<PAGE 1>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
:hp3.FORM 10-K:ehp3.
ANNUAL REPORT
pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
:hp3.FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994:ehp3.
1-8175
________________________
(Commission file number)
:hp3.IBM CREDIT CORPORATION:ehp3.
______________________________________________________
(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
___________________ _____________________
5.36% Notes due October 27, 1998 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, 1995, the number of outstanding shares of capital
stock, par value $1.00 per share, of the registrant was 899, all of which
shares were held by International Business Machines Corporation.
Aggregate market value of the voting stock held by nonaffiliates
of the registrant at February 28, 1995: 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.
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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 Operations 5
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management 36
Item 13. Certain Relationships and Related Transactions 36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 36
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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 that,
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 129,000 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 $295,000,000 and $325,000,000 to IBM in 1994 and 1993,
respectively. Dividends are paid as declared by the Board of Directors
of the Company.
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<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>
(Dollars in thousands) 1994 1993 1992 1991 1990
___________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C> <C>
For the year:
Finance and other income. . . . . . . $1,484,680 $1,770,430 $1,762,530 $1,644,527 $1,427,985
Gross profit on equipment sales . . . 68,508 63,580 66,873 75,306 45,576
Interest expense. . . . . . . . . . . 306,125 365,675 445,816 562,531 606,750
Net earnings. . . . . . . . . . . . . 250,589 220,220 219,270 200,221 165,510
Dividends . . . . . . . . . . . . . . 295,000 325,000 50,000 25,000 75,000
Products purchased for leases . . . . 1,659,019 2,165,577 2,794,567 2,786,088 3,188,318
Loans receivable financing. . . . . . 496,308 441,939 651,153 665,735 868,623
IBM state and local installment
receivables and leases. . . . . . . 232,845 294,166 412,476 486,872 535,586
Working capital financing . . . . . . 7,597,300 5,866,300 4,213,000 4,905,000 5,670,395
Return on average assets. . . . . . . 2.7% 2.0% 2.0% 1.9% 1.7%
Return on average equity. . . . . . . 24.1% 19.1% 19.0% 20.3% 19.9%
At end of year:
Total assets. . . . . . . . . . . . . $9,667,715 $10,041,543 $11,451,267 $11,326,662 $11,131,924
Net investment in capital leases. . . 3,687,971 4,437,257 6,037,269 5,930,493 5,380,200
Equipment on operating lease, net . . 1,573,242 1,753,121 1,776,576 1,726,226 1,800,266
Working capital financing receivables 2,135,020 1,425,781 1,138,131 1,092,785 974,695
Loans receivable. . . . . . . . . . . 1,070,619 1,037,864 1,416,252 1,558,591 1,733,088
Short-term debt . . . . . . . . . . . 4,355,038 4,227,724 5,399,030 5,343,811 4,281,458
Long-term debt. . . . . . . . . . . . 1,583,822 2,279,796 2,406,071 2,158,988 2,996,729
Stockholder's equity. . . . . . . . . 1,121,218 1,150,729 1,255,509 1,086,239 911,018
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
:hp3.OVERVIEW:ehp3.
The Company originated financing for $10.4 billion of equipment,
software and services during 1994. Net earnings for 1994 were $250.6
million, yielding a return on average equity of 24.1 percent.
Net earnings for 1994 benefited from one-time pretax gains of $13.3
million from the sale of 100 percent of the stock of IBM Credit
Investment Management Corporation (ICIM) to a Fleet Financial Group
subsidiary in the second quarter, and $46.0 million, which is net of
directly related expenses, resulting from the Company's litigation
settlement with Comdisco, Inc. in the third quarter. The total cash
proceeds received from the litigation settlement was $70.0 million.
These pretax gains were included in other income in the Consolidated
Statement of Earnings and Retained Earnings.
Effective August 3, 1994, the Company securitized and sold $300.0
million of capital lease and loan receivables. No material gain or loss
resulted from this transaction. The Company used the net proceeds from
the sale for general corporate purposes, including the retirement of
debt.
:hp3.FINANCING ORIGINATED:ehp3.
For the year ended December 31, 1994, the Company originated financing
for $10.4 billion of equipment, software and services, an increase of 12
percent from 1993. Capital equipment financing for end users decreased
by 16 percent to $2.8 billion. Although total capital equipment
financing originated decreased compared with that of 1993, placements of
new equipment with third-party end-user customers essentially remained
unchanged. Declines occurred primarily in placements of equipment to
IBM affiliates and other end-user financing activities. Working capital
financing for dealers and remarketers of information industry products
increased by 30 percent to $7.6 billion. This growth reflects an
increase in the volumes of IBM's workstation products financed by the
Company throughout 1994, as well as increased volumes of financing
provided to information technology resellers for non-IBM products.
Capital equipment financings for end users comprised purchases of
$1,616.9 million of information handling systems products from IBM,
financing originated for installment receivables of $136.1 million,
other financing primarily for IBM software and services of $361.1
million, installment and lease financing for state and local government
customers of $232.8 million for the account of IBM, and other financing
of $417.5 million for equipment and services, as well as selected
complementary non-IBM equipment that meets IBM customers' total solution
requirements. The purchases of $1,616.9 million from IBM consisted of
$1,174.6 million for capital leases and $442.3 million for operating
leases.
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:HP3.REMARKETING ACTIVITIES:EHP3.
In addition to originating new financing, the Company remarkets used IBM
equipment. This equipment is primarily sourced from the conclusion 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 new customers. At December 31, 1994, the
investment in remarketed equipment on capital and operating leases
totaled $623.7 million, an increase of 1 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. Contributions from
remarketing activities amounted to $141.6 million for the year ended
December 31, 1994, an increase of 37 percent compared with $103.2
million for the year ended December 31, 1993.
:hp3.ASSETS:ehp3.
Total assets were $9.7 billion at December 31, 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 from
customers and affiliates exceeding financings originated during 1994,
and the securitization and sale of $300.0 million of capital lease and
loan receivables, effective August 3, 1994. These decreases were
partially offset by working capital financing originations exceeding
cash collections during 1994. Total financing assets serviced by the
Company as of December 31, 1994, were $10.5 billion, compared with $11.1
billion at December 31, 1993. Total financing assets serviced include
those financing receivables securitized and sold ($1,181.6 million in
1994, $1,370.6 million in 1993), capital and operating leases ($5,261.2
million in 1994, $6,190.4 million in 1993), loans receivable ($1,070.6
million in 1994, $1,037.9 million in 1993), working capital financing
receivables ($2,135.0 million in 1994, $1,425.8 million in 1993) and
subordinated interests in trusts ($159.0 million in 1994, $173.0 million
in 1993), as well as state and local government installment and lease
financing receivables of IBM ($726.4 million in 1994, $868.6 million in
1993).
:hp3.LIABILITIES AND STOCKHOLDER'S EQUITY:ehp3.
The assets of the business were financed with $5,938.9 million of debt
at December 31, 1994. Total short-term and long-term debt decreased by
$568.6 million, from $6,507.5 million at December 31, 1993. This
decrease was the result of the redemption of IBM Money Market Account
notes of $359.8 million, a decline in long-term debt of $696.0 million,
as well as a matured $300.0 million bond, offset by increases in
commercial paper outstanding of $615.4 million and floating and fixed
rate medium-term notes of $171.8 million. Included in long-term debt at
December 31, 1994 was $125.0 million payable to IBM at market terms and
conditions, maturing on November 1, 1997.
