<PAGE 1>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
____________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
________________________________ _______________________
5.36% Notes due October 27, 1998 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
___ ___
As of February 28, 1997, 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 February 28, 1997: NONE.
The registrant meets the conditions set forth in General Instruction J
(1)(a) and (b) of Form 10-K and is therefore filing this Form with the
reduced disclosure format.
<PAGE 2>
TABLE OF CONTENTS
_________________
PART I Page
Item 1. Business 3
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 3
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 40
PART III
Item 10. Directors and Executive Officers of the Registrant 40
Item 11. Executive Compensation 40
Item 12. Security Ownership of Certain Beneficial Owners and
Management 40
Item 13. Certain Relationships and Related Transactions 40
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 40
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<PAGE 3>
PART I
ITEM 1. BUSINESS:
The principal business of IBM Credit Corporation (the
Company) is the financing of IBM products and services. All
the outstanding capital stock of the Company is owned by
International Business Machines Corporation (IBM), a New
York corporation. The Company finances the purchase and
lease of IBM products and related products and services by
customers of IBM in the U.S. and finances inventory and
accounts receivable for dealers and remarketers of IBM and
non-IBM products and services.
Pursuant to a Support Agreement between IBM and the
Company, IBM has agreed to retain 100 percent of the voting
capital stock of the Company, unless required to dispose of
any or all such shares of stock pursuant to a court decree
or order of any governmental authority that, in the opinion
of counsel to IBM, may not be successfully challenged. IBM
has also agreed to cause the Company to have a tangible net
worth of at least $1.00 at all times.
ITEM 2. PROPERTIES:
Effective August 1, 1996, the Company relocated its
principal executive offices from leased space to an IBM
owned facility in White Plains, New York. The executive
offices comprise approximately 200,000 square feet of office
space. The Company occupies this space under an arrangement
with IBM. The Company also maintains offices in Oakbrook,
Illinois, under long-term lease.
ITEM 3. LEGAL PROCEEDINGS:
None material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Omitted pursuant to General Instruction J.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS:
All shares of the Company's capital stock are owned by
IBM, and accordingly, there is no market for such stock.
The Company paid IBM cash dividends of $45,000,000 in 1996
and cash dividends of $145,000,000 and noncash dividends of
$1,419,000 in 1995. Dividends are declared by the Board of
Directors of the Company.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA:
The following selected financial data should be read in conjunction with the financial statements of
IBM Credit Corporation and the related notes to the financial statements included in this document.
<CAPTION>
(Dollars in thousands) 1996 1995 1994 1993 1992
___________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C> <C>
For the year:
Finance and other income. . . . . . .$1,497,800 $1,452,285 $1,484,680 $1,770,430 $1,762,530
Gross profit on equipment sales . . . 50,936 74,613 68,508 63,580 66,873
Interest expense. . . . . . . . . . . 436,109 394,572 306,125 365,675 445,816
Net earnings. . . . . . . . . . . . . 271,082 230,475 250,589 220,220 219,270
Dividends . . . . . . . . . . . . . . 45,000 146,419 295,000 325,000 50,000
Products purchased for leases . . . . 3,903,052 2,931,619 1,659,019 2,165,577 2,794,567
Loans receivable financing. . . . . . 1,211,318 892,796 496,308 441,939 651,153
IBM state and local installment
receivables and leases. . . . . . . 410,328 364,636 232,845 294,166 412,476
Other capital equipment financing . . 225,744 291,688 376,296 488,594 503,952
Working capital financing . . . . . .13,387,014 10,297,600 7,597,300 5,866,300 4,213,000
Return on average assets. . . . . . . 2.4% 2.3% 2.7% 2.0% 2.0%
Return on average equity. . . . . . . 20.7% 20.9% 24.1% 19.1% 19.0%
At end of year:
Total assets. . . . . . . . . . . . $12,946,139 $11,425,551 $9,667,715 $10,041,543 $11,451,267
Net investment in capital leases. . . 4,214,822 3,966,255 3,687,971 4,437,257 6,037,269
Equipment on operating leases, net. . 2,551,382 1,695,812 1,573,242 1,753,121 1,776,576
Loans receivable. . . . . . . . . . . 1,846,947 1,473,822 1,070,619 1,037,864 1,416,252
Working capital financing receivables 2,898,688 3,158,932 2,135,020 1,425,781 1,138,131
Short-term debt . . . . . . . . . . . 6,566,400 6,472,627 4,355,038 4,227,724 5,399,030
Long-term debt. . . . . . . . . . . . 1,515,937 1,115,440 1,583,822 2,279,796 2,406,071
Stockholder's equity. . . . . . . . . 1,435,056 1,208,574 1,121,218 1,150,729 1,255,509
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</TABLE>
<PAGE 5> ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
OVERVIEW
Net earnings for 1996 were $271.1 million, yielding a return
on average equity of 20.7 percent, as compared with 1995 net
earnings of $230.5 million, yielding a return on average
equity of 20.9 percent.
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 were applied against
certain future obligations of the Seller to the Company.
IBM CS Systems, as the unit is now known, buys, sells and
leases data processing equipment, and provides related
technology management services such as equipment procurement
and asset management for customers of IBM products and
related products and services. The transaction was
accounted for as a purchase, and IBM CS Systems is included
in the Company's consolidated financial statements from the
date of acquisition.
FINANCING ORIGINATED
For the year ended December 31, 1996, the Company originated
capital equipment financing for end users of $5,750.4
million, a 28 percent increase from $4,480.7 million for
1995. For the year ended December 31, 1996, originations of
working capital financing for dealers and remarketers of
information industry products increased by 30 percent to
$13,387.0 million, from $10,297.6 million for 1995.
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 1996, compared with 1995.
Capital equipment financings for end users comprised
purchases of $3,439.8 million of information handling
systems from IBM, financing for IBM software and services of
$1,021.3 million, installment and lease financing for state
and local government customers of $410.3 million for the
account of IBM, financing originated for installment
receivables of $190.2 million and other financing of $688.8
million for IBM equipment, as well as related non-IBM
equipment to meet IBM customers' total solution
requirements. The purchases of $3,439.8 million from IBM
consisted of $1,963.3 million for capital leases and
$1,476.5 million for operating leases.
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<PAGE 6>
FINANCING ORIGINATED (Continued)
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 personal system
client products and non-IBM products for remarketers
financed by the Company throughout 1996. 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 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 December 31, 1996, the investment in remarketed equipment
on capital and operating leases totaled $305.3 million, a
decrease of 35 percent from the 1995 year-end investment of
$470.5 million. For the year ended December 31, 1996, the
remarketing activities contributed $149.2 million to pretax
earnings, which was relatively flat compared with $150.0
million for 1995. Refer to Equipment Sales in Management's
Discussion and Analysis on page 10 for additional details.
ASSETS
Total assets increased to $12.9 billion at December 31,
1996, compared with $11.4 billion at December 31, 1995.
This increase is primarily the result of financings
originated of $16.9 billion exceeding cash collections of
$16.5 billion on capital leases, loans receivable and
working capital financing receivables. Additionally, growth
of $855.6 million in equipment on operating leases during
1996, offset in part by payments to IBM of cash dividends of
$45.0 million and a tax payment of $113.3 million
contributed to the year-to-year increase in total assets.
Total financing assets serviced by the Company at December
31, 1996, were $12.7 billion, compared with $11.8 billion at
December 31, 1995. Total financing assets serviced include
the remaining balance of financing
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<PAGE 7>
ASSETS (Continued)
receivables securitized and sold ($324.2 million in 1996,
$610.1 million in 1995), capital and operating leases
($6,766.2 million in 1996, $5,662.1 million in 1995), loans
receivable ($1,846.9 million in 1996, $1,473.8 million in
1995), working capital financing receivables ($2,898.7
million in 1996, $3,158.9 million in 1995), subordinated
interests in trusts resulting from the securitization and
sale of financing receivables ($37.0 million in 1996, $86.8
million in 1995) and other assets ($44.6 million in 1996,
$55.4 million in 1995). Also included in total financing
assets serviced are state and local government installment
and lease financing receivables of IBM ($805.9 million in
1996, $757.2 million in 1995).
The carrying amount of marketable securities, as reported in
the Company's Consolidated Statement of Financial Position,
approximates market value. At December 31, 1996, the
marketable securities consisted entirely of debt securities,
and were available-for-sale.
LIABILITIES AND STOCKHOLDER'S EQUITY
The assets of the Company were financed with $8,082.3
million of debt at December 31, 1996. Total short-term and
long-term debt increased by approximately $494.2 million,
from $7,588.1 million at December 31, 1995. This increase
was the result of increases in commercial paper outstanding
of $704.9 million and long-term debt of $400.4 million,
offset by the maturity of medium-term notes of $611.1
million. Included in short-term debt at December 31, 1996,
was $125.0 million payable to IBM at market terms and
conditions, maturing on November 1, 1997. The $125.0
million payable to IBM was included in long-term debt at
December 31, 1995.
At December 31, 1996, the Company had available $1.4 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 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 December 31, 1996, there was 2.0
billion in ECU available for the issuance of debt securities
under this program. The Company will issue debt securities
over the next twelve months under this program, dependent on
prevailing market conditions and its need for such funding.
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<PAGE 8>
LIABILITIES AND STOCKHOLDER'S EQUITY (Continued)
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
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 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.
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. The Company had
no borrowings outstanding under this agreement at December
31, 1996. The Company had borrowings outstanding 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, working
capital financings and loan portfolios, 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 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.
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 increased by approximately $682.6 million to
$2,289.0 million at December 31, 1996, from $1,606.4 million
at December 31, 1995. This increase was primarily
attributable to higher volumes of capital equipment
purchases from IBM in the fourth quarter of 1996, compared
with the fourth quarter of 1995 and lower tax payments made
to IBM during 1996, compared with 1995. Tax payments made
to IBM were $108.4 million, compared with $330.8 million for
current tax liability during 1996 and 1995, respectively.
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<PAGE 9>
LIABILITIES AND STOCKHOLDER'S EQUITY (Continued)
Total stockholder's equity at December 31, 1996, was
$1,435.1 million, up $226.5 million from year-end 1995. The
increase in stockholder's equity reflects 1996 net earnings
of $271.1 million and the issuance of $.4 million of capital
stock to IBM, offset by the payment of $45.0 million in cash
dividends to IBM during 1996. During 1994, a program was
developed to periodically transfer certain excess IBM
manufacturing assets to the Company for the purpose of
remarketing such assets. In exchange for assets IBM
transferred to the Company, the Company issued 4 shares and
33 shares of capital stock, par value $1.00 per share, to
IBM during the first quarter of 1996 and the fourth quarter
of 1995, respectively.
At December 31, 1996, the Company's debt to equity ratio was
5.6:1, compared with 6.3:1 at December 31, 1995.
TOTAL CASH PROVIDED BEFORE DIVIDENDS
Total cash provided before dividends was $341.0 million in
1996, compared with total cash used before dividends of
$132.5 million in 1995. Total cash provided before
dividends reflects $2,235.1 million of cash used in
investing and financing activities before dividends, offset
by $2,576.1 million of cash provided by operating activities
in 1996. For 1995, total cash used before dividends
reflects $1,984.7 million of cash used in investing and
financing activities before dividends, offset by $1,852.2
million of cash provided by operating activities. Cash and
cash equivalents at December 31, 1996, totaled $632.8
million, an increase of $296.0 million, compared with the
balance at December 31, 1995.
