<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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)
North Castle Drive, MS NCA-306 10504-1785
Armonk, New York
______________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 914-765-1900
____________
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
- 1 -
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
___ ___
As of October 31, 1998, 936 shares of capital stock, par value $1.00
per share, were held by International Business Machines Corporation.
Aggregate market value of the voting stock held by nonaffiliates
of the registrant at October 31, 1998: NONE.
The registrant meets the conditions set forth in General Instruction H
(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the
reduced disclosure format.
<PAGE> 2
INDEX
_____
Part I - Financial Information:
Page
______
Item 1. Financial Statements:
Consolidated Statement of Financial Position
at September 30, 1998 and December 31, 1997 . . . . . . . . . . 1
Consolidated Statement of Earnings for the three and
nine months ended September 30, 1998 and 1997 . . . . . . . . . 2
Consolidated Statement of Cash Flows for the nine
months ended September 30, 1998 and 1997. . . . . . . . . . . . 3
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . 7
Part II - Other Information . . . . . . . . . . . . . . . . . . . . 16
<PAGE> 3
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
<CAPTION>
At At
September 30, December 31,
1998 1998
_____________ ____________
<S> <C> <C>
ASSETS:
Cash and cash equivalents . . . . . . .$ 773,096 $ 792,471
Marketable securities . . . . . . . . . 82,907 127,847
Net investment in capital leases. . . . 4,973,288 4,931,292
Equipment on operating leases, net. . . 3,448,289 3,583,641
Working capital financing receivables . 2.458,758 3,249,310
Loans receivable . . . . . . . . . . . 2,551,146 2,381,261
Factored IBM receivables . . . . . . . 805,519 824,031
Investments and other assets . . . . . 554,821 682,263
_____________ ____________
Total Assets . . . . . . . . . . . . .$ 15,647,824 $ 16,572,116
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Short-term debt . . . . . . . . . . . .$ 6,508,860 $ 7,452,668
Short-term debt, IBM . . . . . . . . . 632,600 1,139,113
Due to IBM and affiliates . . . . . . . 1,677,173 2,524,475
Interest and other accruals . . . . . . 279,129 423,243
Deferred income taxes . . . . . . . . . 950,092 887,180
Long-term debt . . . . . . . . . . . . 2,153,842 1,887,235
Long-term debt, IBM . . . . . . . . . . 1,574,935 589,253
_____________ ____________
Total liabilities . . . . . . . . . . . 13,776,631 14,903,167
_____________ ____________
Stockholder's equity:
Capital stock, par value $1.00 per share
Shares authorized: 10,000
Shares issued and outstanding:
936 in 1998 and 1997 . . . . . . 457,411 457,411
Retained earnings . . . . . . . . . . . 1,413,782 1,211,538
_____________ ____________
Total stockholder's equity . . . . . . 1,871,193 1,668,949
_____________ ____________
Total Liabilities and Stockholder's
Equity. . . . . . . . . . . . . . . .$ 15,647,824 $ 16,572,116
============= ============
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE> 4
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
________ ________ _________ __________
<S> <C> <C> <C> <C>
FINANCE AND OTHER INCOME:
Income from leases:
Capital leases . . . . . . $ 85,924 $ 66,027 $ 246,628 $ 212,551
Operating leases, net of
depreciation . . . . . . 93,255 75,639 274,791 212,541
_________ _________ __________ _________
179,179 141,666 521,419 425,092
Income from working capital
financing. . . . . . . . . 56,686 68,305 182,422 185,704
Income from loans. . . . . . 52,974 43,957 152,409 123,472
Equipment sales. . . . . . . 103,971 128,961 308,912 301,075
Income from factored IBM
receivables. . . . . . . . 11,722 9,807 41,142 13,658
Other income . . . . . . . . 28,061 28,894 79,777 101,590
_________ ________ __________ _________
Total finance and other
income . . . . . . . . . 432,593 421,590 1,286,081 1,150,591
_________ ________ __________ _________
COST AND EXPENSES:
Interest . . . . . . . . . . 148,420 143,749 459,756 383,539
Cost of equipment sales. . . 93,365 110,618 273,221 258,861
Selling, general, and
administrative . . . . . . 49,491 53,495 152,241 156,690
