<PAGE 1>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1994
1-8175
________________________
(Commission file number)
IBM CREDIT CORPORATION
_____________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 22-2351962
_______________________________ ____________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
290 Harbor Drive
P. O. Box 10399
Stamford, Connecticut
06904-2399
________________________________________
(Address of principal executive offices)
- -
203-973-5100
____________________________________________________
(Registrant's telephone number, including area code)
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 X No
___ ___
As of October 31, 1994, 765 shares of capital stock, par value $1.00
per share, were outstanding and held by International Business Machines
Corporation. Aggregate market value of voting stock held by
non-affiliates of registrant at October 31, 1994: NONE.
The registrant 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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INDEX
_____
Part I - Financial Information: Page
____
Item 1. Financial Statements:
Consolidated Statement of Financial Position
at September 30, 1994 and December 31, 1993. . . . . . . . 1
Consolidated Statement of Earnings for the three
and nine months ended September 30, 1994 and 1993. . . . . 2
Consolidated Statement of Cash Flows
for the nine months ended September 30, 1994 and 1993. . . 3
Notes to Consolidated Financial Statements . . . . . . . . 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations. . 7
Part II - Other Information. . . . . . . . . . . . . . . . . . .14
<PAGE 3>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
<CAPTION>
At At
September 30, December 31,
1994 1993
_____________ ____________
<S> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . . $ 632,192 $ 609,891
Net investment in capital leases . . . . 3,718,474 4,437,257
Equipment on operating leases, net . . . 1,534,336 1,753,121
Loans receivable . . . . . . . . . . . . 881,510 1,037,864
Working capital financing receivables. . 1,562,303 1,425,781
Investments and other assets . . . . . . 366,228 531,737
Due and deferred from receivable sales . 240,574 245,892
__________ ___________
Total Assets $8,935,617 $10,041,543
========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Short-term debt. . . . . . . . . . . . . $3,929,693 $ 4,227,724
Short-term debt, IBM Corporation . . . . 200,000 -
Due to IBM Corporation and affiliates. . 1,003,134 1,259,547
Interest and other accruals. . . . . . . 366,768 312,464
Deferred income taxes. . . . . . . . . . 649,071 811,283
Long-term debt . . . . . . . . . . . . . 1,727,782 2,279,796
__________ ___________
Total liabilities. . . . . . . . . . . . 7,876,448 8,890,814
__________ ___________
Stockholder's equity:
Capital stock, par value $1 per share;
Shares authorized: 10,000;
Shares issued and outstanding: 750. . 438,811 438,811
Retained earnings. . . . . . . . . . . . 620,358 711,918
__________ ___________
Total stockholder's equity . . . . . . . 1,059,169 1,150,729
__________ ___________
Total Liabilities & Stockholder's Equity $8,935,617 $10,041,543
========== ===========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE 4>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
________ ________ __________ __________
<S> <C> <C> <C> <C>
FINANCE AND OTHER INCOME:
Income from leases:
Capital leases . . . . . . $ 71,293 $118,319 $ 243,620 $ 360,080
Operating leases, net of
depreciation . . . . . . 22,795 36,069 96,744 106,622
________ ________ __________ __________
94,088 154,388 340,364 466,702
Income from loans . . . . . . 22,268 29,708 67,081 89,285
Income from working capital
financing . . . . . . . . . 36,471 27,230 96,649 74,079
Equipment sales . . . . . . . 193,211 222,122 505,061 536,977
Other income . . . . . . . . 77,349 26,581 157,386 81,263
________ ________ __________ __________
Total finance and other
income . . . . . . . . . 423,387 460,029 1,166,541 1,248,306
________ ________ __________ __________
COST AND EXPENSES:
Interest. . . . . . . . . . . 75,634 94,237 227,501 279,740
Cost of equipment sales . . . 163,496 214,636 447,022 497,434
Selling, general, and
administrative . . . . . . . 39,055 41,365 119,039 140,093
Restructuring charges . . . . - - - 12,000
Provision for receivable
losses . . . . . . . . . . . 16,605 7,501 37,533 42,324
________ ________ __________ __________
Total cost and expenses. . 294,790 357,739 831,095 971,591
________ ________ __________ __________
EARNINGS BEFORE INCOME TAXES. . 128,597 102,290 335,446 276,715