INCOME FROM LEASES
Income from leases increased 12 percent to $524.0 million
for the year ended December 31, 1996, from $466.4 million in
1995. The growth in capital equipment financings for end
users under capital and operating leases during 1996
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 $143.6 million in 1996, an increase of 57
percent from 1995.
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.
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<PAGE 10>
INCOME FROM LEASES (Continued)
A review of the Company's $818.3 million residual value
portfolio at December 31, 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. The
Company recorded a $36.4 million reduction to income from
leases during 1996 to recognize decreases in the expected
future residual value of specific leased equipment, compared
with $16.0 million during 1995. The year-to-year increase
primarily reflects additional anticipated declines in
residual values for storage related products.
INCOME FROM LOANS
Income from loans increased 26 percent to $148.8 million in
1996, compared with $117.7 million in 1995. This increase
was primarily the result of an increase in financing
originated for software and services during 1995 and 1996.
INCOME FROM WORKING CAPITAL FINANCING
Income from working capital financing increased 9 percent to
$265.3 million in 1996, compared with $242.5 million in
1995. This increase was mainly due to growth in the average
working capital financing receivables outstanding during
1996, compared with 1995. The growth in average working
capital financing receivables outstanding is due to
increased originations.
EQUIPMENT SALES
Equipment sales amounted to $419.3 million in 1996, compared
with $493.6 million in 1995. The decrease in equipment
sales reflects 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 users of that equipment.
Gross profit on equipment sales in 1996 was $50.9 million, a
decrease of 32 percent, compared with $74.6 million in 1995.
The gross profit margin in 1996 decreased to 12.1 percent,
compared with 15.1 percent in 1995. The mix of products
available for sale and changing market conditions for
certain used equipment during the applicable periods are
factors contributing to the decrease in gross profit
margins.
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<PAGE 11>
OTHER INCOME
Other income increased 6 percent to $140.4 million in 1996,
compared with $132.0 million in 1995. This increase is
largely attributable to the recognition of one-time pretax
gains of $9.3 million 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 1996, compared with 1995. 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, and by a $1.9
million pretax gain recognized upon the sale of certain
restricted securities during the fourth quarter of 1995.
The Company continues to service financing receivables
securitized and sold in prior years, and earns a fee, which
is included in other income. During 1996 and 1995, there
were no securitizations or sales of financing receivables by
the Company.
Also included in other income is interest income earned on
cash and cash equivalents and notes, as well as fees for
managing IBM's state and local government installment and
lease financing receivables portfolio.
INTEREST EXPENSE
As a result of an increase in the Company's average
outstanding debt balance, interest expense increased 11
percent to $436.1 million in 1996, compared with $394.6
million in 1995. Due to generally lower interest rates, the
Company's average cost of debt decreased to 5.8 percent in
1996, from 6.0 percent in 1995.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses were $201.2
million in 1996, an increase of 6 percent compared with
$190.4 million in 1995. This increase is mainly due to a
growth in the Company's resources for 1996, resulting in an
increase in compensation related expenses, and twelve months
of expenses incurred by IBM CS Systems (formerly known as
Chrysler Systems, Inc.), compared with eleven months of
expenses during 1995.
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<PAGE 12>
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 Company
provides for receivable losses at the time financings are
originated for capital equipment. The portfolio is
diversified by geography, industry, and individual
unaffiliated customer.
The Company provides for working capital financing
receivable losses on the basis of actual collection
experience and estimated collectibility of the related
financing receivables. With the continued growth of the
Company's working capital financing business in 1995 and
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. At December
31, 1996, and December 31, 1995, approximately 62 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 did not experience
material losses in 1996 and 1995. The Company does not
believe that there is a risk of loss in this area that would
have a material impact on its financial position or results
of operations.
The overall provision for receivable losses decreased to
$44.9 million in 1996, compared with $68.4 million in 1995.
While there was a growth in capital equipment financings
originated during 1996, compared with 1995, and a
corresponding increase in the provision for receivable
losses, the increase was offset by declines in specific
reserves.
INCOME TAXES
The effective tax rate in 1996 was 39.4 percent, compared
with 39.3 percent in 1995. Consistent with 1996, the
Company expects its effective tax rate to continue to
approximate the statutory federal and state income tax rates
in future years.
NET EARNINGS
Net earnings grew 18 percent to $271.1 million in 1996,
compared with $230.5 million in 1995. This increase was
mainly due to the increase in income from leases, loans and
working capital financings. The year-to-year income growth
was the result of increased capital equipment and working
capital financings originated from prior years.
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<PAGE 13>
NET EARNINGS (Continued)
Offsetting the year-to-year income growth was an increase in
selling, general, and administrative expenses primarily
attributable to a growth in the Company's resources, and
additional interest expense due to an increase in the
Company's average outstanding debt balance.
RETURN ON AVERAGE EQUITY
The 1996 results yielded an annualized return on average
equity of 20.7 percent, compared with 20.9 percent in 1995.
CREDIT RATING
On December 16, 1996, Fitch Investors Service, L.P.,
announced it had upgraded its rating for the Company's
senior debt from A+ to AA-. On August 28, 1995, Moody's
Investors Service, Inc., announced it had upgraded its
rating for the Company's long-term debt from A3 to A1.
ACCOUNTING CHANGES
The Company implemented new accounting standards in 1996,
1995 and 1994. None of these standards had a material
effect on the financial position or results of operations of
the Company.
In June 1996, the Financial Accounting Standards Board
issued SFAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." This
standard provides accounting and reporting standards for
transfers and servicing of financial assets and
extinguishments of liabilities. While the standard requires
implementation in 1997, the Company is already generally in
compliance.
Effective January 1, 1995, the Company implemented SFAS 114,
"Accounting by Creditors for Impairment of a Loan," and SFAS
118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures." These standards
prescribe impairment measurements and reporting related to
certain loans.
In 1995, the Company implemented SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This standard prescribes the
method for asset impairment evaluation for long-lived assets
and certain identifiable intangibles that are either held
and used or to be disposed of. The Company was generally in
conformance with this standard prior to adoption.
Effective January 1, 1994, the Company implemented SFAS 115,
"Accounting for Certain Investments in Debt and Equity
Securities." This standard addresses the accounting and
reporting for investments in equity securities that have
readily determinable fair values and for all investments in
debt securities.
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.
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<PAGE 14>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
<AUDIT-REPORT>
Report of Independent Accountants
To the Stockholder and Board of Directors of
IBM Credit Corporation
In our opinion, the consolidated financial statements listed
in the index appearing under Item 14(a) 1. on page 40
present fairly, in all material respects, the financial
position of IBM Credit Corporation and its subsidiaries at
December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's
management; our responsibility is to express an opinion on
these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Stamford, CT
January 20, 1997, except as to the Subsequent Event note on
page 38, which is as of January 24, 1997
</AUDIT-REPORT>
-14-
<PAGE 15>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at December 31:
(Dollars in thousands)
<CAPTION>
1996 1995*
___________ ___________
<S> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . . . $ 632,834 $ 336,839
Marketable securities. . . . . . . . . . . 159,348 89,930
Net investment in capital leases . . . . . 4,214,822 3,966,255
Equipment on operating leases, net . . . . 2,551,382 1,695,812
Loans receivable . . . . . . . . . . . . . 1,846,947 1,473,822
Working capital financing receivables. . . 2,898,688 3,158,932
Investments and other assets . . . . . . . 642,118 703,961
___________ ___________
Total Assets $12,946,139 $11,425,551
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Short-term debt. . . . . . . . . . . . . . $ 6,441,400 $ 6,258,485
Short-term debt, IBM . . . . . . . . . . . 125,000 214,142
Due to IBM and affiliates. . . . . . . . . 2,288,968 1,606,433
Interest and other accruals. . . . . . . . 378,284 357,311
Deferred income taxes. . . . . . . . . . . 761,494 665,166
Long-term debt . . . . . . . . . . . . . . 1,515,937 990,440
Long-term debt, IBM. . . . . . . . . . . . - 125,000
___________ __________
Total liabilities . . . . . . . . . . . 11,511,083 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. . . . . . . . . . . . . 977,645 751,563
___________ __________
Total stockholder's equity. . . . . . . 1,435,056 1,208,574
___________ ___________
Total Liabilities and Stockholder's Equity $12,946,139 $11,425,551
=========== ============
<FN>
<F1>
The accompanying notes are an integral part of this statement.
<F2>
* Reclassified to conform with 1996 presentation.
</FN>
</TABLE>
-15-
<PAGE 16>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
For the year ended December 31:
(Dollars in thousands)
1996 1995 1994
___________ ___________ ___________
<S> <C> <C> <C>
FINANCE AND OTHER INCOME:
Income from leases:
Capital leases . . . . . . . . . . . . $ 301,803 $ 281,072 $ 308,313
Operating leases (net of depreciation:
1996 - $1,051,056, 1995 - $1,035,480
and 1994 - $701,055). . . . . . . . . 222,223 185,317 129,314
___________ ___________ ___________
524,026 466,389 437,627
Income from loans. . . . . . . . . . . . 148,781 117,728 92,656
Income from working capital financing. . 265,301 242,508 141,655
Equipment sales. . . . . . . . . . . . . 419,292 493,619 625,729
Other income. . . . . . . . . . . . . . 140,400 132,041 187,013
___________ ___________ ___________
Total finance and other income . . . . 1,497,800 1,452,285 1,484,680
___________ ___________ ___________
COST AND EXPENSES:
Interest . . . . . . . . . . . . . . . . 436,109 394,572 306,125
Cost of equipment sales. . . . . . . . . 368,356 419,006 557,221
Selling, general, and administrative . . 201,248 190,360 163,945
Provision for receivable losses. . . . . 44,883 68,417 44,097
___________ ___________ ___________
Total cost and expenses. . . . . . . . 1,050,596 1,072,355 1,071,388
___________ ___________ ___________
EARNINGS BEFORE INCOME TAXES . . . . . . . 447,204 379,930 413,292
Provision for income taxes . . . . . . . . 176,122 149,455 162,703
___________ ___________ ___________
NET EARNINGS . . . . . . . . . . . . . . . 271,082 230,475 250,589
Dividends . . . . . . . . . . . . . . . . (45,000) (146,419) (295,000)
Retained earnings, January 1 . . . . . . . 751,563 667,507 711,918
___________ ___________ ___________
Retained earnings, December 31 . . . . . . $ 977,645 $ 751,563 $ 667,507
=========== =========== ===========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
-16-
<PAGE 17>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31:
(Dollars in thousands) 1996 1995* 1994*
<CAPTION> ____________ ____________ ____________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . .$ 271,082 $ 230,475 $ 250,589
Adjustments to reconcile net
earnings to cash provided by
operating activities:
Depreciation and amortization. . . . 1,058,273 1,039,812 700,643
Provision for receivable losses. . . 44,883 68,417 44,097
Change in deferred income taxes. . . 96,328 11,599 (159,372)
Increase (decrease) in interest and
other accruals . . . . . . . . . . 20,973 (70,403) 131,682
Gross profit on equipment sales. . . (50,936) (74,613) (68,508)
Other items that provided
cash:
Proceeds from equipment sales. . . 419,292 493,619 625,729
Change in amounts due IBM and
affiliates. . . . . . . . . . . . 682,535 70,729 266,933
Other, net . . . . . . . . . . . . 33,699 82,586 98,954
____________ ____________ ____________
Cash provided by operating activities . 2,576,129 1,852,221 1,890,747
____________ ____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in capital leases . . . . (2,102,530) (1,863,923) (1,194,559)
Collection of capital leases, net
of income earned. . . . . . . . . . 1,609,881 1,336,054 1,206,120
Investment in equipment on
operating leases. . . . . . . . . . (1,800,522) (1,067,696) (464,460)
Investment in loans receivable . . . (1,211,318) (892,796) (496,308)
Collection of loans receivable,
net of interest earned. . . . . . . 818,233 484,593 423,455
Collection of (investment in)
working capital financing
receivables, net. . . . . . . . . . 246,561 (1,056,420) (714,636)
Purchases of marketable securities . (69,418) (255,888) -
Maturities of marketable securities. - 165,958 -
Cash payment for business acquired . - (92,478) -
Proceeds from sale of financing
receivables . . . . . . . . . . . . - - 300,000
Other, net . . . . . . . . . . . . . (219,189) (354,420) (87,422)
____________ ____________ ____________
Cash used in investing
activities . . . . . . . . . . . . . . (2,728,302) (3,597,016) (1,027,810)
____________ ____________ ____________
<FN>
<F1>
The accompanying notes are an integral part of this statement.