The Company has available $2.8 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. On October 19, 1994,
Moody's Investors Service, Inc., announced that it had upgraded its
rating for the Company's commercial paper from Prime-2 (P-2) to Prime-1
(P-1).
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:hp3.LIABILITIES AND STOCKHOLDER'S EQUITY (Continued):ehp3.
The Company is an authorized borrower of up to $1.6 billion under a
$10.0 billion IBM committed global credit facility, and has a liquidity
agreement with IBM for $500.0 million. The Company has no borrowings
outstanding under the committed global 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 an additional $4.0 billion of assets to third parties through
December 31, 1995. As previously described, the Company securitized and
sold $300.0 million of capital lease and loan receivables, effective
August 3, 1994. During the fourth quarter of 1994, the Company and IBM
signed master loan agreements providing additional funding flexibility
to each other. These agreements allow for short-term (up to 270-day)
funding, made available at market terms and conditions, upon the request
of either the Company or IBM. There are no borrowings outstanding under
these agreements. 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.
Due to IBM Corporation and affiliates increased by $233.9 million to
$1,493.4 million at December 31, 1994, from $1,259.5 million at December
31, 1993. This increase was primarily attributable to higher volumes of
capital equipment purchases from IBM in the fourth quarter of 1994,
compared with the fourth quarter of 1993, offset by the payment of
$339.0 million to IBM for a current tax liability during 1994. Due to
IBM Corporation and affiliates includes amounts of 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, typically with terms comparable
to those offered to other IBM customers, unless the Company is
participating in IBM product promotions. 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 December 31, 1994, was $1,121.2 million,
down $29.5 million from year-end 1993. The decline in stockholder's
equity reflects the payment of $295.0 million in dividends to IBM,
offset by 1994 net earnings of $250.6 million and the issuance of $14.9
million of capital stock to IBM. During the fourth quarter of 1994, the
Company issued 149 shares of capital stock, par value $1.00 per share,
to IBM, in exchange for assets IBM transferred to the Company. This is
part of a program developed to periodically transfer certain excess IBM
assets to the Company for the purpose of remarketing such assets.
At December 31, 1994, the Company's debt to equity ratio was 5.3:1,
compared with 5.7:1 at December 31, 1993.
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:hp3.TOTAL CASH PROVIDED BEFORE DIVIDENDS:EHP3.
Total cash provided before dividends was $299.4 million for 1994,
compared with $336.3 million for 1993. Total cash provided before
dividends reflects $1,591.3 million of cash used in investing and
financing activities before dividends, offset by $1,890.7 million of
cash provided by operating activities during 1994.
Cash and cash equivalents at December 31, 1994, totaled $614.3 million,
an increase of $4.4 million compared with the balance at December 31,
1993.
:hp3.INCOME FROM LEASES:ehp3.
Income from leases decreased by 24 percent to $437.6 million in 1994,
from $573.4 million in 1993. This decline resulted from lower asset
balances, which in turn were primarily caused by the securitization and
sale of capital lease receivables in the third quarter of 1994 and the
fourth quarter of 1993, and a decrease in capital equipment financing
originated during 1994 and 1993. Income from leases includes lease
income resulting from remarketing transactions. For the year ended
December 31, 1994, lease income from remarketing transactions amounted
to $80.1 million, an increase of 12 percent from 1993.
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 $542.0 million residual value portfolio at
December 31, 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 for 1994, compared with
$32.0 million in 1993.
:hp3.INCOME FROM LOANS:ehp3.
Income from loans decreased by 17 percent to $92.7 million in 1994 from
$112.3 million in 1993. This decline resulted from lower asset balances,
which in turn were primarily the result of the securitization and sale
of loan receivables in the third quarter of 1994 and the fourth quarter
of 1993, and a decrease in financing originated during 1994 and 1993.
:hp3.INCOME FROM WORKING CAPITAL FINANCING:EHP3.
Income from working capital financing increased 36 percent to $141.7
million in 1994, compared with $104.3 million in 1993. This increase is
primarily due to growth in the average working capital financing
receivables outstanding and generally higher interest rates charged
during 1994 compared with 1993, 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 this discussion and analysis.
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:HP3.EQUIPMENT SALES:EHP3.
Equipment sales decreased by 26 percent to $625.7 million in 1994,
compared with $840.9 million in 1993. The revenue associated with
outright sales and sales-type leases is included in equipment sales.
Company-owned equipment may be sold or leased to existing lessees or,
when equipment is returned, to new customers.
Gross profit on equipment sales amounted to $68.5 million for 1994,
compared with $63.6 million for 1993. The gross profit margin increased
to 10.9 percent in 1994 from 7.6 percent in 1993. During the third and
fourth quarters of 1993, the Company recognized a $20.0 million charge
for declines in market values for selected equipment sold or leased
under sales-type leases during those quarters or inventoried at December
31, 1993, which reduced the gross profit margin for 1993.
:HP3.OTHER INCOME:EHP3.
Other income increased by 34 percent to $187.0 million in 1994 from
$139.5 million in 1993. The litigation settlement reached with
Comdisco, Inc. during the third quarter of 1994 resulted in the
recognition of a pretax gain, net of directly related expenses, of $46.0
million. The sale of IBM Credit Investment Management Corporation
during the second quarter of 1994 generated a pretax gain of $13.3
million. These amounts are included in other income in the Consolidated
Statement of Earnings and Retained Earnings.
The securitization and sale of financing receivables generally
accelerates the recognition of 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 securitized and sold, the structure of the
transaction, and prevailing financial market conditions. During the
fourth quarter of 1993, the Company recognized a $21.0 million gain on
the securitization and sale of $1.4 billion of financing receivables.
This amount is included in other income in the Consolidated Statement of
Earnings and Retained Earnings. No material gain or loss resulted from
the $300.0 million securitization and sale of capital lease and loan
receivables in the third quarter of 1994. The Company continues to
service the financing receivables securitized and 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 and notes, as well as fees for managing IBM's state and
local government installment and lease financing receivables portfolio.
:HP3.TOTAL FINANCE AND OTHER INCOME:EHP3.
Total finance and other income decreased by 16 percent to $1,484.7
million in 1994 from $1,770.4 million in 1993. The decline was largely
due to reductions in income from leases, income from loans and income
from equipment sales, partially offset by increases in income from
working capital financing and other income.
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:HP3.INTEREST EXPENSE:EHP3.
Interest expense declined primarily because of the reduction in the
Company's average outstanding debt balance. Interest expense decreased
by 16 percent to $306.1 million in 1994, compared with $365.7 million in
1993. The Company's overall average cost of debt for the year remained
unchanged at 5.0 percent.
:HP3.SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:EHP3.
Selling, general, and administrative expenses decreased 12 percent to
$163.9 million in 1994, from $185.5 million in 1993. The decrease is
partly due to 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.
:HP3.PROVISION FOR RECEIVABLE LOSSES:EHP3.
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. At December 31, 1994, the allowance for receivable losses
approximated 1.1 percent of the Company's portfolio of leases, loans and
working capital financing receivables, compared with approximately 1.5
percent at December 31, 1993. The provision for receivable losses
increased 16 percent to $44.1 million in 1994, from $38.0 million in
1993. This increase reflects the Company's timely recognition of
probable receivable losses and its revised estimate of the
recoverability of specific receivables. During 1994 and 1993, the
Company recovered $8.5 million and $14.3 million, respectively, of
losses previously recorded.