Provision for income taxes . . 50,588 64,584 132,006 130,167
________ ________ __________ __________
NET EARNINGS . . . . . . . . . $ 78,009 $ 37,706 $ 203,440 $ 146,548
======== ======== ========== ==========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30:
(Dollars in thousands) 1994 1993
<CAPTION> __________ ___________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . $ 203,440 $ 146,548
Adjustments to net earnings:
Depreciation and amortization . . . . . . . 479,760 479,979
Provision for receivable losses . . . . . . 37,533 42,324
Change in deferred income taxes . . . . . . (162,212) 300,467
Change in interest and other accruals . . . 54,304 31,679
Gross profit on equipment sales . . . . . . (58,039) (39,543)
Gain on sale of IBM Credit Investment
Management Corporation (ICIM). . . . . . . (13,324) -
Restructuring charges . . . . . . . . . . . - 12,000
__________ ____________
Cash provided by net earnings . . . . . . . . . 541,462 973,454
Proceeds from equipment sales. . . . . . . . . 505,061 536,977
Decrease in due to IBM Corporation and
affiliates . . . . . . . . . . . . . . . . . (256,413) (363,829)
Decrease in due and deferred from receivable
sales . . . . . . . . . . . . . . . . . . . . 5,318 -
Cash proceeds from settlement of litigation
with Comdisco, Inc. . . . . . . . . . . . . . 70,000 -
__________ ____________
Cash provided by operating activities . . . . . 865,428 1,146,602
__________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in capital leases . . . . . . . . . (772,789) (931,387)
Collection of capital leases, net of income
earned. . . . . . . . . . . . . . . . . . . . 865,210 1,058,778
Investment in equipment on operating leases. . (274,934) (476,534)
Investment in loans receivable . . . . . . . . (270,867) (262,348)
Collection of loans receivable, net of
interest earned . . . . . . . . . . . . . . . 378,123 510,878
Investment in working capital financing
receivables, net of cash collected. . . . . . (139,855) (219,977)
Proceeds from sale of capital leases and loans 300,000 -
Collection of notes receivable from
affiliates, net of interest earned. . . . . . 114,313 -
Investment in Comdisco, Inc. promissory note . (20,000) -
Proceeds from sale of ICIM . . . . . . . . . . 14,000 -
Other changes, net . . . . . . . . . . . . . . (96,012) 14,188
__________ ____________
Cash provided by (used in) investing activities 97,189 (306,402)
__________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . 416,815 1,325,340
Repayment of debt with original maturities:
One year or more . . . . . . . . . . . . . . (723,550) (659,832)
Within one year, net of debt issued. . . . . (338,581) (1,210,200)
Cash dividends paid to IBM Corporation . . . . (295,000) (175,000)
__________ ____________
Cash used in financing activities . . . . . . . (940,316) (719,692)
__________ ____________
Change in cash and cash equivalents . . . . . . 22,301 120,508
Cash and cash equivalents at January 1. . . . . 609,891 598,557
__________ ____________
Cash and cash equivalents at September 30 . . . $ 632,192 $ 719,065
========== ============
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE 6>
IBM CREDIT CORPORATION
Notes to Consolidated Financial Statements
1. In the opinion of the management of IBM Credit Corporation (the
Company), all adjustments necessary for a fair statement of the
unaudited results for the three- and nine-month periods have
been made. In addition to the adjustments of a normal
recurring nature, the Company recorded pre-tax restructuring
charges of $12.0 million in the second quarter of 1993. In the
third quarter of 1993, the Company reduced net earnings by $25.4
million resulting from the increase in the federal income tax
rate from 34 percent to 35 percent, retroactive to January 1,
1993, under the Omnibus Budget Reconciliation Act of 1993 enacted
on August 10, 1993. These adjustments are further discussed in
Management's Discussion and Analysis of Financial Condition and
Results of Operations starting on page 7.
2. The ratio of earnings to fixed charges, calculated in accordance
with applicable Securities and Exchange Commission requirements,
was 2.46 and 1.98 for the nine months ended September 30, 1994
and 1993, respectively.
3. Litigation Settlement:
Effective August 26, 1994, International Business Machines
Corporation (IBM), the Company, partnerships in which the
Company is the general partner and Comdisco, Inc. (Comdisco)
settled all outstanding litigation between the parties.
