<PAGE 1>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
ANNUAL REPORT
pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
1-8175
(Commission file number)
IBM CREDIT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-2351962
(State of Incorporation) (IRS employer identification number)
290 Harbor Drive
P. O. Box 10399
Stamford, Connecticut 06904 - 2399
(Address of principal executive offices) (Zip Code)
203-973-5100
(Registrant's telephone number)
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
___________________ _____________________
6 3/10% Notes due March 15, 1995 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 February 28, 1994, the number of outstanding shares of capital
stock, par value $1.00 per share, of the registrant was 750, all of which
shares were held by International Business Machines Corporation.
Aggregate market value of the voting stock held by non-affiliates
of the registrant at February 28, 1994. None.
The registrant meets the conditions set forth in General Instruction J
(1)(a) and (b) of Form 10-K and is therefore filing this Form with the
reduced disclosure format.
<PAGE 2>
TABLE OF CONTENTS
_________________
PART I Page
Item 1. Business 3
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 3
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation 5
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 33
PART III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial Owners and
Management 33
Item 13. Certain Relationships and Related Transactions 33
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 33
<PAGE 3>
PART I
ITEM 1. BUSINESS:
The principal business of IBM Credit Corporation (the Company) is
financing. All the outstanding capital stock of the Company is owned
by International Business Machines Corporation (IBM), a New York
corporation. The Company finances the purchase and lease of IBM
products and related products and services by customers of IBM in the
U.S. The Company also engages in other financings, some of which are
related and some of which are unrelated to the business of IBM.
Pursuant to a Support Agreement between IBM and the Company, IBM
has agreed to retain 100 percent of the voting capital stock of the
Company, unless required to dispose of any or all such shares of stock
pursuant to a court decree or order of any governmental authority which,
in the opinion of counsel to IBM, may not be successfully challenged.
IBM has also agreed to cause the Company to have a tangible net worth of
at least $1.00 at all times.
ITEM 2. PROPERTIES:
The Company's principal executive offices in Stamford,
Connecticut, comprise approximately 154,000 square feet of office space.
The Company occupies this space under an arrangement with IBM, which is
the master tenant of this property under long-term leases.
ITEM 3. LEGAL PROCEEDINGS:
None material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Omitted pursuant to General Instruction J.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS:
All shares of the Company's capital stock are owned by IBM and
accordingly there is no market for such stock. The Company paid
dividends of $325,000,000 and $50,000,000 to IBM in 1993 and 1992,
respectively. Dividends are paid as declared by the Board of Directors
of the Company.
-3-
<PAGE 4>
<TABLE>
Item 6. SELECTED FINANCIAL DATA:
The following selected financial data should be read in conjunction with the financial statements of
IBM Credit Corporation and the related notes to the financial statements included in this document.
<CAPTION>
<S> <C> <C> <C> <C> <C>
(Dollars in thousands) 1993 1992 1991 1990 1989
____ ____ ____ ____ ____
For the year:
Finance and other income. . . . . . $1,770,430 $1,762,530 $1,644,527 $1,427,985 $1,057,967
Gross profit on equipment sales . . 63,580 66,873 75,306 45,576 32,014
Interest expense. . . . . . . . . . 365,675 445,816 562,531 606,750 497,811
Net earnings. . . . . . . . . . . . 220,220 219,270 200,221 165,510 137,011
Dividends . . . . . . . . . . . . . 325,000 50,000 25,000 75,000 72,000
Products purchased for leases . . . 2,165,577 2,794,567 2,786,088 3,188,318 3,186,288
Loans receivable financing . . . . 441,939 651,153 665,735 868,623 880,900
IBM state and local installment
receivables and leases. . . . . . 294,166 412,476 486,872 535,586 443,377
Working capital financing . . . . . 5,866,300 4,213,000 4,905,000 5,670,395 4,572,409
Return on average assets. . . . . . 2.0% 2.0% 1.9% 1.7% 1.7%
Return on average equity. . . . . . 19.1% 19.0% 20.3% 19.9% 18.1%
At end of year:
Total assets. . . . . . . . . . . . $10,041,543 $11,451,267 $11,326,662 $11,131,924 $9,474,326
Net investment in capital leases. . 4,437,257 6,037,269 5,930,493 5,380,200 4,361,612
Equipment on operating lease, net . 1,753,121 1,776,576 1,726,226 1,800,266 1,666,322
Working capital financing receivables 1,425,781 1,138,131 1,092,785 974,695 423,002
Loans receivable. . . . . . . . . . 1,037,864 1,416,252 1,558,591 1,733,088 1,645,605
Short-term debt . . . . . . . . . . 4,227,724 5,399,030 5,343,811 4,281,458 3,175,987
Long-term debt. . . . . . . . . . . 2,279,796 2,406,071 2,158,988 2,996,729 3,590,094
Stockholder's equity. . . . . . . . 1,150,729 1,255,509 1,086,239 911,018 820,508
</TABLE>
-4-
<PAGE 5>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
OVERVIEW
The Company originated financing for $9.3 billion of equipment, software
and services during 1993. Net earnings for 1993 were $220.2 million,
yielding a return on average equity of 19.1 percent.
During the fourth quarter of 1993, the Company sold $1.4 billion of
capital equipment and working capital financing receivables (financing
receivables) realizing an aftertax gain of $12.9 million, as described
throughout this discussion and analysis. In addition, during 1993, a
charge of $23.9 million was recorded to reflect the effect of an
increase in the federal income tax rate from 34 percent to 35 percent.
The effect of the new tax rate was required to be recognized in
accordance with Statement of Financial Accounting Standards (SFAS) 109,
"Accounting for Income Taxes."
In the 1993 second quarter, responding to the decline in IBM shipments
and the resulting lower level of IBM Credit capital equipment financing
originated, the Company initiated actions to reduce its infrastructure,
including specific actions to reduce its workforce. These actions
reduced future expenses and brought resources in line with current
market conditions. To recognize the cost of these actions, aftertax
restructuring charges of $6.4 million were recorded in 1993.
FINANCING ORIGINATED
For the year ended December 31, 1993, the Company originated financing
for $9.3 billion of equipment, software and services, an increase of 8
percent from 1992. Capital equipment financing for end users decreased
by 22 percent to $3.4 billion. The decrease in capital equipment
financing originated is primarily the result of fewer IBM shipments in
1993 compared with 1992, together with a decline in the proportion of
IBM products and services financed by the Company. Working capital
financing for dealers and remarketers of information industry products
increased by 39 percent to $5.9 billion. This improvement reflects
increased shipments of IBM's personal computer and workstation products
throughout 1993, as well as the development of IBM Credit's efforts to
provide working capital financing that meets the full range of financing
requirements of IBM authorized resellers.
Capital equipment financings for end users is comprised of purchases of
$1,733.8 million of information handling systems products from
International Business Machines Corporation (IBM), financing originated
of installment receivables of $165.1 million, other financing, primarily
for IBM software and services of $277.5 million, installment and lease
financing for state and local government customers of $294.2 million for
the account of IBM, and other financing
-5-
<PAGE 6>
of $919.7 million for equipment and services including maintenance,
remarketing transactions, sale leaseback transactions, as well as
selected complementary non-IBM equipment which meets IBM customers'
total solution requirements. The purchases of $1,733.8 million from IBM
consisted of $1,306.3 million for capital leases and $427.5 million for
operating leases.
REMARKETING ACTIVITIES
In addition to originating new financing, the Company remarkets used IBM
equipment. This equipment is primarily sourced from the termination of
existing lease transactions and is generally remarketed through retail
channels in cooperation with the IBM sales force. The equipment is
leased to end users or sold outright. These transactions may be with
existing lessees or, when equipment is returned, with a new customer.
At December 31, 1993, the investment in remarketed equipment on capital
and operating leases totaled $619.8 million, an increase of 40.3 percent
from the 1992 year-end investment of $441.9 million. Included in
remarketing activities are income from leases and gross profit on
equipment sales, net of the reduction in income to recognize the
writedown in residual values of certain leased equipment. These
remarketing contributions amounted to $103.1 million for the year ended
December 31, 1993, down from $118.9 million for the year ended December
31, 1992.
