<PAGE 1>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1995
1-8175
________________________
(Commission file number)
IBM CREDIT CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 22-2351962
_______________________________ ____________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
290 Harbor Drive
P. O. Box 10399
Stamford, Connecticut
06904-2399
________________________________________
(Address of principal executive offices)
203-973-5100
____________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
___ ___
As of October 31, 1995, 899 shares of capital stock, par value $1.00 per
share, were outstanding and held by International Business Machines
Corporation. Aggregate market value of voting stock held by
non-affiliates of registrant at October 31, 1995: NONE.
The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with
the reduced disclosure format.
<PAGE 2>
INDEX
_____
Part I - Financial Information: Page
____
Item 1. Financial Statements:
Consolidated Statement of Financial Position
at September 30, 1995 and December 31, 1994. . . . . . . . 1
Consolidated Statement of Earnings for the three
and nine months ended September 30, 1995 and 1994. . . . . 2
Consolidated Statement of Cash Flows
for the nine months ended September 30, 1995 and 1994. . . 3
Notes to Consolidated Financial Statements . . . . . . . . 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations. . 5
Part II - Other Information. . . . . . . . . . . . . . . . . . .12
<PAGE 3>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
<CAPTION>
At At
September 30, December 31,
1995 1994
_____________ ____________
<S> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . . $ 253,679 $ 614,339
Marketable securities. . . . . . . . . . 91,482 -
Net investment in capital leases . . . . 3,821,745 3,687,971
Equipment on operating leases, net . . . 1,760,845 1,573,242
Loans receivable . . . . . . . . . . . . 1,334,338 1,070,619
Working capital financing receivables. . 2,591,782 2,135,020
Investments and other assets . . . . . . 488,813 382,910
Due and deferred from receivable sales . 124,275 203,614
_____________ ___________
Total Assets $10,466,959 $9,667,715
============= ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Short-term debt. . . . . . . . . . . . . $ 5,932,319 $4,355,038
Due to IBM Corporation and affiliates. . 1,039,963 1,493,449
Interest and other accruals. . . . . . . 519,851 462,277
Deferred income taxes. . . . . . . . . . 623,605 651,911
Long-term debt . . . . . . . . . . . . . 1,076,027 1,458,822
Long-term debt, IBM Corporation. . . . . 125,000 125,000
____________ ___________
Total liabilities. . . . . . . . . . . . 9,316,765 8,546,497
____________ ___________
Stockholder's equity:
Capital stock, par value $1 per share;
Shares authorized: 10,000;
Shares issued and outstanding: 899. . 453,711 453,711
Retained earnings. . . . . . . . . . . . 696,483 667,507
____________ ___________
Total stockholder's equity . . . . . . . 1,150,194 1,121,218
____________ ___________
Total Liabilities & Stockholder's Equity $10,466,959 $9,667,715
============ ===========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE 4>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
________ ________ __________ __________
<S> <C> <C> <C> <C>
FINANCE AND OTHER INCOME:
Income from leases:
Capital leases . . . . . $ 82,492 $ 71,293 $ 206,921 $ 243,620
Operating leases, net of
depreciation . . . . . 42,976 22,795 146,786 96,744
________ ________ __________ __________
125,468 94,088 353,707 340,364
Income from loans . . . . . 30,562 22,268 84,228 67,081
Income from working capital
financing . . . . . . . . 62,150 36,471 170,104 96,649
Equipment sales . . . . . . 123,454 193,211 368,524 505,061
Other income . . . . . . . 37,105 77,349 100,886 157,386
________ ________ __________ __________
Total finance and other
income . . . . . . . . 378,739 423,387 1,077,449 1,166,541
________ ________ __________ __________
COST AND EXPENSES:
Interest. . . . . . . . . . 106,050 75,634 286,967 227,501
Cost of equipment sales . . 109,915 163,496 315,559 447,022
Selling, general, and
administrative . . . . . . 47,750 39,055 131,629 119,039
Provision for receivable
losses . . . . . . . . . . 26,710 16,605 54,021 37,533
________ ________ __________ __________
Total cost and expenses. 290,425 294,790 788,176 831,095
________ ________ __________ __________
EARNINGS BEFORE INCOME TAXES. 88,314 128,597 289,273 335,446
Provision for income taxes. . 34,788 50,588 113,878 132,006
________ ________ __________ __________
NET EARNINGS . . . . . . . . $ 53,526 $ 78,009 $ 175,395 $ 203,440
======== ======== ========== ==========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30:
(Dollars in thousands) 1995 1994*
