<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 September 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
____________
- 1 -
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, 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 October 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 September 30, 1996 and December 31, 1995. . . . . . . . . . 1
Consolidated Statement of Earnings for the three and nine
months ended September 30, 1996 and 1995 . . . . . . . . . . . 2
Consolidated Statement of Cash Flows for the nine
months ended September 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
September 30, December 31,
1996 1995*
___________ ____________
<S> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . . . $ 738,821 $ 336,839
Marketable securities. . . . . . . . . . . 126,410 89,930
Net investment in capital leases . . . . . 4,050,998 3,966,255
Equipment on operating leases, net . . . . 2,111,334 1,695,812
Loans receivable . . . . . . . . . . . . . 1,584,837 1,473,822
Working capital financing receivables. . . 2,860,856 3,158,932
Investments and other assets . . . . . . . 605,857 703,961
___________ ___________
Total Assets $12,079,113 $11,425,551
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Short-term debt. . . . . . . . . . . . . . $ 6,639,162 $ 6,258,485
Short-term debt, IBM . . . . . . . . . . . 200,000 214,142
Due to IBM and affiliates. . . . . . . . . 1,283,791 1,606,433
Interest and other accruals. . . . . . . . 313,983 357,311
Deferred income taxes. . . . . . . . . . . 720,159 665,166
Long-term debt . . . . . . . . . . . . . . 1,413,431 990,440
Long-term debt, IBM. . . . . . . . . . . . 125,000 125,000
___________ ___________
Total liabilities . . . . . . . . . . . 10,695,526 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. . . . . . . . . . . . . 926,176 751,563
___________ ___________
Total stockholder's equity. . . . . . . 1,383,587 1,208,574
___________ ___________
Total Liabilities and Stockholder's Equity $12,079,113 $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
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
________ ________ ________ ________
<S> <C> <C> <C> <C>
FINANCE AND OTHER INCOME:
Income from leases:
Capital leases . . . . . . . . $ 82,487 $ 82,492 $226,677 $206,921
Operating leases, net of
depreciation. . . . . . . . . 60,144 42,976 166,225 146,786
________ ________ ________ ________
142,631 125,468 392,902 353,707
Income from loans . . . . . . . . . 36,875 30,562 112,205 84,228
Income from working capital
financing. . . . . . . . . . . . . 66,579 62,150 200,783 170,104
Equipment sales . . . . . . . . . . 76,367 123,454 284,287 368,524
Other income. . . . . . . . . . . . 37,196 37,105 111,764 100,886
________ ________ _________ _________
Total finance and other
income. . . . . . . . . . . . . 359,648 378,739 1,101,941 1,077,449
________ ________ _________ _________
COST AND EXPENSES:
Interest. . . . . . . . . . . . . . 110,362 106,050 323,573 286,967
Cost of equipment sales . . . . . . 68,697 109,915 240,302 315,559
Selling, general, and
administrative . . . . . . . . . . 53,389 47,750 144,415 131,629
Provision for receivable losses . . 9,032 26,710 31,276 54,021
________ ________ ________ ________
Total cost and expenses. . . . . 241,480 290,425 739,566 788,176
________ ________ ________ ________
EARNINGS BEFORE INCOME TAXES. . . . . 118,168 88,314 362,375 289,273
Provision for income taxes. . . . . . 46,558 34,788 142,762 113,878
________ ________ ________ ________
NET EARNINGS. . . . . . . . . . . . .$ 71,610 $ 53,526 $219,613 $175,395
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30:
(Dollars in thousands) 1996 1995*
<CAPTION>
___________ ___________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . .$ 219,613 $ 175,395
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . 731,620 620,551
Provision for receivable losses. . . . . . . . 31,276 54,021
Change in deferred income taxes. . . . . . . . 54,993 (29,962)
Decrease in interest and other accruals. . . . (43,328) (15,862)
Gross profit on equipment sales. . . . . . . . (43,985) (52,965)
Other items that provided (used) cash:
Proceeds from equipment sales. . . . . . . . 284,287 368,524
Decrease in amounts due IBM and affiliates . (322,642) (387,742)
