<PAGE 1>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 1-8175
_____________________________
IBM CREDIT CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 22-2351962
________________________ ____________________________________
(State of incorporation) (IRS employer identification number)
1133 Westchester Avenue
White Plains, New York 10604-3505
________________________________________ ____________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 914-642-3000
____________
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 July 31, 1996, 936 shares of capital stock, par value $1.00
per share, were held by International Business Machines Corporation.
Aggregate market value of the voting stock held by nonaffiliates
of the registrant at July 31, 1996: 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 June 30, 1996 and December 31, 1995. . . . . . . . . . 1
Consolidated Statement of Earnings for the three and six
months ended June 30, 1996 and 1995 . . . . . . . . . . . 2
Consolidated Statement of Cash Flows for the six
months ended June 30, 1996 and 1995 . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . .13
<PAGE 3>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
<CAPTION>
At At
June 30, December 31,
1996 1995*
___________ ____________
<S> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . . . $ 813,205 $ 336,839
Marketable securities. . . . . . . . . . . 103,783 89,930
Net investment in capital leases . . . . . 4,009,009 3,966,255
Equipment on operating leases, net . . . . 1,990,059 1,695,812
Loans receivable . . . . . . . . . . . . . 1,571,105 1,473,822
Working capital financing receivables. . . 2,817,775 3,158,932
Investments and other assets . . . . . . . 429,877 597,882
Due and deferred from receivable sales . . 86,293 106,079
___________ ___________
Total Assets $11,821,106 $11,425,551
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Short-term debt. . . . . . . . . . . . . . $ 6,872,548 $ 6,258,485
Short-term debt, IBM . . . . . . . . . . . - 214,142
Due to IBM and affiliates. . . . . . . . . 1,380,944 1,606,433
Interest and other accruals. . . . . . . . 319,190 357,311
Deferred income taxes. . . . . . . . . . . 681,751 665,166
Long-term debt . . . . . . . . . . . . . . 1,129,696 990,440
Long-term debt, IBM. . . . . . . . . . . . 125,000 125,000
___________ ___________
Total liabilities . . . . . . . . . . . 10,509,129 10,216,977
___________ ___________
Stockholder's equity:
Capital stock, par value $1.00 per share
Shares authorized: 10,000
Shares issued and outstanding:
936 in 1996 and 932 in 1995 . . . . . 457,411 457,011
Retained earnings. . . . . . . . . . . . . 854,566 751,563
___________ ___________
Total stockholder's equity. . . . . . . 1,311,977 1,208,574
___________ ___________
Total Liabilities and Stockholder's Equity $11,821,106 $11,425,551
=========== ===========
<FN>
<F1>
The accompanying notes are an integral part of this statement.
<F2>
* Reclassified to conform with 1996 presentation.
</FN>
</TABLE>
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<PAGE 4>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30:
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
________ ________ ________ ________
<S> <C> <C> <C> <C>
FINANCE AND OTHER INCOME:
Income from leases:
Capital leases . . . . . . . . . $ 74,586 $ 63,020 $144,190 $124,429
Operating leases, net of
depreciation. . . . . . . . . . 60,700 52,874 106,081 103,810
________ ________ ________ ________
135,286 115,894 250,271 228,239
Income from loans . . . . . . . . . 38,347 27,130 75,330 53,666
Income from working capital
financing. . . . . . . . . . . . . 65,767 56,756 134,204 107,954
Equipment sales . . . . . . . . . . 101,432 130,967 207,920 245,070
Other income. . . . . . . . . . . . 27,282 30,482 74,568 63,781
________ ________ ________ ________
Total finance and other
income. . . . . . . . . . . . . 368,114 361,229 742,293 698,710
________ ________ ________ ________
COST AND EXPENSES:
Interest. . . . . . . . . . . . . . 106,931 94,621 213,211 180,917
Cost of equipment sales . . . . . . 83,806 104,809 171,605 205,644
Selling, general, and
administrative . . . . . . . . . . 46,165 43,009 91,026 83,879
Provision for receivable losses . . 9,281 13,605 22,244 27,311
________ ________ ________ ________
Total cost and expenses. . . . . 246,183 256,044 498,086 497,751