Provision for receivable
losses . . . . . . . . . . 9,388 18,944 25,873 17,963
_________ ________ __________ _________
Total cost and expenses. 300,664 326,806 911,091 817,053
_________ ________ __________ _________
EARNINGS BEFORE INCOME
TAXES. . . . . . . . . . . 131,929 94,784 374,990 333,538
Provision for income taxes . 51,980 32,345 147,746 123,333
_________ _________ __________ __________
NET EARNINGS . . . . . . . . $ 79,949 $ 62,439 $ 227,244 $ 210,205
========= ========= ========== ==========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE> 5
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30:
(Dollars in thousands) 1998 1997
<CAPTION> __________ ___________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . $ 227,244 $ 210,205
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization. . . . . . . . 1,420,189 1,066,767
Provision for receivable losses. . . . . . . 25,873 17,963
Increase in deferred income taxes . . . . . 62,912 123,209
(Decrease) increase in interest and other
accruals . . . . . . . . . . . . . . . . . (144,114) 13,689
Gross profit on equipment sales. . . . . . . (35,691) (42,214)
Other items that provided (used) cash:
Proceeds from equipment sales. . . . . . . 308,912 301,075
Decrease in amounts due IBM and affiliates (847,302) (447,240)
Other, net . . . . . . . . . . . . . . . . 4,447 2,273
___________ ___________
Cash provided by operating activities. . . . 1,022,470 1,245,727
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in capital leases . . . . . . . . (1,748,030) (1,661,649)
Collections on capital leases, net of
income earned. . . . . . . . . . . . . . . 1,541,615 1,195,693
Investment in equipment on operating
leases . . . . . . . . . . . . . . . . . . (1,260,845) (1,557,439)
Investment in loans receivable . . . . . . . (1,087,441) (944,087)
Collections on loans receivable, net of
interest earned . . . . . . . . . . . . . 912,486 689,072
Purchase of factored IBM receivables . . . . (4,820,766) (2,255,780)
Collections on factored IBM receivables. . . 4,839,278 1,591,759
Collections on (investment in) working
capital financing receivables, net . . . . 785,858 (332,292)
Purchases of marketable securities . . . . . (82,165) (21,500)
Proceeds from redemption of marketable
securities . . . . . . . . . . . . . . . . 127,105 32,004
Cash payment for lease portfolio acquired. . - (334,909)
Other, net . . . . . . . . . . . . . . . . . (28,388) (89,901)
____________ ___________
Cash used in investing activities . . . . . (821,293) (3,689,029)
____________ ___________
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE> 6
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30:
(Continued)
1998 1997
__________ ____________
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt . . . . . . . . . . . . . . . . . . 2,456,215 1,976,146
Repayment of debt with original maturities
of one year or more . . . . . . . . . . (932,552) (117,800)
(Repayment) issuance of debt with original
maturities within one year, net. . . . . (1,719,215) 621,603
Cash dividends paid to IBM. . . . . . . . . (25,000) (50,000)
___________ ____________
Cash (used in) provided by financing
activities. . . . . . . . . . . . . . . . (220,552) 2,429,949
___________ ____________
Change in cash and cash equivalents . . . . (19,375) (13,353)
Cash and cash equivalents, January 1. . . . 792,471 632,834
___________ ____________
Cash and cash equivalents, September 30 . $ 773,096 $ 619,481
=========== ============
Supplemental schedule of noncash investing and financing activities:
The purchase price for the acquisition of selected assets
from the leasing portfolio of General Electric Capital
Technology Management Services Corporation during the second
and third quarters of 1997 was financed by the Company, in
part, through credits of $18.4 million that were applied
against certain existing obligations to the Company.
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE> 7
IBM CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION:
In the opinion of management of IBM Credit Corporation (the
Company), all adjustments necessary to a fair statement of
the results for the three- and nine-month periods are
reflected in the unaudited interim financial statements
presented. These adjustments are of a normal recurring
nature.
