
1
 

Gains/(losses) on fixed-to-floating interest swaps included in current earnings for six months ended June 30, included:

     
2005
   
2004
 
Gain/(loss) on designated interest rate derivatives—included in Other revenues
 
$
3
 
$
(39
)
Gain/(loss) on hedged debt—included in Other revenues
   
(3
)
 
39
 
Gain on liquidated swaps—included in Interest expense
   
2
   
1
 

There were no circumstances where hedge treatment was discontinued during the three or six months ended June 30, 2005 or 2004.

As of June 30, 2005, $3 of deferred net gains included in equity (Accumulated other comprehensive income), related to our floating-to-fixed interest rate swaps, are expected to be reclassified to Interest expense over the next twelve months. As of June 30, 2004, this projected reclassification was a net loss of $8. In the second quarter of June 2005, we liquidated forward starting floating-to-fixed interest rate swaps due to the issuance of the hedged debt. Forward starting interest rate swaps provide a hedge of the anticipated issuance of debt. The $9 loss on the swaps will be amortized to earnings ratably over the remaining life of the hedged debt.

D.
Guarantees

We have guaranteed to repurchase loans of certain Caterpillar dealers from third party lenders in the event of default. These guarantees arose in conjunction with our relationship with third party dealers who sell Caterpillar equipment. These guarantees generally have one-year terms and are secured by dealer assets. We have also provided a limited indemnity to a third party bank for $42 resulting from the assignment of certain leases to that bank. The indemnity expires December 15, 2012 and is unsecured. No loss has been experienced or is anticipated under these guarantees. At June 30, 2005, and December 31, 2004, the book value of these guarantees was $9 and $10, respectively. The maximum potential amount of future payments (undiscounted and without reduction for any amount that may possibly be recovered under recourse or collateralized provisions) we could be required to make under the guarantees are as follows:

     
June 30, 2005
   
December 31, 2004
 
Guarantees with Caterpillar dealers
 
$
395
 
$
364
 
Guarantees - other
   
77
   
62
 
Total guarantees
   
$
472
 
$
426
 


E.
Securitized Assets

During the second quarter of 2005, we securitized retail installment sale contracts and finance leases into a public asset-backed securitization facility. These finance receivables, which are being held in a securitization trust, are secured by new and used equipment. We retained servicing responsibilities and subordinated interests related to this securitization. Subordinated interests include subordinated certificates with an initial fair value of $8, an interest in future cash flows (excess) with an initial fair value of $1, and a reserve account with an initial fair value of $12. Our retained interests are generally subordinate to the investors' interests. Net proceeds received were $850, which includes both cash proceeds and retained interests. A net gain of $12 was recognized on this transaction. We determine the fair value based on discounted cash flow models that incorporate assumptions including credit losses, prepayment rates, and discount rates. These assumptions are based on our historical experience, market trends, and anticipated performance relative to the particular assets securitized. Significant assumptions used to estimate the fair value of the retained interests and subordinate certificates include a 10.8% discount rate, a weighted-average prepayment rate of 14.0%, and expected credit losses of 1.0%. We receive annual servicing fees of 1.0% of the unpaid note value.

In the second quarter of 2004, a public securitization also occurred. Subordinated interests included subordinated certificates with an initial fair value of $8, an interest in future cash flows (excess) with an initial fair value of $2, and a reserve account with an initial fair value of $10. Net proceeds received were $659, which includes both cash proceeds and retained interests. A net gain of $13 was recognized on this transaction. Significant assumptions used to estimate the fair
value of the retained interests and subordinate certificates in this transaction include a 10.7% discount rate, a weighted-average prepayment rate of 14.0%, and expected credit losses of 1.0%. We receive annual servicing fees of 1.0% of unpaid note value.

Prior to June 2005, our wholesale securitization was a revolving securitization structure whereby eligible dealer receivables purchased from Caterpillar were initially securitized into a trust. The trust subsequently issued a certificate collateralized by a portion of those dealer receivables to third party purchasers with a corresponding reduction in our retained interests in the trust. The retained interest in securitized wholesale receivables was $2,163 as of June 30, 2004. The trust was a qualifying special-purpose entity (QSPE) through August 2004 and thus, in accordance with SFAS 140, was not consolidated. Due to a high volume of dealer receivable financing activity from September through December 2004, we held more than 90% of the beneficial interest of the trust in the form of retained interests. Thus, during this period, the trust did not qualify as a QSPE as defined by SFAS 140. We therefore consolidated the trust in accordance with FIN 46R, “Consolidation of Variable Interest Entities” (revised) as it represents a variable interest entity for which we are the primary beneficiary.