________ ________ ________ ________
EARNINGS BEFORE INCOME TAXES. . . . . 121,931 105,185 244,207 200,959
Provision for income taxes. . . . . . 47,856 41,261 96,204 79,090
________ ________ ________ ________
NET EARNINGS. . . . . . . . . . . . . $ 74,075 $ 63,924 $148,003 $121,869
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE 5>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30:
(Dollars in thousands) 1996 1995*
<CAPTION>
___________ ___________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . .$ 148,003 $ 121,869
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . 468,022 395,127
Provision for receivable losses. . . . . . . . 22,244 27,311
Change in deferred income taxes. . . . . . . . 16,585 (33,384)
Decrease in interest and other accruals. . . . (38,121) (15,845)
Gross profit on equipment sales. . . . . . . . (36,315) (39,426)
Other items that provided (used) cash:
Proceeds from equipment sales. . . . . . . . 207,920 245,070
Decrease in amounts due IBM and affiliates . (225,489) (218,986)
Other, net . . . . . . . . . . . . . . . . . 10,452 45,679
___________ ___________
Cash provided by operating activities . . . . . . 573,301 527,415
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in capital leases . . . . . . . . . (953,395) (974,602)
Collection of capital leases, net of income
earned. . . . . . . . . . . . . . . . . . . . 730,421 715,427
Investment in equipment on operating leases. . (703,178) (495,028)
Investment in loans receivable . . . . . . . . (507,998) (385,044)
Collection of loans receivable, net of
interest earned . . . . . . . . . . . . . . . 405,865 239,518
Collection of (investment in) working capital
financing receivables, net. . . . . . . . . . 330,263 (232,913)
Purchases of marketable securities . . . . . . (13,853) (176,112)
Maturities of marketable securities. . . . . . - 118,737
Cash payment for business acquired . . . . . . - (92,478)
Other, net . . . . . . . . . . . . . . . . . . 123,002 (143,734)
___________ ___________
Cash used in investing activities . . . . . . . . (588,873) (1,426,229)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . 385,532 200,149
Repayment of debt with original maturities
of one year or more . . . . . . . . . . . . . (415,605) (338,493)
Issuance of debt with original maturities
within one year, net. . . . . . . . . . . . . 567,011 1,090,242
Cash dividends paid to IBM . . . . . . . . . . (45,000) (145,000)
___________ ___________
Cash provided by financing activities . . . . . . 491,938 806,898
___________ ___________
Increase (decrease) in cash and cash equivalents. 476,366 (91,916)
Cash and cash equivalents, January 1. . . . . . . 336,839 614,339
___________ ___________
Cash and cash equivalents, June 30. . . . . . . .$ 813,205 $ 522,423
=========== ===========
<FN>
<F1>
The accompanying notes are an integral part of this statement.
<F2>
*Reclassified to conform with 1996 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 six-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 2.14 and 2.35 for the six months
ended June 30, 1996, and 1995, respectively.
RELATED COMPANY TRANSACTIONS:
The Company provides equipment financing at market rates to
International Business Machines Corporation (IBM) and
affiliated companies for both IBM and non-IBM products. The
Company originated $295.4 million and $159.6 million of such
financings during the six months ended June 30, 1996, and
1995, respectively. At June 30, 1996, and December 31,
1995, approximately $672.5 million and $687.4 million,
respectively, of such financings were included in the lease
and loan portfolio. Of these amounts, $664.8 million and
$677.3 million were included in the Company's operating
lease portfolio at June 30, 1996, and December 31, 1995,
respectively. The pretax income earned from operating
leases to IBM and affiliated companies, net of depreciation
expense, was approximately $54.0 million and $45.5 million
in the first half of 1996 and the first half of 1995,
respectively.
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<PAGE 7>
IBM CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net earnings for the three months ended June 30, 1996, were
$74.1 million. Net earnings for the six months ended June
30, 1996, were $148.0 million, yielding an annualized return
on average equity of 23.8 percent.