<F2>
* Reclassified to conform with 1996 presentation.
</FN>
</TABLE>
-17-
<PAGE 18>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For the year ended December 31:
(Dollars in thousands) 1996 1995* 1994*
<CAPTION> ____________ ____________ ____________
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
long-term debt. . . . . . . . . . . 789,024 379,539 668,849
Repayment of debt with original
maturities of one year or more. . . (639,855) (665,601) (771,337)
Issuance (repayment) of debt with
original maturities within one year 343,999 1,898,357 (461,001)
Cash dividends paid to IBM . . . . . (45,000) (145,000) (295,000)
____________ ____________ ____________
Cash provided by (used in) financing
activities . . . . . . . . . . . . . . 448,168 1,467,295 (858,489)
____________ ____________ ____________
Change in cash and cash equivalents . . 295,995 (277,500) 4,448
Cash and cash equivalents, January 1. . 336,839 614,339 609,891
____________ ____________ ____________
Cash and cash equivalents, December 31.$ 632,834 $ 336,839 $ 614,339
============ ============ ============
<FN>
<F1>
Supplemental schedule of noncash investing and financing
activities:
During the first quarter of 1996 and the fourth quarter of
1995, respectively, the Company issued to IBM 4 and 33
shares of capital stock, par value $1.00 per share, in
exchange for assets IBM transferred to the Company. The
assets transferred during 1996 had a net book value of $50.0
thousand, which approximated fair value, and a deferred tax
asset value of $350.0 thousand. The assets transferred
during 1995 had a net book value of $0.5 million, which
approximated fair value, and a deferred tax asset value of
$2.8 million. As a result, stockholder's equity was
increased by $0.4 million and $3.3 million during 1996 and
1995, respectively.
During the second quarter of 1995, the Company paid IBM $1.4
million in noncash dividends, representing financing
receivables transferred to IBM by the Company. There were
no noncash dividends paid to IBM in 1996.
The purchase price for the acquisition of Chrysler Systems
Inc. during the first quarter of 1995 was funded by the
Company's cash on hand and credits of $41.0 million issued
to certain Chrysler Corporation subsidiaries that were
applied against certain future obligations of the Seller to
the Company. <F2> The accompanying notes are an integral
part of this statement. <F3> * Reclassified to conform with
1996 presentation. </FN> </TABLE>
-18-
<PAGE 19> IBM CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation: The consolidated financial
statements include the accounts of the Company and those of
its subsidiaries that are more than 50 percent owned.
Investments in partnerships in which the Company has
typically a 20 percent ownership are accounted for using the
equity method.
Cash and Cash Equivalents: Time deposits with original
maturities generally of three months or less are included in
cash and cash equivalents. Cash paid for interest was
$443.2 million, $388.3 million and $315.9 million in 1996,
1995 and 1994, respectively.
Marketable Securities: The Company's marketable securities,
all of which are debt securities, are available-for-sale.
The carrying amount of the debt securities approximates
market value.
Finance Income Recognition: Income attributable to direct
financing leases and loans receivable is initially recorded
as unearned income and subsequently recognized as finance
income at level rates of return over the term of the leases
or receivables. Income recognized from leveraged leases
includes the amortization of unearned finance income and
deferred investment and other tax credits over the term of
the leases, at level rates of return, during periods when
the net investment balance is positive.
Equipment on Operating Leases: Equipment is depreciated on
a straight-line basis to its estimated residual value over
the lease term.
Equipment Sales Income Recognition: Revenue from equipment
sales to existing lessees is recognized at the effective
date a purchase provision is exercised. Revenue from sales
to parties other than existing lessees is recognized when
title transfers.
Allowance for Receivable Losses: The allowance for
receivable losses is determined on the basis of actual
collection experience and estimated collectibility of the
related assets.
Income Taxes: Income tax expense is based on reported
earnings before income taxes. Deferred income taxes reflect
the impact of temporary differences between assets and
liabilities recognized for financial reporting purposes and
such amounts recognized for tax purposes on a separate
company basis. In accordance with Statement of Financial
Accounting Standards (SFAS) 109, "Accounting for Income
Taxes", these deferred taxes are measured by applying
currently enacted tax laws.
-19-
<PAGE 20>
SIGNIFICANT ACCOUNTING POLICIES (Continued):
Financial Instruments: 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 solely for hedging
purposes. The Company does not enter into such financial
instrument transactions for trading or other speculative
purposes. Debt obligations denominated in foreign
currencies and subject to foreign currency swap agreements
are included in the Consolidated Statement of Financial
Position at the contractual rate of exchange in the
respective foreign currency swap agreement. Gains and
losses on forward contracts and purchased options,
designated as hedges, are deferred and included in the
settlement of the related transaction.
Use of Estimates: Management uses estimates in preparing
the consolidated financial statements, in conformity with
generally accepted accounting principles. Significant
estimates include collectibility of receivables,
recoverability of residual values of equipment on capital
and operating leases, and useful economic lives of long-term
fixed assets. The Company regularly assesses these
estimates, and while actual results may differ from these
estimates, management believes that material changes will
not occur in the near term.
RELATIONSHIP WITH IBM:
Pursuant to a Support Agreement between IBM and the Company,
IBM has agreed to retain 100 percent of the voting capital
stock of the Company, unless required to dispose of any or
all such shares of stock pursuant to a court decree or order
of any governmental authority that in the opinion of counsel
to IBM may not be successfully challenged. IBM has also
agreed to cause the Company to have a tangible net worth of
at least $1.00 at all times. The Support Agreement provides
that it shall not be deemed to constitute a guarantee by IBM
to any party of the payment of any debt or other obligation,
indebtedness or liability of the Company. The Support
Agreement may not be modified, amended or terminated while
there is outstanding any debt of the Company, unless all
holders of such debt have consented in writing.
Pursuant to an operating agreement, IBM provides collection,
administration and other services and products for the
Company and is reimbursed for the cost of these services and
products. The Company is compensated for services performed
for IBM, primarily for management of IBM's state and local
government installment receivables portfolio, the fees for
which are reflected in other income.
The operating agreement with IBM also provides that
installment receivables, which include finance charges, may
be purchased by the Company at a mutually agreed-upon price.
The Company is reimbursed by IBM for any price adjustments
and concessions that reduce the amount of receivables
previously purchased by the Company.
-20-
<PAGE 21>
RELATIONSHIP WITH IBM (Continued):
The operating agreement with IBM also provides that IBM
will offer term leases of the Company to creditworthy
potential lessees. IBM's sales price of the equipment to
the Company will typically be at the purchase price
payable by the lessee, unless the Company is participating
in IBM product promotions.
The Company also has an indemnification agreement with IBM.
IBM reimburses the Company for losses on working capital
financing receivables with specific dealers and for specific
transactions. Approximately $10.5 million, $9.3 million and
$3.1 million of such losses have been reimbursed by IBM in
1996, 1995 and 1994, respectively.
The Company has a liquidity agreement with IBM International
Finance, N.V. (IIF), whereby the Company has agreed to
advance funds to IIF as an enhancement to IIF's ability to
carry out business. The amount of the advances is not to
exceed the greater of $500.0 million or 5 percent of the
Company's total assets. To support this agreement, the
Company has entered into a backup agreement with IBM,
whereby IBM has agreed to advance funds to the Company, in
an amount not to exceed the greater of $500.0 million or 5
percent of the Company's total assets, if at any time the
Company requires such funds to satisfy its agreement with
IIF. The Company has neither received nor made any advances
with respect to these agreements at December 31, 1996 and
1995.
The Company, together with IBM and IIF, has the option to
issue and sell debt securities in an aggregate nominal
amount of up to 3.0 billion in European Currency Units, or
its equivalent in any other currency. This option is part
of a $5.0 billion Board of Directors' authorization the
Company has to issue and sell debt securities in domestic
and foreign financial markets through December 31, 1997. As
previously mentioned, at December 31, 1996, there was 2.0
billion in ECU available for the issuance of debt securities
under this program. The Company's intention to issue any
debt securities over the next twelve months under this
program is dependent on prevailing market conditions and the
Company's need for such funding.
From time to time, the Company will either borrow funds from
or lend funds to IBM and its affiliates, at prevailing
interest rates. During the fourth quarter of 1994, the
Company and IBM signed master loan agreements providing
additional funding flexibility to each other. These
agreements allow for short-term (up to 270-day) funding,
made available at market terms and conditions, upon the
request of either the Company or IBM. The purpose of these
agreements is to finance the borrower's assets, for working
capital or for other general corporate purposes. At
December 31, 1996, the Company had no borrowings outstanding
under these agreements. At December 31, 1995, the Company
had borrowings outstanding under these agreements of $214.1
million, payable to IBM. This borrowing was repaid on
January 2, 1996.
-21-
<PAGE 22>
RELATIONSHIP WITH IBM (Continued):
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.
MARKETABLE SECURITIES:
The following is a summary of marketable securities at
December 31, 1996 and December 31, 1995 which were
available-for-sale. The marketable securities consisted
entirely of debt securities. Contractual maturities of
marketable debt securities at December 31, 1996 and December
31, 1995, are between one and five years. It is expected
that actual maturities will differ from contractual
maturities because some borrowers have the right to call or
prepay certain obligations, sometimes without call or
prepayment penalties.
(Dollars in thousands) 1996 1995
________ _________
Corporate . . . . . . . . . . . . . . . . $125,138 $ 68,220
U.S. federal agency . . . . . . . . . . . 34,210 21,710
________ _________
Total, which approximates market value. . $159,348 $ 89,930
======== =========
NET INVESTMENT IN CAPITAL LEASES:
The Company's capital lease portfolio includes direct
financing and leveraged leases. The Company originates
financing for customers in a variety of industries and
throughout the United States. The Company has a diversified
portfolio of capital equipment financings for end users.