Pursuant to the settlement agreement, on August 30, 1994
Comdisco delivered $70.0 million in cash to the Company,
$20.0 million of which the Company loaned back to Comdisco in
exchange for a convertible subordinated promissory note (the note).
The note matures on September 1, 1999 and bears a market rate of
interest. As a result of reaching this settlement agreement,
the Company recognized a pre-tax gain, net of directly related
expenses, of $46.0 million. This amount was included in other
income on the Consolidated Statement of Earnings for the three
and nine months ended September 30, 1994. The outstanding
balance of the note was included in investments and other assets
on the Consolidated Statement of Financial Position as of
September 30, 1994.
IBM and the Company filed cases charging that assets owned by
the Company were illegally misappropriated by Comdisco, and that
Comdisco violated the Lanham Act by manufacturing computer
systems memory and marketing it as genuine IBM memory, eligible
for IBM maintenance agreement service.
Under the terms of the settlement agreement, Comdisco has agreed
to label altered memory and other parts as not being IBM parts,
and to disclose to customers that such parts are not eligible
for IBM maintenance agreement service. Comdisco also agreed that
it will not lease, sublease, relocate or sell the Company's
property without prior written consent.
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<PAGE 7>
4. Securitization and Sale of Capital Leases and Loans Receivable:
Effective August 3, 1994, the Company securitized and sold
$300.0 million of capital leases and loans receivable.
Adequate reserves exist to cover potential losses. No material
gain or loss resulted from this transaction. The Company
used the net proceeds from the sale of the capital leases and
loans receivable for general corporate purposes, including the
retirement of debt.
5. Sale of IBM Credit Investment Management Corporation:
During the second quarter of 1994, a Fleet Financial Group
subsidiary purchased 100 percent of the stock of IBM Credit
Investment Management Corporation (ICIM), a wholly owned
subsidiary of the Company. ICIM provided investment management
and administrative services for the IBM Mutual Funds. As a
result of this sale, the Company recognized a pre-tax gain of
$13.3 million, which was included in other income on the
Consolidated Statement of Earnings for the nine months ended
September 30, 1994.
In connection with the sale of ICIM, the IBM Money Market
Account notes were redeemed in early July, 1994. The IBM
Money Market Account notes were a source of short-term
funding for the Company.
6. Related Party Transactions:
The Company provides capital equipment financing to IBM and
affiliated companies for both IBM and non-IBM products.
During the first nine months of 1994, the Company originated
$131.9 million of such financing, compared with $254.0 million
for the first nine months of 1993. The assets financed are
included primarily in the Company's operating lease portfolio.
The Company borrowed $300.0 million from IBM in the first quarter
of 1994 at market terms and conditions. This debt was repaid on
July 21, 1994. During the third quarter of 1994, the Company
borrowed $200.0 million from IBM, at market terms and conditions,
which remained outstanding as of September 30, 1994.
7. Subsequent Events:
On October 5, 1994, the Company issued fifteen shares of capital
stock to IBM in exchange for assets IBM transferred to the
Company. These assets had a net book value of $1.5 million,
which approximated fair market value. This transaction is
part of a program developed to periodically transfer certain
excess IBM assets to the Company, for the purpose of remarketing
such assets, in exchange for shares of the Company's capital stock,
$1.00 par value per share.
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<PAGE 8>
7. Subsequent Events (continued):
On October 19, 1994, Moody's Investors Service, Inc. announced
that it upgraded its rating for the Company's commercial paper
from Prime-2 (P-2) to Prime-1 (P-1).
On November 1, 1994, the Company borrowed $125.0 million
from IBM at market terms and conditions.
The Company filed a registration statement to register an
additional $2.5 billion of debt securities, which the Securities
and Exchange Commission declared effective on November 3, 1994.
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<PAGE 9>
Item 2.
IBM CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
For the nine months ended September 30, 1994, the Company originated
financing for $6.9 billion of equipment, software and services.
Net earnings for the nine months ended September 30, 1994 were
$203.4 million, yielding an annualized return on average equity of
26.6 percent.