ASSETS
Total assets were $10.0 billion at December 31, 1993, compared with
$11.5 billion at December 31, 1992. The decrease reflects the
securitization and sale of $1.4 billion of financing receivables during
the fourth quarter of 1993, proceeds of which were used to reduce total
debt, as well as the decrease in capital equipment financing originated
in 1993, offset in part by an increase in working capital financing
originated. Total financing receivables serviced by the Company as of
December 31, 1993 were $11.1 billion, compared with $11.3 billion at
December 31, 1992. Total financing receivables serviced include those
financing receivables securitized and sold in the fourth quarter of 1993
($1,371.0 million), capital and operating leases ($6,363.0 million in
1993, $7,814.0 million in 1992), loans receivable ($1,038.0 million in
1993, $1,416.0 million in 1992), and working capital financing
receivables ($1,426.0 million in 1993, $1,138.0 million in 1992), as
well as state and local government installment and lease financing
receivables of IBM ($868.0 million in 1993, $950.0 million in 1992).
Approximately 85 percent of the Company's total assets at December 31,
1993, related to the financing of IBM products and services.
-6-
<PAGE 7>
LIABILITIES AND STOCKHOLDER'S EQUITY
The assets of the business were financed with $6,507.5 million of debt
at December 31, 1993. Total debt, which includes short-term and
long-term debt, decreased by $1,297.6 million during 1993. This
decrease was primarily the result of applying proceeds from the sale of
financing receivables during the fourth quarter of 1993 to reduce
commercial paper and retire long-term debt. The proceeds were also used
for general Corporate purposes, including dividends to IBM.
At December 31, 1993, the Company had available $1.9 billion of a shelf
registration with the Securities and Exchange Commission. This shelf
registration allows the Company to quickly access domestic financial
markets. In addition, a subsidiary of the Company had available $750.0
million of a separate shelf registration for asset backed securities.
The Company also has a commercial paper program, a medium-term note
program, and the IBM money market program. The Company is an authorized
borrower of up to $1.0 billion under a $10.0 billion IBM Global Credit
Facility, and has a liquidity agreement with IBM for $500.0 million.
Back up lines of credit in the amount of $1.6 billion were terminated
when the IBM Global Credit Facility was put in place; they had not been
drawn upon. The Company also has the option, as approved by the Board
of Directors on July 29, 1993, to sell, assign, pledge, or transfer up
to an additional $2.6 billion of assets to third parties through
December 31, 1994. These financing sources along with the Company's
internally generated cash, medium-term note and commercial paper
programs provide the flexibility to the Company to grow its lease and
loan portfolio, service debt, and fund working capital.
Due to IBM Corporation and affiliates decreased by $144.2 million to
$1,259.5 million at December 31, 1993 from $1,403.7 million at December
31, 1992. This reduction was primarily attributable to the lower volume
of capital equipment purchased from IBM in the fourth quarter of 1993,
compared with the fourth quarter of 1992, offset by a net increase in
working capital financing receivables purchased in the fourth quarter of
1993 compared with the 1992 fourth quarter. Amounts due to IBM
Corporation and affiliates represent 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 is income taxes currently payable under the intercompany tax
allocation agreement.
Total stockholder's equity at December 31, 1993 was $1,150.7 million,
down $104.8 million from year-end 1992. The change in stockholder's
equity reflects payments of $325.0 million in dividends to IBM, and net
earnings of $220.2 million.
At December 31, 1993, the Company's debt to equity ratio was 5.7:1,
compared with 6.2:1 at December 31, 1992.
:hp3.TOTAL CASH PROVIDED BEFORE DIVIDENDS:EHP3.
Total cash provided before dividends was $336.3 million for 1993,
compared with $125.1 million for 1992. Cash and cash equivalents at
December 31, 1993, totaled $609.9 million, an increase of $11.3 million
compared with the balance at December 31, 1992.
-7-
<PAGE 8>
Total cash provided before dividends reflects $1,631.7 million of cash
provided by operating and investing activities, reduced by $1,295.4
million of cash used in financing activities, before dividends.
INCOME FROM LEASES
Income from leases decreased by 14 percent to $573.4 million in 1993,
from $667.0 million in 1992. This decline is the result of a decrease
in capital equipment financing originated throughout 1993, together with
lower yields associated with declining market interest rates. Income
from leases includes lease income resulting from remarketing
transactions. For the year ended December 31, 1993, this income
amounted to $71.6 million, which is comparable to 1992.
On a periodic basis, the Company reassesses the future residual value of
its portfolio of leases. In accordance with generally accepted account-
ing 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 $775.0 million residual value portfolio at
December 31, 1993 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
$32.0 million reduction to income from leases for 1993, compared with
$20.0 million in 1992.
INCOME FROM LOANS
Income from loans decreased by 28 percent to $112.3 million in 1993 from
$155.6 million in 1992. This decline is the result of a reduction in the
loan portfolio and lower yields associated with declining market
interest rates.
INCOME FROM WORKING CAPITAL FINANCING
Income from working capital financing increased 29 percent to $104.3
million in 1993, compared with $80.6 million in 1992. This increase is
primarily due to growth in the size of the average working capital
financing receivables outstanding during 1993, compared with 1992. The
growth reflects increased amounts of IBM's personal computer and
workstation products, which the Company financed throughout 1993, as
well as an increase in the volume of financing provided for non-IBM
products for IBM authorized resellers.
EQUIPMENT SALES
Equipment sales increased by 13 percent to $840.9 million in 1993,
compared with $743.3 million in 1992. Included in these amounts is
revenue from outright sales and sales-type leases of Company-owned
equipment with either existing lessees or, when equipment is returned,
with other customers.
-8-
<PAGE 9>
Gross profit on equipment sales amounted to $63.6 million for 1993,
compared with $66.9 million for 1992. The gross profit margin declined
to 7.6 percent in 1993 from 9.0 percent in 1992. This lower margin
reflects a $20.0 million charge to recognize the decline in current
market value for 3390 Model 2 Direct Access Storage Device equipment
sold or leased under sales-type leases during the third and fourth
quarters of 1993 or inventoried at December 31, 1993. The decline in
current market value of this equipment was the result of a temporary
excess supply in the used equipment markets. Gross profit margin on
other products continues to be within the range of management's
expectations.
OTHER INCOME
Other income increased by 20 percent to $139.5 million in 1993 from
$116.0 million in 1992. Included in other income is a pretax gain on
the sale of financing receivables of $21.0 million, net of related
expenses. The sale of financing receivables generally accelerates the
recognition of finance income and can result in a current period gain or
loss. The amount of such gain or loss is dependent on a number of
factors and may create a degree of volatility in earnings depending on
the type of receivables sold, the structure of the transaction, and
prevailing financial market conditions. The Company continues to
service the financing receivables sold and earns a fee which is included
in other income. Also included in other income is interest income
earned on cash and cash equivalents, as well as fees for managing IBM's
state and local government installment and lease financing receivable
portfolio. The increase in other income is the result of growth in
interest income and the gain on the sale of financing receivables,
partially offset by a decrease in fees earned from managing IBM's state
and local government installment and lease financing receivable
portfolio.
TOTAL FINANCE AND OTHER INCOME
Total finance and other income increased to $1,770.4 million in 1993
from $1,762.5 million in 1992. The increase is due to growth in income
from working capital financing, other income, and equipment sales,
partially offset by reductions in income from leases and loans.
INTEREST EXPENSE
Interest expense declined as the Company's total debt decreased. In
addition, the Company continued to benefit from lower market interest
rates, partially offset by an increased cost of funding due to debt
downgradings throughout 1993. Interest expense decreased by 18 percent
to $365.7 million in 1993, compared with $445.8 million in 1992. The
Company's overall average cost of debt decreased to 5.0 percent in 1993,
from 5.9 percent in 1992.
-9-
<PAGE 10>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses decreased one percent to
$185.5 million in 1993, from $186.9 million in 1992. The decrease is
due to the Company's continuing efforts to manage expenses.
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
secured by the underlying inventory and accounts receivable financed.
At December 31, 1993, the allowance for receivable losses approximated
1.5 percent of the Company's portfolio of leases and loans, compared
with approximately 1.7 percent at December 31, 1992. The provision for
receivable losses decreased to $38.0 million in 1993 from $102.6 million
in 1992. This decrease reflects the reduction in the amount of capital
equipment financed, and an economic environment that continues to
improve. Additionally, the Company continues to effectively manage
credit risk and contain losses. These efforts resulted in the 1993
recovery of $11.0 million of losses previously recorded in 1991 and 1992
to reflect the then estimated loss associated with a major bankruptcy,
along with other recoveries throughout 1993.