Direct financing leases consist principally of IBM
information handling equipment with terms generally from
three to five years. The components of the net investment
in direct financing leases at December 31, 1996 and 1995,
are as follows:
(Dollars in thousands) 1996 1995
___________ ___________
Gross lease payments receivable . . . . . $4,299,250 $4,071,811
Estimated unguaranteed residual values. . 260,004 293,497
Deferred initial direct costs . . . . . . 30,087 20,520
Unearned income . . . . . . . . . . . . . (528,830) (576,149)
Allowance for receivable losses . . . . . (44,131) (46,266)
___________ ___________
$4,016,380 $3,763,413
=========== ===========
-22-
<PAGE 23>
NET INVESTMENT IN CAPITAL LEASES (Continued):
The scheduled maturities of minimum lease payments
outstanding at December 31, 1996, expressed as a percentage
of the total, are due approximately as follows:
Within 12 months. . . . . . . . . . . . . . . . . . . . 46%
13 to 24 months . . . . . . . . . . . . . . . . . . . . 33
25 to 36 months . . . . . . . . . . . . . . . . . . . . 17
37 to 48 months . . . . . . . . . . . . . . . . . . . . 3
After 48 months . . . . . . . . . . . . . . . . . . . . 1
____
100%
====
Included in the net investment in capital leases are $55.6
million and $118.4 million of seller interest at December
31, 1996 and 1995, respectively, relating to the
securitization of such leases.
Leveraged lease investments include coal-fired electric
generating facilities, commercial aircraft and other non-IBM
manufactured equipment. Leveraged leases have remaining
terms ranging from five to twenty-two years. The components
of the net investment in leveraged leases at December 31,
1996 and 1995, are as follows:
(Dollars in thousands) 1996 1995
__________ __________
Net rents receivable. . . . . . . . . . $ 258,022 $ 263,800
Estimated unguaranteed residual values. 39,752 39,752
Unearned and deferred income. . . . . . (93,296) (94,606)
Allowance for receivable losses . . . . (6,036) (6,104)
__________ __________
Investment in leveraged leases. . . . . 198,442 202,842
Less: Deferred income taxes. . . . . . (196,460) (206,487)
__________ __________
Net investment in leveraged leases. . . $ 1,982 $ (3,645)
========== ==========
Refer to the note on page 26, Allowance for Receivable
Losses, for a reconciliation of the direct financing leases
and leveraged leases allowances for receivable losses.
EQUIPMENT ON OPERATING LEASES:
Operating leases consist principally of IBM information
handling equipment with terms generally from two to four
years. The components of equipment on operating lease at
December 31, 1996 and 1995, are as follows:
(Dollars in thousands) 1996 1995
____________ ____________
Cost. . . . . . . . . . . . . . . . . . . $ 4,839,547 $ 3,752,380
Accumulated depreciation. . . . . . . . . (2,288,165) (2,056,568)
____________ ____________
$ 2,551,382 $ 1,695,812
============ ============
-23-
<PAGE 24>
EQUIPMENT ON OPERATING LEASES (Continued):
Minimum future rentals were approximately $2,266.6 million
at December 31, 1996. The scheduled maturities of the
minimum future rentals at December 31, 1996, expressed as a
percentage of the total, are due approximately as follows:
Within 12 months. . . . . . . . . . . . . . . . . . . . 46%
13 to 24 months . . . . . . . . . . . . . . . . . . . . 32
25 to 36 months . . . . . . . . . . . . . . . . . . . . 16
37 to 48 months . . . . . . . . . . . . . . . . . . . . 4
After 48 months . . . . . . . . . . . . . . . . . . . . 2
____
100%
====
LOANS RECEIVABLE:
Loans receivable include installment receivables which are
principally financings of customer purchases of IBM
information handling products. Also included are other
financings, comprising primarily IBM software and services.
The components of loans receivable at December 31, 1996 and
1995, are as follows:
(Dollars in thousands) 1996 1995
___________ ___________
Gross loans receivable . . . . . . . $2,166,019 $1,743,920
Deferred initial direct costs. . . . 13,168 9,259
Unearned income. . . . . . . . . . . (268,876) (219,988)
Allowance for receivable losses. . . (63,364) (59,369)
___________ ___________
$1,846,947 $1,473,822
=========== ===========
The scheduled maturities of loans receivable outstanding at
December 31, 1996, expressed as a percentage of the total,
are due approximately as follows:
Within 12 months . . . . . . . . . . . . . . . . . . . 42%
13 to 24 months. . . . . . . . . . . . . . . . . . . . 31
25 to 36 months. . . . . . . . . . . . . . . . . . . . 17
37 to 48 months. . . . . . . . . . . . . . . . . . . . 7
After 48 months. . . . . . . . . . . . . . . . . . . . 3
____
100%
====
Included in loans receivable are $40.0 million and $63.0
million at December 31, 1996, and 1995, respectively, that
are due from the Company's term lease partnerships. Such
loans are secured by the general pool of leases in the
partnerships. Also included in loans receivable are $16.1
million and $29.5 million of seller interest at December 31,
1996, and 1995, respectively, relating to the securitization
of such loans.
Refer to the note on page 26, Allowance for Receivable
Losses, for a reconciliation of the loans receivable
allowance for receivable losses.
-24-
<PAGE 25>
WORKING CAPITAL FINANCING RECEIVABLES:
Working capital financing receivables arise primarily from
secured inventory and accounts receivable financing for
dealers and remarketers of IBM and non-IBM products and
services. Inventory financing includes the financing of the
purchase by these dealers and remarketers of information
handling products. As previously discussed in the note on
pages 20 through 22, Relationship with IBM, the Company is
reimbursed by IBM for certain losses on working capital
financing receivables with specific dealers and for specific
transactions. Approximately $10.5 million, $9.3 million and
$3.1 million of such losses have been reimbursed by IBM in
1996, 1995 and 1994, respectively. With the growth of the
Company's working capital financing business in 1996 and
1995, the concentration of such financings for certain large
dealers and remarketers of information industry products is
significant. However, the Company has a secured position on
substantially all of its inventory and accounts receivable
financing which mitigates the amount of potential loss. The
Company does not believe that there is a risk of loss that
would have a material impact on its financial position or
results of operations.
Payment terms for inventory-secured financing generally
range from 30 days to 45 days. Accounts receivable
financing includes the financing of trade accounts
receivable for these dealers and remarketers. Payment terms
for accounts receivable secured financing typically range
from 30 days to 90 days. The components of working capital
financing receivables at December 31, 1996, and 1995, are as
follows:
(Dollars in thousands)
1996 1995
___________ ___________
Working capital financing receivables $2,955,411 $3,206,736
Allowance for receivable losses . . . (56,723) (47,804)
___________ ___________
$2,898,688 $3,158,932
=========== ===========
Included in working capital financing receivables are $608.7
million and $693.7 million of seller interest at December
31, 1996, and 1995, respectively, relating to the
securitization of such receivables. Additionally, the
Company has $2,051.5 million of approved but unused working
capital financing credit lines available to customers at
December 31, 1996.
Refer to the note on page 26, Allowance for Receivable
Losses, for a reconciliation of the working capital
financing receivables allowance for receivable losses.
-25-
<PAGE 26>
ALLOWANCE FOR RECEIVABLE LOSSES:
The following is a reconciliation of the allowance for
receivable losses, by portfolio, for the years ended
December 31, 1996, 1995 and 1994:
(Dollars in thousands) Direct Working
Financing Leveraged Loans Capital
1996 Total Leases Leases Receivable Fin. Rec.
_____________________ _________ _________ __________ __________ _________
Beginning of year . . $159,543 $ 46,266 $ 6,104 $ 59,369 $ 47,804
Provision for
receivable losses. . 44,883 17,940 - 13,260 13,683
Accounts written off
(net of recoveries). (40,849) (22,104) - (11,686) (7,059)
Transfers (to) from
allowance for losses
on receivables sold
and other, net . . . 6,677 2,029 (68) 2,421 2,295
_________ _________ __________ __________ _________
End of year . . . . . $170,254 $ 44,131 $ 6,036 $ 63,364 $ 56,723
========= ========= ========== ========== =========
Direct Working
Financing Leveraged Loans Capital
1995 Total Leases Leases Receivable Fin. Rec.
_____________________ _________ _________ __________ __________ _________
Beginning of year . . $ 89,489 $ 24,389 $ 7,171 $ 41,665 $ 16,264
Provision for
receivable losses. . 68,417 16,208 - 21,200 31,009
Accounts written off
(net of recoveries). (5,680) 2,967 (1,067) (7,232) (348)
Transfers from
allowance for losses
on receivables sold
and other, net . . . 7,317 2,702 - 3,736 879
_________ _________ __________ __________ _________
End of year . . . . . $159,543 $ 46,266 $ 6,104 $ 59,369 $ 47,804
========= ========= ========== ========== =========
Direct Working
Financing Leveraged Loans Capital
1994 Total Leases Leases Receivable Fin. Rec.
_____________________ _________ _________ __________ __________ _________
Beginning of year . . $126,440 $ 47,398 $ 7,240 $ 57,504 $ 14,298
Provision for
receivable losses. . 44,097 37,200 - 1,500 5,397
Accounts written off
(net of recoveries). (75,533) (54,610) (69) (17,862) (2,992)
Transfers (to) from
allowance for losses
on receivables sold
and other, net . . . (5,515) (5,599) - 523 (439)
_________ _________ __________ __________ _________
End of year . . . . . $ 89,489 $ 24,389 $ 7,171 $ 41,665 $ 16,264
========= ========= ========== ========== =========
-26-
<PAGE 27>
ALLOWANCE FOR RECEIVABLE LOSSES (Continued):
The reconciliation of the allowance for receivable losses, by portfolio,
presented on page 26, excludes the allowance for estimated credit losses
on receivables sold, which was $5.1 million and $9.7 million at
December 31, 1996 and 1995, respectively. Provisions for expected losses
as they relate to receivables sold, are provided during the periods in
which the receivables were originated. No material provisions were made
for the years ended December 31, 1996 and December 31, 1995.
At December 31, 1996, 1995 and 1994, the allowance for receivable losses
approximated 1.5 percent, 1.6 percent and 1.1 percent, respectively,
of the Company's portfolio of leases, loans and working capital
financing receivables. The decline in this ratio from 1995 to 1996 was
due to a decrease in specific reserves recorded for certain receivables.
INVESTMENTS AND OTHER ASSETS:
The components of investments and other assets at December
31, 1996, and 1995, are as follows:
(Dollars in thousands)
1996 1995
________ ________
Receivables from customers . . . . . . . . . $259,588 $223,851
Investments in partnerships and other . . . . 142,742 72,524
Receivables from affiliates . . . . . . . . . 99,214 215,292
Due and deferred from receivable sales. . . . 63,046 106,079
Remarketing inventory . . . . . . . . . . . . 35,986 50,822
Other assets . . . . . . . . . . . . . . . . 41,542 35,393
________ ________
$642,118 $703,961
======== ========
Due and deferred from receivable sales are net of the
allowance for estimated credit losses on receivables sold
and include subordinated interests in trusts, cash deposits
held by trustee, receivables from investors and interest in
excess servicing cash flows. Due and deferred from
receivable sales are restricted assets and subject to
limited recourse provisions. There were no sales in 1996
and 1995 of financing receivables to investors. The Company
acts as servicer for receivables securitized and sold, and
is contingently liable for up to $6.5 million in the event
of nonperformance, default or other loss relating to the
outstanding pool balance at December 31, 1996, of IBM state
and local government installment receivables securitized and
sold. Adequate reserves exist to cover potential losses.