<CAPTION>
____________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . $ 175,395 $ 203,440
Adjustments to net earnings:
Depreciation and amortization . . . . . . . . . 620,551 479,760
Provision for receivable losses . . . . . . . . 54,021 37,533
Decrease in deferred income taxes . . . . . . . (29,962) (162,212)
Increase in interest and other accruals . . . . 49,882 54,304
Gross profit on equipment sales . . . . . . . . (52,965) (58,039)
Proceeds from equipment sales. . . . . . . . . . . 368,524 505,061
Decrease in due to IBM Corporation and affiliates. (453,486) (256,413)
Other, net . . . . . . . . . . . . . . . . . . . . 64,390 61,994
____________ __________
Cash provided by operating activities . . . . . . . 796,350 865,428
____________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in capital leases . . . . . . . . . . . (1,331,507) (772,789)
Collection of capital leases, net of income earned 1,024,561 865,210
Investment in equipment on operating leases. . . . (757,318) (274,934)
Investment in loans receivable . . . . . . . . . . (609,997) (270,867)
Collection of loans receivable, net of interest
earned. . . . . . . . . . . . . . . . . . . . . . 343,878 378,123
Investment in working capital financing
receivables, net of cash collected. . . . . . . . (482,083) (139,855)
Purchases of marketable securities . . . . . . . . (237,440) -
Maturities of marketable securities. . . . . . . . 145,958 -
Cash payment for business acquired . . . . . . . . (92,478) -
Proceeds from sale of capital leases and loans . . - 300,000
Other, net . . . . . . . . . . . . . . . . . . . . (172,264) 12,301
____________ __________
Cash (used in) provided by investing activities . . (2,168,690) 97,189
____________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . . . 240,039 416,815
Repayment of debt with original maturities of one
year or more. . . . . . . . . . . . . . . . . . . (518,551) (723,550)
Issuance (repayment) of debt with original
maturities within one year. . . . . . . . . . . . 1,435,192 (338,581)
Cash dividends paid to IBM Corporation . . . . . . (145,000) (295,000)
____________ __________
Cash provided by (used in) financing activities . . 1,011,680 (940,316)
____________ __________
Change in cash and cash equivalents . . . . . . . . (360,660) 22,301
Cash and cash equivalents at January 1 . . . . . . 614,339 609,891
____________ __________
Cash and cash equivalents at September 30 . . . . . $ 253,679 $ 632,192
============ ==========
<FN>
<F1>
The accompanying notes are an integral part of this statement.
<F2>
*Reclassified to conform with 1995 presentation.
</FN>
</TABLE>
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<PAGE 6>
IBM CREDIT CORPORATION
Notes to Consolidated Financial Statements
BASIS OF PRESENTATION:
In the opinion of management of IBM Credit Corporation (the Company),
all adjustments necessary to a fair statement of the results for the
three- and nine-month periods are reflected in the unaudited interim
financial statements presented. These adjustments are of a normal
recurring nature.
RATIO OF EARNINGS TO FIXED CHARGES:
The ratio of earnings to fixed charges, calculated in accordance with
applicable Securities and Exchange Commission requirements, was 2.01
and 2.46 for the nine months ended September 30, 1995, and 1994,
respectively.
ACQUISITION OF CHRYSLER SYSTEMS INC.:
On February 8, 1995, the Company acquired all of the issued and
outstanding stock of Chrysler Systems Inc. and certain of its
affiliates for $133.5 million. The acquisition was consummated
pursuant to a share purchase agreement with certain Chrysler
Corporation subsidiaries (the Seller). The purchase price was funded
by the Company's cash on hand and credits issued to the Seller that
are being applied against certain future obligations to the Company.
IBM CS Systems, Inc., as the company is now known, buys, sells and
leases data processing equipment, and provides related technology
management services such as equipment procurement and asset
management. The transaction was accounted for as a purchase and IBM
CS Systems, Inc. is included in the Company's consolidated financial
statements from the date of acquisition.
RELATED PARTY TRANSACTIONS:
The Company provides capital equipment financing at market rates to
International Business Machines Corporation (IBM) and affiliated
companies for IBM and non-IBM products. During the first nine months
of 1995, the Company originated $222.1 million of such financing,
compared with $131.9 million for the first nine months of 1994.
Included in the Company's lease and loan portfolio was approximately
$887.0 million and $927.2 million, related to IBM and affiliated
companies, at September 30, 1995 and December 31, 1994, respectively.