RATIO OF EARNINGS TO FIXED CHARGES:
The ratio of earnings to fixed charges calculated in
accordance with applicable Securities and Exchange
Commission requirements was 1.82 and 1.87 for the nine
months ended September 30, 1998 and 1997, respectively.
ACCOUNTING CHANGES:
The Company implemented Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income,"
effective January 1, 1998. This standard requires that the
total changes in equity resulting from revenue, expenses,
and gains and losses, including those which do not affect
retained earnings, be reported. These amounts consist of net
earnings, foreign currency translation adjustments and
unrealized gains and losses on marketable securities. For
the three- and nine- month periods ending September 30, 1998
and 1997, respectively, other than net earnings, there were
no items to report.
In June, 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards 133,
"Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and
reporting standards for derivative instruments. It requires
an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and
measure those instruments at fair value. This statement is
effective for fiscal years beginning after June 15, 1999,
although early adoption is permitted. Management is in the
process of determining the impacts to the Company's
financial statements as a result of the adoption of this
standard.
RELATED COMPANY TRANSACTIONS:
EQUIPMENT LEASING:
__________________
The Company provides equipment and loan financing at market
rates, substantially through operating leases, to
International Business Machines Corporation (IBM) and
affiliated companies for both IBM and non-IBM products that
IBM uses internally or in support of its strategic
outsourcing environment. The Company originated $661.4
million and $757.1 million of such financings during the
nine months ended September 30, 1998 and 1997, respectively.
At September 30, 1998, and December 31, 1997, approximately
$1,367.8 million and $1,255.0 million, respectively, of such
financings were included in the Company's lease and loan
portfolio.
-5-
<PAGE> 8
RELATED COMPANY TRANSACTIONS: (Continued)
The operating lease income, net of depreciation, and loan
income earned from transactions with IBM and affiliated
companies, was approximately $128.6 million and $110.5
million in the first nine months of 1998 and 1997,
respectively.
WORKING CAPITAL FINANCING :
___________________________
The Company provides working capital financing, at market
rates, to certain remarketers of IBM products. Included in
income from working capital financing is $82.7 million and
$71.0 million of fee income earned from divisions of IBM for
the nine months ended September 30, 1998, and 1997,
respectively.
ACCOUNTS RECEIVABLE PURCHASES:
______________________________
IBM Credit International Factoring Corporation (ICIFC) and
IBM Credit EMEA Factoring Co., LTD. (ICEFC), subsidiaries of
the Company, have entered into factoring agreements with
selected IBM subsidiaries. Under these agreements, ICIFC and
ICEFC will periodically purchase, without recourse, all the
rights, title and interest to certain outstanding IBM
customer receivables.
During the nine months ended September 30, 1998 and 1997,
ICIFC and ICEFC acquired IBM customer receivables having a
nominal value of approximately $4,881.5 million and $2,296.9
million, respectively, for approximately $4,820.8 million
and $2,255.8 million, respectively. The receivables acquired
are short-term in nature and are denominated in non-U.S.
currencies. The purchases were financed by the Company
through the issuance of short-term debt. Transactions
related to these receivables are fully integrated in the
Company's consolidated financial statements.
TRANSACTIONS WITH GENERAL ELECTRIC CAPITAL CORPORATION:
During 1997, the Company entered into an agreement to
purchase selected assets from the leasing portfolio of
General Electric Capital Technology Management Services
Corporation, a subsidiary of General Electric Capital
Corporation (GECC). The purchase price of approximately
$353.3 million was primarily financed through short-term and
long-term borrowings. The acquired capital and operating
lease and loan portfolio consists of both IBM and non-IBM
products.
Additionally, the Company entered into an alliance with
General Electric Capital Information Technology Solutions
Corporation (ITS), a GECC affiliate, wherein the Company
will serve as the preferred financing provider for customers
of ITS's products and services.
-6-
<PAGE> 9
IBM CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net earnings for the three months ended September 30, 1998,
were $79.9 million. Net earnings for the nine months ended
September 30, 1998, were $227.2 million, yielding an
annualized return on average equity of 17.2 percent.