INCOME TAXES
The effective tax rate in 1993 was 44.0 percent, compared with 37.5
percent in 1992. The increase in the effective tax rate reflects the
enactment of the Omnibus Budget Reconciliation Act of 1993 (the Act)
during the third quarter of 1993. The Act increased the U.S. corporate
income tax rate from 34 percent to 35 percent, retroactive to January 1,
1993. The tax rate increase resulted in a $23.9 million charge for
1993; $20.1 million related to previously provided deferred taxes, and
$3.8 million in current taxes. The Company expects its effective tax
rate to approximate the statutory federal and state income tax rates in
future years.
NET EARNINGS
Net earnings were $220.2 million for the year ended December 31, 1993,
compared with $219.3 million for 1992. Excluding the additional income
tax expense, the restructuring charges, and the gain on the sale of
financing receivables, net earnings would have been $237.6 million for
1993, an increase of 8.3 percent compared with 1992.
RETURN ON AVERAGE EQUITY
The 1993 results yielded a return on average equity of 19.1 percent,
compared with 19.0 percent in 1992. Without the specific items
mentioned in the preceding paragraph, the return on average equity would
have been 20.3 percent.
-10-
<PAGE 11>
NEW ACCOUNTING STANDARDS
In November 1992, the Financial Accounting Standards Board (FASB) issued
SFAS 112, "Employer's Accounting for Postemployment Benefits," which
established new accounting principles for the cost of benefits provided
to former or inactive employees after employment but before retirement.
IBM and IBM Credit elected early adoption of SFAS 112 as of January 1,
1993. The impact of adoption did not materially impact the results of
the Company's operations.
In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for
Impairment of a Loan," which amends SFAS 5, "Accounting for
Contingencies," and SFAS 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings." Under SFAS 114, creditors should
evaluate the collectibility of both contractual interest and principal
of all receivables when assessing the need for a loss accrual.
Additionally, SFAS 114 requires creditors to measure all loans that are
restructured in a troubled debt restructuring involving a modification
of terms to reflect the time value of money. This statement is
effective for fiscal years beginning after December 15, 1994.
In May 1993, the FASB issued SFAS 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.
It is expected that the implementation of standards 114 and 115 will not
result in a material charge to the results of operations in the year of
adoption.
CLOSING DISCUSSIONS
In the 1993 second quarter, the Company initiated actions to reduce its
infrastructure, including specific actions to reduce its workforce. To
recognize the cost of these actions, aftertax restructuring charges of
$6.4 million were recorded. If our assumptions with regard to market
conditions prove correct, then the Company's resources will be
sufficient to enable it to carry out its mission of supporting
customers in their acquisition of IBM products and services by providing
competitive financing, and contributing to the growth and stability of
IBM earnings.
-11-
<PAGE 12>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
<AUDIT-REPORT>
Report of Independent Accountants
February 16, 1994
To the Stockholder and Board of Directors of IBM Credit Corporation
In our opinion, the accompanying consolidated financial statements
listed in the index appearing under Item 14(a) 1. and 2. on pages 33 and
34 present fairly, in all material respects, the financial position of
IBM Credit Corporation and its subsidiaries at December 31, 1993 and
1992, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion thereon based on our audits. We
conducted our audits in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether such statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
the opinion expressed above.
Price Waterhouse
Stamford, CT
</AUDIT-REPORT>
-12-
<PAGE 13>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at December 31:
(Dollars in thousands)
<CAPTION>
1993 1992
___________ ___________
<S> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . . . . .$ 609,891 $ 598,557
Net investment in capital leases . . . . . . . 4,437,257 6,037,269
Equipment on operating lease, net. . . . . . . 1,753,121 1,776,576
Loans receivable . . . . . . . . . . . . . . . 1,037,864 1,416,252
Working capital financing receivables . . . . 1,425,781 1,138,131
Investments and other assets . . . . . . . . . 531,737 484,482
Due and deferred from receivable sales . . . . 245,892 -
____________ ___________
Total Assets $10,041,543 $11,451,267
============ ===========
:hp3.LIABILITIES AND STOCKHOLDER'S EQUITY::ehp3.
Liabilities:
Short-term debt. . . . . . . . . . . . . . . .$ 4,227,724 $ 5,399,030
Due to IBM Corporation and affiliates. . . . . 1,259,547 1,403,746
Interest and other accruals. . . . . . . . . . 312,464 270,740
Deferred income taxes . . . . . . . . . . . . 811,283 716,171
Long-term debt . . . . . . . . . . . . . . . . 2,279,796 2,406,071
___________ ___________
Total liabilities 8,890,814 10,195,758
___________ ___________
Stockholder's equity:
Capital stock, par value $1 per share
Shares authorized: 10,000
Shares issued: 750. . . . . . . . . . . . . 438,811 438,811
Retained earnings. . . . . . . . . . . . . . . 711,918 816,698
____________ ___________
Total stockholder's equity . . . . . . . . 1,150,729 1,255,509
____________ ___________
Total Liabilities and Stockholder's Equity $10,041,543 $11,451,267
============ ===========
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
-13-
<PAGE 14>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
For the Year Ended December 31:
(Dollars in thousands)
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
__________ __________ __________
FINANCE AND OTHER INCOME:
Income from leases:
Capital leases . . . . . . . . . . . . . $ 450,071 $ 502,835 $ 461,272
Operating leases (net of depreciation:
1993 - $662,898, 1992 - $643,128 and
1991 - $614,277) . . . . . . . . . . . 123,326 164,155 165,212
__________ __________ __________
573,397 666,990 626,484
Income from loans. . . . . . . . . . . . . 112,339 155,595 179,636
Income from working capital financing . . 104,286 80,645 90,016
Equipment sales. . . . . . . . . . . . . . 840,944 743,285 555,413
Other income. . . . . . . . . . . . . . . 139,464 116,015 192,978
__________ __________ __________
Total finance and other income . . . . . 1,770,430 1,762,530 1,644,527
__________ __________ __________
COST AND EXPENSES:
Interest . . . . . . . . . . . . . . . . . 365,675 445,816 562,531
Cost of equipment sales. . . . . . . . . . 777,364 676,412 480,107
Selling, general, and administrative . . . 185,493 186,866 154,774
Restructuring charges. . . . . . . . . . . 10,489 - -
Provision for receivable losses. . . . . . 38,017 102,604 122,036
__________ __________ __________
Total cost and expenses. . . . . . . . . 1,377,038 1,411,698 1,319,448
__________ __________ __________
EARNINGS BEFORE INCOME TAXES . . . . . 393,392 350,832 325,079
Provision for income taxes . . . . . . . . . 173,172 131,562 124,858
__________ __________ __________
NET EARNINGS .. . . . . . . . . . . . . . . 220,220 219,270 200,221
Dividends . . . . . . . . . . . . . . . . . (325,000) (50,000) (25,000)
Retained earnings at January 1 . . . . . . . 816,698 647,428 472,207
__________ __________ __________
Retained earnings at December 31 . . . . . . $ 711,918 $ 816,698 $ 647,428
========== ========== ==========
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
-14-
<PAGE 15>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31:
(Dollars in thousands)
<CAPTION>
1993 1992 1991
__________ __________ __________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . $ 220,220 $ 219,270 $ 200,221
Adjustments to net earnings:
Depreciation and amortization. . . . . . . . 667,593 644,334 614,782
Provision for receivable losses. . . . . . . 38,017 102,604 122,036
Gain on sale of financing receivables . . . (21,040) - -
Change in deferred income taxes . . . . . . 95,112 271,728 (201,074)
Change in interest and other accruals. . . . 41,724 84,481 (46,030)
Gross profit on equipment sales . . . . . . (63,580) (66,873) (75,306)
__________ __________ __________
Cash flow provided by net earnings . . . . . . 978,046 1,255,544 614,629
Proceeds from sale of mortgage portfolio . . . - - 586,561
Proceeds from equipment sales . . . . . . . . 840,944 743,285 555,413
Change in amounts due to IBM and affiliates . (144,199) (703,176) 42,009
__________ __________ __________
Cash provided by operating activities . . . . . . 1,674,791 1,295,653 1,798,612
__________ __________ __________
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in capital leases . . . . . . . . .(1,397,459) (1,975,981) (2,243,358)
Collection of capital leases, net
of income earned. . . . . . . . . . . . . . . 1,612,983 1,418,041 1,372,682
Investment in equipment on operating lease . . (768,118) (818,586) (567,118)
Investment in loans receivable. . . . . . . . (441,939) (651,153) (665,735)
Collection of loans receivable, net
of interest earned. . . . . . . . . . . . . . 668,544 762,008 784,524
Investment in working capital financing
receivables, net of cash collected. . . . . . (685,651) (48,057) (118,275)
Proceeds from sale of financing receivables . 1,350,000 - -
Other changes, net . . . . . . . . . . . . . . (381,384) (166,844) (294,963)
__________ __________ __________
Cash used in investing activities . . . . . . . . (43,024) (1,480,572) (1,732,243)
__________ __________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . 1,670,009 1,167,153 1,237,237
Repayment of debt:
Original maturities of one year or more . . .(1,313,432) (2,009,645) (1,339,490)
Original maturities within one year (net
of debt issued). . . . . . . . . . . . . . .(1,652,010) 1,152,506 342,995
Cash dividends paid to IBM Corporation . . . . (325,000) (50,000) (25,000)
__________ __________ __________
Cash (used in) provided by financing activities .(1,620,433) 260,014 215,742
__________ __________ __________
Increase in cash and cash equivalents . . . . . . 11,334 75,095 282,111
Cash and cash equivalents at January 1. . . . . . 598,557 523,462 241,351
__________ __________ __________
Cash and cash equivalents at December 31. . . . .$ 609,891 $ 598,557 $ 523,462
========== ========== ==========
TOTAL CASH PROVIDED BEFORE DIVIDENDS . $ 336,334 $ 125,095 $ 307,111
========== ========== ==========
<FN>
The accompanying notes are an integral part of this statement.