Of these amounts, $837.8 million and $752.1 million were included in
the Company's operating lease portfolio at September 30, 1995, and
December 31, 1994, respectively. The pre-tax income earned from
operating leases to IBM and affiliated companies, net of depreciation
expense, was approximately $66.2 million and $31.0 million in the
first nine months of 1995 and 1994, respectively.
CREDIT RATING:
On August 28, 1995, Moody's Investors Service, Inc. announced that it
upgraded its rating for the Company's long-term debt from A3 to A1.
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<PAGE 7>
Item 2.
IBM CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net earnings for the nine months ended September 30, 1995, were $175.4
million, yielding an annualized return on average equity of 21.7
percent.
FINANCING ORIGINATED
In the first nine months of 1995, the Company originated capital
equipment financing for end users of $3,156.6 million, an 82 percent
increase from $1,737.2 million for the same 1994 period. For the
first nine months of 1995, originations of working capital financing
for dealers and remarketers of information industry products increased
by 37 percent to $7,090.2 million, from $5,157.1 million for the first
nine months of 1994.
The growth in capital equipment financing originated is related to
IBM's increase in placements of its products and services in the
United States throughout the first nine months of 1995, compared with
the same 1994 period. Furthermore, the trend for customers to finance
their acquisitions with the Company has increased during the first
nine months of 1995, compared with the same 1994 period.
Capital equipment financings for end users comprised purchases of
$1,966.1 million of information handling systems from IBM, financing
originated for installment receivables of $132.7 million, financing
for IBM software and services of $479.1 million, installment and lease
financing for state and local government customers of $235.1 million
for the account of IBM, and other financing of $343.6 million for IBM
equipment, as well as selected complementary non-IBM equipment that
meets IBM customers' total solution requirements. The purchases of
$1,966.1 million from IBM consisted of $1,252.2 million for capital
leases and $713.9 million for operating leases.
The Company's capital lease portfolio primarily includes direct
financing leases. Direct financing leases consist principally of IBM
information handling equipment with terms generally from three to five
years. Operating leases consist principally of IBM information
handling equipment with terms generally from two to four years.
The growth in working capital financing originations reflects volume
increases in both IBM's workstation products and non-IBM products for
remarketers financed by the Company throughout the first nine months
of 1995. Working capital financing receivables arise primarily from
secured inventory and accounts receivable financing for dealers and
remarketers of IBM and non-IBM products. Payment terms for inventory
secured financing average 45 days. Payment terms for accounts
receivable secured financing typically range from 30 days to 180 days.
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<PAGE 8>
REMARKETING ACTIVITIES
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.
Remarketing activities are fully integrated in the Company's financial
statements. Remarketing activities are comprised of income from
remarketed capital and operating leases and gross profit on equipment
sales, net of write-downs in residual values of certain leased
equipment.
At September 30, 1995, the investment in remarketed equipment on
capital and operating leases totaled $588.9 million, a decrease of 6
percent from the 1994 year-end investment of $623.7 million. For the
three months ended September 30, 1995, the remarketing activities
contributed $37.0 million to pre-tax earnings, a decrease of 2 percent
compared with $37.8 million for the same 1994 period. The remarketing
activities contributed $115.7 million to pre-tax earnings for the
first nine months of 1995, remaining essentially unchanged from the
$115.0 million for the same 1994 period. Refer to Equipment Sales in
Management's Discussion and Analysis on page 9 for additional details.
ASSETS
Total assets increased to $10.5 billion at September 30, 1995,
compared with $9.7 billion at December 31, 1994. This increase is
primarily the result of financings originated of $10.2 billion
exceeding cash collections of $8.0 billion on capital leases, loans
receivable and working capital financing receivables, and growth of
$187.6 million in investment in equipment on operating leases during
the first nine months of 1995, offset in part by payments to IBM of
cash and non-cash dividends of $146.4 million and a current tax
liability of $330.8 million.
Marketable securities, presented in the Consolidated Statement of
Financial Position at amortized cost which approximates market value,
were comprised of corporate debt securities. The Company intends to
hold these securities to maturity.
LIABILITIES AND STOCKHOLDER'S EQUITY
The assets of the business were financed with $7,133.3 million of debt
at September 30, 1995. Total short-term and long-term debt increased
by approximately $1,194.4 million, from $5,938.9 million at December
31, 1994. This increase was the result of increases in commercial
paper outstanding of $1,222.5 million, medium-term notes of $348.6
million and other short-term debt of $6.1 million, offset by a
decrease in long-term debt of $382.8 million. Included in long-term
debt at September 30, 1995, and December 31, 1994, was $125.0 million
payable to IBM at market terms and conditions, maturing on November 1,
1997.