Effective August 1, 1996, the Company relocated its
principal executive offices from leased space to an
IBM-owned facility in White Plains, New York.
FINANCING ORIGINATED
For the three months ended June 30, 1996, the Company
originated capital equipment financing for end users of
$1,267.8 million, a 15 percent increase from $1,101.8
million for the same 1995 period. For the three months
ended June 30, 1996, originations of working capital
financing for dealers and remarketers of information
industry products increased by 30 percent to $3,137.5
million, from $2,420.6 million for the same 1995 period.
For the six months ended June 30, 1996, the Company
originated capital equipment financing for end users of
$2,501.2 million, a 16 percent increase from $2,151.4
million for the same 1995 period. For the six months ended
June 30, 1996, originations of working capital financing for
dealers and remarketers of information industry products
increased by 25 percent to $5,687.6 million, from $4,560.8
million for the same 1995 period.
The growth in capital equipment financing originated is
related to IBM's increase in placements of its products and
services in the United States, and throughout the first half
of 1996, compared with the same period in 1995.
Capital equipment financings for end users included
purchases of $1,517.6 million of information handling
systems from IBM, consisting of $883.0 million for capital
leases and $634.6 million for operating leases. In
addition, capital equipment financings for end users
included the following: (1) financing originated for
installment receivables of $92.2 million; (2) financing for
IBM software and services of $416.0 million; (3) installment
and lease financing for state and local government customers
of $210.2 million for the account of IBM; and (4) other
financing of $265.2 million for IBM equipment, as well as
related non-IBM equipment to meet IBM customers' total
solution requirements.
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.
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<PAGE 8>
FINANCING ORIGINATED (Continued)
The growth in working capital financing originations
throughout the first half of 1996 reflects volume increases
in both IBM's workstation products and non-IBM products for
remarketers financed by the Company, compared with the same
1995 period. 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
generally range from 30 days to 45 days. Payment terms for
accounts receivable secured financing generally range from
30 days to 90 days.
REMARKETING ACTIVITIES
In addition to originating new financing, the Company
remarkets used IBM equipment. This equipment is primarily
sourced from customers at 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 follow-on capital and operating leases and
gross profit on equipment sales, net of write-downs in
residual values of certain leased equipment.
At June 30, 1996, the investment in remarketed equipment on
capital and operating leases totaled $410.2 million, a
decrease of 13 percent from the 1995 year-end investment of
$470.5 million. For the three months ended June 30, 1996,
the remarketing activities contributed $55.4 million to
pretax earnings, an increase of 38 percent compared with
$40.2 million for the same 1995 period. For the six months
ended June 30, 1996, the remarketing activities contributed
$87.7 million to pretax earnings, an increase of 11 percent
compared with $78.7 million for the same 1995 period. Refer
to Equipment Sales in Management's Discussion and Analysis
on page 10 for additional details.
ASSETS
Total assets increased to $11.8 billion at June 30, 1996,
compared with $11.4 billion at December 31, 1995. This
growth, during the first half of 1996, is primarily the
result of an increase in cash and cash equivalents of
approximately $476.4 million, plus growth of $294.2 in
investment in equipment on operating leases, offset by cash
collections exceeding originations of working capital
financing receivables by $330.3 million.
The carrying amount of marketable securities, as reported in
the Consolidated Statement of Financial Position,
approximates market value. These marketable securities were
available-for-sale. At June 30, 1996, and December 31,
1995, the marketable securities included investments in U.S.
federal agency debt securities of $21.7 million and
corporate debt securities of $82.1 million and $68.2
million, respectively.
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<PAGE 9>
LIABILITIES AND STOCKHOLDER'S EQUITY
The assets of the business were financed with $8,127.2
million of debt at June 30, 1996. Total short-term and
long-term debt increased by approximately $539.1 million,
from $7,588.1 million at December 31, 1995. This increase
was the result of increases in commercial paper outstanding
of $507.1 million, medium-term notes of $106.9 million and
long-term debt of $139.2 million, offset by the January 2,
1996, maturity of $214.1 million, payable to IBM at market
terms and conditions. Included in long-term debt at June
30, 1996, and December 31, 1995, was $125.0 million payable
to IBM at market terms and conditions, maturing on November
1, 1997.