-15-
</TABLE>
<PAGE 16>
IBM CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation: The consolidated financial statements
include the accounts of IBM Credit Corporation (the Company) and those
of its subsidiaries which are more than 50 percent owned. Investments
in partnerships in which the Company has typically a 20 percent
ownership are accounted for using the equity method.
Cash and Cash Equivalents: Time deposits with original maturities
generally of three months or less are included in cash and cash
equivalents. Cash paid for interest was $366.2 million, $504.1 million,
and $580.3 million for 1993, 1992 and 1991, respectively.
Finance Income Recognition: Income attributable to direct financing
leases and loans receivable is initially recorded as unearned income and
subsequently recognized as finance income at level rates of return over
the term of the leases or receivables. Income recognized from leveraged
leases includes the amortization of unearned finance income and deferred
investment and other tax credits over the term of the leases, at level
rates of return, during periods when the net investment balance is
positive.
Equipment on Operating Lease: Equipment is depreciated on a
straight-line basis to its estimated residual value over the lease term.
Equipment Sales Income Recognition: Revenue from equipment sales to
existing lessees is recognized at the effective date a purchase
provision is exercised. Revenue from sales to parties other than the
existing lessee is recognized when title transfers.
Allowance for Receivable Losses: The allowance for receivable losses is
determined on the basis of actual collection experience and estimated
future collectibility of the related assets.
Income Taxes: The application of the intercompany tax allocation
agreement (the Agreement) between the Company and its parent company,
IBM, was mutually clarified during the first quarter of 1993. The
Agreement now
-16-
<PAGE 17>
aligns the settlement of federal and state tax benefits/and or
obligations with the Company's provision for income taxes determined on
a separate company basis. The Company is part of the IBM consolidated
federal tax return, and files separate state tax returns in selected
states. Included in due to IBM Corporation and affiliates at December
31, 1993 and 1992, respectively, is $263.8 million and $5.3 million of
current income taxes payable as determined in accordance with the
intercompany tax allocation agreement. Cash paid for income taxes in
1993, 1992, and 1991, was $120.6 million, $7.8 million, and $5.5
million, respectively.
RELATIONSHIP WITH IBM:
Pursuant to a Support Agreement between IBM and the Company, IBM has
agreed to retain 100% of the voting capital stock of the Company, unless
required to dispose of any or all such shares of stock pursuant to a
court decree or order of any governmental authority which in the opinion
of counsel to IBM, may not be successfully challenged. IBM has also
agreed to cause the Company to have a tangible net worth of at least
$1.00 at all times. The Support Agreement provides that it shall not be
deemed to constitute a direct or indirect guarantee of IBM to any party
of the payment of the principal of, or interest on, any indebtedness,
liability or obligation of the Company. The Support Agreement may not
be modified, amended or terminated while there is outstanding any debt
of the Company, unless all holders of such debt have consented in
writing.
IBM provides collection, administration and other services and products
for the Company and is reimbursed for the cost of these services and
products. The Company is compensated for services performed for IBM,
primarily for management of IBM's state and local government installment
receivable portfolio, the fees for which are reflected in other income.
Additionally, the Company is compensated for the tax benefits resulting
from tax deferrals generated through January 1, 1993, by leasing
transactions, and the fees are included in other income.
-17-
<PAGE 18>
An operating agreement with IBM provides that installment receivables,
which include finance charges, may be purchased by the Company at a
mutually agreed-upon price. The Company is reimbursed by IBM for any
price adjustments and concessions which reduce the amount of receivables
previously purchased by the Company. The operating agreement with IBM
also provides that IBM will offer term leases of the Company to
creditworthy potential lessees. IBM's sales price of the equipment to
the Company will be at the purchase price payable by the lessee, unless
otherwise agreed to.
The Company has an agreement with IBM which provides that losses on
receivables arising from purchases of IBM equipment by IBM and Lexmark
dealers and remarketers in excess of 2.25 percent of the average
aggregate monthly receivable balance for any given year will be
reimbursed to the Company by IBM. The Company has not received any
payments from IBM as a result of this agreement.
The Company has a liquidity agreement with IBM International Financing,
N.V. (IIF), whereby the Company has agreed to advance funds to IIF, as
an enhancement to IIF's ability to carry out business. The amount of the
advances is not to exceed the greater of $500.0 million or 5 percent of
the Company's total assets. To support this arrangement, the Company
entered into a backup agreement with IBM, whereby IBM has agreed to
advance funds to the Company, in amounts not to exceed the greater of
$500.0 million or 5 percent of the Company's total assets, if at any
time the Company requires such funds to satisfy its agreement with IIF.
The Company has neither received nor made any advances with respect to
these liquidity agreements as of December 31, 1993.
From time to time, the Company has provided IBM and its affiliates with
funds at prevailing interest rates.
-18-
<PAGE 19>
NET INVESTMENT IN CAPITAL LEASES:
The Company's capital lease portfolio includes direct financing and
leveraged leases.
Direct financing leases consist principally of IBM information handling
equipment with terms generally from three to five years. The components
of the net investment in direct financing leases at December 31, 1993
and 1992 are as follows:
(Dollars in thousands)
1993 1992
__________ __________
Minimum lease payments receivable . . . . $4,500,304 $6,413,253
Estimated unguaranteed residual values. . 366,356 449,055
Deferred initial direct costs . . . . . . 30,932 39,242
Unearned income . . . . . . . . . . . . . (622,410) (996,129)
Allowance for receivable losses . . . . . (47,398) (74,548)
__________ __________
$4,227,784 $5,830,873
========== ==========
The scheduled maturities of minimum lease payments outstanding at
December 31, 1993, expressed as a percentage of the total, are as
follows:
1993
______
Due within 12 months. . . . . . . . . . . . . . . . 36.6%
13 to 24 months . . . . . . . . . . . . . . . . . . 31.7
25 to 36 months . . . . . . . . . . . . . . . . . . 21.0
37 to 48 months . . . . . . . . . . . . . . . . . . 8.2
After 48 months . . . . . . . . . . . . . . . . . . 2.5
______
100.0%
======
The reconciliation of the direct financing lease allowance for
receivable losses is as follows:
(Dollars in thousands)
1993 1992 1991
_______ _______ _______
Beginning of year. . . . . . . . . . . . $74,548 $42,089 $23,667
Additions . . . . . . . . . . . . . . . 24,793 66,665 66,131
Accounts written off (net of recoveries) (45,336) (34,206) (47,709)
Transfers to allowance for losses
on receivables sold . . . . . . . . (6,607) - -
________ _______ ________
End of year. . . . . . . . . . . . . . . $47,398 $74,548 $42,089
======== ======= ========
Included in the net investment in capital leases is $335.0 million of
seller interest relating to the securitization of such leases.