In June 2005, the wholesale securitization was restructured. As a result, the trust was terminated and the receivables held by the trust were transferred back to Cat Financial. Cat Financial transferred an undivided interest in the receivables to the third party purchasers. I n accordance with Statement of Financial Accounting Standard 140 (SFAS
140) “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” the transfer to the third party purchasers is accounted for as a sale. Subordinated interests in the amount of $2,552 are included in wholesale receivables as of June 30, 2005.

F.   New Accounting Standards

In June 2005, the Financial Accounting Standards Board  (FASB) issued Statement of Financial Accounting Standards No. 154 (SFAS 154), "Accounting Changes and Error Corrections."  SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle.  This Statement requires retrospective applications to prior periods' financial statements of a voluntary change in accounting principle unless it is impracticable.   In addition, this Statement requires that a change in depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle.  This new accounting standard is effective  January 1, 2006.  The adoption of SFAS 154 is not expected to have a material impact on our financial statements.
 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in millions)
Overview: Second Quarter 2005 vs. Second Quarter 200 4
We are pleased with the continued growth in our business as well as the reduction in past dues and write-offs. Our efficiency measured by managed assets per employee continues to improve, reflecting our ability to leverage our investment in people and technology over a larger portfolio of business.

  s
Revenues were a record $587, an increase of $120 or 26% compared with the same period last year.
  s
Profit after tax was a record $90, up $27 or 43% from a year ago.
  s
New retail financing was a record $3,268, an increase of $681 or 26% from the second quarter last year.
  s
Past dues over 30 days were 2.10% of total receivables plus retained interests in securitized wholesale receivables compared with 2.57% at June 30, 2004.
  s
Write-offs of bad debts exceeded recoveries by $3 during the second quarter of 2005 compared to $16 during the same period last year.

Forward-Looking Statements

Some statements contained in this Quarterly Report on Form 10-Q are forward looking and involve risks and uncertainties that could significantly impact results. The words “believes,”“expects,”“estimates,”“will be” and similar words or expressions identify forward-looking statements made on behalf of Caterpillar Financial Services Corporation (“Cat Financial,”“we,” and “our”). These risks and uncertainties include factors that affect international businesses generally, as well as matters specific to Cat Financial and the markets it serves. These factors include, without limitation, the following: the demand for the products of the parent company, Caterpillar Inc. (“Caterpillar”), and our ability to finance the sales of those products, the continuation of certain marketing, operational, and administrative support provided to us by Caterpillar, the creditworthiness of our customers, interest rate and currency rate fluctuations, declines in the estimated residual values of leased equipment and increasing competition. For a further discussion of the risks and uncertainties that may affect our business, please see our Annual Report on Form 10-K for the year ended December 31, 2004 and information contained in other reports that we file from time to time with the Securities and Exchange Commission.

Critical Accounting Policies

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect reported amounts. The most significant estimates include those related to our residual values for leased assets and to our allowance for credit losses. Actual results may differ from these estimates.

The residual value, which is the estimated future wholesale market value of leased equipment at the time of the expiration of the lease term, represents a careful 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, the residual value is derived from 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, and past re-marketing experience. Many impact 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, in order 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 residual adjustments are made 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. During the term of the leases, residual amounts are monitored. If estimated market values significantly decline due to economic factors, obsolescence, or other adverse circumstances, the residuals are adjusted to the lower estimated values by a charge to earnings. For equipment on operating leases, the charge is recognized through depreciation expense. For finance leases, it is recognized through a reduction of finance revenue.

The allowance for credit losses is evaluated on a regular basis and adjusted based upon management's best estimate of probable losses inherent in our finance receivables. In estimating probable losses, we review accounts that are past due, non-performing, or in bankruptcy. We also review accounts that may be at risk using information available about the customer, such as financial statements, news reports, and published credit ratings. We also use general information regarding industry trends and the general economic environment. Using an estimate of current fair market value of collateral and factoring in credit enhancements, such as additional collateral and third party guarantees, we arrive at an estimated loss for specific accounts and estimate an additional amount for the remainder of the finance receivables based upon historical trends. Adverse economic conditions or other factors that might cause deterioration of the financial health of our customers could change the timing and level of payments received and thus necessitate a change in our estimated losses.
 