The Company has the option, as approved by the Board of
Directors on December 13, 1995, to issue and sell up to $4.0
billion of debt securities in domestic and foreign financial
markets through December 31, 1996. Included within this
$4.0 billion authorization is the option, together with IBM
and IBM International Finance, N.V., to issue and sell debt
securities in an aggregate nominal amount of up to 3.0
billion in European Currency Units (ECU), or its equivalent
in any other currency. At June 30, 1996, there was 3.0
billion in ECU available for the issuance of debt securities
under this program. Currently, there is 2.8 billion in ECU
available for the issuance of debt securities under this
program. The Company's decision to continue to issue debt
securities over the remaining authorized period under this
program is dependent on prevailing market conditions and its
need for such funding. The Company has no firm commitments
for the purchase of debt securities that it may issue from
the unused portion under this program.
At June 30, 1996, the Company had available $119 million of
a shelf registration with the Securities and Exchange
Commission (SEC) for the issuance of debt securities. On
July 30, 1996, the Company's registration of an additional
$2.0 billion of debt securities with the SEC became
effective. Currently, the Company has available a total of
$2.0 billion on its shelf with the SEC 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 December 13, 1995, to sell, assign, pledge or
transfer up to $2.0 billion of assets to third parties
through December 31, 1996. Included within this $2.0
billion authorization is $450.0 million of a separate shelf
registration for issuance of asset-backed securities, which
a subsidiary of the Company has available. The subsidiary's
decision to issue any asset-backed securities over the
remaining authorized period under this shelf registration is
dependent on prevailing market conditions and its need for
such funding.
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.
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<PAGE 10>
LIABILITIES AND STOCKHOLDER'S EQUITY (Continued)
The Company and IBM have also 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. No borrowings
were outstanding at June 30, 1996. As previously mentioned,
the Company had borrowings outstanding under this agreement
of $214.1 million at December 31, 1995.
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 currencies and
interest rates 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
instrument transactions for risk management and 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 or results of operations from its use of these
instruments, nor does it anticipate nonperformance by any of
its counterparties.
Amounts due to IBM and affiliates include 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. Also included in amounts due to IBM and
affiliates are income taxes currently payable under the
intercompany tax allocation agreement. Amounts due to IBM
and affiliates decreased by approximately $225.5 million to
$1,380.9 million at June 30, 1996, from $1,606.4 million at
December 31, 1995. This decline was primarily attributable
to a $264.9 million decrease in the amount payable for
capital equipment purchases and a current tax liability
payment of $60.5 million made to IBM during the first half
of 1996, partially offset by a current income tax provision
of $76.8 for the first half of 1996.
Total stockholder's equity at June 30, 1996, was $1,312.0
million, up $103.4 million from year-end 1995. The increase
in stockholder's equity reflects net earnings of $148.0
million for the first half of 1996 and the issuance of $0.4
million of capital stock to IBM, offset by the payment of
$45.0 million in cash dividends to IBM during the first
quarter of 1996.
At June 30, 1996, the Company's debt to equity ratio was
6.2:1, compared with 6.3:1 at December 31, 1995, and June
30, 1995.
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<PAGE 11>
TOTAL CASH PROVIDED BEFORE DIVIDENDS
Total cash provided before dividends was $521.4 million for
the six months ended June 30, 1996, compared with total cash
provided before dividends of $53.1 million for the same 1995
period. Total cash provided before dividends reflects $51.9
million of cash used in investing and financing activities
before dividends, offset by $573.3 million of cash provided
by operating activities for the first half of 1996.
For the six months ended June 30, 1995, total cash provided
before dividends reflected $474.3 million of cash used in
investing and financing activities before dividends, offset
by $527.4 million of cash provided by operating activities.
Cash and cash equivalents at June 30, 1996, totaled $813.2
million, an increase of $476.4 million, compared with the
balance at December 31, 1995.