:HP3.INCOME TAXES:EHP3.
The effective tax rate in 1994 was 39.4 percent, compared with 44.0
percent in 1993. 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. 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.
Consistent with 1994, the Company expects its effective tax rate to
continue to approximate the statutory federal and state income tax rates
in future years.
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:HP3.NET EARNINGS:EHP3.
Net earnings were $250.6 million for the year ended December 31, 1994,
compared with $220.2 million for 1993, an increase of 14 percent.
The Company's expanding working capital financing business, large and
profitable capital equipment remarketing operations and the containment
of operating expenses contributed to the favorable performance during
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 pretax gains of $46.0 million and $13.3
million, respectively, which contributed to the strong performance
during 1994. The after-tax contributions of these two items were $27.9
million and $8.1 million, respectively.
During 1993, an additional income tax expense of $23.9 million was
recorded to reflect the retroactive tax rate increase under the Omnibus
Budget Reconciliation Act of 1993 and pretax restructuring charges of
$10.5 million ($6.4 million after-tax) were recorded to recognize the
cost of the Company's actions to reduce its infrastructure. These
expense items were partially offset by a $21.0 million pretax gain
($12.9 million after-tax), net of related expenses, realized on the
securitization and sale of $1.4 billion of financing receivables during
the fourth quarter of 1993.
:HP3.RETURN ON AVERAGE EQUITY:EHP3.
The 1994 results yielded a return on average equity of 24.1 percent,
compared with 19.1 percent in 1993.
:hp3.NEW ACCOUNTING STANDARDS:EHP3.
In November 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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. Effective
January 1, 1993, IBM and the Company adopted SFAS 112. The impact of
adoption did not materially impact the Company's financial position and
results of operations.
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. The Company implemented SFAS 115, effective January 1, 1994. The
implementation had no material impact on the Company's financial
position and results of operations.
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:hp3.NEW ACCOUNTING STANDARDS (Continued):EHP3.
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 October 1994, SFAS 114 was amended by SFAS 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures,"
which allows a creditor to use existing methods for recognizing interest
income on an impaired loan. SFAS 118 eliminates the provisions in SFAS
114 that describe how a creditor should report income on an impaired
loan. However, it does not preclude a creditor from using either of the
methods described. Additionally, SFAS 118 amends the disclosure
requirements in SFAS 114 to require information about the recorded
investment in certain impaired loans and about how a creditor recognizes
interest income related to those impaired loans. SFAS 118 is effective
concurrent with the effective date of SFAS 114.
It is expected that the implementation of SFAS 114 and SFAS 118 will not
materially impact the Company's financial position and results of
operations.
In October 1994, the FASB issued SFAS 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," to
improve disclosure requirements for all derivative financial instruments
and to amend existing requirements of SFAS 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk", and SFAS 107,
"Disclosures about Fair Value of Financial Instruments." The Company
implemented SFAS 119 effective December 31, 1994.
:HP3.CLOSING DISCUSSION:EHP3.
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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
<AUDIT-REPORT>
Report of Independent Accountants
January 20, 1995, except as to the Subsequent Event note
on page 34, which is as of February 8, 1995
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 36 and
37 present fairly, in all material respects, the financial position of
IBM Credit Corporation and its subsidiaries at December 31, 1994 and
1993, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, 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 LLP
Stamford, CT
</AUDIT-REPORT>
-13-
<PAGE 14>
<TABLE>
:hp3.
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
:ehp3.
at December 31:
(Dollars in thousands)
<CAPTION>
1994 1993
__________ ___________
<S> <C> <C>
:hp3.ASSETS::ehp3.
Cash and cash equivalents. . . . . . . . . . $ 614,339 $ 609,891
Net investment in capital leases . . . . . . 3,687,971 4,437,257
Equipment on operating lease, net. . . . . . 1,573,242 1,753,121
Loans receivable . . . . . . . . . . . . . . 1,070,619 1,037,864
Working capital financing receivables. . . . 2,135,020 1,425,781
Investments and other assets . . . . . . . . 382,910 531,737
Due and deferred from receivable sales . . . 203,614 245,892
__________ ___________
Total Assets $9,667,715 $10,041,543
========== ===========
:hp3.LIABILITIES AND STOCKHOLDER'S EQUITY::ehp3.
Liabilities:
Short-term debt. . . . . . . . . . . . . . . $4,355,038 $ 4,227,724
Due to IBM Corporation and affiliates. . . . 1,493,449 1,259,547
Interest and other accruals. . . . . . . . . 462,277 312,464
Deferred income taxes. . . . . . . . . . . . 651,911 811,283
Long-term debt . . . . . . . . . . . . . . . 1,458,822 2,279,796
Long-term debt, IBM Corporation. . . . . . . 125,000 -
__________ ___________
Total liabilities 8,546,497 8,890,814
__________ ___________
Stockholder's equity:
Capital stock, par value $1.00 per share
Shares authorized: 10,000
Shares issued and outstanding:
899 in 1994 and 750 in 1993 . . . . . . 453,711 438,811
Retained earnings. . . . . . . . . . . . . . 667,507 711,918
__________ ___________
Total stockholder's equity. . . . . . . . 1,121,218 1,150,729
__________ ___________
Total Liabilities and Stockholder's Equity $9,667,715 $10,041,543
========== ===========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
-14-
<PAGE 15>
<TABLE>
:hp3.
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
:ehp3.
For the year ended December 31:
(Dollars in thousands)
<CAPTION>
1994 1993 1992
__________ __________ __________
<S> <C> <C> <C>
:hp3.FINANCE AND OTHER INCOME::ehp3.
Income from leases:
Capital leases . . . . . . . . . . . . . $ 308,313 $ 450,071 $ 502,835
Operating leases (net of depreciation:
1994 - $701,055, 1993 - $662,898 and
1992 - $643,128) . . . . . . . . . . . 129,314 123,326 164,155
__________ __________ __________
437,627 573,397 666,990
Income from loans. . . . . . . . . . . . . 92,656 112,339 155,595
Income from working capital financing. . . 141,655 104,286 80,645
Equipment sales. . . . . . . . . . . . . . 625,729 840,944 743,285
Other income. . . . . . . . . . . . . . . 187,013 139,464 116,015
__________ __________ __________
Total finance and other income . . . . . 1,484,680 1,770,430 1,762,530
__________ __________ __________
:hp3.COST AND EXPENSES::ehp3.
Interest . . . . . . . . . . . . . . . . . 306,125 365,675 445,816
Cost of equipment sales. . . . . . . . . . 557,221 777,364 676,412
Selling, general, and administrative . . . 163,945 185,493 186,866
Restructuring charges. . . . . . . . . . . - 10,489 -
Provision for receivable losses. . . . . . 44,097 38,017 102,604
__________ __________ __________
Total cost and expenses. . . . . . . . . 1,071,388 1,377,038 1,411,698
__________ __________ __________
:hp3.EARNINGS BEFORE INCOME TAXES:ehp3.. . . . . 413,292 393,392 350,832
Provision for income taxes . . . . . . . . . 162,703 173,172 131,562
__________ __________ __________
:hp3.NET EARNINGS:ehp3.. . . . . . . . . . . . . . . 250,589 220,220 219,270
Dividends . . . . . . . . . . . . . . . . . (295,000) (325,000) (50,000)
Retained earnings at January 1 . . . . . . . 711,918 816,698 647,428
__________ __________ __________
Retained earnings at December 31 . . . . . . $ 667,507 $ 711,918 $ 816,698
========== ========== ==========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
-15-
<PAGE 16>
<TABLE>
:hp3.