On May 1, 1998, the Company relocated its principal
executive offices to an IBM-owned facility in Armonk, New
York.
FINANCING ORIGINATED
For the three months ended September 30, 1998, the Company
originated capital equipment financing for end users of
$1,603.7 million, an 8 percent decrease from $1,742.8
million for the same 1997 period. For the three months ended
September 30, 1998, originations of working capital
financing for dealers and remarketers of information
industry products decreased by 4 percent to $3,717.7
million, from $3,868.5 million for the same 1997 period.
For the nine months ended September 30, 1998, the Company
originated capital equipment financing for end users of
$4,480.4 million, a 3 percent decrease from $4,640.4 million
for the same 1997 period. For the nine months ended
September 30, 1998, originations of working capital
financing for dealers and remarketers of information
industry products decreased by 6 percent to $9,992.0
million, from $10,661.2 million for the same 1997 period.
The decline in capital equipment financings for end users
was primarily attributable to a decrease in originations of
IBM advanced information processing products during the
first nine months of 1998, compared with the same 1997
period.
For the nine months ended September 30, 1998, capital
equipment financings for end users included purchases of
$2,457.9 million of advanced information processing products
from IBM, consisting of $1,569.6 million for capital leases
and $888.3 million for operating leases. In addition,
capital equipment financings for end users included the
following: (1) financing originated for installment
receivables of $157.8 million; (2) financing for IBM
software and services of $929.8 million; (3) installment and
lease financing for state and local government customers of
$254.7 million for the account of IBM; and (4) other
financing of $680.2 million for IBM equipment, as well as
related non-IBM equipment to meet IBM customers' total
solution requirements.
The Company's capital lease portfolio primarily includes
direct financing leases. Direct financing leases consist
principally of IBM advanced information processing products
with terms generally from three to five years. Operating
leases consist principally of IBM advanced information
processing products with terms generally from two to four
years.
-7-
<PAGE> 10
FINANCING ORIGINATED (Continued)
The decline in working capital financing originations
throughout the first nine months of 1998 reflects volume
decreases in IBM's workstation products and non-IBM products
for remarketers financed by the Company, compared with the
same 1997 period. Working capital financing receivables
arise primarily from secured inventory and accounts
receivable financing for certain divisions of IBM and for
dealers and remarketers of IBM and non-IBM products.
Payment terms for inventory secured financing generally
range from 30 days to 75 days. Payment terms for accounts
receivable secured financing generally range from 30 days to
90 days.
REMARKETING ACTIVITIES
In addition to originating new financing, the Company
remarkets used IBM equipment. This equipment is primarily
sourced from customers at the conclusion of lease
transactions and is typically remarketed in cooperation with
the IBM sales force. The equipment is generally leased or
sold to end users. These transactions may be with existing
lessees or, when equipment is returned, with new customers.
Remarketing activities are 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. For the three months ended
September 30, 1998, remarketing activities contributed $57.7
million to pretax earnings, an increase of 28 percent
compared with $45.0 million for the same 1997 period. For
the nine months ended September 30, 1998, remarketing
activities contributed $161.3 million to pretax earnings, an
increase of 11 percent compared with $144.7 million for the
same 1997 period. Refer to Equipment Sales in Management's
Discussion and Analysis on page 12 for additional details.
At September 30, 1998, the investment in remarketed
equipment on capital and operating leases totaled $228.2
million, a 20 percent decrease from the 1997 year-end
investment of $285.5 million.
FINANCIAL CONDITION
ASSETS
Total assets decreased to $15.6 billion at September 30,
1998, compared with $16.6 billion at December 31, 1997. This
decrease is primarily attributable to a decline in the
working capital financing receivables outstanding at
September 30, 1998, from year-end 1997. This decline is
primarily due to cash collections exceeding originations of
working capital financing receivables.
The carrying amount of marketable securities, as reported in
the Consolidated Statement of Financial Position,
approximates market value. These marketable securities were
available-for-sale. At September 30, 1998, marketable
securities included investments in corporate debt securities
of $29.7 million and other marketable securities of $53.2
million. At December 31, 1997, marketable securities
included corporate debt securities of $95.0 million and
investments in U.S. federal agency debt securities of $32.8
million.