Three Months Ended June 30, 2005 vs. Three Months Ended June 30, 200 4

Revenues

Wholesale revenue (including revenues related to retained interests in securitized wholesale receivables) and retail finance revenue for the second quarter of 2005 was $344, an increase of $92 from the same period last year. The increase was principally due to a 19% increase in the average receivable plus the average retained interests in securitized wholesale receivables balance outstanding and a 77 basis point increase in the average interest rate. The annualized average interest rate on these assets was 6.57% for the second quarter of 2005 compared with 5.80% for the second quarter of 2004, including the annualized average interest rate on Notes receivable from Caterpillar.

Operating lease revenue for the second quarter of 2005 was $192, or $16 higher than the same period last year primarily due to an increase in equipment on operating leases that resulted from higher customer demand.

Other revenue for the second quarter of 2005 was $51, an increase of $12 from the same period last year. The increase was primarily due to a $6 increase in gain on sale of equipment returned from lease and a $3 increase in forward points on foreign exchange contracts. Other revenue items for the three months ended June 30, included:

     
2005
   
2004
 
Gain on sale of receivables
 
$
15
 
$
14
 
Fees
   
8
   
7
 
Late charge income
   
7
   
7
 
Gain on sale of equipment returned from lease
   
6
   
-
 
Income related to retained interests in securitized receivables
   
4
   
3
 
Service fee income on securitized receivables
   
4
   
3
 
Forward points on foreign exchange contracts
   
3
   
-
 
Partnership income
   
2
   
1
 
Dividend income
   
1
   
4
 
Miscellaneous other revenue, net
   
1
   
-
 
Total other revenue
 
$
51
 
$
39
 


Expenses

Interest expense for the second quarter of 2005 was $188, an increase of $67 from the same period last year. This increase was primarily due to the increase in the average cost of funds of 93 basis points, to 3.72% for the second quarter of 2005 from 2.79% for the second quarter of 2004, and the impact of a 16% increase in average debt levels to fund new finance receivables and operating leases.

Depreciation expense on equipment leased to others was $154, up $14 over the second quarter of 2004 due to the increase in equipment on operating leases discussed in the Revenues section above.

General, operating, and administrative expenses were $85 during the second quarter of 2005 compared to $74 the same period last year. The increase primarily resulted from increased labor and other costs to support growth in earning assets. There were 1,459 full-time employees at June 30, 2005, an increase of 125 from June 30, 2004.

The provision for credit losses decreased from $32 for the second quarter of 2004 to $20 for the second quarter of 2005. The allowance for credit losses was 1.38% of finance receivables, net of unearned income, plus retained interests in securitized wholesale receivables at June 30, 2005, compared to 1.47% at June 30, 2004. The decrease in the allowance as a percentage of finance receivables reflects improvements in past due finance receivables and an overall improvement in general economic conditions. The Notes receivable from Caterpillar are not included in this calculation.


Profit

Profit for the second quarter of 2005 was $90, up $27 from the second quarter of 2004.

On a pre-tax basis, profit was up $41, principally due to $33 from growth in earning assets, $12 from a decrease in the provision for credit losses due to improved portfolio health, and $6 from an increased gain on sale of equipment returned from lease, partially offset by $11 from higher operating expenses and $6 from the decrease in the interest rate spread.

Assets

Total assets were $24,229 at June 30, 2005, an increase of $3,084 over June 30, 2004, principally due to growth in finance receivables (retail and wholesale).

During the second quarter of 2005, we financed record new retail business of $3,268, compared to $2,587 during the second quarter of 2004. The increase of $681 was primarily related to increased financing in our North America and Asia-Pacific segments, which was due to higher sales of Caterpillar equipment.

Managed Assets

We also manage and service receivables/leases that have been transferred through securitization or sale. These receivables/leases are not available to pay our creditors.

Off-balance-sheet securitized wholesale receivables were $240 as of June 30, 2005 and 2004.