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<PAGE 9>
LIABILITIES AND STOCKHOLDER'S EQUITY (continued)
The Company has available $1.5 billion of a shelf registration with
the Securities and Exchange Commission for the issuance of debt
securities. This shelf registration allows the Company rapid access
to domestic financial markets and the Company intends to continue to
issue debt securities under this shelf registration. The Company has
no firm commitments for the purchase of debt securities that it may
issue from the unused portion of this shelf registration.
The Company has the option, as approved by the Board of Directors on
September 30, 1994, to sell, assign, pledge or transfer up to $4.0
billion of assets to third parties through December 31, 1995. A
subsidiary of the Company has available $450.0 million of a separate
shelf registration for issuance of asset backed securities. The
subsidiary's intention to issue any asset backed securities over the
next twelve months under this shelf registration is dependent on
prevailing market conditions and its need for such funding. The
Company also has commercial paper and medium-term note programs.
The Company is an authorized borrower of up to $3.0 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. 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 grow its lease and loan portfolio, to fund working
capital requirements and to service debt.
The Company uses agreements related to currency and interest rate to
lower costs of funding its business, to diversify sources of funding,
or to manage interest rate and currency exposures arising from
mismatches between assets and liabilities. The Company enters into
such financial instruments solely for hedging purposes. The Company
does not enter into such financial instrument transactions for trading
or other speculative purposes. The Company routinely evaluates
existing and potential counterparty credit exposures associated with
such financial instrument 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.
Due to IBM Corporation and affiliates decreased by $453.4 million to
$1,040.0 million at September 30, 1995, from $1,493.4 million at
December 31, 1994. This decrease was primarily attributable to the
current tax liability payment of $330.8 million made to IBM in the
first nine months of 1995. 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.
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<PAGE 10>
LIABILITIES AND STOCKHOLDER'S EQUITY (continued)
Total stockholder's equity at September 30, 1995, was $1,150.2
million, up approximately $29.0 million from year-end 1994. The
increase in stockholder's equity reflects net earnings of $175.4
million for the first nine months of 1995, offset by the payments of
$145.0 million in cash dividends and $1.4 million in non-cash
dividends to IBM during the first nine months of 1995.
At September 30, 1995, the Company's debt-to-equity ratio was 6.2:1,
compared with 5.3:1 at year-end 1994, and 5.5:1 at September 30, 1994.
TOTAL CASH USED BEFORE DIVIDENDS
Total cash used before dividends was $215.7 million for the nine
months ended September 30, 1995, compared with total cash provided
before dividends of $317.3 million for the same 1994 period. Total
cash used before dividends reflects $1,012.0 million of cash used in
investing and financing activities before dividends, offset by $796.3
million of cash provided by operating activities for the first nine
months of 1995. For the first nine months of 1994, total cash
provided before dividends reflects $548.1 million of cash used in
investing and financing activities before dividends, offset by $865.4
million of cash provided by operating activities.
Cash and cash equivalents at September 30, 1995, totaled $253.7
million, a decrease of $360.7 million, compared with the balance at
December 31, 1994.
INCOME FROM LEASES
Income from leases increased 33 percent to $125.5 million for the
three months ended September 30, 1995, from $94.1 million for the same
1994 period; for the nine months ended September 30, 1995, income from
leases increased 4 percent to $353.7 million, from $340.4 million for
the same 1994 period. The growth in capital equipment financings for
end users under capital and operating leases during the first nine
months of 1995 has contributed to the overall increase in income from
leases. The securitization and sale of capital lease receivables in
the third quarter of 1994 and the resulting loss of finance income in
subsequent periods, partially offset this increase. Income from
leases includes lease income resulting from remarketing transactions.
Lease income from remarketing transactions was $26.5 million and $71.7
million for the three- and nine-month periods of 1995, an increase of
75 percent and 12 percent, respectively, from the comparable 1994
periods.
On a periodic basis, the Company reassesses the future residual values
of its portfolio of leases. In accordance with generally accepted
accounting principles, anticipated increases in specific future
residual values may not be recognized before realization and are thus
a source of potential future profits. Anticipated decreases in
specific future residual values, considered to be other than
temporary, must be recognized currently.