Included in other assets at December 31, 1996, and 1995, are
$10.0 million and $6.5 million, respectively, on deposit in
restricted accounts, held as security deposits received from
customers. Also included in other assets at December 31,
1996, and December 31, 1995, respectively, are $4.1 million
on deposit in restricted accounts for purposes of credit
enhancement. The Company, as servicer, deposited the cash
in connection with certain tax-exempt grantor trusts
comprised of pools of IBM state and local government
installment receivables. The trustee of each grantor trust
is entitled to draw upon the amounts in the restricted
accounts,
-27-
<PAGE 28>
INVESTMENTS AND OTHER ASSETS (Continued):
in the event of nonperformance, default or other loss
relating to such installment receivables.
SHORT-TERM DEBT:
The components of short-term debt at December 31, 1996, and
1995, are as follows:
(Dollars in thousands) 1996 1995
__________ __________
Commercial paper, with rates averaging
5.6% in 1996 and 5.7% in 1995. . . . . . . . . $4,717,531 $4,012,615
Other short-term debt, with rates averaging
5.8% in 1996 and 6.3% in 1995. . . . . . . . . 1,509,994 1,532,187
Current maturities of long-term debt. . . . . . 213,875 713,683
__________ __________
6,441,400 6,258,485
IBM short-term borrowings . . . . . . . . . . . 125,000 214,142
__________ __________
$6,566,400 $6,472,627
========== ==========
The approximate weighted average effective interest rates,
above, include the effects of interest rate swap
agreements and have been calculated on the basis of
rates in effect at December 31, 1996, and 1995. The
approximate weighted average stated rates (before the
effects of interest rate swap agreements) on commercial
paper outstanding at December 31, 1996, and 1995, were 5.5%
and 5.9%, respectively. The approximate weighted average
stated rates (before the effects of interest rate swap
agreements) on other short-term debt outstanding at December
31, 1996, and 1995, were 5.5% and 6.5%, respectively. Other
short-term debt primarily includes notes having maturities
between nine and twelve months offered through the Company's
medium-term note program.
On November 1, 1994, the Company borrowed $125.0 million
from IBM at market terms and conditions. The loan matures
on November 1, 1997.
LONG-TERM DEBT:
The components of long-term debt at December 31, 1996, and
1995, are as follows:
(Dollars in thousands) 1996 1995
___________ ___________
Medium-term notes with original maturities
ranging from 1997 to 2008, with rates
averaging 5.9% in 1996 and 5.8% in 1995. . . $1,731,344 $1,704,982
IBM loan payable, due November 1997 . . . . . - 125,000
___________ ___________
1,731,344 1,829,982
Net unamortized discounts . . . . . . . . . . (1,532) (859)
___________ ___________
1,729,812 1,829,123
Less: Current maturities . . . . . . . . . . 213,875 713,683
___________ ___________
$1,515,937 $1,115,440
=========== ===========
-28-
<PAGE 29>
LONG-TERM DEBT (Continued):
The approximate weighted average effective interest rates
include the effects of interest rate swap agreements and
have been calculated on the basis of rates in effect at
December 31, 1996, and 1995. The approximate weighted
average stated rates (before the effects of interest rate
swap agreements) on medium-term notes outstanding at
December 31, 1996, and 1995, were 5.9% and 5.8%,
respectively. Discounts and premiums have the effect of
modifying the stated rate of interest on long-term debt
offerings.
Annual maturity of long-term debt at December 31, 1996, is
as follows:
(Dollars in thousands)
1997 . . . . . . . . . . . . . . . . . . . $ 213,875
1998 . . . . . . . . . . . . . . . . . . . 531,394
1999 . . . . . . . . . . . . . . . . . . . 456,075
2000 . . . . . . . . . . . . . . . . . . . 201,000
2001 . . . . . . . . . . . . . . . . . . . 265,000
2002 and thereafter . . . . . . . . . . . 64,000
__________
$1,731,344
==========
RATIO OF EARNINGS TO FIXED CHARGES:
The ratio of earnings to fixed charges calculated in
accordance with applicable Securities and Exchange
Commission requirements was 2.02, 1.96 and 2.34 for the
years ended December 31, 1996, 1995 and 1994, respectively.
RELATED COMPANY TRANSACTIONS:
IBM charged the Company $64.8 million, $62.6 million and
$67.2 million in 1996, 1995 and 1994, respectively,
representing costs for lease services, employee benefit
plans, facilities rental and staff support.
The Company received compensation for services and benefits
provided to IBM. Included in income from working capital
financing is fee income earned from IBM of $63.1 million,
$51.1 million and $40.4 million in 1996, 1995 and 1994,
respectively. The fees received also include payment for
the management of IBM's portfolio of state and local
government installment receivables of $51.0 million, $46.8
million and $50.8 million in 1996, 1995 and 1994,
respectively, which are included in other income.
-29-
<PAGE 30>
RELATED COMPANY TRANSACTIONS (Continued):
Amounts due to IBM and affiliates include current income
taxes payable, as well as amounts for software, services,
purchases of receivables and purchases of equipment for term
leases. At December 31, 1996, and 1995, amounts due to IBM
and affiliates were $2,289.0 million and $1,606.4 million,
respectively.
Interest and finance income of $1.9 million, $6.9 million
and $12.9 million was earned from loans to IBM and
affiliates in 1996, 1995 and 1994, respectively. Interest
expense of $10.6 million, $10.2 million and $8.5 million was
incurred on loans from IBM and affiliates during 1996, 1995
and 1994, respectively.
The Company also provides equipment financing at market
rates to IBM and affiliated companies for both IBM and
non-IBM products. The Company originated $682.0 million and
$305.5 million of such financings during 1996 and 1995,
respectively. At December 31, 1996, and 1995, approximately
$828.0 million and $687.4 million, respectively, of such
financings were included in the lease and loan portfolio.
Of these amounts, $723.4 million and $677.3 million were
included in the Company's operating lease portfolio at
December 31, 1996, and 1995, respectively. The finance
income earned from operating leases to IBM and affiliated
companies, net of depreciation expense, was $107.6 million,
$91.9 million and $53.3 million in 1996, 1995 and 1994,
respectively.
An intercompany tax allocation agreement (the Agreement)
exists between the Company and its parent company, IBM. The
Agreement aligns the settlement of federal and state tax
benefits and/or obligations with the Company's provision for
income taxes determined on a separate company basis. The
Company is part of the IBM consolidated federal tax return
and files separate state tax returns in selected states.
Included in amounts due to IBM and affiliates at December
31, 1996, and 1995, are $5.5 million and $40.9 million,
respectively, of current income taxes payable determined in
accordance with the Agreement. Cash paid for income taxes
to IBM and to states that require separate tax returns in
1996, 1995 and 1994 was $113.3 million, $339.2 million and
$348.3 million, respectively.
PROVISION FOR INCOME TAXES:
The components of the provision for income taxes are as
follows:
(Dollars in thousands)
1996 1995 1994
_________ __________ __________
Federal:
Current . . . . . . . . . . $ 60,741 $ 114,262 $ 271,304
Deferred. . . . . . . . . . 83,637 9,306 (136,766)
_________ __________ __________
144,378 123,568 134,538
_________ __________ __________
State and local:
Current . . . . . . . . . . 19,216 23,405 53,996
Deferred. . . . . . . . . . 12,528 2,482 (25,831)
_________ __________ __________
31,744 25,887 28,165
_________ __________ __________
Total provision . . . . . . $ 176,122 $ 149,455 $ 162,703
========== ========== ==========
-30-
<PAGE 31>
PROVISION FOR INCOME TAXES (Continued):
Changes in the deferred tax assets and liabilities resulting
from temporary differences between financial and tax
reporting are as follows:
(Dollars in thousands) 1996 1995
__________ __________
Deferred tax assets (liabilities):
Provision for receivable losses. . . . . . $ 90,909 $ 66,981
Federal benefit for state and local taxes. - 24,080
Lease income and depreciation. . . . . . . (901,514) (801,561)
Other, net . . . . . . . . . . . . . . . . 49,111 45,334
__________ __________
Deferred income taxes . . . . . . . . . . . . $(761,494) $(665,166)
========== ==========
The provision for income taxes varied from the U.S. federal
statutory income tax rate as follows:
1996 1995 1994
______ ______ ______
Federal statutory rate. . . . . . . . 35.0% 35.0% 35.0%
State and local taxes, net of
federal tax benefit . . . . . . . 4.4 4.4 4.5
Other, net. . . . . . . . . . . . . . - (0.1) (0.1)
______ ______ ______
Effective income tax rate . . . . . . 39.4% 39.3% 39.4%
====== ====== ======
-31-
<PAGE 32>
FINANCIAL INSTRUMENTS:
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
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.
Under interest rate swaps, the Company agrees with other
parties to exchange, at specified intervals, the difference
between interest amounts calculated by reference to a
floating index or a fixed rate on an agreed upon notional
principal amount. Swap contracts are primarily between one
and five years in duration. The Company enters into
currency exchange agreements to hedge debt denominated in
foreign currencies. The term of the currency derivatives is
generally less than five years. The purpose of the
Company's foreign currency hedging activities is to protect
itself from the risk that the eventual dollar net cash
outflows will be affected by changes in exchange rates. The
Company enters into interest rate cap and floor agreements
to reduce the potential impact of changes in interest rates
on floating rate debt, supporting fixed rate assets.
The Company does not anticipate any material adverse effect
on its financial position resulting from its use of these
instruments, nor does it anticipate nonperformance by any of
its counterparties. The tables on page 33 illustrate the
contract or notional (face) amounts outstanding, maturity
dates, weighted average receive and pay rates and the net
unrealized gain (loss) of derivative financial instruments
by category at December 31, 1996, and 1995. Notional amount
represents agreed upon amounts on which calculations of
interest payments to be exchanged are based. Notional
amounts do not represent direct credit exposures. Rather,
they provide an indication of the extent of the Company's
involvement in such derivative financial instruments.
Interest rate agreements generally involve the exchange of
interest payments without the exchange of the underlying
notional amount on which the interest payments are
calculated. The net unrealized gain (loss) for the
derivative financial instruments on page 33 is equal to
their estimated fair value.
-32-
<PAGE 33>
FINANCIAL INSTRUMENTS (Continued):
(Dollars in thousands)
At December 31, 1996:
Notional Weighted Average Rate
Type Amount Maturities Receive Pay
____________________ __________ __________ _____________________
Swap to Fixed $2,400,000 1997-2001 5.77% 6.27%
Swap to Floating 1,670,800 1997-2001 5.86% 5.58%
Currency Related 245,445 1998-1999 n/a * n/a *
Int. Rate Cap/Floor 500,000 1997-1999 n/a * n/a *
__________
$4,816,245
==========
At December 31, 1996 (Continued):
Notional Unrealized Unrealized Net Unrealized
Type Amount Gross Gain Gross (Loss) Gain (Loss)
____________________ __________ __________ ____________ ______________
Swap to Fixed $2,400,000 $1,848 $(17,876) $(16,028)
Swap to Floating 1,670,800 4,838 (4,413) 425
Currency Related 245,445 961 (19,569) (18,608)
Int. Rate Cap/Floor 500,000 675 - 675
__________ __________ ____________ ______________
$4,816,245 $8,322 $(41,858) $(33,536)
========== ========== ============ ==============
At December 31, 1995:
Notional Weighted Average Rate
Type Amount Maturities Receive Pay
____________________ __________ __________ _____________________
Swap to Fixed $1,564,000 1996-2000 4.84% 6.00%
Swap to Floating 880,000 1996-2000 6.78% 5.02%
Currency Related 95,374 1998 n/a * n/a *
Int. Rate Cap 72,500 1996 n/a * n/a *
__________
$2,611,874
==========
At December 31, 1995 (Continued):
Notional Unrealized Unrealized Net Unrealized
Type Amount Gross Gain Gross (Loss) Gain (Loss)
____________________ __________ __________ ____________ ______________
Swap to Fixed $1,564,000 $ 107 $(29,643) $(29,536)
Swap to Floating 880,000 6,102 (440) 5,662
Currency Related 95,374 3,936 - 3,936
Int. Rate Cap 72,500 - - -
__________ __________ ____________ ______________
$2,611,874 $10,145 $(30,083) $(19,938)
========== ========== ============ ==============
* n/a: not applicable
-33-
<PAGE 34>
FINANCIAL INSTRUMENTS (Continued):
At December 31, 1996, approximately 61 percent of the
Company's total debt was hedged through the use of currency
and interest rate related agreements. Before the effects of
such agreements, the Company's debt comprised approximately
36 percent fixed rate debt and 64 percent floating rate
debt. After the effects of such agreements, the Company's
debt consisted of approximately 45 percent fixed rate debt
and 55 percent floating rate debt. At December 31, 1995,
about 34 percent of the Company's total debt was hedged
through the use of currency and interest rate related
agreements. Before the effects of such agreements, the
Company's debt comprised approximately 35 percent fixed rate
debt and 65 percent floating rate debt. After the effects
of such agreements, the Company's debt consisted of
approximately 50 percent fixed rate debt and 50 percent
floating rate debt.