Prior to June 2005, our wholesale securitization was a revolving securitization structure whereby eligible dealer receivables purchased from Caterpillar were initially securitized into a trust. The trust subsequently issued a certificate collateralized by a portion of those dealer receivables to third party purchasers with a corresponding reduction in our retained interests in the trust. The retained interest in securitized wholesale receivables was $2,163 as of June 30, 2004. The trust was a QSPE through August 2004 and thus, in accordance with SFAS 140, was not consolidated. Due to a high volume of dealer receivable financing activity from September through December 2004, we held more than 90% of the beneficial interest of the trust in the form of retained interests. Thus, during this period, the trust did not qualify as a QSPE as defined by SFAS 140. We therefore consolidated the trust in accordance with FIN 46R, “Consolidation of Variable Interest Entities” (revised) as it represents a variable interest entity for which we are the primary beneficiary.

In June 2005, the wholesale securitization was restructured. As a result, the trust was terminated and the receivables held by the trust were transferred back to Cat Financial. Cat Financial transferred an undivided interest in the receivables to the third party purchasers. I n accordance with Statement of Financial Accounting Standard 140 (SFAS
140) “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” the transfer to the third party purchasers is accounted for as a sale. Subordinated interests in the amount of $2,552 are included in wholesale receivables as of June 30, 2005.

Off-balance-sheet securitized retail receivables at June 30, were as follows:

     
2005
   
2004
 
Installment sale contracts securitized
 
$
1,245
 
$
1,055
 
Finance leases securitized
   
61
   
69
 
Less: retained interests (included in Other assets)
   
71
   
72
 
Off-balance-sheet securitized retail receivables
 
$
1,235
 
$
1,052
 




Other off-balance-sheet managed receivables/leases at June 30, were as follows:

     
2005
   
2004
 
Finance leases
 
$
89
 
$
4
 
Installment sale contracts
   
8
   
2
 
Operating leases
   
31
   
-
 
Total other managed receivables/leases
 
$
128
 
$
6
 


Allowance for Credit Losses

The following table shows activity related to the Allowance for credit losses for the three months ended June 30:
 
     
2005
   
2004
 
Balance at beginning of quarter
 
$
283
 
$
248
 
Provision for credit losses
   
20
   
32
 
Receivables written off
   
(9
)
 
(20
)
Recoveries on receivables previously written off
   
6
   
4
 
Adjustment related to sale of receivables
   
(11
)
 
(6
)
Foreign currency translation adjustment
   
(5
)
 
(3
)
Balance at end of the period
 
$
284
 
$
255
 

Bad debt write-offs, net of recoveries, were $3 for the second quarter of 2005 compared with $16 for the second quarter of 2004. Decreases in write-offs were experienced primarily in the North America and Diversified Services segments. We will continue to monitor the allowance for credit losses and adjust the allowance based upon management’s best estimate of probable losses inherent in our finance receivables.


Past Due Finance Receivables Plus Retained Interests in Securitized Wholesale Receivables

Finance receivables (excluding Notes receivable from Caterpillar) plus retained interests in securitized wholesale receivables plus rents receivable for operating leases (included in Other assets) that were past due over 30 days were 2.10% of these receivables at June 30, 2005, compared to 2.57% at June 30, 2004. The improvement was due to improved performance in the Diversified Services and North America segments, where past dues improved 2.18 and .37 percentage points, respectively.  

 
Six Months Ended June 30, 2005 vs. Six Months Ended June 30, 200 4

Revenues

Wholesale and retail finance revenue for the first six months of 2005 was $669, an increase of $168 from the same period last year. The increase was principally due to a 19% increase in the average receivable plus the average retained interests in securitized wholesale receivables balance outstanding and a 69 basis point increase in the average interest rate. The annualized average interest rate on these assets was 6.54% for the first six months of 2005 compared with 5.85% for the first six months of 2004, including the annualized average interest rate on Notes receivable from Caterpillar.

Operating lease revenue for the first six months of 2005 was $380, or $26 higher than the same period last year primarily due to an increase in equipment on operating leases that resulted from higher customer demand.

Other revenue for the first six months of 2005 was $81, an increase of $12 from the same period last year. The increase was primarily due to a $6 favorable change in forward points on foreign exchange contracts, a $4 increase in gain on sale of equipment returned from lease, and a $3 increase in partnership income, partially offset by a $7 decrease in dividend income. Other revenue items for the six months ended June 30, included:

     
2005
   
2004
 
Gain on sale of receivables
 
$
16
 
$
16
 
Fees
   
15
   
13
 
Late charge income
   
13
   
13
 
Gain on sale of equipment returned from lease
   
10
   
6
 
Income related to retained interests in securitized receivables
   
7
   
5
 
Service fee income on securitized receivables
   
6
   
5
 
Forward points on foreign exchange contracts
   
5
   
(1
)
Partnership income
   
4
   
1
 
Dividend income
   
1
   
8
 
Miscellaneous other revenue, net
   
4
   
3
 
Total other revenue
 
$
81
 
$
69
 


Expenses

Interest expense for the first six months of 2005 was $361, an increase of $119 from the same period last year. This increase was primarily due to the increase in the average cost of funds of 77 basis points, to 3.61% for the first six months of 2005 from 2.84% for the first six months of 2004, and the impact of a 17% increase in average debt levels to fund new finance receivables and operating leases.