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
:ehp3.
For the year ended December 31:
(Dollars in thousands)
<CAPTION>
1994 1993* 1992*
____________ ____________ ____________
<S> <C> <C> <C>
:hp3.CASH FLOWS FROM OPERATING ACTIVITIES::ehp3.
Net earnings . . . . . . . . . . . . . . . . $ 250,589 $ 220,220 $ 219,270
Adjustments to net earnings:
Depreciation and amortization. . . . . . . 700,643 667,593 644,334
Provision for receivable losses. . . . . . 44,097 38,017 102,604
Change in deferred income taxes. . . . . . (159,372) 95,112 271,728
Increase in interest and other accruals. . 149,813 41,724 84,481
Gross profit on equipment sales. . . . . . (68,508) (63,580) (66,873)
Gain on sale of ICIM . . . . . . . . . . . (13,324) - -
Gain on sale of financing receivables. . . - (21,040) -
____________ ____________ ____________
Cash flow provided by net earnings . . . . . 903,938 978,046 1,255,544
Proceeds from equipment sales. . . . . . . . 625,729 840,944 743,285
Change in due to IBM Corporation and
affiliates. . . . . . . . . . . . . . . . . 248,802 (144,199) (703,176)
Change in due and deferred from receivable
sales . . . . . . . . . . . . . . . . . . . 42,278 (245,892) -
Cash proceeds from settlement of litigation
with Comdisco, Inc. . . . . . . . . . . . . 70,000 - -
____________ ____________ ____________
Cash provided by operating activities . . . . . 1,890,747 1,428,899 1,295,653
____________ ____________ ____________
:hp3.CASH FLOWS FROM INVESTING ACTIVITIES::ehp3.
Investment in capital leases . . . . . . . . (1,194,559) (1,397,459) (1,975,981)
Collection of capital leases, net of income
earned. . . . . . . . . . . . . . . . . . . 1,206,120 1,612,983 1,418,041
Investment in equipment on operating lease . (464,460) (768,118) (818,586)
Investment in loans receivable . . . . . . . (496,308) (441,939) (651,153)
Collection of loans receivable, net of
interest earned . . . . . . . . . . . . . . 423,455 668,544 762,008
Investment in working capital financing
receivables, net of cash collected. . . . . (714,636) (685,651) (48,057)
Proceeds from sale of financing receivables. 300,000 1,350,000 -
Collection of (investment in) loans
receivable from affiliates, net of interest
earned. . . . . . . . . . . . . . . . . . . 104,790 (134,762) 29,185
Investment in Comdisco, Inc. promissory note (20,000) - -
Proceeds from sale of ICIM . . . . . . . . . 14,000 - -
Other changes, net . . . . . . . . . . . . . (186,212) (730) (196,029)
____________ ____________ ____________
Cash (used in) provided by investing activities (1,027,810) 202,868 (1,480,572)
____________ ____________ ____________
<FN>
<F1>
The accompanying notes are an integral part of this statement.
<F2>
* Reclassified to conform with 1994 presentation.
</FN>
</TABLE>
-16-
<PAGE 17>
<TABLE>
:hp3.
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
:ehp3.
For the year ended December 31:
(Dollars in thousands)
<CAPTION>
1994 1993* 1992*
____________ ____________ ____________
<S> <C> <C> <C>
:hp3.CASH FLOWS FROM FINANCING ACTIVITIES::ehp3.
Proceeds from issuance of long-term debt . . 668,849 1,670,009 1,167,153
Repayment of debt with original maturities:
One year or more. . . . . . . . . . . . . . (771,337) (1,313,432) (2,009,645)
Within one year, net of debt issued . . . . (461,001) (1,652,010) 1,152,506
Cash dividends paid to IBM Corporation . . . (295,000) (325,000) (50,000)
____________ ____________ ____________
Cash (used in) provided by financing activities (858,489) (1,620,433) 260,014
____________ ____________ ____________
Increase in cash and cash equivalents . . . . . 4,448 11,334 75,095
Cash and cash equivalents at January 1. . . . . 609,891 598,557 523,462
____________ ____________ ____________
Cash and cash equivalents at December 31. . . . $ 614,339 $ 609,891 $ 598,557
============ ============ ============
<FN>
<F1>
:hp3.Supplemental schedule of noncash financing activities::ehp3.
During the fourth quarter of 1994, the Company issued 149 shares of
capital stock, par value $1.00 per share, to IBM, in exchange for assets
IBM transferred to the Company. This transaction increased
stockholder's equity by $14.9 million.
<F2> The accompanying notes are an integral part of this statement.
<F3> * Reclassified to conform with 1994 presentation. </FN>
-17-
<PAGE 18>
:HP3.
IBM CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES:
:EHP3.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and those of its subsidiaries that
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 $315.9 million, $366.2 million
and $504.1 million for 1994, 1993 and 1992, 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
existing lessees 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 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, 1994 and 1993 is $246.2 million and $263.8 million,
respectively, of current income taxes payable as determined in
accordance with the Agreement. Cash paid for income taxes to IBM and
states that require separate tax returns in 1994, 1993 and 1992 was
$348.3 million, $120.6 million and $7.8 million, respectively.
Futures Contracts and Options: The Company uses derivative products
solely to hedge against interest rate or currency risks associated with
funding its business. Debt obligations denominated in foreign
currencies and subject to foreign currency swap agreements are included
in the Consolidated Statement of Financial Position at the contractual
rate of exchange in the respective foreign currency swap agreement.
Gains and losses on forward contracts and purchased options, designated
as hedges, are deferred and included in the settlement of the related
transaction.
-18-
<PAGE 19>
:HP3.RELATIONSHIP WITH IBM::eHP3.
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 that 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 guarantee by IBM to any party of the
payment of any debt or other obligation, indebtedness or liability 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.
Pursuant to an operating agreement, 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 receivables 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.
The operating agreement with IBM also 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 that 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 typically be at the purchase price payable
by the lessee, unless the Company is participating in IBM product
promotions.
The Company also has an agreement with IBM that 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 receivables balance for any given year will be
reimbursed to the Company by IBM. The Company has not received any
payments to date 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 agreement, the Company
entered into a backup agreement with IBM, whereby IBM has agreed to
advance funds to the Company, in an amount 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 agreements at December 31, 1994.
-19-
<PAGE 20>
:HP3.RELATIONSHIP WITH IBM (Continued)::eHP3.
From time to time, the Company will either borrow funds from or lend
funds to IBM and its affiliates, at prevailing interest rates.
During the fourth quarter of 1994, the Company and IBM signed master
loan agreements providing additional funding flexibility to each other.
These agreements allow for short-term (up to 270-day) funding, made
available at market terms and conditions, upon the request of either the
Company or IBM. The purpose of these agreements is to finance the
borrower's assets, for working capital or for other general corporate
purposes. There were no borrowings outstanding under these agreements
at December 31, 1994.
-20-
<PAGE 21>
:hp3.NET INVESTMENT IN CAPITAL LEASES::EHP3.
The Company's capital lease portfolio includes direct financing and
leveraged leases. The Company originates financing for customers in a
variety of industries and throughout the United States. The Company has
a diversified portfolio of capital equipment financings for end users.