-8-
<PAGE> 11
FINANCIAL CONDITION (Continued)
LIABILITIES AND STOCKHOLDER'S EQUITY
The assets of the business were financed with $10,870.2
million of debt at September 30, 1998. Total short-term and
long-term debt decreased by approximately $198.1 million,
from $11,068.3 million at December 31, 1997. The decline was
the result of decreases in commercial paper outstanding of
$888.0 million, short-term debt payable to IBM of $506.5
million and medium term notes of $55.8 million; offset by
increases in long-term debt of $266.6 million and long-term
debt payable to IBM of $985.6 million. Included in
Short-term debt, IBM at September 30, 1998, was $496.1
million payable to IBM at market terms and conditions,
maturing October 1998. Included in Long-term debt, IBM at
September 30, 1998, was $1,574.9 million payable to IBM at
market terms and conditions, with maturity dates ranging
from April 27, 2000 to June 25, 2003.
At September 30, 1998, the Company had available $2.8
billion of a shelf registration with the Securities and
Exchange Commission (SEC) for the issuance of debt
securities. This 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, 1997, to issue and sell up to $5.0
billion of debt securities in domestic and foreign financial
markets through December 31, 1998. 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 under a Euro Medium Term Note Programme (EMTN) in
an aggregate nominal amount of up to 4.0 billion in European
Currency Units (ECU), or its equivalent in any other
currency. At September 30, 1998, there was ECU 2.1 billion
available for the issuance of debt securities under this
EMTN Programme. The Company may issue debt securities over
the next three months under this program depending on
prevailing market conditions and its need for such funding.
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
the Company has available. The Company's decision to issue
any asset-backed securities over the next three months under
this shelf registration is dependent upon 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.
-9-
<PAGE> 12
FINANCIAL CONDITION (Continued)
The Company and IBM have also signed master loan agreements
providing additional funding flexibility to each other.
These agreements allow for short-term (up to 270-day)
funding, made available at market terms and conditions, upon
the request of either the Company or IBM. The Company had
borrowings outstanding under this agreement of $100.0
million and $600.2 million at September 30, 1998 and
December 31, 1997, respectively. The Company and IBM have
signed an additional master loan agreement which allows for
long-term funding, made available at market terms and
conditions, upon the request of the Company. As of September
30, 1998, the Company had $885.7 million of borrowings
outstanding under this agreement. These financing sources,
along with the Company's internally generated cash,
medium-term note and commercial paper programs, provide
flexibility to the Company to grow its lease and loan
portfolio, to fund working capital requirements and to
service debt.
Amounts due to IBM and affiliates include trade payables
arising from purchases of equipment for term leases and
installment receivables, working capital financing
receivables for dealers and remarketers, and software
license fees. Also included in amounts due to IBM and
affiliates are income taxes currently payable under the
intercompany tax allocation agreement. Amounts due to IBM
and affiliates decreased by approximately $847.3 million to
$1,677.2 million at September 30, 1998, from $2,524.5
million at December 31, 1997. This decline was primarily
attributable to a $736.8 million decrease in the amount
payable for capital equipment purchases and working capital
financing receivables for dealers and remarketers during the
first nine months of 1998.
Total stockholder's equity at September 30, 1998 increased
by $202.2 million from year-end 1997. The increase in
stockholder's equity reflects net earnings of $227.2 million
for the first nine months of 1998, offset by the payment of
$25.0 million in cash dividends to IBM during the first nine
months of 1998.
At September 30, 1998, the Company's debt to equity ratio
was 5.8:1, compared with 6.6:1 at both December 31, 1997 and
September 30, 1997.
TOTAL CASH PROVIDED BEFORE DIVIDENDS
Total cash provided before dividends was $5.6 million for
the nine months ended September 30, 1998, compared with
$36.6 million for the same 1997 period. Total cash provided
before dividends reflects $1,016.8 million of cash used by
investing and financing activities before dividends, offset
by $1,022.5 million of cash provided by operating activities
for the first nine months of 1998.