Depreciation expense on equipment leased to others was $306, up $24 over the first six months of 2004 due to the increase in equipment on operating leases discussed in the Revenues section above.

General, operating, and administrative expenses were $161 during the first six months of 2005 compared to $139 the same period last year. The increase primarily resulted from increased labor related and other costs to support growth in earning assets.

The provision for credit losses decreased from $52 for the first six months of 2004 to $36 for the first six months of 2005.

Profit

Profit for the first six months of 2005 was $173, up $38 from the first six months of 2004.
 
On a pre-tax basis, profit was up $58, principally due to $62 from growth in earning assets, a $16 decrease in provision for credit losses, and a $12 increase in other revenue discussed above, partially offset by higher operating expenses of $22 and an $11 decrease in the interest rate spread.


Assets

During the first six months of 2005, we financed record new retail business of $5,711, compared to $4,557 during the first six months of 2004. The increase of $1,154 was primarily related to increased financing in our North America and Asia-Pacific segments, which was due to higher sales of Caterpillar equipment.


Allowance For Credit Losses

The following table shows activity related to the Allowance for credit losses for the six months ended June 30:

     
2005
   
2004
 
Balance at beginning of year
 
$
278
 
$
241
 
Provision for credit losses
   
36
   
52
 
Receivables written off
   
(18
)
 
(35
)
Recoveries on receivables previously written off
   
10
   
8
 
Adjustment related to sale of receivables
   
(12
)
 
(6
)
Foreign currency translation adjustment
   
(10
)
 
(5
)
Balance at end of the period
 
$
284
 
$
255
 


Capital Resources And Liquidity

Operations for the first six months of 2005 were funded with a combination of borrowings, proceeds from sales of receivables, and retained earnings. We do not generate material funding through structured finance transactions.

Through the first six months of 2005, there were no collections of retained interests in securitized wholesale receivables as presented in the first half of 2004. As discussed in the Managed Assets section above, because the related trust did not meet the non-consolidation criteria for a QSPE during the first half of 2005, we consolidated the trust and included the assets and related cash flows with our finance receivables in the consolidated statements of financial position and cash flows.

Through the first six months of 2005, we generated $850 of capital resources from the securitization of finance receivables. The capital resources derived from the securitization of the finance receivables include both the cash proceeds and the retained interests.

Total outstanding borrowings   Total borrowings outstanding at June 30, 2005 were $20,514, an increase of $485 over December 31, 2004 due to financing a higher amount of assets. Outstanding borrowings at June 30, 2005 consisted of:

·  
$14,999 of medium-term notes
·  
$  3,865 of commercial paper
·  
$     556 of short-term bank borrowings
·  
$     472 of variable denomination floating rate demand notes
·  
$     378 of notes payable to Caterpillar
·  
$     236 of long-term bank borrowings
·  
$         8 of loans from a company-owned partnership

Of the $3,865 of commercial paper, $300 has a built-in feature to extend the maturity a maximum of 390 days from the initial issue date.

Revolving credit lines     We participate in two global credit facilities with a syndicate of banks totaling $5,000 available in the aggregate to both Caterpillar and Cat Financial to support commercial paper programs. Based on management's allocation decision, which can be revised at any time, the portion of the facility available to Cat Financial at June 30, 2005 was $4,400. The five-year facility of $2,500 expires in September 2009. The 364-day facility of $2,500 expires in September 2005 and contains a provision that allows Caterpillar or Cat Financial to obtain a one-year loan for up to the full amount of that facility in September 2005 that would mature in September 2006.

In addition to the syndicated global credit facilities, we also have an A$50 (USD equivalent = $38) credit facility with one bank to support our Australian subsidiary's commercial paper program.
 
   At June 30, 2005, there were no borrowings under these lines, and we were in compliance with all debt covenants.