INCOME FROM LEASES
Income from leases increased 17 percent to $135.3 million
for the three months ended June 30, 1996, from $115.9
million for the same 1995 period; for the six months ended
June 30, 1996, income from leases increased 10 percent to
$250.3 million, from $228.2 million for the same 1995
period. The growth in capital equipment financings for end
users during 1995 contributed to the overall increase in
income from leases. Income from leases includes lease
income resulting from remarketing transactions. Lease
income from remarketing transactions was $39.9 million and
$69.5 million for the three- and six-month periods ended
June 30, 1996, an increase of 99 percent and 53 percent,
respectively, from the comparable 1995 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 $717.0 million residual value
portfolio at June 30, 1996, indicated that the overall
estimated future value of the portfolio continues to be
greater than the value currently recorded, which is the
lower of the Company's cost or net realizable value. To
recognize decreases in the expected future residual value of
specific leased equipment, the Company recorded a $2.1
million reduction to income from leases during the second
quarter of 1996, for a total of $18.1 million during the
first half of 1996, compared with a $6.0 million reduction
to income from leases during the second quarter and
year-to-date 1995.
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<PAGE 12>
INCOME FROM LOANS
Income from loans increased 41 percent to $38.3 million for
the three months ended June 30, 1996; for the first half of
1996, income from loans increased 40 percent to $75.3
million, compared with the respective 1995 period. These
increases resulted from higher asset balances, which in turn
were primarily due to an increase in financing originated
for software and services during 1995 and the first half of
1996.
INCOME FROM WORKING CAPITAL FINANCING
Income from working capital financing increased 16 percent
to $65.8 million for the three months ended June 30, 1996,
compared with the same 1995 period; for the first half of
1996, income from working capital financing increased 24
percent to $134.2 million compared with the respective 1995
period. These increases were primarily due to growth in the
average working capital financing receivables outstanding
during the 1996 period, compared with the 1995 period. The
growth in average working capital financing receivables
outstanding primarily reflects increased originations.
EQUIPMENT SALES
Equipment sales amounted to $101.4 million for the three
months ended June 30, 1996, compared with $131.0 million for
the same 1995 period; for the first six months of 1996,
equipment sales amounted to $207.9 million, compared with
$245.1 million for the comparable 1995 period. The
decreases in equipment sales primarily reflect lower
financing originated in prior years, resulting in fewer
leases reaching end of term. Also contributing to these
decreases in equipment sales is the growth of equipment
remarketed as operating leases, rather than as 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 three months ended
June 30, 1996 was $17.6 million, a decrease of 33 percent,
compared with $26.2 million for the same 1995 period. For
the first half of 1996, the gross profit on equipment sales
decreased 8 percent to $36.3 million, compared with $39.4
million for the same 1995 period. The gross profit margin
for the second quarter of 1996 decreased to 17.4 percent,
compared with 20.0 percent for the same 1995 period; for the
first half of 1996, the gross profit margin increased to
17.5 percent, compared with 16.1 percent for the same 1995
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 changes
in gross profit margin.
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<PAGE 13>
OTHER INCOME
Other income decreased 10 percent to $27.3 million for the
three months ended June 30, 1996, compared with $30.5
million for the same 1995 period. This decrease is
primarily due to the fact that during the second quarter of
1995, a pretax gain of $4.3 million was recognized upon the
sale of financing assets. For the first half of 1996, other
income increased 17 percent to $74.6 million, compared with
$63.8 million for the same 1995 period. This increase is
primarily due to a $9.3 million pretax gain recognized upon
the sale of certain restricted securities during the first
quarter of 1996. Additionally, interest income earned on
cash and cash equivalents and fees for the servicing of IBM
financing receivables securitized and sold increased during
the first half of 1996, compared with the same 1995 period.
These year-to-year increases were partially offset by a $5.0
million pretax gain recognized during the first quarter of
1995, upon Comdisco Inc.'s redemption of a convertible
subordinated promissory note on March 1, 1995.