For the nine months ended September 30, 1997, total cash
provided before dividends reflected $1,209.1 million of cash
used in investing and financing activities before dividends,
offset by $1,245.7 million of cash provided by operating
activities. Cash and cash equivalents at September 30, 1998,
totaled $773.1 million, a decrease of $19.4 million,
compared with the balance at December 31, 1997.
-10-
<PAGE> 13
RESULTS OF OPERATIONS
INCOME FROM LEASES
Income from leases increased 26 percent to $179.2 million
for the three months ended September 30, 1998, from $141.7
million for the same 1997 period; for the nine months ended
September 30, 1998, income from leases increased 23 percent
to $521.4 million, from $425.1 million for the same 1997
period. The growth in originations of capital equipment
financings for end users during 1997 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
$53.6 million and $149.0 million for the three- and
nine-month periods ended September 30, 1998, increases of 63
percent and 19 percent, respectively, from comparable 1997
periods.
On a periodic basis, the Company reassesses the future
residual values of its portfolio of leases. In accordance
with generally accepted accounting principles, anticipated
increases in specific future residual values may not be
recognized before realization and are thus a source of
potential future profits. Anticipated decreases in specific
future residual values, that are considered to be other than
temporary, are recognized currently.
A review of the Company's $1,218.7 million residual value
portfolio at September 30, 1998 indicated that the overall
estimated future value of the portfolio continues to be
greater than the value currently recorded, which is the
lower of the Company's cost or net realizable value. To
recognize decreases in the expected future residual value of
specific leased equipment, the Company recorded a $6.3
million reduction to income from leases during the third
quarter of 1998, for a total of $23.2 million during the
first nine months of 1998, compared with a $6.2 million
reduction to income from leases during the third quarter of
1997, for a total of $22.9 million during the first nine
months of 1997.
INCOME FROM WORKING CAPITAL FINANCING
Income from working capital financing decreased 17 percent
to $56.7 million for the three months ended September 30,
1998 compared with the same 1997 period. For the first nine
months of 1998, income from working capital financing
decreased 2 percent to $182.4 million, compared to the same
1997 period. This decrease in income from working capital
financing is primarily attributable to a decrease in dealer
interest caused by lower outstanding receivable balances.
INCOME FROM LOANS
Income from loans increased 21 percent to $53.0 million for
the three months ended September 30, 1998; for the first
nine months of 1998, income from loans increased 23 percent
to $152.4 million, compared with the respective 1997 period.
This increase resulted from higher asset balances, which in
turn were primarily due to an increase in financing
originated for software and services during 1997 and the
first nine months of 1998.
-11-
<PAGE> 14
EQUIPMENT SALES
Equipment sales amounted to $104.0 million for the three
months ended September 30, 1998, compared with $129.0
million for the same 1997 period; for the first nine months
of 1998, equipment sales amounted to $308.9 million,
compared with $301.1 million for the comparable 1997 period.
Gross profit on equipment sales for the three months ended
September 30, 1998 was $10.6 million, a decrease of 42
percent, compared with $18.3 million for the same 1997
period. For the first nine months of 1998, the gross profit
on equipment sales decreased 15 percent to $35.7 million,
compared with $42.2 million for the same 1997 period. The
gross profit margin for the third quarter of 1998 decreased
to 10.2 percent, compared with 14.2 percent for the same
1997 period; for the first nine months of 1998, the gross
profit margin decreased to 11.6 percent, compared with 14.0
percent for the same 1997 period. The mix of products
available for sale and changing market conditions for
certain used equipment during the applicable periods are
factors contributing to the decreases in gross profit
margin.