Short-term credit lines from banks These credit lines total $1,242 and will be eligible for renewal at various future dates or have no specified expiration date. They are used for local bank borrowings of subsidiaries. At June 30, 2005, we had $556 outstanding against these credit lines compared to $370 at December 31, 2004.

Variable amount lending agreements with Caterpillar Under these agreements, we may borrow up to $1,849 from Caterpillar, and Caterpillar may borrow up to $1,238 from us. The agreements are in effect for indefinite periods of time and may be changed or terminated by either party with 30 days notice. We had notes payable of $378 and notes receivable of $129 outstanding at June 30, 2005, compared to notes payable of $333 and notes receivable of $120 at December 31, 2004.

Off-balance sheet arrangements Please refer to Note D of Notes to Consolidated Financial Statements for information on our guarantee contingent liabilities. Also, we lease all of our facilities.

Cash flows Net cash provided by operating activities was $496, an increase of $85 from the first six months of 2004,   primarily due to an increase in accrued expenses of $105. Net cash used for investing activities decreased $92 from $1,617 in the first half of 2004 to $1,525 in the first half of 2005 primarily due to lower additions, net of collections, related to finance receivables plus retained interests in securitized wholesale receivables of $461, partially offset by less proceeds from sales of receivables of $322. Net cash provided by financing activities was $1,114, a decrease of $104 from the first six months of 2004, primarily due to greater payments on long-term debt, net of proceeds, of $276 and greater net short-term borrowings of $96, partially offset by an increase in notes payable to Caterpillar of $268.

 
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 of the end of the period covered by this quarterly report. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Although the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote, management’s evaluation provided reasonable assurance that these controls will be effective.

Changes in internal control over financial reporting

During the last fiscal quarter, there has been no significant change in our internal controls over financial reporting that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.


 
PART II. OTHER INFORMATION
 
 
Item 6. Exhibits



Exhibit No.
Description
Bylaws of Caterpillar Financial Services Corporation (Amended as of July 20, 2004)
Ratio of Profit to Fixed Charges
Certifications of Kent M. Adams, President, Director, and Chief Executive Officer of Caterpillar Financial Services Corporation, and Edward J. Scott, Executive Vice President and Chief Financial Officer of Caterpillar Financial Services Corporation, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Kent M. Adams, President, Director, and Chief Executive Officer of Caterpillar Financial Services Corporation, and Edward J. Scott, Executive Vice President and Chief Financial Officer of Caterpillar Financial Services Corporation, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





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: August 5, 2005  
By: /s/ Steven R. Elsesser
 
Steven R. Elsesser, Controller


Date: August 5, 2005
By: /s/ Kent M. Adams
 
Kent M. Adams, President, Director, and Chief Executive Officer




  EXHIBIT 3.2


BYLAWS
OF
CATERPILLAR FINANCIAL SERVICES CORPORATION
(Amended as of July 20, 2004)

ARTICLE I

OFFICES

Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware.

Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require.

ARTICLE II

MEETING OF STOCKHOLDERS

Section 1. All meetings of the stockholders for any purpose may be held at such place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.

Section 2. Annual meetings of stockholders shall be held on the last Wednesday in April in each year starting in 1982 (or if that date is a legal holiday, then on the first succeeding business day) at 100 N.E. Adams Street, Peoria, Illinois at 2:00 p.m., or at such other time, date or place as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. At each such meeting the stockholders shall elect by a plurality vote a board of directors and may transact any other proper business.

Section 3. Written notice of the annual meeting stating the place, date and time of the meeting shall be given to each stockholder entitled to vote at such meeting at least ten days prior to the meeting.

Section 4. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by any member of the board of directors or by any stockholder. Such call shall state the purpose or purposes of the proposed meeting.

Section 5. Written notice of a special meeting stating the place, date and time of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten days before the date of the meeting to each stockholder entitled to vote at such meeting.

Section 6. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

Section 7. The holders of one-third of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute, by the certificate of incorporation or by these bylaws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 8. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation or of these bylaws a different vote is required in which case such express provision shall govern and control the decision of such question.

Section 9. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted after three years from its date unless the proxy provides for a longer period.

Section 10. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, such action may be taken by the written consent of stockholders owning stock having not less than the minimum number of votes which is required to authorize such action at a meeting, provided that prompt notice of the taking of such action must be given to those stockholders who have not consented in writing.