The approximate weighted average effective interest rates
for the commercial paper, other short-term debt, medium-term
notes and other long-term debt, as disclosed in the notes on
pages 28 and 29, Short-Term Debt and Long-Term Debt, include
the effects of interest rate swap agreements.
-34-
<PAGE 35>
FINANCIAL INSTRUMENTS (Continued):
Fair value is a very subjective and imprecise measurement
that is based on numerous estimates and assumptions that
require substantial judgment and may be valid only at a
particular point in time. As such, fair value can represent
only a very general approximation of possible value that may
never actually be realized.
The following methods and assumptions were used to estimate
the fair value of each class of financial instrument for
which it is practicable to estimate.
Cash and cash equivalents: The carrying amount approximates
fair value due to the short maturity of these instruments.
Marketable securities: The carrying amount approximates
fair value which is estimated using quoted market prices.
Loans receivable: The fair value is estimated by
discounting the future cash flows using current rates at
which similar loans would be made to borrowers with similar
credit ratings with the same remaining maturities.
Working capital financing receivables: The carrying amount
approximates fair value due to the short maturity of most of
these instruments.
Due and deferred from receivable sales: The carrying amount
approximates fair value.
Short-term debt: For the majority of these instruments, the
carrying amount approximates fair value due to their short
maturity.
Long-term debt and current maturities of long-term debt:
The fair value of these instruments is based on replacement
cost or quoted market prices for the same issues.
Replacement cost is the cost to issue a similar instrument
with similar maturity and credit risk.
Interest rate related and currency related agreements: The
fair value of these instruments has been estimated as the
amount the Company would receive or pay to terminate the
agreements, taking into consideration current interest and
currency exchange rates.
Commitments to extend credit: The fair value of commitments
to extend credit is estimated as the amount of approved but
unused working capital financing credit lines available to
customers.
Financial guarantees: The fair value of financial
guarantees is estimated as the amounts that would be paid if
the Company had to settle the obligations.
-35-
<PAGE 36>
FINANCIAL INSTRUMENTS (Continued):
The following table summarizes the carrying amount and the
estimated fair value of all of the Company's financial
instruments:
(Dollars in thousands)
Carrying Estimated
At December 31, 1996: Amount Fair Value
__________ ___________
Cash and cash equivalents $ 632,834 $ 632,834
Marketable securities 159,348 159,348
Loans receivable 1,846,947 1,899,413
Working capital financing receivables 2,898,688 2,898,688
Short-term debt (excluding current
maturities of long-term debt) 6,352,525 6,573,150
Long-term debt and current
maturities of long-term debt 1,729,812 1,373,218
Off-balance-sheet derivatives:
Currency related --
Assets - 961
Liabilities - 19,569
Interest rate related --
Assets - 7,361
Liabilities - 22,289
Commitments to extend credit - 2,051,496
Financial guarantees - 12,884
Carrying Estimated
At December 31, 1995: Amount Fair Value
__________ ___________
Cash and cash equivalents $ 336,839 $ 336,839
Marketable securities 89,930 89,930
Loans receivable 1,473,822 1,536,726
Working capital financing receivables 3,158,932 3,158,932
Due and deferred from receivable sales 106,079 106,079
Short-term debt (excluding current
maturities of long-term debt) 5,758,944 5,908,779
Long-term debt and current
maturities of long-term debt 1,829,123 1,690,747
Off-balance-sheet derivatives:
Currency related --
Assets - 3,936
Liabilities - -
Interest rate related --
Assets - 6,209
Liabilities - 30,083
Commitments to extend credit - 1,001,186
Financial guarantees - 23,207
-36-
<PAGE 37>
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 were applied against
certain future obligations of the Seller to the Company.
IBM CS Systems, as the unit 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 is included in the Company's
consolidated financial statements from the date of
acquisition.
LITIGATION SETTLEMENT:
Effective August 26, 1994, IBM, the Company, certain
partnerships in which the Company is the general partner and
Comdisco settled all outstanding litigation between the
parties. Pursuant to the settlement agreement, on August
30, 1994, Comdisco delivered $70.0 million in cash proceeds
to the Company, $20.0 million of which the Company loaned
back to Comdisco in exchange for an interest-bearing
convertible subordinated promissory note, which was repaid
on March 1, 1995. As a result of reaching this settlement
agreement, the Company recognized a pretax gain, net of
directly related expenses, of $46.0 million. This amount
was included in other income on the Consolidated Statement
of Earnings and Retained Earnings for the year ended
December 31, 1994. The redemption of the subordinated
promissory note on March 1, 1995, was included in other
income on the Consolidated Statement of Earnings and
Retained Earnings for the year ended December 31, 1995.
-37-
<PAGE 38>
SALE OF IBM CREDIT INVESTMENT MANAGEMENT CORPORATION:
During the second quarter of 1994, a Fleet Financial Group
subsidiary purchased 100 percent of the stock of IBM Credit
Investment Management Corporation (ICIM), a wholly owned
subsidiary of the Company. ICIM provided investment
management and administrative services for the IBM Mutual
Funds. As a result of this sale, the Company recognized a
pretax gain of $13.3 million, which was included in other
income. In connection with the sale of ICIM, the IBM Money
Market Account notes were redeemed in early July 1994. The
IBM Money Market Account notes were a source of short-term
funding for the Company.
INDUSTRY SEGMENT REPORTING:
The Company operates principally in a single business
segment offering customer financing of information industry
products and services.
SUBSEQUENT EVENT:
On January 24, 1997, the Company's Board of Directors
declared a $50.0 million dividend, payable to IBM on
February 24, 1997.
-38-
<PAGE 39>
SELECTED QUARTERLY FINANCIAL DATA: (Unaudited)
(Dollars in thousands)
Finance Gross Profit
and Other Interest Equipment on Equipment Net
Income Expense Sales Sales Earnings
___________ ________ _________ ____________ ________
1996
____
First Quarter . .$ 374,179* $106,280 $106,488 $18,689 $ 73,928
Second Quarter. . 368,114 106,931 101,432 17,626 74,075
Third Quarter . . 359,648 110,362 76,367 7,670 71,610
Fourth Quarter. . 395,859 112,536 135,005 6,951 51,469
___________ ________ _________ _______ ________
$1,497,800 $436,109 $419,292 $50,936 $271,082
=========== ======== ========= ======= ========
1995
____
First Quarter . .$ 337,481* $ 86,296 $114,103 $13,268 $ 57,945
Second Quarter. . 361,229* 94,621 130,967 26,158 63,924
Third Quarter . . 378,739 106,050 123,454 13,539 53,526
Fourth Quarter. . 374,836* 107,605 125,095 21,648 55,080
___________ ________ ________ _______ ________
$1,452,285 $394,572 $493,619 $74,613 $230,475
=========== ======== ======== ======= ========
* During the first quarter of 1996, the Company recognized a pretax
gain of $9.3 million upon the sale of certain restricted
securities.
* During the first quarter of 1995, the Company recognized a pretax
gain of $5.0 million upon Comdisco Inc.'s redemption of the
convertible subordinated promissory note on March 1, 1995.
During the second quarter of 1995, the Company recognized a pretax
gain of $4.3 million from the sale of financing assets.
During the fourth quarter of 1995, the Company recognized a pretax
gain of $1.9 million upon the sale of certain restricted securities.
These amounts are included in other income.
-39-
<PAGE 40>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE:
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Omitted pursuant to General Instruction J.
ITEM 11. EXECUTIVE COMPENSATION:
Omitted pursuant to General Instruction J.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT:
Omitted pursuant to General Instruction J.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Omitted pursuant to General Instruction J.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K:
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
included in Part II of this report:
Report of Independent Accountants (page 14).
Consolidated Statement of Financial Position at December
31, 1996 and 1995 (page 15).
Consolidated Statement of Earnings and Retained Earnings
for the years ended December 31, 1996, 1995 and 1994
(page 16).
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 (pages 17 and 18).
Notes to Consolidated Financial Statements (pages 19
through 39).
2. Financial statement schedules required to be filed by
Item 8 of this Form 10-K:
Schedules are omitted because of the absence
of the conditions under which they are required or
because the information is disclosed in the financial
statements or in the notes thereto.
-40-
<PAGE 41>
3. Exhibits required to be filed by Item 601 of Regulation S-K:
Included in this Form 10-K:
Exhibit Number
_______________
I. The By-Laws of IBM Credit Corporation.
II. Agreement to furnish information defining the
rights of debt holders
III. Statement re computation of ratios
IV. Consent of experts and counsel
V. Financial Data Schedule
Not included in this Form 10-K:
The Certificate of Incorporation of IBM Credit Corporation
is filed pursuant to the quarterly report on Form 10-Q for
the quarterly period ended June 30, 1993, on August 10,
1993, and is hereby incorporated by reference.
The Support Agreement dated as of April 15, 1981, between
the Company and IBM is filed with Form SE dated March 26,
1987, and is hereby incorporated by reference.
Power of Attorney of Jeffrey D. Serkes
(b) Reports on Form 8-K:
A Form 8-K dated October 21, 1996 was filed with respect
to the Company's financial results for the periods ended
September 30, 1996.
-41-
<PAGE 42>
[SIGNATURE]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
:ehp3.
IBM CREDIT CORPORATION
(Registrant)
By: /s/W. Wilson Lowery, Jr.
________________________
(W. Wilson Lowery, Jr.)
Chairman
Date: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities on March 25, 1997.
Signature Title
_________ _____
_/s/W. Wilson Lowery, Jr.__
___________________________
(W. Wilson Lowery, Jr.) Chairman and Director
_/s/Allison R. Schleicher__
___________________________
(Allison R. Schleicher) Vice President, Finance,
and Chief Financial Officer and Director
_/s/Kimberly A. Kispert____
___________________________
(Kimberly A. Kispert) Controller and Treasurer
|
|
| /s/Allison R. Schleicher
Jeffrey D. Serkes Director |By: ________________________
| (Allison R. Schleicher)
| Attorney-in-fact
|
-42-
<PAGE 43>
EXHIBIT INDEX
_____________
Reference Number Exhibit Number
per Item 601 of in This
Regulation S-K Description of Exhibits Form 10-K
________________ _________________________________________ ______________
(3) Certificate of Incorporation and By-Laws
The Certificate of Incorporation of IBM
Credit Corporation is filed pursuant to
Form 10Q for the quarterly period ended
June 30, 1993, on August 10, 1993, and is
hereby incorporated by reference.