A review of the Company's $625.2 million residual value portfolio at
September 30, 1995, indicated that the overall estimated future value
of the portfolio continues to be greater than the value currently
recorded. The Company recorded a $9.0 million reduction to income
from leases during the nine months ended September 30, 1995 to
recognize decreases in the expected future residual value of specific
leased equipment, compared with $7.0 million for the same 1994 period.
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<PAGE 11>
INCOME FROM LOANS
Income from loans increased 37 percent to $30.6 million for the three
months ended September 30, 1995, compared with the same 1994 period;
for the first nine months of 1995, income from loans increased 26
percent to $84.2 million, compared with the same 1994 period. These
increases were primarily the result of an increase in financing
originated for software and services during 1994 and the first nine
months of 1995.
INCOME FROM WORKING CAPITAL FINANCING
Income from working capital financing increased 70 percent to $62.2
million for the three months ended September 30, 1995, compared with
the same 1994 period; for the first nine months of 1995, income from
working capital financing increased 76 percent to $170.1 million,
compared with the respective 1994 period. These increases were
primarily due to growth in the average working capital financing
receivables outstanding and generally higher interest rates charged
during the first nine months of 1995, compared with the same 1994
period. The growth in average working capital financing receivables
outstanding primarily reflects increased originations as discussed in
the "Financing Originated" section.
EQUIPMENT SALES
Equipment sales amounted to $123.5 million for the third quarter of
1995, compared with $193.2 million for the same period in 1994; for
the first nine months of 1995, equipment sales amounted to $368.5
million, compared with $505.1 million for the comparable 1994 period.
The decrease in equipment sales is due to less equipment available at
the end of lease term, which in turn, is primarily due to lower
financing originated in prior years. Also contributing to this
decrease in equipment sales is the growth of equipment remarketed as
operating leases, rather than sales. The revenue associated with
outright sales and sales-type leases is included in equipment sales.
Company-owned equipment may be sold or released to existing lessees
or, when equipment is returned, to new customers.
Gross profit on equipment sales for the third quarter of 1995 was
$13.5 million, a decrease of 55 percent, compared with $29.7 million
for the same 1994 period. For the first nine months of 1995, the
gross profit on equipment sales decreased 9 percent to $53.0 million,
compared with $58.0 million for the same 1994 period. The gross
profit margin for the third quarter of 1995 decreased to 11.0 percent,
compared with 15.4 percent for the third quarter of 1994; for the
first nine months of 1995, the gross profit margin increased to 14.4
percent, compared with 11.5 percent for the same 1994 period. The mix
of products available for sale and changing market conditions for
certain used equipment during the applicable periods are factors
contributing to the fluctuations in gross profit margins.
OTHER INCOME
Other income decreased 52 percent to $37.1 million for the three
months ended September 30, 1995; for the nine months ended September
30, 1995, other income decreased 36 percent to $100.9 million. These
decreases are largely attributable to the recognition of one-time
pre-tax gains of $46.0 million, net of directly related expenses, for
the litigation settlement reached with Comdisco, Inc. during the third
quarter of 1994, and $13.3 million on the sale of IBM Credit
Investment Management Corporation during the second quarter of 1994.
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<PAGE 12>
OTHER INCOME (continued)
These items were partially offset by pre-tax gains of $4.3 million
recognized on the sale of financing assets during the second quarter
of 1995, and $5.0 million recognized upon Comdisco Inc.'s redemption
of the convertible subordinated promissory note on March 1, 1995.
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, and fees for the servicing of financing receivables sold.
INTEREST EXPENSE
As a result of rising interest rates and an increase in the Company's
average outstanding debt balance, interest expense increased 40
percent to $106.1 million for the three months ended September 30,
1995, and 26 percent to $287.0 million for the nine months ended
September 30, 1995, compared with the same 1994 periods. The
Company's year-to-date average cost of debt through September 30,
1995, increased to 6.00 percent, from 4.89 percent for the same period
in 1994.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses were $47.8 million for
the third quarter of 1995, an increase of 22 percent compared with the
same 1994 period. For the first nine months of 1995, selling,
general, and administrative expenses increased 11 percent to $131.6
million, from $119.0 million for the same 1994 period. These
increases are primarily a result of the expenses incurred by IBM CS
Systems, Inc. since the acquisition date.
PROVISION FOR RECEIVABLE LOSSES
The Company's portfolio of capital equipment leases and loans is
predominantly with investment grade customers. The Company generally
retains ownership or takes a security interest in any underlying
equipment financed. The portfolio is diversified by geography,
industry, and individual unaffiliated customer.