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, 1994
and 1993, are as follows:
(Dollars in thousands)
1994 1993
___________ ___________
Minimum lease payments receivable . . . . $3,735,154 $4,500,304
Estimated unguaranteed residual values. . 287,511 366,356
Deferred initial direct costs . . . . . . 30,076 30,932
Unearned income . . . . . . . . . . . . . (547,685) (622,410)
Allowance for receivable losses . . . . . (24,389) (47,398)
___________ ___________
$3,480,667 $4,227,784
=========== ===========
The scheduled maturities of minimum lease payments outstanding at
December 31, 1994, expressed as a percentage of the total, are as
follows:
1994
______
Due within 12 months. . . . . . . . . . . . . . . . 46.0%
13 to 24 months . . . . . . . . . . . . . . . . . . 33.0
25 to 36 months . . . . . . . . . . . . . . . . . . 14.2
37 to 48 months . . . . . . . . . . . . . . . . . . 6.0
After 48 months . . . . . . . . . . . . . . . . . . 0.8
______
100.0%
======
The following is a reconciliation of the direct financing lease
allowance for receivable losses:
(Dollars in thousands)
1994 1993 1992
_________ _________ _________
Beginning of year. . . . . . . . . . . . $ 47,398 $ 74,548 $ 42,089
Additions . . . . . . . . . . . . . . . 32,395 24,793 66,665
Accounts written off (net of recoveries) (54,610) (45,336) (34,206)
Transfers to allowance for losses
on receivables sold . . . . . . . . (794) (6,607) -
_________ _________ _________
End of year. . . . . . . . . . . . . . . $ 24,389 $ 47,398 $ 74,548
========= ========= =========
Included in the net investment in capital leases is $252.8 million and
$335.0 million of seller interest at December 31, 1994 and 1993,
respectively, relating to the securitization of such leases.
-21-
<PAGE 22>
:hp3.NET INVESTMENT IN CAPITAL LEASES (Continued)::EHP3.
Leveraged lease investments include coal-fired electric generating
facilities, commercial aircraft and other non-IBM manufactured
equipment. Leveraged leases have remaining terms ranging from four to
twenty-four years. The components of the net investment in leveraged
leases at December 31, 1994 and 1993, are as follows:
(Dollars in thousands)
1994 1993
__________ __________
Net rents receivable. . . . . . . . . . $ 269,649 $ 273,183
Estimated unguaranteed residual values. 40,752 40,752
Unearned and deferred income. . . . . . (95,926) (97,222)
Allowance for losses. . . . . . . . . . (7,171) (7,240)
__________ __________
Investment in leveraged leases. . . . . 207,304 209,473
Less: Deferred income taxes. . . . . . (227,096) (234,805)
__________ __________
Net investment in leveraged leases. . . $ (19,792) $ (25,332)
========== ==========
:HP3.EQUIPMENT ON OPERATING LEASE::EHP3.
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, 1994 and 1993, are as
follows:
(Dollars in thousands)
1994 1993
____________ ____________
Cost. . . . . . . . . . . . . . . . . . . $ 3,135,364 $ 2,853,672
Accumulated depreciation. . . . . . . . . (1,562,122) (1,100,551)
____________ ____________
$ 1,573,242 $ 1,753,121
============ ============
Minimum future rentals were approximately $1,494.6 million at December
31, 1994. The scheduled maturities of the minimum future rentals at
December 31, 1994, expressed as a percentage of the total, are as
follows:
1994
______
Due within 12 months. . . . . . . . . . . . . . . . 37.1%
13 to 24 months . . . . . . . . . . . . . . . . . . 29.4
25 to 36 months . . . . . . . . . . . . . . . . . . 20.4
37 to 48 months . . . . . . . . . . . . . . . . . . 9.3
After 48 months . . . . . . . . . . . . . . . . . . 3.8
______
100.0%
======
-22-
<PAGE 23>
:HP3.LOANS RECEIVABLE::EHP3.
Loans receivable include installment receivables which are principally
financings of customer purchases of IBM information handling products.
Also included are other financings, comprising primarily IBM software
and services. The components of loans receivable at December 31, 1994
and 1993, are as follows:
(Dollars in thousands)
1994 1993
___________ ___________
Loans receivable . . . . . . . . . . $1,257,434 $1,255,557
Unearned income. . . . . . . . . . . (145,150) (160,189)
Allowance for receivable losses. . . (41,665) (57,504)
___________ ___________
$1,070,619 $1,037,864
=========== ===========
The scheduled maturities of loans receivable outstanding at December 31,
1994, expressed as a percentage of the total, are as follows:
1994
______
Due within 12 months . . . . . . . . . . . . . . . 41.4%
13 to 24 months. . . . . . . . . . . . . . . . . . 32.1
25 to 36 months. . . . . . . . . . . . . . . . . . 18.0
37 to 48 months. . . . . . . . . . . . . . . . . . 6.6
49 to 60 months. . . . . . . . . . . . . . . . . . 1.9
______
100.0%
======
The following is a reconciliation of the loans receivable allowance for
receivable losses:
(Dollars in thousands)
1994 1993 1992
_________ _________ _________
Beginning of year. . . . . . . . . . . . $ 57,504 $ 69,971 $ 59,031
Additions. . . . . . . . . . . . . . . . 1,500 13,460 34,634
Accounts written off (net of recoveries) (17,862) (16,585) (23,694)
Transfers from (to) allowance for
losses on receivables sold. . . . . 523 (9,342) -
_________ _________ _________
End of year. . . . . . . . . . . . . . . $ 41,665 $ 57,504 $ 69,971
========= ========= =========
Included in loans receivable is $65.7 million and $94.9 million at
December 31, 1994 and 1993, 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 $36.6
million and $37.5 million of seller interest at December 31, 1994 and
1993, respectively, relating to the securitization of such loans.
-23-
<PAGE 24>
:HP3.WORKING CAPITAL FINANCING RECEIVABLES::EHP3.
Working capital financing receivables arise primarily from secured
inventory and accounts receivable financing for IBM and Lexmark dealers
and remarketers and for information technology resellers of non-IBM
products. Inventory financing includes the financing of the purchase by
these dealers and remarketers of information handling products. With
the growth of the Company's working capital financing business in 1994,
the concentration of such financings for certain large dealers and
remarketers of information industry products has become more
significant. As previously discussed in the note on page 19,
Relationship with IBM, the Company is partially indemnified for losses
on working capital financing receivables arising from purchases of IBM
equipment by IBM and Lexmark dealers and remarketers.
Payment terms for inventory-secured financing average 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,
1994 and 1993, are as follows:
(Dollars in thousands)
1994 1993
___________ ___________
Working capital financing receivables $2,151,284 $1,440,079
Allowance for receivable losses . . . (16,264) (14,298)
___________ ___________
$2,135,020 $1,425,781
=========== ===========
The following is a reconciliation of the working capital financing
receivables allowance for receivable losses:
(Dollars in thousands)
1994 1993 1992
________ ________ ________
Beginning of year. . . . . . . . . . . . $14,298 $ 8,972 $ 7,914
Additions. . . . . . . . . . . . . . . . 5,574 6,528 2,866
Accounts written off (net of recoveries) (2,992) (1,202) (1,808)
Transfers to allowance for losses
on receivables sold . . . . . . . . (616) - -
________ ________ ________
End of year. . . . . . . . . . . . . . . $16,264 $14,298 $ 8,972
======== ======== ========
Included in working capital financing receivables is $662.2 million and
$381.2 million of seller interest at December 31, 1994 and 1993,
respectively, relating to the securitization of such receivables.