ARTICLE III

DIRECTORS

Section 1. The number of directors which shall constitute the whole board shall be not less than 2 nor more than 5 in number. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders.

Section 2. Any vacancy in the board of directors caused by any reason which occurs between annual meetings of the stockholders may be filled by another director when such director receives a unanimous appointment by the existing board of directors. Such director may then act at the annual meeting in the place of any absent or disqualified director. Directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. Nothing herein shall require a vacant director position to be replaced, unless failing to do so would leave the Board with only one director.


Section 3. The business and property of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders.

Section 4. The board of directors may hold meetings, both regular and special, either within or without the State of Delaware.

Section 5. The first meeting of each newly elected board of directors shall be held at the same place as, and immediately following, each annual meeting of stockholders and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or they may meet at such time and place as shall be fixed by the consent in writing of all of the directors.

Section 6. Regular meetings of the board of directors may be held without notice on such date and at such time and place as shall from time to time be determined by the board.

Section 7. Special meetings of the board may be called by any director on one day’s notice to each director. If the secretary or an assistant secretary shall fail or refuse to give such notice, then the notice may be given by the director making the call. Any such meeting may be held at such place as the board may fix from time to time or as may be specified or fixed in such notice or waiver thereof. Any meeting of the board of directors shall be a legal meeting without any notice thereof having been given, if all the directors shall be present thereat, and no notice of a meeting shall be required to be given to any director who shall attend such meeting.

Section 8. At all meetings of the board one-third of the total number of directors, unless the total number of directors is two, shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If the total number of directors is two, then both directors, or their duly appointed attorneys, must be present for the board to act. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

Section 9. Any action required or permitted to be taken at a meeting of the directors of this corporation may be taken without a meeting and without notice or waiver thereof if a consent in writing, which may be contained in a single document or may be contained in more than one document so long as the documents in the aggregate contain the required signatures, setting forth the action taken or to be taken, shall be signed by all of the directors entitled to vote at any time before or after the intended effective date of such action. Such consent shall be filed with the minutes of the directors’ meetings and shall have the same effect as a unanimous vote of the directors and may be stated as such in any document required or permitted to be filed with the Secretary of State and in any certificate or document prepared or certified by any officer of the corporation for any purpose.

Section 10. Members of the board may participate in a meeting of the board by means of conference telephone or similar communications equipment, by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such meeting.

Section 11. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefore.

Section 12. Any director may resign at any time by giving notice to the board. Any such resignation shall take effect at the time specified therein or upon acceptance of the stockholders.



ARTICLE IV

NOTICES

Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these bylaws, notice is required to be given to any director or stockholder, it shall not be construed to require personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram.

Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificates of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Except as otherwise provided by statute, notice of any meeting shall be deemed waived by any director present at such meeting or by any stockholder present in person or represented by proxy at such meeting.

ARTICLE V

OFFICERS

Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president, a secretary and a treasurer. The board of directors may also choose one or more executive vice presidents, one or more vice presidents, a controller and one or more assistant secretaries and assistant treasurers. Any two or more offices may be held by the same person, except the office of president, unless the certificate of incorporation otherwise provide. No officer need be a member of the board of directors.

Section 2. All officers shall be elected by the board of directors at its annual meeting. Each officer shall serve at the pleasure of the board until such officer’s resignation or removal. The board of directors may elect such officers as it may deem desirable at any properly constituted meeting of the board of directors. Newly created offices, including offices resulting from restructure, resignation or removal, may be filled by a quorum of the directors then in office.

Section 3. The board of directors may choose such other officers and agents as it shall deem desirable who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. The directors may require any such officers and other employees of the corporation to be bonded as they deem necessary for the protection of the corporation.

Section 4. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer chosen by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors, either with or without cause. Any vacancy occurring in any office of the corporation shall be filled by the board of directors.

Section 5. The president shall be the chief executive officer of the corporation, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. In the absence of the president, or in the event of his inability to act, any executive vice president (or if there is no executive vice president able to act, any vice president) shall perform the duties and exercise the powers of the president.

Section 6. The executive vice president(s) and the vice president(s) shall perform such duties and have such powers as the board of directors or the president may prescribe.


Section 7. The secretary shall attend all meetings of the board of directors and of the stockholders and record the proceedings thereof in a book kept for that purpose; shall give, or cause to be given, notice of meetings of stockholders and special meetings of the board of directors; and shall perform such other duties and have such other powers as may be prescribed by the board of directors or the president. He or she shall have custody of the corporate seal of the corporation and any subsidiaries of the corporation and shall have authority to affix the same to any instrument requiring it and, when so affixed, to attest it by his or her signature. Each other officer shall also have authority to affix the seal of the corporation and to attest the affixing by his or her signature.