-19-
<PAGE 20>
Leveraged lease investments include coal-fired electric generating
facilities, commercial aircraft and other non-IBM manufactured
equipment. Leveraged leases have remaining terms ranging from two to
twenty-five years. The components of the net investment in leveraged
leases at December 31, 1993 and 1992 are as follows:
(Dollars in thousands)
1993 1992
________ ________
Net rents receivable. . . . . . . . . . $273,183 $243,931
Estimated unguaranteed residual values. 40,752 77,209
Unearned and deferred income. . . . . . (97,222) (89,854)
Allowance for losses. . . . . . . . . . (7,240) (24,890)
________ ________
Investment in leveraged leases. . . . . 209,473 206,396
Less: Deferred income taxes. . . . . . (234,805) (229,166)
________ ________
Net investment in leveraged leases. . . $(25,332) $(22,770)
======== ========
During 1993, the net investment in leveraged leases was reduced
primarily from the restructuring of certain leveraged leases, writeoffs
of transactions that were previously reserved, and the increase in the
federal income tax rate from 34 percent to 35 percent.
EQUIPMENT ON OPERATING LEASE:
Operating leases consist principally of IBM information handling
equipment with terms generally from two to four years. The components
of equipment on operating lease at December 31, 1993 and 1992 are as
follows:
(Dollars in thousands)
1993 1992
__________ __________
Cost. . . . . . . . . . . . . . . . . . . $2,853,672 $2,826,381
Accumulated depreciation. . . . . . . . . (1,100,551) (1,049,805)
__________ __________
$1,753,121 $1,776,576
========== ==========
-20-
<PAGE 21>
Minimum future rentals were approximately $1,538.7 million at December
31, 1993. The scheduled maturities of the minimum future rentals
expressed as a percentage of total rentals, are as follows:
1993
______
Due within 12 months. . . . . . . . . . . . . . . . 38.5%
13 to 24 months . . . . . . . . . . . . . . . . . . 27.4
25 to 36 months . . . . . . . . . . . . . . . . . . 19.0
37 to 48 months . . . . . . . . . . . . . . . . . . 11.4
After 48 months . . . . . . . . . . . . . . . . . . 3.7
______
100.0%
======
LOANS RECEIVABLE:
Loans receivable include installment receivables which are principally
financings of customer purchases of IBM information handling products.
Also included are other financings, comprised primarily of IBM software
and services. The components of loans receivable at December 31, 1993
and 1992 are as follows:
(Dollars in thousands)
1993 1992
__________ __________
Loans receivable . . . . . . . . . . $1,255,557 $1,702,068
Unearned income. . . . . . . . . . . (160,189) (215,845)
Allowance for receivable losses. . . (57,504) (69,971)
__________ __________
$1,037,864 $1,416,252
========== ==========
The scheduled maturities of loans receivable outstanding at December 31,
1993, expressed as a percentage of the total, are as follows:
1993
______
Due within 12 months . . . . . . . . . . . . . . . 37.9%
13 to 24 months. . . . . . . . . . . . . . . . . . 28.9
25 to 36 months. . . . . . . . . . . . . . . . . . 19.1
37 to 48 months. . . . . . . . . . . . . . . . . . 10.6
49 to 60 months. . . . . . . . . . . . . . . . . . 3.5
______
100.0%
======
Included in loans receivable is $94.9 million and $99.6 million at
December 31, 1993 and 1992, respectively, that is due from the Company's
term lease partnerships. Such loans are secured by the general pool of
leases in the partnerships. Also included in loans receivable is $37.5
million of seller interest relating to the securitization of such loans.
-21-
<PAGE 22>
The following is a reconciliation of the loans receivable allowance for
receivable losses:
(Dollars in thousands)
1993 1992 1991
_______ _______ _______
Beginning of year. . . . . . . . . . . . $69,971 $59,031 $53,150
Additions. . . . . . . . . . . . . . . . 13,460 34,634 53,596
Accounts written off (net of recoveries) (16,585) (23,694) (47,715)
Transfers to allowance for losses
on receivables sold . . . . . . . . (9,342) - -
_______ _______ _______
End of year. . . . . . . . . . . . . . . $57,504 $69,971 $59,031
======= ======= =======
WORKING CAPITAL FINANCING RECEIVABLES:
Working capital financing receivables arise primarily from secured
inventory and accounts receivable financing for IBM and Lexmark dealers
and remarketers. Inventory financing includes the financing of the
purchase by these dealers and remarketers of information handling
products. Payment terms for inventory secured financing are typically
less than 45 days. Accounts receivable financing includes the financing
of trade accounts receivable for these dealers and remarketers. Payment
terms for accounts receivable secured financing typically range from 30
days to 180 days. The components of working capital financing
receivables at December 31, 1993 and 1992 are as follows:
(Dollars in thousands)
1993 1992
__________ __________
Working capital financing receivables $1,440,079 $1,147,103
Allowance for receivable losses . . . (14,298) (8,972)
__________ __________
$1,425,781 $1,138,131
========== ==========
The following is a reconciliation of the working capital financing
receivables allowance for receivable losses:
(Dollars in thousands)
1993 1992 1991
_______ _______ _______
Beginning of year. . . . . . . . . . . $ 8,972 $ 7,914 $11,847
Additions. . . . . . . . . . . . . . . 6,528 2,866 873
Accounts written off (net of recoveries) (1,202) (1,808) ( 4,806)
_______ _______ _______
End of year. . . . . . . . . . . . . . $14,298 $ 8,972 $ 7,914
======= ======= =======
Included in working capital financing receivables is $381.2 million of
seller interest relating to the securitization of such receivables.
Additionally, the Company has approved but unused $1.2 billion of
working capital financing credit lines available to customers at
December 31, 1993.
-22-
<PAGE 23>
INVESTMENTS AND OTHER ASSETS:
The components of investments and other assets at December 31, 1993 and
1992 are as follows:
(Dollars in thousands)
1993 1992
________ ________
Receivables from customers . . . . . . . . . $177,167 $279,389
Receivables from affiliates . . . . . . . . . 171,188 43,307
Remarketing inventory . . . . . . . . . . . . 92,681 85,485
Investments in partnerships . . . . . . . . . 8,158 17,122
Other assets . . . . . . . . . . . . . . . . 82,543 59,179
________ ________
$531,737 $484,482
======== ========
DUE AND DEFERRED FROM RECEIVABLE SALES:
The Company began selling financing receivables to investors subject to
limited recourse provisions during the fourth quarter of 1993. The
Company's interest in excess servicing cash flows, subordinated
interests in trusts, cash deposits and other related amounts are
restricted assets and subject to limited recourse provisions. The
following summarizes the amounts included in due and deferred from
receivable sales:
December 31,
1993
____________
(Dollars in thousands)
Excess servicing $ 26,355
Subordinated interests in trusts 172,970
Receivables from investors 45,786
Cash deposits held by trustee 16,730
Less: Allowance for estimated credit
losses on receivables sold (15,949)
_________
$245,892
=========
Gains and losses from the sale of financing receivables are recognized
in the period in which the sale occurs. Provisions for expected credit
losses are provided during the periods in which the receivables were
originated, and, as such, the gain or loss is not usually required to be
adjusted for expected credit losses. The gain on the sale of
receivables is included in other income, and amounted to $21.0 million
for the year ended December 31, 1993. The provision for credit losses
relating to such sales amounted to $16.4 million.
-23-
<PAGE 24>
SHORT-TERM DEBT:
The components of short-term debt at December 31, 1993 and 1992 are as
follows:
(Dollars in thousands)
1993 1992
__________ __________
Commercial paper. . . . . . . . . . . . . . . $1,641,473 $3,409,184
Current maturities of long-term debt . . . . 1,399,687 845,297
IBM Money Market Account notes. . . . . . . . 359,874 530,917
Other short-term debt . . . . . . . . . . . . 826,690 613,632
__________ __________
$4,227,724 $5,399,030
========== ==========
Other short-term debt includes notes having maturities between nine and
twelve months offered through the Company's medium-term note program.
:hp3.LONG-TERM DEBT::EHP3.
The components of long-term debt at December 31, 1993 and 1992 are as
follows:
(Dollars in thousands)
1993 1992
__________ ___________
8.3 % notes due November 1993 . . . . . . . $ - $ 400,000
7.2 % notes due February 1994. . . . . . . 300,000 300,000
6.125 % notes due November 1994 . . . . . . 500,000 500,000
8 % Dual currency notes due September 1995(1) - 120,200
Medium-term notes with original
maturities after one year at
rates averaging 5.3% through 2008 . . . . 2,778,277 1,829,311
Other debt . . . . . . . . . . . . . . . . 99,000 99,000
__________ __________
3,677,277 3,248,511
Net unamortized premiums and discounts . . 2,206 2,857
__________ __________
3,679,483 3,251,368
Less: Current maturities. . . . . . . . . 1,399,687 845,297
__________ __________
$2,279,796 $2,406,071
========== ==========
(1) Called in September 1993.