Additionally, the Company has $861.0 million of approved but unused
working capital financing credit lines available to customers at
December 31, 1994.
-24-
<PAGE 25>
:hp3.INVESTMENTS AND OTHER ASSETS::EHP3.
The components of investments and other assets at December 31, 1994 and
1993, are as follows:
(Dollars in thousands)
1994 1993
________ ________
Receivables from customers . . . . . . . . . $148,884 $184,664
Receivables from affiliates . . . . . . . . . 96,958 207,668
Remarketing inventory . . . . . . . . . . . . 72,973 92,681
Investments in partnerships . . . . . . . . . 3,873 8,158
Note receivable from Comdisco, Inc. . . . . . 20,000 -
Other assets . . . . . . . . . . . . . . . . 40,222 38,566
________ ________
$382,910 $531,737
======== ========
Pursuant to the settlement agreement reached among IBM, the Company,
certain partnerships in which the Company is the general partner and
Comdisco, Inc. (Comdisco) during 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 an interest-bearing convertible subordinated
promissory note (the note). The note was repaid on March 1, 1995.
Refer to the note on page 34, Litigation Settlement, for details.
At December 31, 1994, included in other assets is $2.9 million on
deposit in restricted accounts, held as security deposits received from
customers. Also included in other assets at December 31, 1994 is $6.9
million of deposits in restricted accounts for purposes of credit
enhancement. The Company, as servicer, deposited the cash in connection
with certain tax-exempt grantor trusts comprised of pools of IBM state
and local government installment receivables. The trustee of each
grantor trust is entitled to draw upon the amounts in the restricted
accounts, in the event of nonperformance, defaults or other losses
relating to such installment receivables.
-25-
<PAGE 26>
:hp3.DUE AND DEFERRED FROM RECEIVABLE SALES::EHP3.
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 at December 31, 1994 and 1993:
(Dollars in thousands)
1994 1993
_________ _________
Excess servicing. . . . . . . . . . . . $ 6,847 $ 26,355
Subordinated interests in trusts. . . . 159,020 172,970
Receivables from investors. . . . . . . 34,068 45,786
Cash deposits held by trustee . . . . . 19,394 16,730
Less: Allowance for estimated credit
losses on receivables sold . . . (15,715) (15,949)
_________ _________
$203,614 $245,892
========= =========
The securitization and sale of financing receivables generally
accelerates the recognition of income and can result in a gain or loss
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 Company's 1994 securitization
and sale of $300.0 million of capital lease and loan receivables
resulted in no material gain or loss. For the year ended December 31,
1993, the gain on the securitization and sale of $1.4 billion of
financing receivables amounted to $21.0 million and is included in other
income. The provision for credit losses relating to such sales amounted
to $4.8 million and $16.4 million for the years ended December 31, 1994
and 1993, respectively.
At December 31, 1994, the Company, as servicer, is contingently liable
for up to $8.1 million in the event of nonperformance, defaults or other
losses relating to the outstanding pool balance at December 31, 1994, of
IBM state and local government installment receivables securitized and
sold. Adequate reserves exist to cover potential losses.
-26-
<PAGE 27>
:hp3.SHORT-TERM DEBT::EHP3.
The components of short-term debt at December 31, 1994 and 1993, are as
follows:
(Dollars in thousands) 1994 1993
__________ __________
Commercial paper. . . . . . . . . . . . . . . $2,256,879 $1,641,473
Current maturities of long-term debt. . . . . 1,343,101 1,399,687
IBM Money Market Account notes. . . . . . . . - 359,874
Other short-term debt . . . . . . . . . . . . 755,058 826,690
__________ __________
$4,355,038 $4,227,724
========== ==========
The weighted average interest rates on commercial paper outstanding at
December 31, 1994 and 1993, were 4.8 percent and 4.2 percent,
respectively. The weighted average interest rate on IBM Money Market
Account notes outstanding at December 31, 1993 was 3.1 percent. The IBM
Money Market Account notes were redeemed in connection with the sale of
IBM Credit Investment Management Corporation. Refer to the note on page
34, Sale of IBM Credit Investment Management Corporation, for details.
The weighted average interest rates on other short-term debt outstanding
at December 31, 1994 and 1993, were 6.5 percent and 3.7 percent,
respectively. Other short-term debt primarily 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, 1994 and 1993, are as
follows:
(Dollars in thousands) 1994 1993
___________ __________
Medium-term notes with original maturities
ranging from 1995 to 2008, with rates
averaging 5.6% in 1994 and 5.3% in 1993. . $2,703,755 $2,778,277
IBM Corporation due November 1997 . . . . . 125,000 -
7.2% notes due February 1994. . . . . . . . - 300,000
6.125% notes due November 1994. . . . . . . - 500,000
Other debt. . . . . . . . . . . . . . . . . 99,000 99,000
___________ __________
2,927,755 3,677,277
Net unamortized (discounts)/premiums. . . . (832) 2,206
___________ __________
2,926,923 3,679,483
Less: Current maturities. . . . . . . . . 1,343,101 1,399,687
___________ __________
$1,583,822 $2,279,796
=========== ==========
On November 1, 1994, the Company borrowed $125.0 million from IBM at
market terms and conditions. The loan matures on November 1, 1997.
Discounts and premiums have the effect of modifying the stated rate of
interest on long-term debt offerings.
-27-
<PAGE 28>
:hp3.LONG-TERM DEBT (Continued)::EHP3.
Annual maturity of long-term debt at December 31, 1994, is as follows:
(Dollars in thousands)
1995 . . . . . . . . . . . . . . . . . . . $1,343,101
1996 . . . . . . . . . . . . . . . . . . . 653,855
1997 . . . . . . . . . . . . . . . . . . . 343,900
1998 . . . . . . . . . . . . . . . . . . . 470,624
1999 . . . . . . . . . . . . . . . . . . . 75,275
2000 and thereafter . . . . . . . . . . . 41,000
__________
$2,927,755
==========
:HP3.RATIO OF EARNINGS TO FIXED CHARGES::EHP3.
The ratio of earnings to fixed charges calculated in accordance with
applicable Securities and Exchange Commission requirements was 2.34,
2.07 and 1.78 for the years ended December 31, 1994, 1993 and 1992,
respectively.
:HP3.RELATED COMPANY TRANSACTIONS::EHP3.
IBM charged the Company $67.2 million, $97.8 million and $94.0 million
in 1994, 1993 and 1992, 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 that
originated on or before January 1, 1993. 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 $50.8 million, $65.9 million and $89.0
million in 1994, 1993 and 1992, respectively, for these services and
benefits, that are included in other income. These fees are primarily
for the management of IBM's portfolio of state and local government
installment receivables.
Due to IBM Corporation and affiliates includes current income taxes
payable, as well as amounts for software, services, purchases of
receivables and purchases of equipment for term leases, typically with
terms comparable to those offered to other IBM customers, unless
otherwise agreed. At December 31, 1994 and 1993, due to IBM Corporation
and affiliates was $1,493.4 million and $1,259.5 million, respectively.
Interest income of $8.7 million, $4.5 million and $6.0 million was
earned from loans to IBM and affiliates in 1994, 1993 and 1992,
respectively. Interest expense of $8.5 million, $2.8 million and $2.6
million was incurred on loans from IBM and affiliates during 1994, 1993
and 1992, respectively.
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<PAGE 29>
:HP3.RELATED COMPANY TRANSACTIONS (Continued)::EHP3.