Other, net . . . . . . . . . . . . . . . . . 24,435 64,390
___________ ___________
Cash provided by operating activities . . . . . . 936,269 796,350
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in capital leases . . . . . . . . .(1,397,174) (1,331,507)
Collection of capital leases, net of income
earned. . . . . . . . . . . . . . . . . . . . 1,070,099 1,024,561
Investment in equipment on operating leases. .(1,136,606) (757,318)
Investment in loans receivable . . . . . . . . (729,969) (609,997)
Collection of loans receivable, net of
interest earned . . . . . . . . . . . . . . . 602,844 343,878
Collection of (investment in) working capital
financing receivables, net. . . . . . . . . . 284,870 (482,083)
Purchases of marketable securities . . . . . . (36,480) (237,440)
Maturities of marketable securities. . . . . . - 145,958
Cash payment for business acquired . . . . . . - (92,478)
Other, net . . . . . . . . . . . . . . . . . . 65,434 (172,264)
___________ ___________
Cash used in investing activities . . . . . . . .(1,276,982) (2,168,690)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . 665,541 240,039
Repayment of debt with original maturities
of one year or more . . . . . . . . . . . . . (485,655) (518,551)
Issuance of debt with original maturities
within one year, net. . . . . . . . . . . . . 607,809 1,435,192
Cash dividends paid to IBM . . . . . . . . . . (45,000) (145,000)
___________ ___________
Cash provided by financing activities . . . . . . 742,695 1,011,680
___________ ___________
Increase (decrease) in cash and cash equivalents. 401,982 (360,660)
Cash and cash equivalents, January 1. . . . . . . 336,839 614,339
___________ ___________
Cash and cash equivalents, September 30 . . . . .$ 738,821 $ 253,679
=========== ===========
<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 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 2.12 and 2.01 for the nine
months ended September 30, 1996, and 1995, respectively.
RELATED COMPANY TRANSACTIONS:
The Company provides equipment financing at market rates,
substantially through operating leases, to International
Business Machines Corporation (IBM) and affiliated companies
for both IBM and non-IBM products. The Company originated
$431.7 million and $222.1 million of such financings during
the nine months ended September 30, 1996, and 1995,
respectively. At September 30, 1996, and December 31, 1995,
approximately $673.0 million and $687.4 million,
respectively, of such financings were included in the
Company's lease and loan portfolio. The finance income, net
of depreciation, earned from operating leases to IBM and
affiliated companies, was approximately $78.9 million and
$66.2 million in the first nine months of 1996 and the first
nine months 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 September 30, 1996,
were $71.6 million. Net earnings for the nine months ended
September 30, 1996, were $219.6 million, yielding an
annualized return on average equity of 22.9 percent.
FINANCING ORIGINATED
For the three months ended September 30, 1996, the Company
originated capital equipment financing for end users of
$1,189.9 million, an 18 percent increase from $1,005.2
million for the same 1995 period. For the three months
ended September 30, 1996, originations of working capital
financing for dealers and remarketers of information
industry products increased by 42 percent to $3,602.4
million, from $2,529.4 million for the same 1995 period.
For the nine months ended September 30, 1996, the Company
originated capital equipment financing for end users of
$3,691.1 million, a 17 percent increase from $ 3,156.6
million for the same 1995 period. For the nine months ended
September 30, 1996, originations of working capital
financing for dealers and remarketers of information
industry products increased by 31 percent to $9,290.0
million, from $7,090.2 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 an increase in the
propensity for customers to finance their acquisitions with
the Company throughout the first nine months of 1996,
compared with the same period in 1995. The increase in
placements reflects a growth in the volume of operating
lease originations during the first nine months of 1996,
compared with the same period in 1995.