Premiums and discounts have the effect of modifying the stated rate of
interest on long-term debt offerings.
-24-
<PAGE 25>
Annual maturity of long-term debt at December 31, 1993 is as follows:
(Dollars in thousands)
1994 . . . . . . . . . . . . . . . . . . . $1,399,687
1995 . . . . . . . . . . . . . . . . . . . 1,305,101
1996 . . . . . . . . . . . . . . . . . . . 374,455
1997 . . . . . . . . . . . . . . . . . . . 93,625
1998 . . . . . . . . . . . . . . . . . . . 463,409
1999 and thereafter . . . . . . . . . . . 41,000
__________
$3,677,277
==========
SFAS 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk," requires certain disclosure about financial instruments
with off-balance sheet risk. The following summary of contract or
notional (face) amounts outstanding merely provides an indication of the
extent of the Company's involvement in such instruments. The Company
does not anticipate any material adverse effect on its financial
position resulting from its involvement in these instruments, nor does
it anticipate nonperformance by any of its counterparties.
(Dollars in thousands)
December 31, December 31,
1993 1992
_________ _________
Interest rate swap agreements $2,283,374 $1,489,000
Currency exchange agreements $ 197,197 $ 320,000
SFAS 105 also requires the disclosure of information about significant
geographic, business, or other concentrations of credit risk for all
financial instruments. The Company originates financing for customers
in a variety of industries and throughout the United States. The
Company does not have any significant geographic or industry
concentrations of credit risk.
-25-
<PAGE 26>
RATIO OF EARNINGS TO FIXED CHARGES:
The ratio of earnings to fixed charges calculated in accordance with
applicable Securities and Exchange Commission requirements was 2.07,
1.78 and 1.58 for the years ended December 31, 1993, 1992, and 1991,
respectively.
RELATED COMPANY TRANSACTIONS:
IBM charged the Company $97.8 million, $94.0 million and $84.3 million
in 1993, 1992 and 1991, respectively, representing costs for various
loans receivable and lease services, employee benefit plans, facilities
rental and staff support.
The Company has received compensation for services and benefits provided
to IBM. The fees received relate to the management of IBM's portfolio
of state and local government installment receivables and to tax
benefits produced by the Company relating to leasing transactions. The
latter fees are based on potential savings recognized by IBM as a result
of the deferral of income taxes and are calculated at prevailing market
interest rates. The Company received fees of $65.9 million, $89.0
million and $111.5 million in 1993, 1992 and 1991, respectively, for
these services and benefits which are included in other income. In
1993, these fees are primarily for the management of IBM's portfolio of
state and local government installment receivables.
Amounts due to IBM and affiliates are for software, services, purchases
of receivables and purchases of equipment for term leases, with payment
terms comparable to those offered to other IBM customers, as well as
current income taxes payable. At December 31, 1993 and 1992, amounts
due to IBM were $1,259.5 million and $1,403.7 million, respectively.
Interest income of $.9 million, $6.0 million and $5.6 million was earned
from loans to IBM and affiliates in 1993, 1992 and 1991, respectively.
The Company provides capital equipment financing at market rates to IBM
and affiliated companies for both IBM and non-IBM products. The Company
originated $456.4 million and $449.4 million of such financing during
1993 and 1992, respectively. At December 31, 1993 and 1992,
approximately $1,100.0 million and $700.0 million, respectively, of such
financings are included in the lease and loan portfolio.
The Company entered into a financing agreement in 1989 with a
partnership in which IBM is an equity partner. The Company guarantees
the interest and principal obligation of the commercial paper issued by
the partnership for a fee. The total amount of commercial paper
committed to be guaranteed amounts to $325.0 million. As of December 31,
1993, the partnership had $296.0 million par value of commercial paper
and accrued interest outstanding. The term of the agreement extends
through June, 1994.
-26-
<PAGE 27>
At December 31, 1993, the Company has deposited a total of $15.9 million
into restricted accounts. Of this restricted amount, $9.4 million has
been deposited to collateralize both a $5.9 million surety bond provided
by the IBM Credit Insurance Company, a wholly owned subsidiary of the
Company, and a $3.5 million limited guarantee provided by the Company.
Additionally, $5.7 million of this restricted amount has been deposited
as a requirement under a loan agreement entered into by the Company, and
$.8 million is held as security deposits received from customers. The
cash on deposit related to the surety bond, the limited guarantee, and
the loan agreement was delivered in connection with certain tax-exempt
grantor trusts comprised of pools of IBM state and local government
installment receivables. The Company also has deposited an additional
$2.2 million into restricted accounts at December 31, 1993 as required
by the pooling and servicing agreement for selected tax-exempt grantor
trusts. This amount relates to daily cash collections deposited with
the trustee. The trustee of each grantor trust is entitled to draw upon
the amounts in the restricted account set aside for such particular
trust in the event of non-performance, defaults or other losses relating
to such installment receivables.
PROVISION FOR INCOME TAXES:
The components of the provision for income taxes are as follows:
(Dollars in thousands)
1993 1992 1991
_________ ________ ________
Federal:
Current . . . . . . . . . $ 30,612 $(137,455) $ 304,939
Deferred. . . . . . . . . 116,494 245,071 (202,333)
_________ ________ ________
147,106 107,616 102,606
_________ ________ ________
State and local:
Current . . . . . . . . . 47,353 (18,853) 20,860
Deferred. . . . . . . . . (21,287) 42,799 1,392
_________ ________ ________
26,066 23,946 22,252
_________ ________ ________
Total provision . . . . . $173,172 $131,562 $124,858
========= ======== ========
-27-
<PAGE 28>
The Company implemented SFAS 109 in 1992. This statement replaced the
previous accounting standard for income taxes, SFAS 96, which the
Company adopted in 1988. Both SFAS 96 and SFAS 109 require the use of
the liability method for recording deferred taxes. The implementation
of SFAS 109 had no impact on the Company's financial statements other
than to require the disclosure of the significant components of deferred
taxes which are as follows:
(Dollars in thousands) 1993 1992
_________ _________
Deferred tax assets (liabilities):
Provision for receivable losses $ 85,174 $ 89,820
State and local taxes 21,722 37,950
Lease income and depreciation (923,624) (847,568)
Other 5,445 3,627
_________ _________
Deferred income taxes $(811,283) $(716,171)
========= =========
The provision for income taxes varied from the U.S. federal statutory
income tax rate as follows:
1993 1992 1991
______ ______ ______
Federal statutory rate. . . . . . . . 35.0% 34.0% 34.0%
Federal tax rate increase (1) . . . . 5.1 - -
State and local taxes, net of
federal tax benefits . . . . . . 4.2 4.6 4.5
Other, net . . . . . . . . . . . . . (.3) (1.1) (0.1)
______ ______ ______
Effective income tax rate . . . . . 44.0% 37.5% 38.4%
====== ====== ======
(1) On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993
(the Act) was enacted. The Act increased the U.S. corporate income tax
rate from 34 percent to 35 percent, retroactive to January 1, 1993. SFAS
109, "Accounting for Income Taxes," requires that the income effects on
deferred taxes of enacted changes in tax laws are to be recognized in the
period of enactment. Consequently, the Company's deferred income tax
liability has been adjusted to reflect the new tax rate, and federal
tax expense for the current year has been calculated using the new rate.
-28-
<PAGE 29>
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
In 1992, the Company implemented SFAS 107, "Disclosures about Fair Value
of Financial Instruments." This statement requires the disclosure of
estimated fair values for all financial instruments for which it is
practical to estimate fair value.
Fair value is a very subjective and imprecise measurement that is based
on numerous estimates and assumptions which require substantial judge-
ment and may only be valid at a particular point in time. As such, fair
value can only represent a very general approximation of possible value
which may never actually be realized.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable
to estimate. In accordance with SFAS 107, fair value disclosure is not
required for lease contracts.
Cash and cash equivalents: The carrying amount approximates fair value
due to the short maturity of these instruments.
Loans receivable: The fair value is estimated by discounting the future
cash flows using current rates at which similar loans would be made to
borrowers with similar credit ratings with the same remaining
maturities.