INCOME FROM FACTORED IBM RECEIVABLES
Income from factored IBM receivables was $11.7 million for
the three months ended September 30, 1998, compared with
$9.8 million for the same 1997 period. This increase was
primarily due to higher average factoring balances
outstanding in the third quarter of 1998 as compared to the
third quarter of 1997. For the nine months ended September
30, 1998, income from factored IBM receivables was $41.1
million, compared with $13.7 million for the same 1997
period. The growth in income from factored IBM receivables
for the nine months ended September 30, 1998 was due to the
fact that the Company entered into these agreements with
selected IBM subsidiaries beginning in June 1997. Refer to
Accounts Receivable Purchases within Related Company
Transactions in the Notes to Consolidated Financial
Statements on page 6 for additional details.
OTHER INCOME
Other income decreased 3 percent to $28.1 million for the
three months ended September 30, 1998, compared with $28.9
million for the same 1997 period. For the first nine months
of 1998, other income decreased 21 percent to $79.8 million,
compared with $101.6 million for the same 1997 period. nd in
the Company incurring substantial expense. To minimize any
such potential impact, the Company has initiated a
contingency planning effort.
The Year 2000 readiness of the Company's customers and
hardware and software offerings from the Company's
suppliers, subcontractors and business partners may vary.
The Company is also aware of the potential for claims
against it and other companies for damages from products and
services that were not Year 2000 ready. The Company
continues to believe that any such claims against it will be
without merit. The Year 2000 also presents a number of
other risks and uncertainties that could affect the Company,
including utilities failures, the lack of personnel skilled
in the resolution of Year 2000 issues, and the nature of
government responses to the issues, among others. While the
Company continues to believe that the Year 2000 matters
discussed above will not have a material impact on its
business, financial condition or results of operations, it
remains uncertain whether or to what extent the Company may
be affected.
FORWARD LOOKING STATEMENTS
Except for historical information and discussions contained
herein, statements contained in this Report on Form 10-Q may
constitute "forward looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995.
These statements involve a number of risks, uncertainties
and other factors that could cause actual results to differ
materially, including, but not limited to, the Company's
level of equipment financing originations; the propensity
for customers to finance their acquisition of IBM products
and services with the Company; the competitive environment
in which the Company operates; the success of the Company in
developing strategies to manage debt levels; the ultimate
impact of the various Year 2000 issues on the Company's
business, financial condition or results of operations;
non-performance by a customer of contractual requirements;
the concentration of credit risk and creditworthiness of the
customers; the Company's associated collection and asset
management efforts; the Company's determination of residual
values; currency fluctuations on the associated asset and
liabilities; changes in interest rates; non-performance by
the counterparty in derivative transactions; the Company's
ability to attract and retain key personnel; the Company's
ability to manage acquisitions and alliances; legal,
political and economic changes and other risks,
uncertainties and factors inherent in the Company's business
and otherwise discussed in this Form 10-Q and in the
Company's other filings with the Securities and Exchange
Commission (SEC) and in IBM's filings with the SEC.
-15-
<PAGE> 18
Part II - Other Information
___________________________
Item 1. Legal Proceedings
_________________________
None material.
Item 6(b). Reports on Form 8-K
_______________________________
A Form 8-K dated July 20, 1998, was filed with respect to the
Company's financial results for the period ended June 30, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
IBM CREDIT CORPORATION
______________________________
(Registrant)
Date: November 12, 1998 By: /s/ Kimberly A. Kispert
_________________ _______________________
(Kimberly A. Kispert)
Vice President, Finance
and Chief Financial Officer
-16-
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT V
_________
FINANCIAL DATA SCHEDULE
_______________________
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM IBM CREDIT CORPORATION'S CONSOLIDATED FINANCIAL
STATEMENTS AT AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 773,096
<SECURITIES> 82,907
<RECEIVABLES> 5,815,423
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,647,824
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 457,411
0
0
<OTHER-SE> 1,413,782
<TOTAL-LIABILITY-AND-EQUITY> 15,647,824
<SALES> 308,912
<TOTAL-REVENUES> 1,286,081
<CGS> 273,221
<TOTAL-COSTS> 273,221
<OTHER-EXPENSES> 152,241
<LOSS-PROVISION> 25,873
<INTEREST-EXPENSE> 459,756
<INCOME-PRETAX> 374,990
<INCOME-TAX> 147,746
<INCOME-CONTINUING> 227,244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,244
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