Capital equipment financings for end users included
purchases of $2,297.2 million of information handling
systems from IBM, consisting of $1,303.0 million for capital
leases and $994.2 million for operating leases. In
addition, capital equipment financings for end users
included the following: (1) financing originated for
installment receivables of $150.7 million; (2) financing for
IBM software and services of $579.4 million; (3) installment
and lease financing for state and local government customers
of $276.8 million for the account of IBM; and (4) other
financing of $387.0 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 nine months 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 September 30, 1996, the investment in remarketed
equipment on capital and operating leases totaled $319.7
million, a decrease of 32 percent from the 1995 year-end
investment of $470.5 million. For the three months ended
September 30, 1996, remarketing activities contributed $42.3
million to pretax earnings, an increase of 14 percent
compared with $37.0 million for the same 1995 period. For
the nine months ended September 30, 1996, remarketing
activities contributed $130.0 million to pretax earnings, an
increase of 12 percent compared with $115.7 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 $12.1 billion at September 30,
1996, compared with $11.4 billion at December 31, 1995.
This growth, during the first nine months of 1996, is
primarily the result of an increase in cash and cash
equivalents of approximately $402.0 million, plus growth of
$415.5 million in investment in equipment on operating
leases, offset by cash collections exceeding originations of
working capital financing receivables by $284.9 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 September 30, 1996, and December 31,
1995, marketable securities included investments in U.S.
federal agency debt securities of $21.7 million and
corporate debt securities of $104.7 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 $8,377.6
million of debt at September 30, 1996. Total short-term and
long-term debt increased by approximately $789.5 million,
from $7,588.1 million at December 31, 1995. This increase
was the result of increases in commercial paper outstanding
of $784.2 million, long-term debt of $422.9 million and
payable to IBM of $200.0 million, offset by the maturity of
medium-term notes of $403.5 million and $214.1 million
payable to IBM at market terms and conditions. Included in
short-term debt at September 30, 1996, was $200.0 million
payable to IBM at market terms and conditions, maturing on
October 3, 1996. Included in long-term debt at September
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 November 1, 1996, to issue and sell up to $5.0
billion of debt securities in domestic and foreign financial
markets through December 31, 1997. Included within this
$5.0 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 September 30, 1996, there was 2.0
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 available under this
program.
At September 30, 1996, the Company had available $1.9
billion of a shelf registration with the Securities and
Exchange Commission (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 November 1, 1996, to sell, assign, pledge or
transfer up to $3.0 billion of assets to third parties
through December 31, 1999. Included within this $3.0
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. As previously
mentioned, the Company had borrowings outstanding under this
agreement of $200.0 million at September 30, 1996 and $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 $322.6 million to
$1,283.8 million at September 30, 1996, from $1,606.4
million at December 31, 1995. This decline was primarily
attributable to a $318.5 million decrease in the amount
payable for capital equipment purchases and a current tax
liability payments of $108.4 million made to IBM during the
first nine months of 1996, partially offset by a current
income tax provision of $86.0 million for the first nine
months of 1996.
Total stockholder's equity at September 30, 1996, was
$1,383.6 million, up $175.0 million from year-end 1995. The
increase in stockholder's equity reflects net earnings of
$219.6 million for the first nine months 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 September 30, 1996, the Company's debt to equity ratio
was 6.1:1, compared with 6.3:1 at December 31, 1995, and
6.2:1 at September 30, 1995.
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<PAGE 11>
TOTAL CASH PROVIDED BEFORE DIVIDENDS
Total cash provided before dividends was $447.0 million for
the nine months ended September 30, 1996, compared with
total cash used before dividends of $215.7 million for the
same 1995 period. Total cash provided before dividends
reflects $489.3 million of cash used in investing and
financing activities before dividends, offset by $936.3
million of cash provided by operating activities for the
first nine months of 1996.
For the nine months ended September 30, 1995, total cash
used before dividends reflected $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. Cash and cash equivalents at September 30,
1996, totaled $738.8 million, an increase of $402.0 million,
compared with the balance at December 31, 1995.
INCOME FROM LEASES
Income from leases increased 14 percent to $142.6 million
for the three months ended September 30, 1996, from $125.5
million for the same 1995 period; for the nine months ended
September 30, 1996, income from leases increased 11 percent
to $392.9 million, from $353.7 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 $39.6 million and
$109.1 million for the three- and nine-month periods ended
September 30, 1996, an increase of 49 percent and 52
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 $737.9 million residual value
portfolio at September 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 $5.0
million reduction to income from leases during the third
quarter of 1996, for a total of $23.1 million during the
first nine months of 1996, compared with a $3.0 million
reduction to income from leases during the third quarter of
1995, for a total of $9.0 million during the first nine
months of 1995.