FINANCING ORIGINATED
The Company originated financing for $6.9 billion of equipment,
software and services in the first nine months of 1994, compared
with $6.0 billion in the same 1993 period. In the first nine months of
1994, compared with the same 1993 period, capital equipment financing
for end users decreased by 21 percent to $1,737.2 million. The
decrease in capital equipment financing originated is primarily the
result of reduced placements of selected IBM hardware, compared with
the same 1993 period. Working capital financing for dealers and
remarketers of information industry products increased by 34 percent
to $5,157.1 million. This growth reflects an increase in the volumes
of IBM's workstation products financed by the Company throughout the
first nine months of 1994, as well as increased volumes of financing
provided to information technology resellers for non-IBM products.
Through September 30, 1994, capital equipment financings for end
users comprised purchases of $1,023.8 million of information handling
systems from IBM, financing originated for installment receivables of
$88.6 million, other financing primarily for IBM software and
services of $182.8 million, installment and lease financing for state
and local government customers of $142.3 million for the account of IBM,
and other financing of $299.7 million for equipment and services,
as well as selected complementary non-IBM equipment that meets IBM
customers' total solution requirements. The purchases of
$1,023.8 million from IBM consisted of $757.8 million for capital
leases and $266.0 million for operating leases.
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<PAGE 10>
REMARKETING ACTIVITIES
In addition to originating new financing, the Company remarkets used
IBM equipment. This equipment is primarily sourced from the termination
of lease transactions and is typically remarketed in cooperation with
the IBM sales force. The equipment is generally leased or sold to end
users. These transactions may be with existing lessees or, when
equipment is returned, with a new customer. At September 30, 1994, the
investment in remarketed equipment on capital and operating leases
totaled $600.4 million, a decrease of 3 percent from the 1993 year-end
investment of $619.8 million. Income from leases and gross profit on
equipment sales, net of write-downs in residual values of certain leased
equipment, are included in remarketing activities. For the three months
ended September 30, 1994, the remarketing contributions amounted to
$37.8 million, an increase of 38 percent compared with $27.3 million
for the same 1993 period. The remarketing contributions amounted to
$115.0 million for the first nine months of 1994, an increase of
28 percent compared with $89.5 million for the same 1993 period.
ASSETS
Total assets decreased to $8.9 billion at September 30, 1994, compared
with $10.0 billion at December 31, 1993. This decrease is primarily
the result of cash collections on capital lease investments and loans
receivable exceeding financings originated during the first nine
months of 1994, and the securitization and sale of capital leases
and loans receivable during the third quarter of 1994.
LIABILITIES AND STOCKHOLDER'S EQUITY
The assets of the business were financed with $5,857.5 million
of debt at September 30, 1994. Total short-term and long-term debt
decreased by $650.0 million, from $6,507.5 million at
December 31, 1993. This decrease was primarily the result of the
redemption of IBM Money Market Account notes of $359.8 million,
declines in long-term debt of $552.0 million, as well as a matured
$300.0 million bond, offset by increases in commercial paper
outstanding of $212.5 million, floating and fixed rate medium-term
notes of $149.3 million and short-term debt of $200.0 million.
The $200.0 million of short-term debt is payable to IBM at market
terms and conditions.
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<PAGE 11>
LIABILITIES AND STOCKHOLDER'S EQUITY (continued)
The Company has available $3.2 billion of a shelf registration with
the Securities and Exchange Commission. This shelf registration allows
the Company rapid access to domestic financial markets. In addition,
a subsidiary of the Company has available $450.0 million of a separate
shelf registration for asset backed securities. The Company also has
commercial paper and medium-term note programs. As described in Note 5
of Notes to Consolidated Financial Statements, the Company redeemed the
IBM Money Market Account notes in early July, 1994. The Company is an
authorized borrower of up to $1.6 billion under a $10.0 billion IBM
Global Credit Facility and has a liquidity agreement with IBM for
$500.0 million. The Company has no borrowings outstanding under the
credit facility or the liquidity agreement. The Company also has the
option, as approved by the Board of Directors on September 30, 1994,
to sell, assign, pledge or transfer up to $4.0 billion of assets to
third parties through December 31, 1995. As described in Note 4 of
Notes to Consolidated Financial Statements, the Company securitized
and sold $300.0 million of capital leases and loans receivable,
effective August 3, 1994. These financing sources, along with the
Company's internally generated cash and medium-term note and commercial
paper programs, provide flexibility to the Company to fund its lease
and loan portfolio and working capital requirements and to service debt.