The By-Laws of IBM Credit Corporation. I
(4)(a) Instruments defining the rights of
security holders.
An agreement to furnish to the Securities II
and Exchange Commission, on request, a
copy of instruments defining the rights
of debt holders.
(4)(b) Indenture dated as of January 15, 1989,
filed electronically as Exhibit No. 4 to
Amendment No. 1 to Form S-3 on April 3,
1989, and is hereby incorporated by
reference.
(9) Voting trust agreement. Not
applicable
(10) Material contracts.
The Support Agreement as of dated April 15,
1981, between the Company and IBM is
filed with Form SE dated March 26, 1987,
and is hereby incorporated by reference.
(11) Statement re computation of per share Not
earnings. applicable
(12) Statement re computation of ratios. III
(18) Letter re change in accounting principles. Not
applicable
(21) Subsidiaries of the registrant. Omitted
(22) Published report regarding matters Not
submitted to vote of security holders. applicable
(23) Consent of experts and counsel. IV
-43-
<PAGE 44>
EXHIBIT INDEX
_____________
(continued)
Reference Number Exhibit Number
per Item 601 of in This
Regulation S-K Description of Exhibits Form 10-K
________________ _________________________________________ ______________
(24) Power of Attorney of Jeffrey D. Serkes
(incorporated by reference to Exhibit IV(j)
to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995,
electronically transmitted to the Securities
and Exchange Commission on March 18, 1996).
(27) Financial data schedule. V
(28) Information from reports furnished to Not
state insurance regulatory authorities. applicable
(99) Additional exhibits. Not
applicable
-44-
<PAGE 1>
EXHIBIT I
_________
THE BY-LAWS OF IBM CREDIT CORPORATION
_____________________________________
ARTICLE I
_________
Offices
_______
The Corporation shall maintain a registered office in the
State of Delaware. The Corporation may also have offices at such
other places, within or without the State of Delaware, as the
Board of Directors may from time to time determine.
ARTICLE II
__________
Stockholders
____________
Section 1. Place of Meetings. Meetings of the stockholders
shall be held at such places, within or without the State of
Delaware, as shall be designated from time to time by the Board
of Directors, or, in the absence of any such designation, by the
person or persons calling the meeting.
Section 2. Annual Meeting. Annual meetings of the
stockholders shall be held on such date and at such time as shall
be designated from time to time by the Board of Directors. At
each annual meeting the stockholders shall elect a Board of
Directors and transact such other business as may properly be
brought before the meeting.
Section 3. Special Meetings. Special meetings of the
stockholders may be called by the Board of Directors or the
President and shall be called by the Secretary upon the written
request of the holders of not less than one-third (1/3) of the
outstanding shares of Common Stock of the Corporation entitled to
be voted for the election of directors.
Section 4. Notice or Waiver of Notice of Meetings. Written
notice of each meeting of the stockholders, stating the place,
date and hour of the meeting, shall be given to each stockholder
entitled to vote at the meeting at least ten (10), but not more
than sixty (60), days prior to the meeting. In the case of a
special meeting, the notice shall state the purpose or purposes
for which the meeting is called. Attendance by any stockholder,
in person or by proxy, at any meeting of which he is entitled to
notice shall constitute a waiver by him of notice of the meeting
except where attendance is for the express purpose of objecting
to the transaction of any business because the meeting was not
lawfully called or convened. A written waiver of notice of any
meeting signed by a person or persons entitled to notice, whether
before, at or after the time stated therein, shall be deemed
equivalent to the giving of notice to such person or persons.
-45-
<PAGE 2>
EXHIBIT I
_________
THE BY-LAWS OF IBM CREDIT CORPORATION (Continued)
__________________________________________________
ARTICLE II (Continued)
________________________
Section 5. Quorum; Adjournments of Meetings. The holders,
present in person or represented by proxy, of a majority of the
outstanding shares of Common Stock of the Corporation entitled to
be voted at a meeting shall constitute a quorum for the
transaction of business at the meeting. If there be less than a
quorum, the holders, so present or represented, of a majority of
such shares at the meeting may from time to time adjourn the
meeting to another time or place until a quorum shall be present,
whereupon the meeting may be held, as adjourned, without further
notice, except as required by law, and any business may be
transacted there at which might have been transacted at the
meeting as originally called.
Section 6. Voting; Action Without a Meeting.
(a) At any meeting of the stockholders each holder of
shares of Common Stock of the Corporation entitled to be voted
may vote in person or by proxy and, except as otherwise provided
by statute, the Certificate of Incorporation or these By-Laws,
shall have one vote for each such share standing in his name on
the books of the Corporation. Except as otherwise required by
statute, the Certificate of Incorporation or these By-Laws, all
matters brought before any meeting of the stockholders shall be
decided by the vote of the holders, present in person or
represented by proxy, of a majority of the shares at the meeting.
(b) Action required or permitted to be taken at a meeting
of the stockholders may be taken without a meeting in accordance
with the provisions of the General Corporation Law of the State
of Delaware.
Section 7. Inspectors of Election. The Board of Directors,
or, if the Board shall not have made the appointment, the
chairman presiding at any meeting of the stockholders, shall have
power to appoint one or more persons to act as inspectors of
election at the meeting or any adjournment thereof to receive,
canvass and report the votes cast by the stockholders at the
meeting, but no candidate for the office of director shall be
appointed as an inspector at any meeting for the election of
directors.
Section 8. Chairman of Meetings. At each meeting of the
stockholders, the Chairman of the Board or in the absence of the
Chairman of the Board, the President shall act as chairman of the
meeting and preside thereat. In the absence of both the Chairman
of the Board and the President, the stockholders present in person or
represented by proxy at the meeting shall elect a chairman.
Section 9. Secretary of Meetings. The Secretary of the
Corporation shall act as secretary of each meeting of the
stockholders. In the absence of the Secretary, the chairman of the
meeting shall appoint any person to act as secretary of the meeting.
-46-
<PAGE 3>
EXHIBIT I
_________
THE BY-LAWS OF IBM CREDIT CORPORATION (Continued)
__________________________________________________
ARTICLE III
____________
Board of Directors
__________________
Section 1. Number and Terms of Directors. The property,
business and affairs of the Corporation shall be managed and
controlled by the Board of Directors. The number of Directors
shall be three, but the number thereof may be increased to not
more than nine by amendment of these By-Laws. Each director
shall hold office until his successor is elected and qualified or
until his earlier death, resignation or removal.
Section 2. Vacancies. Whenever any vacancy shall occur in
the Board of Directors by reason of death, resignation, removal,
increase in the number of directors or otherwise, it may be
filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director.
Section 3. First Meeting. The first meeting of each newly
elected Board of Directors, of which no notice shall be
necessary, shall be held immediately following the annual meeting
of the stockholders or any adjournment thereof at the place where
the annual meeting of the stockholders was held at which the
directors were elected, or at such other place as a majority of
the directors who are then present shall determine. Such first
meeting shall be for the election of officers and the transaction
of such other business as may properly be brought before the
meeting.
Section 4. Regular Meetings. Regular meetings of the Board
of Directors, other than the first meeting, may be held without
notice, if previously scheduled by resolution of the Board, on
such dates and at such times and places as the Board of Directors
shall have specified in the resolution. Except as otherwise
required by statute, the Certificate of Incorporation or these
By-Laws, any and all business may be transacted at any regular
meeting of the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board
of Directors may be called by the President or any director.
Notice of the time, place and general purpose of each special
meeting shall be given by or at the direction of the person or
persons calling the meeting by mailing the notice at least five
(5) business days before the meeting or telephoning, telegraphing
or delivering personally the notice at lease three (3) business
days before the meeting to each director. Except as otherwise
specified in the notice, or as may be required by statute, the
Certificate of Incorporation or these By-Laws, any and all
business may be transacted at any special meeting.
-47-
<PAGE 4>
EXHIBIT I
_________
THE BY-LAWS OF IBM CREDIT CORPORATION
_____________________________________
ARTICLE III (Continued)
__________________________
Section 6. Waiver of Notice; Action Without a Meeting;
Conference Call Meetings.
(a) Attendance of a director at any meeting of the Board of
Directors shall constitute a waiver by him of notice of the
meeting except where a director attends for the express purpose
of objecting to the transaction of any business because the
meeting was not lawfully called or convened. A waiver of notice
of any meeting in writing signed by a director, whether before,
at or after the time stated therein, shall be deemed equivalent
to the giving of notice to him.
(b) Any action required or permitted to be taken at any
meeting of the Board may be taken without a meeting if all
members of the Board consent thereto in writing and the writing
or writings are filed with the minutes of proceedings of the
Board.
(c) Members of the Board may participate in a meeting of
the Board by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other, and such
participation shall constitute presence in person at the meeting.
Section 7. Compensation of Directors. Each Director not a
salaried officer or employee of, or otherwise compensated by, the
Corporation or any of its affiliates, shall be entitled to
receive such reasonable compensation for his services as a
Director, and such additional compensation for his services as a
member of any committee of the Board of Directors, as the Board
may from time to time fix and determine.
Section 8. Organization. At each meeting of the Board, the
Chairman of the Board or in the absence of the Chairman, the
President shall act as chairman of the meeting and preside
thereat. In the absence of both the Chairman and the President,
another director chosen by a majority of directors present shall
act as chairman of the meeting. The Secretary of the Corporation
shall act as secretary of the meeting, but in his absence, the
presiding officer may appoint any person to act as secretary of
the meeting.
Section 9. Quorum. One-third of the total number of
directors shall constitute a quorum for the transaction of
business. Less than a quorum may from time to time adjourn any
meeting to another time or place until a quorum shall be present,
whereupon the meeting may be held, as adjourned, without further
notice.
-48-
<PAGE 5>
EXHIBIT I
_________
THE BY-LAWS OF IBM CREDIT CORPORATION (Continued)
__________________________________________________
ARTICLE III (Continued)
__________________________
Section 10. Voting. Except as otherwise required by
statute, the Certificate of Incorporation or these By-Laws, all
matters coming before any meeting of the Board of Directors at
which a quorum shall be present shall be decided by vote of the
majority of the directors present.
Section 11. Removal of Directors. Any one or more of the
directors of the Corporation shall be subject to removal with or
without cause at any time by the stockholders.
ARTICLE IV
__________
Committees
__________
Section 1. Committees. The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate
from among its members and the officers of the Corporation such
committees as the Board may from time to time determine, any such
committee to consist of such number of members, but not less than
two (2), and to have such powers and duties as shall from time to
time be prescribed by the Board. All action by any such
committee shall be reported to the Board of Directors at its next
regular meeting. The Board of Directors may discharge any such
committee with or without cause at any time.