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<PAGE 12>
INCOME FROM LOANS
Income from loans increased 21 percent to $36.9 million for
the three months ended September 30, 1996; for the first
nine months of 1996, income from loans increased 33 percent
to $112.2 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 nine months of 1996.
INCOME FROM WORKING CAPITAL FINANCING
Income from working capital financing increased 7 percent to
$66.6 million for the three months ended September 30, 1996,
compared with the same 1995 period; for the first nine
months of 1996, income from working capital financing
increased 18 percent to $200.8 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 $76.4 million for the three
months ended September 30, 1996, compared with $123.5
million for the same 1995 period; for the first nine months
of 1996, equipment sales amounted to $284.3 million,
compared with $368.5 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
September 30, 1996, was $7.7 million, a decrease of 43
percent, compared with $13.5 million for the same 1995
period. For the first nine months of 1996, the gross profit
on equipment sales decreased 17 percent to $44.0 million,
compared with $53.0 million for the same 1995 period. The
gross profit margin for the third quarter of 1996 decreased
to 10 percent, compared with 11 percent for the same 1995
period; for the first nine months of 1996, the gross profit
margin increased to 15.5 percent, compared with 14.4 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 was $37.2 million for the three months ended
September 30, 1996, which was relatively flat compared with
$37.1 million for the same 1995 period. For the first nine
months of 1996, other income increased 10.8 percent to
$111.8 million, compared with $100.9 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
nine months 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 4
percent to $110.4 million for the three months ended
September 30, 1996, and 13 percent to $323.6 million for the
first nine months 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
September 30, 1996, decreased to 5.7 percent, from 6.0
percent for the same 1995 period.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses were $53.4
million for the three months ended September 30, 1996, an
increase of 12 percent compared with the same 1995 period.
For the first nine months of 1996, selling, general, and
administrative expenses increased 10 percent to $144.4
million, from $131.6 million for the same 1995 period. This
increase is primarily a result of the first nine months of
1996 reflecting nine months of expenses incurred by IBM CS
Systems, Inc. (formerly known as Chrysler Systems, Inc.),
compared with eight months of expenses during the first nine
months of 1995, and an increase in resources for the nine
months ended September 30, 1996, compared with 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 nine months 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 is significant.
-11-
<PAGE 14>
PROVISION FOR RECEIVABLE LOSSES (Continued)
At September 30, 1996, and December 31, 1995, approximately
65 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 nine months 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 $9.0
million for the quarter ended September 30, 1996, compared
with $26.7 million for the same 1995 period. For the nine
months ended September 30, 1996, the provision for
receivable losses decreased to $31.3 million, compared with
$54.0 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 third
quarter and the first nine months 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 34 percent to $71.6 million for the
third quarter of 1996, compared with $53.5 million for the
same 1995 period.
Net earnings for the nine months ended September 30, 1996,
were $219.6 million, an increase of 25 percent from the same
1995 period.
The Company's loan and lease portfolios grew and its working
capital financing originations increased during the first
nine months 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 nine months of 1996.
RETURN ON AVERAGE EQUITY
The results for the first nine months of 1996 yielded an
annualized return on average equity of 22.9 percent,
compared with 21.7 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 nine 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: November 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 NINE MONTHS ENDED SEPTEMBER 30, 1996 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 738,821
<SECURITIES> 126,410
<RECEIVABLES> 4,445,693
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,079,113
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 457,411
0
0
<OTHER-SE> 926,176
<TOTAL-LIABILITY-AND-EQUITY> 12,079,113
<SALES> 284,287
<TOTAL-REVENUES> 1,101,941
<CGS> 240,302
<TOTAL-COSTS> 240,302
<OTHER-EXPENSES> 144,415
<LOSS-PROVISION> 31,276
<INTEREST-EXPENSE> 323,573
<INCOME-PRETAX> 362,375
<INCOME-TAX> 142,762
<INCOME-CONTINUING> 219,613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219,613
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