The Company uses derivative products solely to hedge against interest
rate or currency risks associated with funding its business.
The Company routinely evaluates existing and potential counterparty
credit exposures associated with such derivative transactions to
ensure that these exposures remain within credit guidelines.
Due to IBM Corporation and affiliates decreased by $256.4 million
to $1,003.1 million at September 30, 1994, from $1,259.5 million at
December 31, 1993. This reduction was primarily attributable to
lower volume of capital equipment purchases from IBM in the third
quarter of 1994, compared with the fourth quarter of 1993, and
the payment of $294.0 million to IBM for a current tax liability in
the first nine months of 1994. Due to IBM Corporation and affiliates
represents trade payables arising from purchases of equipment for
term leases and installment receivables, working capital financing
receivables for dealers and remarketers, and software license fees,
with payment terms comparable to those offered to other IBM customers.
Also included in due to IBM Corporation and affiliates are income
taxes currently payable under the intercompany tax allocation agreement.
Total stockholder's equity at September 30, 1994 was $1,059.1 million,
down $91.6 million from year-end 1993. The decline in stockholder's
equity reflects the payment of $295.0 million in dividends to IBM
in the first nine months of 1994, offset by net earnings of $203.4
million for the first nine months of 1994.
At September 30, 1994, the Company's debt-to-equity ratio was 5.5:1,
compared with 5.7:1 at year-end 1993, and 6.7:1 at September 30, 1993.
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<PAGE 12>
TOTAL CASH PROVIDED BEFORE DIVIDENDS
Total cash provided before dividends was $317.3 million for the nine
months ended September 30, 1994, compared with $295.5 million for
the same 1993 period. Total cash provided before dividends reflects
$548.1 million of cash used in investing and financing activities
before dividends, offset by $865.4 million of cash provided by
operating activities for the first nine months of 1994.
Cash and cash equivalents at September 30, 1994 totaled $632.2 million,
an increase of $22.3 million compared with the balance at
December 31, 1993.
INCOME FROM LEASES
Income from leases decreased by 39 percent to $94.1 million
for the three months ended September 30, 1994, from $154.4 million
for the same 1993 period; for the nine months ended September 30,
1994, income from leases decreased by 27 percent to $340.4 million,
from $466.7 million for the same 1993 period. The declines resulted
from lower asset balances, which in turn were primarily caused by
the securitization and sale of capital leases receivable in the third
quarter of 1994 and the fourth quarter of 1993, and a decrease in
capital equipment financing originated during 1993 and the first nine
months of 1994.
Income from leases includes lease income resulting from remarketing
transactions. Lease income from remarketing transactions amounted
to $15.1 million and $64.0 million for the three- and nine-month
periods of 1994, a decrease of 24 percent and an increase of
2 percent from the comparable 1993 periods, respectively.
On a periodic basis, the Company reassesses the future residual
values of its portfolio of leases. In accordance with generally
accepted accounting principles, anticipated increases in specific
future residual values may not be recognized before realization and
are thus a source of potential future profits. Anticipated decreases
in specific future residual values, considered to be other than
temporary, must be recognized currently.
A review of the Company's $586.5 million unguaranteed residual value
portfolio at September 30, 1994, indicated that the overall estimated
future value of the portfolio continues to be greater than the value
currently recorded, but declines in the future residual value of
certain leased equipment were identified. To recognize these declines,
the Company recorded a $7.0 million reduction to income from leases
during the nine months ended September 30, 1994 compared with
$13.0 million for the same 1993 period.
INCOME FROM LOANS
Income from loans decreased from the comparable 1993 periods by
25 percent, for the three and nine months ended September 30, 1994,
to $22.3 million and $67.1 million, respectively. The declines
resulted from lower asset balances, which in turn were primarily the
result of the securitization and sale of loans receivable in the
third quarter of 1994 and the fourth quarter of 1993, and a decrease
in financing originated during 1993 and the first nine months of 1994.