Working capital financing receivables: The carrying amount approximates
fair value due to the short maturity of most of these instruments.
Due and deferred from receivable sales: The carrying amount
approximates fair value.
Short-term debt: For the majority of these instruments, the carrying
amount approximates fair value due to their short maturity.
Long-term debt and current maturities of long-term debt: The fair value
of these instruments is based on replacement cost or quoted market
prices for the same issues. Replacement cost is the cost to issue a
similar instrument with similar maturity and credit risk.
-29-
<PAGE 30>
Interest rate swaps and currency exchange agreements: The fair value of
these instruments has been estimated as the amount the Company would
receive or pay to terminate the agreements, taking into consideration
current interest and currency exchange rates.
Financial guarantees: The fair value of financial guarantees is
estimated as the amount that would be paid if the Company had to settle
the obligation.
The estimated fair values of the Company's financial instruments are
summarized as follows:
At December 31, 1993
(Dollars in thousands)
Carrying Estimated
Amount Fair Value
__________ __________
Financial assets:
Cash and cash equivalents $ 609,891 $ 609,891
Loans receivable $1,037,864 $1,122,139
Working capital financing receivables $1,425,781 $1,425,781
Due and deferred from receivable sales $ 245,892 $ 245,892
Financial liabilities:
Short-term debt (excluding
current maturities of
long-term debt) $2,828,037 $2,828,594
Long-term debt and current
maturities of long-term debt $3,679,483 $3,665,268
Off-balance-sheet instruments:
Interest rate swaps and currency
exchange agreements - $ 54,400
Financial guarantees - $ 18,382
-30-
<PAGE 31>
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:(cont.)
At December 31, 1992
(Dollars in thousands)
Carrying Estimated
Amount Fair Value
__________ __________
Financial assets:
Cash and cash equivalents $ 598,557 $ 598,557
Loans receivable $1,416,252 $1,467,444
Working capital financing receivables $1,138,131 $1,138,131
Financial liabilities:
Short-term debt (excluding
current maturities of
long-term debt) $4,553,733 $4,562,590
Long-term debt and current
maturities of long-term debt $3,251,368 $3,301,283
Off-balance-sheet instruments:
Interest rate swaps and currency
exchange agreements - $ 30,530
Financial guarantees - $ 22,900
-31-
<PAGE 32>
Selected Quarterly Financial Data: (Unaudited)
(Dollars in thousands)
Finance
and Other Interest Net
Income Expense Earnings
1993
____
First Quarter . . . . . . . $ 405,657 $ 93,931 $ 58,251
Second Quarter. . . . . . . 382,620 91,576 50,590
Third Quarter . . . . . . . 460,029 94,237 37,706
Fourth Quarter. . . . . . . 522,124 85,931 73,673
__________ __________ __________
$1,770,430 $ 365,675 $ 220,220
========== ========== ==========
1992
____
First Quarter . . . . . . . $ 409,856 $ 125,542 $ 58,102
Second Quarter. . . . . . . 464,654 116,870 52,738
Third Quarter . . . . . . . 457,450 106,331 55,851
Fourth Quarter. . . . . . . 430,570 97,073 52,579
__________ __________ __________
$1,762,530 $ 445,816 $ 219,270
========== ========== ==========
SUBSEQUENT EVENT:
On January 28, 1994, the Company's Board of Directors approved a $150.0
million dividend payable to IBM on February 28, 1994.
-32-
<PAGE 33>
ITEM 9. CHANGES in and DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
and FINANCIAL DISCLOSURE:
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Omitted pursuant to General Instruction J.
ITEM 11. EXECUTIVE COMPENSATION:
Omitted pursuant to General Instruction J.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT:
Omitted pursuant to General Instruction J.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Omitted pursuant to General Instruction J.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K:
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
included in Part II of this report:
Report of Independent Accountants (page 12).
Consolidated Statement of Financial Position at December
31, 1993 and 1992 (page 13).
Consolidated Statement of Earnings and Retained Earnings
for the years ended December 31, 1993, 1992 and 1991
(page 14).
Consolidated Statement of Cash Flows for the years ended
December 31, 1993, 1992 and 1991 (page 15).
Notes to Consolidated Financial Statements (pages 16
through 32).
-33-
<PAGE 34>
2. Financial statement schedules required to be filed by
Item 8 of this Form:
Page Schedule Number
____ _______________
36 IX -- Short-Term Borrowings
All other schedules are omitted because of the absence
of the conditions under which they are required or
because the information is disclosed in the financial
statements or the notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation
S-K:
Included in this Form 10-K:
Exhibit
Number
_______
I. Agreement to furnish information defining the
rights of debt holders.
II. Statement re computation of ratios.
III. Consent of Experts and Counsel.
IV. Power of attorney of James J. Forese.
V. Power of attorney of John W. Thompson.
Not included in this Form 10-K:
The Certificate of Incorporation of IBM Credit Corporation
is filed pursuant to Quarterly report on Form 10Q for
the Quarterly period ended June 30, 1993 on August 10, 1993,
and is hereby incorporated by reference.
The By-Laws of IBM Credit Corporation is filed pursuant
to Quarterly report on Form 10Q for the Quarterly period
ended September 30, 1993 on November 10, 1993 and
is hereby incorporated by reference.
The Support Agreement dated as of April 15, 1981, between
the Company and IBM is filed with Form SE dated March 26,
1987, and is hereby incorporated by reference.
Powers of Attorney of Bob E. Dies, Takeshi Gotoh, and
John J. Higgins.
(b) Reports on Form 8-K:
There were no 8-K reports filed during the last quarter
of 1993.
-34-
<PAGE 35>
[SIGNATURE]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/James J. Forese
__________________
(James J. Forese)
(Chairman)
Date: March 15, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on March 15, 1994
Signature Title
_________ _____
_James J Forese ______
______________________
(James J. Forese)* Chairman
_Melvin Kyle Grosz____
______________________
(Melvin Kyle Grosz) Vice President and Assistant General
Manager, Finance and Risk Management
_Richard J. Obetz_____
______________________
(Richard J. Obetz) Controller
]
]
]
Bob E. Dies* Director ]
] /s/ Melvin Kyle Grosz
Takeshi Gotoh* Director ]By: _________________
] (Melvin Kyle Grosz)
John J. Higgins* Director ] Attorney-in-fact
]
John W. Thompson* Director ]
]
]
]
]
* A majority of the Board of Directors
-35-
<PAGE 36>
<TABLE>
SCHEDULE IX
IBM CREDIT CORPORATION
SHORT-TERM BORROWINGS
FOR THE YEAR ENDED DECEMBER 31:
<CAPTION>
(DOLLARS IN THOUSANDS)
WEIGHTED
AVERAGE MAXIMUM WEIGHTED
BALANCE INTEREST OUTSTANDING AVERAGE
AT END RATE AT AT ANY AVERAGE INTEREST
OF PERIOD YEAR END MONTH END BALANCE(A) RATE (B)
_________ ________ _________ _______ ________
<S> <C> <C> <C> <C> <C>
1993
____
COMMERCIAL PAPER $1,641,473 4.2% $3,244,895 $2,318,750 4.1%
SHORT-TERM NOTES $ 826,690 3.7% $1,250,530 $1,063,568 3.4%
MONEY MARKET NOTES $ 359,874 3.1% $ 501,376 $ 431,392 3.0%
1992
____
COMMERCIAL PAPER $3,409,184 3.5% $3,409,184 $2,691,883 4.4%
SHORT-TERM NOTES $ 613,632 3.8% $ 765,346 $ 568,330 3.8%
MONEY MARKET NOTES $ 530,917 3.1% $ 719,696 $ 642,442 3.8%
1991
____
COMMERCIAL PAPER $2,151,403 4.3% $2,342,239 $1,809,333 6.2%
SHORT-TERM NOTES $ 529,000 5.6% $ 870,727 $ 735,346 6.7%
MONEY MARKET NOTES $ 720,917 5.1% $ 915,535 $ 801,825 6.1%
MASTER NOTE $ - - $ 100,000 $ 81,667 6.7%
(A) Average balances outstanding during the period are computed by
dividing the sum of the weighted average monthly outstanding
balances by the number of months in the period.
(B) The weighted average interest rate during the period is computed by
dividing the interest charged for the period by the weighted
average amount outstanding during the period.
</TABLE>
-36-
<PAGE 37>
EXHIBIT INDEX
_____________
Reference Number Exhibit Number
per Item 601 of in This
Regulation S-K Description of Exhibits Form 10-K
________________ _______________________ _____________
(3) Certificate of Incorporation and By-Laws.