INTEREST EXPENSE
As a result of an increase in the Company's average
outstanding debt balance, interest expense increased 13
percent to $106.9 million for the three months ended June
30, 1996, and 18 percent to $213.2 million for the first
half of 1996, compared with the same 1995 periods. Due to
generally lower interest rates, the Company's year-to-date
average cost of debt through June 30, 1996, decreased to
5.73 percent, from 5.94 percent for the same 1995 period.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses were $46.2
million for the three months ended June 30, 1996, an
increase of 7 percent compared with the same 1995 period.
For the first half of 1996, selling, general, and
administrative expenses increased 8 percent to $91.0
million, from $83.9 million for the same 1995 period. This
increase is primarily a result of the first half of 1996
reflecting six months of expenses incurred by IBM CS
Systems, Inc. (formerly known as Chrysler Systems, Inc.),
compared to five months of expenses during the first half of
1995, and an increase in resources for the six months ended
June 30, 1996, compared to the same 1995 period, resulting
in an increase in compensation related expenses.
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 1995 and the first half of 1996, and
with the continuation of the trend toward consolidation in
this industry segment, the concentration of such financings
for certain large dealers and remarketers of information
industry products has become more significant.
-11-
<PAGE 14>
PROVISION FOR RECEIVABLE LOSSES (Continued)
At June 30, 1996, and December 31, 1995, approximately 68
percent and 70 percent, respectively, of the working capital
financing receivables outstanding were concentrated in ten
working capital accounts. The Company's working capital
financing business is predominantly with non-investment
grade customers. Such financing receivables are typically
collateralized by the inventory and accounts receivable of
the dealers and remarketers. The Company provides for
working capital financing receivable losses on the basis of
actual collection experience and estimated collectibility of
the related financing receivables. The Company did not
experience material losses in 1995, nor during the first
half of 1996, and does not believe that these risks will
have a material adverse effect on its financial position or
results of operations.
The provision for receivable losses decreased to $9.3
million for the quarter ended June 30, 1996, compared with
$13.6 million for the same 1995 period. For the six months
ended June 30, 1996, the provision for receivable losses
decreased to $22.2 million, compared with $27.3 million for
the same 1995 period. The Company provides for receivable
losses at the time financings are originated for capital
equipment. Although there was growth in capital equipment
financing originated during the second quarter and the first
half of 1996, compared with the same 1995 periods, the
corresponding increase in the provision for receivable
losses was offset by declines in specific reserves.
NET EARNINGS
Net earnings increased 16 percent to $74.1 million for the
second quarter of 1996, compared with $63.9 million for the
same 1995 period.
Net earnings for the six months ended June 30, 1996, were
$148.0 million, an increase of 21 percent from the same 1995
period.
The Company's loan and lease portfolios grew and its working
capital financing originations increased during the first
half of 1996 compared with the same 1995 period.
Furthermore, its capital equipment remarketing operations
continued to be profitable. These factors contributed to a
favorable performance during the first half of 1996.
RETURN ON AVERAGE EQUITY
The results for the first half of 1996 yielded an annualized
return on average equity of 23.8 percent, compared with 23.1
percent for the same 1995 period.
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.
-12-
<PAGE 15>
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 six months
of 1996.
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: August 13, 1996 By: /s/ Allison R. Schleicher
_______________ _____________________________
(Allison R. Schleicher)
Vice President, Finance
and Chief Financial Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT V
_________
FINANCIAL DATA SCHEDULE
_______________________
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM IBM CREDIT CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS AT AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 813,205
<SECURITIES> 103,783
<RECEIVABLES> 4,388,880
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,821,106
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 457,411
0
0
<OTHER-SE> 854,566
<TOTAL-LIABILITY-AND-EQUITY> 11,821,106
<SALES> 207,920
<TOTAL-REVENUES> 742,293
<CGS> 171,605
<TOTAL-COSTS> 171,605
<OTHER-EXPENSES> 91,026
<LOSS-PROVISION> 22,244
<INTEREST-EXPENSE> 213,211
<INCOME-PRETAX> 244,207
<INCOME-TAX> 96,204
<INCOME-CONTINUING> 148,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148,003
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