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<PAGE 13>
INCOME FROM WORKING CAPITAL FINANCING
Income from working capital financing increased 34 percent to
$36.5 million for the three months ended September 30, 1994, and for
the first nine months of 1994, income from working capital financing
increased 30 percent to $96.6 million, compared with the respective
1993 periods. These increases were primarily due to growth in the
average working capital financing receivables outstanding and
generally higher interest rates charged during the first nine months
of 1994, compared with the same 1993 period, partially offset by the
securitization and sale of such receivables during the fourth quarter
of 1993. The growth in average working capital financing receivables
outstanding primarily reflects increased originations as discussed
in the "Financing Originated" section of Management's Discussion
and Analysis of Financial Condition and Results of Operations.
EQUIPMENT SALES
Equipment sales amounted to $193.2 million for the third quarter of
1994, compared with $222.1 million for the same period in 1993; for
the first nine months of 1994, equipment sales amounted to $505.1
million, compared with $537.0 million for the comparable 1993 period.
Included in these amounts is revenue from outright sales to and
sales-type leases of Company-owned equipment with either existing
lessees or, when equipment is returned, with a new customer.
Gross profit on equipment sales for the third quarter of 1994
increased to $29.7 million compared with $7.5 million for the
same 1993 period. For the first nine months of 1994, the gross
profit on equipment sales increased 47 percent to $58.0 million
compared with $39.5 million for the same 1993 period. The gross
profit margin for the third quarter of 1994 was 15.4 percent, up
from 3.4 percent for the third quarter of 1993; for the first nine
months of 1994, the gross profit margin increased to 11.5 percent,
compared with 7.4 percent for the same period in 1993. In the third
quarter of 1993, the Company recognized declines in market values
for selected equipment sold during the third quarter of 1993 or
inventoried at September 30, 1993, which reduced the gross profit
margin for the 1993 periods.
OTHER INCOME
Other income increased from $26.6 million to $77.3 million for the
three months ended September 30, 1994; for the nine months ended
September 30, 1994, other income increased from $81.3 million to
$157.4 million. The litigation settlement reached with Comdisco, Inc.
during the third quarter of 1994 resulted in the recognition of a
pre-tax gain, net of directly related expenses, of $46.0 million
(see Note 3 of Notes to Consolidated Financial Statements). The sale
of IBM Credit Investment Management Corporation during the second
quarter of 1994 generated a pre-tax gain of $13.3 million (see Note 5
of Notes to Consolidated Financial Statements). In addition, the
Company recognized fees for the servicing of financing receivables
securitized and sold in the third quarter of 1994 and the fourth
quarter of 1993.
Also included in other income is interest income earned on cash and
cash equivalents and notes, as well as fees for managing IBM's state and
local government installment and lease financing receivables portfolio.
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<PAGE 14>
TOTAL FINANCE AND OTHER INCOME
Total finance and other income decreased from the comparable 1993
periods by 8 percent to $423.4 million for the three months ended
September 30, 1994 and by 7 percent to $1,166.5 million for the
nine months ended September 30, 1994, respectively. The decline
was largely due to reductions in income from leases and income from
loans, partially offset by increases in income from working capital
financing and other income.
INTEREST EXPENSE
Interest expense declined because of reductions in the Company's average
outstanding debt balance and the average cost of debt. Interest
expense decreased by 20 percent to $75.6 million for the three months
ended September 30, 1994, compared with $94.2 million for the same
period in 1993. For the nine months ended September 30, 1994,
interest expense decreased 19 percent to $227.5 million, from
$279.7 million for the same period in 1993. The Company's
year-to-date average cost of debt through September 30, 1994
decreased to 4.89 percent, from 5.03 percent for the same period in
1993.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses were $39.1 million for
the third quarter of 1994, a decrease of 6 percent compared with the
same 1993 period. For the first nine months of 1994, selling, general,
and administrative expenses decreased by 15 percent to $119.0 million,
from $140.1 million for the same period in 1993. The decrease is a
result of the continuing efforts to manage expenses and reflects
savings realized from the Company's actions in the second quarter
of 1993 to reduce its infrastructure. To recognize the cost of these
actions, pre-tax restructuring charges of $12.0 million were recorded
in the second quarter of 1993.