The certificate of incorporation of IBM
Credit Corporation is filed pursuant to Form
10Q for the Quarterly period ended June 30, 1993
on August 10, 1993, and is hereby incorporated
by reference.
The By-Laws of IBM Credit Corporation are file
pursuant to Quarterly report on Form 10Q for
the Quarterly period ended September 30, 1993
on November 10, 1993 and are hereby incorporated
by reference.
(4) (a) Instruments Defining the Rights of Security
Holders.
An agreement to furnish to the Securities I
and Exchange Commission on request, a copy
of instruments defining the rights of debt
holders.
(4) (b) Indenture dated as of January 15, 1989 filed
electronically as Exhibit No. 4 to Amendment
No. 1 to Form S-3 on April 3, 1989, and hereby
incorporated by reference.
(9) Voting Trust Agreement Not
applicable
(10) Material Contracts.
The Support Agreement dated as of
April 15, 1981, between the Company and IBM
is filed with Form SE dated March 26, 1987,
and is hereby incorporated by reference.
-37-
<PAGE 38>
EXHIBIT INDEX
_____________
(continued)
Reference Number Exhibit Number
per Item 601 of in This
Regulation S-K Description of Exhibits Form 10-K
________________ _______________________ _____________
(11) Statement re computation of per share Not
earnings applicable
(12) Statement re computation of ratios II
(18) Letter re change in accounting principles Not
applicable
(19) Previously unfiled documents Not
applicable
(22) Subsidiaries of the registrant Omitted
(23) Published report regarding matters Not
submitted to vote of security holders applicable
(24) Consent of experts and counsel III
(25) (a) Power of attorney of Bob E. Dies is filed
on Form SE dated March 3, 1989, and is
hereby incorporated by reference.
(25) (b) Power of attorney of Takeshi Gotoh is filed
on Form SE dated September 17, 1990
and is hereby incorporated by reference.
(25) (c) Power of attorney of John J. Higgins is filed
on Form SE dated April 16, 1991, and is hereby
incorporated by reference.
(25) (d) Power of attorney of James J. Forese IV
(25) (e) Power of attorney of John W. Thompson V
(28) Additional exhibits Not
applicable
(29) Information from reports furnished to Not
state insurance regulatory authorities applicable
-38-
<PAGE 1>
[SIGNATURE]
EXHIBIT I
_________
AGREEMENT TO FURNISH INFORMATION DEFINING
_________________________________________
THE RIGHTS OF DEBT HOLDERS
__________________________
Securities and Exchange Commission
450 Fifth Avenue
Washington, D.C. 20549
Subject: IBM Credit Corporation Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 - File No. 1-8175
Dear Sirs:
IBM Credit Corporation (the Company) including its subsidiaries does
not have outstanding any instrument other than the Indenture dated
January 15, 1989 as filed electronically as Exhibit No. 4 to Form S-3
with the Securities and Exchange Commission on April 3, 1989 defining the
rights of the holders of its long-term debt under which the total amount
of securities authorized exceeds 10% of the total assets of the Company
and its subsidiaries on a consolidated basis.
In accordance with paragraph (b)(4)(iii) of Item 601 of Regulation S-K,
the Company hereby agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of each instrument which defines the
rights of the holders of its long-term debt.
Very truly yours,
IBM CREDIT CORPORATION
By: /s/ Melvin Kyle Grosz
_______________________
Date: March 15, 1994 (Melvin Kyle Grosz)
Vice President and Assistant General
Manager, Finance and Risk Management
<PAGE 1>
<TABLE>
<CAPTION>
EXHIBIT II
__________
IBM CREDIT CORPORATION
STATEMENT RE COMPUTATION OF RATIOS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31:
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
_____ ____ ____ ____ ____
Fixed Charges:
Interest Expense $365,675 $445,816 $562,531 $606,750 $497,811
Approximate portion of rental
expense representative of
the interest factor 3,290 3,078 1,446 2,316 900
_________ ________ ________ ________ ________
Total fixed charges 368,965 448,894 563,977 609,066 498,711
Net earnings 220,220 219,270 200,221 165,510 137,011
Provision for income taxes 173,172 131,562 124,858 102,539 81,696
_________ ________ ________ ________ ________
Earnings before income taxes,
equity losses, cumulative
accounting principle and
fixed charges $762,357 $799,726 $889,056 $877,115 $717,418
========= ======== ======== ======== ========
Ratio of earnings to fixed
charges 2.07 1.78 1.58 1.44 1.44
==== ==== ==== ==== ====
</TABLE>
<PAGE 1>
[SIGNATURE]
EXHIBIT III
___________
CONSENT OF INDEPENDENT ACCOUNTANTS
__________________________________
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statements on Form S-3
(Nos. 33-36862, 33-44594, 33-43073, and 33-49411) of IBM Credit
Corporation of our report dated February 16, 1994 appearing on page 12
of this Annual Report on Form 10-K.
/s/ Price Waterhouse
Stamford, CT
March 15, 1994
<PAGE 1>
[SIGNATURE]
EXHIBIT IV
__________
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
director of IBM Credit Corporation, a Delaware corporation, which
expects to file with the Securities and Exchange Commission,
Washington, D.C., under provisions of the Securities Laws, an
Annual Report on Form 10-K, and Registration Statements for
amounts of debentures and notes to be determined by the Board of
Directors, hereby appoints the President; Vice-President,
Finance; Secretary; and any Assistant Secretary of said
corporation; and each of such officers individually, his
attorney-in-fact and agent, for him and in his name, to sign, or
cause to be signed electronically, said 10-K and Registration
Statements and amendments thereto, and to file them with the
Securities and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents, and each of them, full power to do
any and all acts and things as fully as he might or could do in
person. This authorization shall remain in force throughout the
period that the undersigned is a director of IBM Credit
Corporation.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney this 1st day of March, 1994.
/s/ JAMES J. FORESE
_______________
Name: James J. Forese
Title: Chairman
<PAGE 1>
[SIGNATURE]
EXHIBIT V
_________
POWER OF ATTORNEY
_________________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
director of IBM Credit Corporation, a Delaware corporation, which
expects to file with the Securities and Exchange Commission,
Washington, D.C., under provisions of the Securities Laws, an
Annual Report on Form 10-K, and Registration Statements for
amounts of debentures and notes to be determined by the Board of
Directors, hereby appoints the President; Vice-President,
Finance; Secretary; and any Assistant Secretary of said
corporation; and each of such officers individually, his
attorney-in-fact and agent, for him and in his name, to sign, or
cause to be signed electronically, said 10-K and Registration
Statements and amendments thereto, and to file them with the
Securities and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents, and each of them, full power to do
any and all acts and things as fully as he might or could do in
person. This authorization shall remain in force throughout the
period that the undersigned is a director of IBM Credit
Corporation.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney this 31st day of March, 1993.
/s/ John W. Thompson
_________________
Name: John W. Thompson
Title: Director
<PAGE 1>
<TABLE>
Data Stated in Thousands
Voluntary Schedule - Certain Financial Information
<CAPTION>
Regulation Statement Caption 1993 1992 1991
<S> <C> <C> <C>
5-02(1) Cash and cash equivalents $609,891 $598,557 $523,462
5-02(18) Total assets 10,041,543 11,451,267 11,326,662
5-02(22) Long-term debt 2,279,796 2,406,071 2,158,988
5-02(30) Capital stock 438,811 438,811 438,811
5-02(31)(a)(3)(ii) Retained earnings 711,918 816,698 647,428
5-03(b)(1)(a) Equipment sales 840,944 743,285 555,413
5-03(b)(1)(c) Income from rentals, ne 123,326 164,155 165,212
5-03(b)(1)(d) Capital leases 450,071 502,835 461,272
5-03(b)(1)(d) Income from working capital financing 104,286 80,645 90,016
5-03(b)(1)(d) Income from loans 112,339 155,595 179,636
5-03(b)(1)(d) Other income 139,464 116,015 192,978
5-03(b)(2)(a) Cost of equipment sales 777,364 676,412 480,107
5-03(b)(8) Interest expense 365,675 445,816 562,531
5-03(b)(10) Earnings before taxes and other items 393,392 350,832 325,079
5-03(b)(11) Provision for income taxes 173,172 131,562 124,858
5-03(b)(16) Net earnings 220,220 219,270 200,221
</TABLE>