With the continued growth of the Company's working capital financing
business in 1994 and the first nine months of 1995, the concentration
of such financings for certain large dealers and remarketers of
information industry products has become more significant. Such loans
are typically collateralized by the inventory and accounts receivable
of the dealers and remarketers. The Company does not believe that
this risk will have a material adverse effect on its financial
position or results of operations.
The provision for receivable losses increased to $26.7 million for the
quarter ended September 30, 1995, compared with $16.6 million for the
same period in 1994. For the nine months ended September 30, 1995,
the provision for receivable losses increased to $54.0 million,
compared with $37.5 million for the comparable period in 1994. The
Company provides for receivable losses at the time financing is
originated. With the growth of financings originated during the first
nine months of 1995, there has been a corresponding increase in the
provision for receivable losses. In addition, the Company's timely
recognition of probable receivable losses, and its revised estimate of
the recoverability of certain specific receivables has contributed to
the increase in the provision for receivable losses.
-10-
<PAGE 13>
NET EARNINGS
Net earnings decreased 31 percent to $53.5 million for the third
quarter of 1995, compared with $78.0 million for the same period in
1994. For the nine months ended September 30, 1995, net earnings were
$175.4 million, a decrease of 14 percent from the same period in 1994.
The decrease in net earnings for 1995, compared with 1994, is
primarily attributable to the recognition of one-time after-tax gains
of $27.9 million for the litigation settlement reached with Comdisco,
Inc. during the third quarter of 1994, and $8.1 million for the sale
of IBM Credit Investment Management Corporation during the second
quarter of 1994. These items were partially offset by one-time
after-tax gains recognized upon the sale of financing assets during
the second quarter of 1995 and Comdisco, Inc.'s redemption of the
convertible subordinated promissory note during the first quarter of
1995.
Despite the decline in net earnings, the Company's working capital
financing business expanded, its loan and lease portfolios grew and
its capital equipment remarketing operations continued to be
profitable, contributing to a favorable performance during the third
quarter and first nine months of 1995.
RETURN ON AVERAGE EQUITY
The results for the first nine months of 1995 yielded an annualized
return on average equity of 21.7 percent, compared with 26.6 percent
for the comparable 1994 period.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," in March 1995. This standard requires that certain
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not
be recoverable. An impairment loss is recognized if, upon such
review, the sum of expected future cash flows is less than the
carrying amount of the asset. An impairment loss is measured based on
the difference between the carrying amount of the asset and its fair
value. SFAS 121 is effective for financial statements for fiscal
years beginning after December 15, 1995. It is expected that the
implementation of SFAS 121 will not materially impact the Company's
financial position and results of operations.
The FASB issued SFAS 114, "Accounting by Creditors for Impairment of a
Loan," in May 1993 and SFAS 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures," an
amendment of SFAS 114, in October 1994. These standards prescribe
impairment measurements and reporting related to certain loans. The
Company implemented SFAS 114 and SFAS 118, effective January 1, 1995.
The implementation had no material impact on the Company's financial
position and results of operations.
CLOSING DISCUSSION
The Company's resources continue to be sufficient to enable it to
carry out its mission of offering customers competitive leasing and
financing and providing information technology remarketers with
inventory and accounts receivable financing, which contribute to the
growth and stability of IBM earnings.
-11-
<PAGE 14>
[SIGNATURE]
Part II - Other Information
___________________________
Item 1. Legal Proceedings
__________________________
None material.
Item 6(b). Reports on Form 8-K
_______________________________
No reports on Form 8-K have been filed during the first nine months
of 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
IBM CREDIT CORPORATION
______________________
(Registrant)
Date: November 13, 1995 By: /s/ Allison R. Schleicher
_________________ _____________________________
(Allison R. Schleicher)
Vice President, Finance
and Chief Financial Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM IBM CREDIT CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS AT AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 253,679
<SECURITIES> 91,482
<RECEIVABLES> 1,334,338
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,466,959
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 453,711
0
0
<OTHER-SE> 696,483
<TOTAL-LIABILITY-AND-EQUITY> 10,466,959
<SALES> 368,524
<TOTAL-REVENUES> 1,077,449
<CGS> 315,559
<TOTAL-COSTS> 315,559
<OTHER-EXPENSES> 131,629
<LOSS-PROVISION> 54,021
<INTEREST-EXPENSE> 286,967
<INCOME-PRETAX> 289,273
<INCOME-TAX> 113,878
<INCOME-CONTINUING> 175,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,395
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