PROVISION FOR RECEIVABLE LOSSES
The Company's portfolio of capital equipment leases and loans is
predominantly with investment grade customers. The Company
generally takes a security interest in any underlying equipment
financed. The portfolio is diversified by geography, industry
and individual unaffiliated customer. Working capital financing
receivables are generally secured by the underlying inventory and
accounts receivable financed. The provision for receivable losses
increased to $16.6 million for the quarter ended September 30, 1994,
compared with $7.5 million for the same period in 1993. This
increase for the three months ended September 30, 1994, compared
with the same period in 1993, reflects the Company's conservative
approach to asset valuation, its timely recognition of probable
receivable losses and its revised estimate of the recoverability of
a specific receivable. For the nine months ended September 30, 1994,
the provision for receivable losses decreased to $37.5 million,
compared with $42.3 million for the comparable period in 1993.
This decrease for the nine months ended September 30, 1994, compared
with the same period in 1993, primarily reflects the reduction in
the amount of capital equipment financed for the first nine months
of 1994.
-12-
<PAGE 15>
NET EARNINGS
Net earnings increased to $78.0 million for the third quarter
of 1994, compared with $37.7 million for the same period in 1993.
Net earnings for the nine months ended September 30, 1994 were
$203.4 million, an increase of 39 percent from the same period
in 1993.
The Company's expanding working capital financing business,
large and profitable capital equipment remarketing operations,
credit risk management, lower average cost of borrowing and
the containment of operating expenses contributed to the favorable
performance during the third quarter and first nine months of 1994.
In addition, as a result of the litigation settlement with
Comdisco, Inc. in the third quarter of 1994 and the sale of IBM
Credit Investment Management Corporation during the second quarter
of 1994, the Company recognized one-time pre-tax gains of
$46.0 million and $13.3 million, respectively, which contributed
to the strong performance during the first nine months of 1994.
During the second quarter of 1993, pre-tax restructuring charges of
$12.0 million were recorded to recognize the cost of the Company's
actions to reduce its infrastructure and bring its resources in line
with current market conditions. During the third quarter of 1993,
an additional income tax expense of $25.4 million was recorded to
reflect the retroactive tax rate change under the Omnibus Budget
Reconciliation Act of 1993 enacted on August 10, 1993.
RETURN ON AVERAGE EQUITY
The results for the first nine months of 1994 yielded an
annualized return on average equity of 26.6 percent, compared
with 16.8 percent for the comparable 1993 period. Excluding the
restructuring charges and the additional income tax expense, the
return on average equity would have been 20.4 percent for the first
nine months of 1993.
NEW ACCOUNTING STANDARD
In May 1993, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards 115,
"Accounting for Certain Investments in Debt and Equity
Securities," which prescribes the accounting for debt and
equity securities held as assets. This statement is effective
for fiscal years beginning after December 15, 1993.
The Company implemented this statement, effective January 1, 1994.
The implementation had no material impact to the Company's
financial position and results of operations.
CLOSING DISCUSSION
The Company's resources continue to be sufficient to enable it to
carry out its mission of offering customers competitive leasing and
financing, providing information technology remarketers with
inventory and accounts receivable financing and contributing to the
growth and stability of IBM earnings.
-13-
<PAGE 16>
[SIGNATURE]
Part II - Other Information
___________________________
Item 1. Legal Proceedings
__________________________
None material.
Item 6(b). Reports on Form 8-K
_______________________________
No reports on Form 8-K have been filed during the first nine months
of 1994.
SIGNATURE
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.
IBM CREDIT CORPORATION
______________________
(Registrant)
Date: November 10, 1994 By: A. R. Schleicher III
_________________ _________________________
A. R. Schleicher III
Vice President, Finance
and Chief Financial Officer
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
IBM CREDIT CORPORATION'S FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 632,192
<SECURITIES> 0
<RECEIVABLES> 881,510
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,935,617
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 438,811
0
0
<OTHER-SE> 620,358
<TOTAL-LIABILITY-AND-EQUITY> 8,935,617
<SALES> 505,061
<TOTAL-REVENUES> 1,166,541
<CGS> 447,022
<TOTAL-COSTS> 447,022
<OTHER-EXPENSES> 119,039
<LOSS-PROVISION> 37,533
<INTEREST-EXPENSE> 227,501
<INCOME-PRETAX> 335,446
<INCOME-TAX> 132,006
<INCOME-CONTINUING> 203,440
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,440
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