The Company provides capital equipment financing at market rates to IBM
and affiliated companies for both IBM and non-IBM products. The Company
originated $155.0 million and $456.4 million of such financing during
1994 and 1993, respectively. At December 31, 1994 and 1993,
approximately $927.2 million and $1,100.0 million, respectively, of such
financings were included in the lease and loan portfolio. Of these
amounts, $752.1 million and $826.4 million were included in the
Company's operating lease portfolio at December 31, 1994 and 1993,
respectively. The income earned from operating leases to IBM and
affiliated companies, net of depreciation expense, was $53.3 million and
$44.4 million in 1994 and 1993, respectively.
The Company entered into a financing agreement in 1989 with a
partnership in which IBM is an equity partner. The Company guaranteed
the interest and principal obligation of the commercial paper issued by
the partnership for a fee. The agreement was terminated in 1994.
:HP3.PROVISION FOR INCOME TAXES::EHP3.
The components of the provision for income taxes are as follows:
(Dollars in thousands)
1994 1993 1992
__________ __________ __________
Federal:
Current . . . . . . . . . $ 271,304 $ 30,612 $(137,455)
Deferred. . . . . . . . . (136,766) 116,494 245,071
__________ __________ __________
134,538 147,106 107,616
__________ __________ __________
State and local:
Current . . . . . . . . . 53,996 47,353 (18,853)
Deferred. . . . . . . . . (25,831) (21,287) 42,799
__________ __________ __________
28,165 26,066 23,946
__________ __________ __________
Total provision . . . . . $162,703 $173,172 $131,562
========== ========== ==========
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<PAGE 30>
:HP3.PROVISION FOR INCOME TAXES (Continued)::EHP3.
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 at December 31, 1994 and 1993:
(Dollars in thousands) 1994 1993
__________ __________
Deferred tax assets (liabilities):
Provision for receivable losses $ 48,107 $ 85,174
Federal benefit for state and local taxes 21,161 21,722
Lease income and depreciation (727,389) (923,624)
Other 6,210 5,445
__________ __________
Deferred income taxes $(651,911) $(811,283)
========== ==========
The provision for income taxes varied from the U.S. federal statutory
income tax rate as follows:
1994 1993 1992
______ ______ ______
Federal statutory rate. . . . . . . . 35.0% 35.0% 34.0%
Federal tax rate increase (1) . . . . - 5.1 -
State and local taxes, net of
federal tax benefits . . . . . . 4.5 4.2 4.6
Other, net . . . . . . . . . . . . . (0.1) (0.3) (1.1)
______ ______ ______
Effective income tax rate . . . . . 39.4% 44.0% 37.5%
====== ====== ======
(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 at December 31, 1993, was adjusted to
reflect the new tax rate, and federal tax expense for 1993 was
calculated using the new rate.
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<PAGE 31>
:HP3.DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF:EHP3
:HP3.FINANCIAL INSTRUMENTS::EHP3.
The Company uses derivative products, particularly interest rate swaps,
to lower costs of funding its business, to diversify sources of funding,
or to alter interest rate exposures arising from mismatches between
assets and liabilities. The Company enters into derivatives solely for
hedging purposes. The Company does not enter into derivative instrument
transactions for trading or other speculative purposes.
Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed upon
notional principal amount. Swap contracts are principally between one
and five years in duration. The Company enters into currency exchange
agreements to hedge debt denominated in foreign currencies. The term of
the currency derivatives is generally less than five years. The purpose
of the Company's foreign currency hedging activities is to protect
itself from the risk that the eventual dollar net cash outflows will be
affected by changes in exchange rates. The Company routinely evaluates
existing and potential counterparty credit exposures associated with
such derivative transactions to ensure that these exposures remain
within credit guidelines.
The Company does not anticipate any material adverse effect on its
financial position resulting from its use of these instruments, nor does
it anticipate nonperformance by any of its counterparties. The notional
value of derivative instruments held at year end, which provides an
indication of the extent of the Company's involvement in such
instruments but does not represent its exposure to market risk, was as
follows:
(Dollars in thousands)
December 31, 1994 December 31, 1993*
_________________ _________________
Currency related agreements $ 192,787 $ 191,552
Interest rate related agreements $2,119,500 $1,911,500
* Restated to conform with 1994 disclosure.
-31-
<PAGE 32>
:HP3.DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF:EHP3
:HP3.FINANCIAL INSTRUMENTS (Continued)::EHP3.
Fair value is a very subjective and imprecise measurement that is based
on numerous estimates and assumptions that require substantial judgment
and may be valid only at a particular point in time. As such, fair
value can represent only a very general approximation of possible value
that 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.
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.
Investments and other assets: The convertible subordinated promissory
note from Comdisco and certain equity securities are included in this
category. For these financial instruments, 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.
Interest rate related and currency related 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 amounts that would be paid if the Company had to settle
the obligations.
-32-
<PAGE 33>
:HP3.DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF:EHP3.
:HP3.FINANCIAL INSTRUMENTS (Continued)::EHP3.
The following table summarizes the carrying amount and the estimated
fair value of all of the Company's financial instruments, derivative and
non-derivative, both on and off the balance sheet:
(Dollars in thousands) Carrying Estimated
Amount Fair Value
:hp3.At December 31, 1994::ehp3. __________ ___________
Cash and cash equivalents $ 614,339 $ 614,339
Loans receivable 1,070,619 1,071,513
Working capital financing receivables 2,135,020 2,135,020
Due and deferred from receivable sales 203,614 203,614
Investments and other assets 28,521 28,521
Short-term debt (excluding current
maturities of long-term debt) 3,011,937 3,011,429
Long-term debt and current
maturities of long-term debt 2,926,923 2,793,598
:hp3.Derivatives::ehp3.
Off-Balance-Sheet:
Currency related --
Assets - 13,110
Liabilities - 69,632
Interest rate related --
Assets - 18,514
Liabilities - 13,235
On-Balance-Sheet:
Currency related --
Assets 11,511 10,169
Liabilities 9,923 8,659
:hp3.Financial guarantees:ehp3. - 17,576
:hp3.At December 31, 1993*::ehp3.
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
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
:hp3.Derivatives::ehp3.
Off-Balance-Sheet:
Currency related --
Liabilities - 50,551
Interest rate related --
Assets - 4,220
Liabilities - 10,749
On-Balance-Sheet:
Currency related --
Assets 22,668 15,970
Liabilities 19,846 13,290
:hp3.Financial guarantees:ehp3. - 18,382
*Restated to conform with 1994 disclosure.
-33-
<PAGE 34>
:HP3.LITIGATION SETTLEMENT::EHP3.
Effective August 26, 1994, IBM, the Company, certain partnerships in
which the Company is the general partner and Comdisco settled all
outstanding litigation between the parties. Pursuant to the settlement
agreement, on August 30, 1994, Comdisco delivered $70.0 million in cash
proceeds to the Company, $20.0 million of which the Company loaned back
to Comdisco in exchange for an interest-bearing convertible subordinated
promissory note (the note). The note was repaid on March 1, 1995. As a
result of reaching this settlement agreement, the Company recognized a
pretax gain, net of directly related expenses, of $46.0 million. This
amount was included in other income on the Consolidated Statement of
Earnings and Retained Earnings for the year ended December 31, 1994.
The outstanding balance of the note was included in investments and
other assets on the Consolidated Statement of Financial Position at
December 31, 1994.