Section 8. Each assistant secretary may, in the absence of the secretary or in the event of his or her inability to act, perform the duties and exercise the powers of the secretary, and shall perform such other duties and have such other powers as the board of directors, the president or the secretary may prescribe.

Section 9. The treasurer shall have custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements; and shall perform such other duties and have such other powers as may be prescribed by the board of directors or the president.

Section 10. Each assistant treasurer may, in the absence of the treasurer or in the event of his inability to act, perform the duties and exercise the powers of the treasurer, and shall perform such other duties and have such other powers as the board of directors, the president or the treasurer may prescribe.

Section 11. The controller shall be the principal accounting officer of the corporation and shall be responsible for certain duties in relation to the fiscal affairs of the company, principally to examine and audit the accounts, to keep records, and report the financial condition of the company. The controller shall also perform such other duties and have such other powers as may be prescribed by the board of directors or the president.

ARTICLE VI

GENERAL PROVISIONS

Section 1. The fiscal year of the corporation shall end on the last day of December of each year.

Section 2. The corporate seal shall have inscribed thereon the name of the corporation, the year of incorporation, and the words “Corporate Seal, Delaware”. The seal may be used by causing it or facsimile thereof to be impressed or affixed or reproduced or otherwise.

Section 3. These bylaws may be amended or new bylaws may be adopted by the board of directors at any regular or special meeting without prior notice of intent to take such action.



EXHIBIT 12

CATERPILLAR FINANCIAL SERVICES CORPORATION

COMPUTATION OF RATIO OF PROFIT TO FIXED CHARGES
(Unaudited)
(Millions of Dollars)

   
Three Month Ended
Six Months Ended
 
   
 
June 30,
   
June 30,
   
June 30,
   
June 30,
 
     
2005
   
2004
   
2005
   
2004
 
                           
Net Income
 
$
90
 
$
63
 
$
173
 
$
135
 
                           
Add:
                         
Provision for income taxes
   
48
   
34
   
89
   
69
 
                           
Deduct:
                         
Equity in profit of partnerships
   
(2
)
 
(1
)
 
(4
)
 
(1
)
                           
Profit before taxes
 
$
136
 
$
96
 
$
258
 
$
203
 
                           
Fixed charges:
                         
Interest on borrowed funds
 
$
188
 
$
121
 
$
361
 
$
242
 
Rentals at computed interest*
   
2
   
2
   
3
   
3
 
                           
Total fixed charges
 
$
190
 
$
123
 
$
364
 
$
245
 
                           
Profit before taxes plus fixed charges
 
$
326
 
$
219
 
$
622
 
$
448
 
                           
Ratio of profit before taxes plus
fixed charges to fixed charges
   
1.72
   
1.78
   
1.71
   
1.83
 

                                     *Those portions of rent expense that are representative of interest cost.


EXHIBIT 31
SECTION 302 CERTIFICATIONS

I, Kent M. Adams, certify that:

1.  
I have reviewed this quarterly report on Form 10-Q of Caterpillar Financial Services Corporation;
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.  
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a)  
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)  
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)  
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)  
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.  
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)  
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)  
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 5, 2005  
By: /s/ Kent M. Adams    
 
Kent M. Adams, President, Director, and Chief Executive Officer


 
 
 



I, Edward J. Scott, certify that:

1.  
I have reviewed this quarterly report on Form 10-Q of Caterpillar Financial Services Corporation;
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.  
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a)  
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)  
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)  
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)  
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.  
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)  
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)  
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 5, 2005  
By: /s/ Edward J. Scott    
 
Edward J. Scott, Executive Vice President and Chief Financial Officer


EXHIBIT 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the quarterly report of Caterpillar Financial Services Corporation (the "Company") on Form 10Q for the period ending June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify that to the best of our knowledge:


 
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

                               (2)
 
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.





Date: August 5, 2005                  /s/ Kent M. Adams
Kent M. Adams
President, Director, and Chief Executive Officer



Date: August 5, 2005                  /s/ Edward J. Scott
Edward J. Scott
Executive Vice President and Chief Financial Officer






A signed original of this written statement required by Section 906 has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.