Section 2. Meetings of Committees. Regular meetings of any
committee designated or appointed by the Board of Directors shall
be held at such times and places and on such notice, if any, as
the committee may from time to time determine. Special meetings
of any committee designated or appointed by the Board may be
called by order of the President or the chairman of any such
committee. Notice of the time, place and general purpose of each
special meeting shall be given by or at the direction of the
person calling the meeting by mailing the notice at least three
(3) days before the meeting or by telephoning, telegraphing or
delivering the notice personally or by delivering the notice at
his place of residence at least eighteen (18) hours before the
meeting to each committee member. Except as otherwise specified
in the notice, or as may be required by statute, the Certificate
of Incorporation or these By-Laws, any and all business may be
transacted at any meeting of a committee. The provisions of
Section 6 of Article III shall apply to meetings and actions of
committees of the Board.
-49-
<PAGE 6>
EXHIBIT I
_________
THE BY-LAWS OF IBM CREDIT CORPORATION (Continued)
__________________________________________________
ARTICLE V
_________
Officers
________
Section 1. General. The Board of Directors shall elect the
officers of the Corporation, which shall include the Chairman of
the Board, a President, a Secretary, a Treasurer and such other
officers as in its opinion are desirable for the conduct of the
business of the Corporation. The Chairman of the Board shall, in
the absence or incapacity of the President, or during such time
as the Office of the President is vacant, perform all the duties
and functions and exercise all the powers of the President.
Section 2. Term of Office; Removal and Vacancy. Each
officer shall hold his office until his successor is elected or
until his earlier death, resignation or removal, and shall be
subject to removal with or without cause at any time by the Board
of Directors. Vacancies in any office, whether occurring by
death, resignation, removal or otherwise, may be filled by the
Board of Directors. Vacancies may also be filled, during the
period between meetings of the Board, by appointment by the
President. Such appointment shall be immediately effective and
shall be voted on by the Board at its next meeting.
Section 3. Powers and Duties of the President. The
President shall be the chief executive officer of the Corporation
and shall have general supervision of the affairs of the
Corporation. He shall have power to appoint and remove all
servants, agents and employees of the Corporation (other than its
officers). He may sign, execute and deliver in the name of the
Corporation all deeds, mortgages, bonds, contracts or other
instruments authorized by the Board of Directors, except in cases
where the signing, execution or delivery thereof shall be
expressly delegated by the Board or these By-Laws to some other
officer or agent of the Corporation or where they shall be
required by law otherwise to be signed, executed and delivered,
and he may affix the seal of the Corporation to any instrument
which shall require it. He may sign certificates for shares of
the Common Stock of the Corporation with the Secretary, and he
shall have such other powers and perform such other duties as are
incident to the office of President and chief executive officer
or as shall from time to time be assigned to him by these By-Laws
or the Board of Directors.
Section 4. (Intentionally Left Blank)
-50-
<PAGE 7>
EXHIBIT I
_________
THE BY-LAWS OF IBM CREDIT CORPORATION (Continued)
__________________________________________________
ARTICLE V (Continued)
________________________
Section 5. Powers and Duties of the Secretary. The
Secretary shall keep the minutes of all meetings of the
stockholders and all meetings of the Board of Directors and any
committee thereof in books provided for that purpose. He shall
attend to the giving or serving of all notices of the
Corporation. He may affix the seal of the Corporation to all
instruments to be executed on behalf of the Corporation under its
seal. The Secretary may sign certificates for shares of the
Common Stock of the Corporation with the President, and shall
have charge of the stock certificate books, transfer books and
stock ledgers and such other books and papers as the Board of
Directors shall direct, all of which shall at all reasonable
times be open to the examination of any director during business
hours. The Secretary shall have such other powers and perform
such other duties as are incident to the Office of Secretary or
as shall from time to time be assigned to him by these By-Laws,
the Board of Directors or the President.
Section 6. Powers and Duties of the Treasurer. The
Treasurer shall have custody of all the funds and securities of
the Corporation which may be delivered into his possession. He
may endorse on behalf the Corporation for collection, checks,
notes and other obligations and shall deposit the same to the
credit of the Corporation in a depository or depositories of the
Corporation, and may sign all receipts and vouchers for payments
made to the Corporation. He shall enter or cause to be entered
regularly in the books of the Corporation kept for the purpose
full and accurate accounts of all moneys received and paid on
account of the Corporation and whenever required by the Board of
Directors shall render statements of the accounts. He shall, at
all reasonable times, exhibit his books and accounts to any
Director of the Corporation during business hours. The Treasurer
shall have such other powers and perform such other duties as are
incident to the office of Treasurer or as shall from time to time
be assigned to him by these By-Laws, the Board of Directors or
the President.
Section 7. Powers and Duties of Other Officers. Officers
other than the President, Secretary and Treasurer shall have such
powers and perform such duties as shall from time to time be
assigned to them by the Board of Directors or the President.
Section 8. Compensation of Officers. Each officer of the
Corporation not a salaried officer or employee of, or otherwise
compensated by, any affiliate of the Corporation shall be
entitled to receive such compensation for his services as shall
from time to time be fixed and determined by the Board of
Directors.
-51-
<PAGE 8>
EXHIBIT I
_________
THE BY-LAWS OF IBM CREDIT CORPORATION (Continued)
__________________________________________________
ARTICLE VI
__________
Common Stock
____________
Section 1. Certificates of Stock. Certificates for shares
of the Common Stock of the Corporation shall be in such form as
the Board of Directors may from time to time prescribe. In the
event any officer who has signed a certificate shall have ceased
to be such officer before the certificate is issued, the
certificate may be issued by the Corporation with the same effect
as if the officer were such officer at the date of issue.
Section 2. Transfer of Stock. Shares of the Common Stock
of the Corporation shall be transferable on the books of the
Corporation only by the holder of record thereof, in person or by
duly authorized attorney, upon surrender and cancellation of
certificates for a like number of shares, with an assignment or
power of transfer endorsed thereon or delivered therewith, duly
executed, and with such proof of the authenticity of the
signature and of authority to transfer, and of payment of
transfer taxes, as the Corporation may require.
Section 3. Ownership of Stock. The Corporation shall be
entitled to treat the holder of record of any share or shares of
its Common Stock as the owner thereof in fact and shall not be
bound to recognize any equitable or other claim to or interest in
such shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise
expressly provided by law.
Section 4. Lost, Stolen or Destroyed Certificates. In case
any certificate for shares of Common Stock of the Corporation
shall be lost, stolen or destroyed, the Corporation may require
such proof of the fact and such indemnity to be given to it as
shall be deemed necessary or advisable by the Board of Directors.
-52-
<PAGE 9>
EXHIBIT I
_________
THE BY-LAWS OF IBM CREDIT CORPORATION (Continued)
__________________________________________________
ARTICLE VII
___________
Miscellaneous
_____________
Section 1. Corporate Seal. The seal of the Corporation
shall be in the form prescribed by the Board of Directors and
shall contain the name of the Corporation and the year and state
of incorporation.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of January and terminate on the
thirty-first day of December in each year.
Section 3. Indemnification. The Corporation shall, to the
fullest extent permitted by applicable law as in effect at any
time, indemnify any person made, or threatened to be made, a
party to an action or proceeding whether civil or criminal
(including an action or proceeding by or in the right of the
Corporation or any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, for which any director
or officer of the Corporation served in any capacity at the
request of the Corporation), by reason of the fact that such
person or such person's testator or intestate representative was
a director or officer of the Corporation, or served such other
corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement and reasonable expenses,
including attorney's fees actually and necessarily incurred as a
result of such action or proceeding, or any appeal therein. Such
indemnification shall be a contract right and shall include the
right to be paid advances of any expenses incurred by such person
in connection with such action, suit or proceeding, consistent
with the provisions of applicable law in effect at any time.
Indemnification shall be deemed to be "permitted" within the
meaning of the first sentence hereof if it is not expressly
prohibited by applicable law as in effect at the time.
ARTICLE VIII
____________
Amendment
_________
Except as otherwise required by law or the Certificate of
Incorporation, By-Laws of the Corporation may be made, amended or
repealed either by the stockholders or the Board of Directors.
Notice of the proposal to make, amend or repeal any provision of
the By-Laws shall be included in the notice of any meeting of the
stockholders or the Board of Directors at which such action is to
be considered.
-53-
<PAGE 1>
[SIGNATURE]
EXHIBIT II
__________
AGREEMENT TO FURNISH INFORMATION DEFINING
_________________________________________
THE RIGHTS OF DEBT HOLDERS
__________________________
Securities and Exchange Commission
450 Fifth Avenue
Washington, D.C. 20549
Subject: IBM Credit Corporation Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 - File No. 1-8175
Ladies and Gentlemen:
IBM Credit Corporation (the Company) including its subsidiaries does
not have outstanding any instrument other than the Indenture dated
January 15, 1989, as filed electronically as Exhibit No. 4 to Form S-3
with the Securities and Exchange Commission on April 3, 1989, defining
the rights of the holders of its long-term debt under which the total
amount of securities authorized exceeds 10 percent of the total assets
of the Company and its subsidiaries on a consolidated basis.
In accordance with paragraph (b)(4)(iii) of Item 601 of Regulation S-K,
the Company hereby agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of each instrument that defines the
rights of the holders of its long-term debt.
Very truly yours,
IBM CREDIT CORPORATION
By: /s/Allison R. Schleicher
_____________________________
Date: March 25, 1997 (Allison R. Schleicher)
Vice President, Finance
and Chief Financial Officer
-54-
<PAGE 1>
<TABLE>
<CAPTION>
EXHIBIT III
___________
IBM CREDIT CORPORATION
STATEMENT RE COMPUTATION OF RATIOS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31:
1996 1995 1994 1993 1992
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense $436,109 $394,572 $306,125 $365,675 $445,816
Approximate portion of rental
expense representative of
the interest factor 479 507 2,780 3,290 3,078
________ ________ ________ ________ ________
Total fixed charges 436,588 395,079 308,905 368,965 448,894
Net earnings 271,082 230,475 250,589 220,220 219,270
Provision for income taxes 176,122 149,455 162,703 173,172 131,562
________ ________ ________ ________ ________
Earnings before income taxes
and fixed charges $883,792 $775,009 $722,197 $762,357 $799,726
======== ======== ======== ======== ========
Ratio of earnings to fixed
charges 2.02 1.96 2.34 2.07 1.78
==== ==== ==== ==== ====
-55-
</TABLE>
<PAGE 1>
[SIGNATURE]
EXHIBIT IV
__________
CONSENT OF INDEPENDENT ACCOUNTANTS
__________________________________
We hereby consent to the incorporation by reference in
the Prospectus constituting part of the Registration
Statements on Form S-3 (Nos. 33-36862, 33-44594, 33-43073,
33-49411, 33-56207 and 33-06335) of IBM Credit Corporation
of our report dated January 20, 1997, except as to the
Subsequent Event note on page 38, which is as of January 24,
1997, appearing on page 14 of this Form 10-K.
/s/Price Waterhouse LLP
Stamford, CT
March 25, 1997
-56-
<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 YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 632,834
<SECURITIES> 159,348
<RECEIVABLES> 1,846,947
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,946,139
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 457,411
0
0
<OTHER-SE> 977,645
<TOTAL-LIABILITY-AND-EQUITY> 1,435,056
<SALES> 419,292
<TOTAL-REVENUES> 1,497,800
<CGS> 368,356
<TOTAL-COSTS> 368,356
<OTHER-EXPENSES> 201,248
<LOSS-PROVISION> 44,883
<INTEREST-EXPENSE> 436,109
<INCOME-PRETAX> 447,204
<INCOME-TAX> 176,122
<INCOME-CONTINUING> 271,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 271,082
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