IBM and the Company had 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 has agreed that it will
not lease, sublease, relocate or sell the Company's property without
prior written consent.
:hp3.SALE OF IBM CREDIT INVESTMENT MANAGEMENT CORPORATION::ehp3.
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 pretax
gain of $13.3 million, which was included in other income. 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.
:hp3.SUBSEQUENT EVENT::EHP3.
On February 8, 1995, the Company acquired all of the issued and
outstanding stock of Chrysler Systems Inc. and certain of its
affiliates. The acquisition, funded by the Company's cash on hand and
borrowings, was consummated pursuant to a share purchase agreement with
certain Chrysler Corporation subsidiaries. The acquisition will be
accounted for as a purchase. IBM CS Systems, Inc., as the company will
be known, buys, sells and leases data processing equipment, and provides
related technology management services such as equipment procurement and
asset management.
On January 31, 1995, the Company's Board of Directors declared a $145
million dividend, payable to IBM on February 28, 1995.
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<PAGE 35>
:hp3.SELECTED QUARTERLY FINANCIAL DATA: (Unaudited):ehp3.
(Dollars in thousands)
Finance Gross Profit
and Other Interest Equipment on Equipment Net
Income Expense Sales Sales Earnings
___________ ________ _________ ____________ ________
1994
____
First Quarter . .$ 360,134 $ 75,425 $150,530 $12,444 $ 59,061
Second Quarter. . 383,020* 76,442 161,320 15,880 66,370
Third Quarter . . 423,387* 75,634 193,211 29,715 78,009
Fourth Quarter. . 318,139 78,624 120,668 10,469 47,149
___________ ________ ________ _______ ________
$1,484,680 $306,125 $625,729 $68,508 $250,589
=========== ======== ======== ======= ========
1993
____
First Quarter . .$ 405,657 $ 93,931 $164,746 $16,603 $ 58,251
Second Quarter. . 382,620 91,576 150,109 15,454 50,590
Third Quarter . . 460,029 94,237 222,122 7,486 37,706
Fourth Quarter. . 522,124 85,931 303,967 24,037 73,673
___________ ________ ________ _______ ________
$1,770,430 $365,675 $840,944 $63,580 $220,220
=========== ======== ======== ======= ========
* During the second quarter of 1994, the Company recognized a pretax
gain of $13.3 million from the sale of IBM Credit Investment
Management Corporation. As a result of the litigation settlement
reached with Comdisco, Inc. during the third quarter of 1994, the
Company recognized a pretax gain, net of directly related expenses,
of $46.0 million. These amounts are included in other income.
-35-
<PAGE 36>
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 13).
Consolidated Statement of Financial Position at December
31, 1994 and 1993 (page 14).
Consolidated Statement of Earnings and Retained Earnings
for the years ended December 31, 1994, 1993 and 1992
(page 15).
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 (pages 16 through 17).
Notes to Consolidated Financial Statements (pages 18
through 35).
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<PAGE 37>
2. Financial statement schedules required to be filed by
Item 8 of this Form 10-K:
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. Financial Data Schedule
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 are filed 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.
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 John J. Higgins, Ed Zschau,
William J. Filip, Bruce L. Claflin and William M. Zeitler.
(b) Reports on Form 8-K:
A report on Form 8-K was filed on November 17, 1994,
consisting of an Item 7 event, filing an exhibit that
consisted of an additional amendment to the Agency
Agreement dated March 13, 1992, as amended.
-37-
<PAGE 38>
[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, 1995
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 on March 15, 1995.
Signature Title
_________ _____
_/s/James J. Forese _________
_____________________________
(James J. Forese)* Chairman
_/s/Allison R. Schleicher____
_____________________________
(Allison R. Schleicher) Vice President, Finance
and Chief Financial Officer
_/s/Nancy E. Cooper__________
_____________________________
(Nancy E. Cooper) Controller and Treasurer
John J. Higgins* Director }
} /s/Allison R. Schleicher
Ed Zschau* Director } By: ________________________
} (Allison R. Schleicher)
William J. Filip* Director } Attorney-in-fact
}
Bruce L. Claflin* Director }
}
William M. Zeitler* Director }
* A majority of the Board of Directors
-38-
<PAGE 39>
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 filed
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 is 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.
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<PAGE 40>
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
(21) Subsidiaries of the registrant Omitted
(22) Published report regarding matters Not
submitted to vote of security holders applicable
(23) Consent of experts and counsel III
(24) (a) Power of attorney of John J. Higgins is filed
on Form SE dated April 16, 1991, and is
hereby incorporated by reference.
(24) (b) Power of attorney of Ed Zschau is filed
electronically with Form S-3 on October 27,
1994, and is hereby incorporated by reference.
(24) (c) Power of attorney of William J. Filip is filed
electronically with Form S-3 on October 27,
1994, and is hereby incorporated by reference.
(24) (d) Power of attorney of Bruce L. Claflin is filed
electronically with Form S-3 on October 27,
1994, and is hereby incorporated by reference.
(24) (e) Power of attorney of William M. Zeitler is
filed electronically with Form S-3 on
October 27, 1994, and is hereby incorporated
by reference.
(27) Financial data schedule IV
(28) Information from reports furnished to Not
state insurance regulatory authorities applicable
(99) Additional exhibits Not
applicable
-40-
</TABLE>
<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, 1994 - 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 percent 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 that defines the
rights of the holders of its long-term debt.
Very truly yours,
IBM CREDIT CORPORATION
By: /s/Allison R. Schleicher
_____________________________
Date: March 15, 1995 (Allison R. Schleicher)
Vice President, Finance
and Chief Financial Officer
-41-
<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:
1994 1993 1992 1991 1990
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense $306,125 $365,675 $445,816 $562,531 $606,750
Approximate portion of rental
expense representative of
the interest factor 2,780 3,290 3,078 1,446 2,316
________ ________ ________ ________ ________
Total fixed charges 308,905 368,965 448,894 563,977 609,066
Net earnings 250,589 220,220 219,270 200,221 165,510
Provision for income taxes 162,703 173,172 131,562 124,858 102,539
________ ________ ________ ________ ________
Earnings before income taxes
and fixed charges $722,197 $762,357 $799,726 $889,056 $877,115
======== ======== ======== ======== ========
Ratio of earnings to fixed
charges 2.34 2.07 1.78 1.58 1.44
==== ==== ==== ==== ====
-42-
</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, 33-49411 and 33-56207) of IBM Credit
Corporation of our report dated January 20, 1995 (except as to the
Subsequent Event note on page 34, which is as of February 8, 1995)
appearing on page 13 of this Annual Report on Form 10-K.
/s/Price Waterhouse LLP
Stamford, CT
March 15, 1995
-43-
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT IV
__________
FINANCIAL DATA SCHEDULE
_______________________
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM IBM CREDIT CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS AT AND
FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 614,339
<SECURITIES> 0
<RECEIVABLES> 1,070,619
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,667,715
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 453,711
0
0
<OTHER-SE> 667,507
<TOTAL-LIABILITY-AND-EQUITY> 9,667,715
<SALES> 625,729
<TOTAL-REVENUES> 1,484,680
<CGS> 557,221
<TOTAL-COSTS> 557,221
<OTHER-EXPENSES> 163,945
<LOSS-PROVISION> 44,097
<INTEREST-EXPENSE> 306,125
<INCOME-PRETAX> 413,292
<INCOME-TAX> 162,703
<INCOME-CONTINUING> 250,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 250,589
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
