<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 March 31, 1997
Commission file number 1-8175
_____________________________
IBM CREDIT CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 22-2351962
________________________ ____________________________________
(State of incorporation) (IRS employer identification number)
1133 Westchester Avenue
White Plains, New York 10604-3505
________________________________________ ____________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 914-642-3000
____________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
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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 May 1, 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 May 1, 1997: 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.
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<PAGE 2>
INDEX
_____
Part I - Financial Information: Page
____
Item 1. Financial Statements:
Consolidated Statement of Financial Position
at March 31, 1997 and December 31, 1996. . . . . . . . . . . .1
Consolidated Statement of Earnings for the three
months ended March 31, 1997 and 1996 . . . . . . . . . . . . .2
Consolidated Statement of Cash Flows for the three
months ended March 31, 1997 and 1996 . . . . . . . . . . . . .3
Notes to Consolidated Financial Statements . . . . . . . . . .5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . .6
Part II - Other Information . . . . . . . . . . . . . . . . . . . .14
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<PAGE 3>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
<CAPTION>
At At
March 31, December 31,
1997 1996
___________ ____________
<S> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . . . $ 691,063 $ 632,834
Marketable securities. . . . . . . . . . . 164,254 159,348
Net investment in capital leases . . . . . 4,318,669 4,214,822
Equipment on operating leases, net . . . . 2,636,680 2,551,382
Working capital financing receivables. . . 2,587,890 2,898,688
Loans receivable . . . . . . . . . . . . . 1,918,213 1,846,947
Investments and other assets . . . . . . . 499,071 642,118
___________ ___________
Total Assets $12,815,840 $12,946,139
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Short-term debt. . . . . . . . . . . . . . $ 6,413,908 $ 6,441,400
Short-term debt, IBM . . . . . . . . . . . 378,940 125,000
Due to IBM and affiliates. . . . . . . . . 1,463,042 2,288,968
Interest and other accruals. . . . . . . . 327,270 378,284
Deferred income taxes. . . . . . . . . . . 803,626 761,494
Long-term debt . . . . . . . . . . . . . . 1,558,403 1,515,937
Long-term debt, IBM. . . . . . . . . . . . 406,412 -
___________ ___________
Total liabilities . . . . . . . . . . . 11,351,601 11,511,083
___________ ___________
Stockholder's equity:
Capital stock, par value $1.00 per share
Shares authorized: 10,000
Shares issued and outstanding:
936 in 1997 and 1996 . . . . . . . . 457,411 457,411
Retained earnings. . . . . . . . . . . . . 1,006,828 977,645
___________ ___________
Total stockholder's equity. . . . . . . 1,464,239 1,435,056
___________ ___________
Total Liabilities and Stockholder's Equity $12,815,840 $12,946,139
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=========== ===========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31:
(Dollars in thousands)
1997 1996
________ ________
<S> <C> <C>
FINANCE AND OTHER INCOME:
Income from leases:
Capital leases . . . . . . . .$ 77,335 $ 69,604
Operating leases, net of
depreciation. . . . . . . . . 62,479 45,381
________ ________
139,814 114,985
Income from loans . . . . . . . . 39,763 36,983
Income from working capital
financing. . . . . . . . . . . . 57,724 68,437
Equipment sales . . . . . . . . . 86,655 106,488
Other income. . . . . . . . . . . 41,935 47,286
_______ ________
Total finance and other
income. . . . . . . . . . . . 365,891 374,179
_______ ________
COST AND EXPENSES:
Interest. . . . . . . . . . . . . 112,966 106,280
Cost of equipment sales . . . . . 75,350 87,799
Selling, general, and
administrative . . . . . . . . . 51,952 44,861
Provision for receivable losses . (5,057) 12,963
________ ________
Total cost and expenses. . . . 235,211 251,903
_______ ________
EARNINGS BEFORE INCOME TAXES. . . . 130,680 122,276
Provision for income taxes. . . . . 51,497 48,348
_______ ________
NET EARNINGS. . . . . . . . . . . .$ 79,183 $ 73,928
======= ========
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<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE 5>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31:
(Dollars in thousands) 1997 1996
<CAPTION> _________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . $ 79,183 $ 73,928
Adjustments to reconcile net earnings to
cash (used in) provided by operating activities:
Depreciation and amortization. . . . . . . . . 311,550 208,717
Provision for receivable losses. . . . . . . . (5,057) 12,963
Increase in deferred income taxes. . . . . . . 42,132 22,278
Decrease in interest and other accruals. . . . (51,013) (79,868)
Gross profit on equipment sales. . . . . . . . (11,305) (18,689)
Other items that provided (used) cash:
Proceeds from equipment sales. . . . . . . . 86,655 106,488
Decrease in amounts due IBM and affiliates . (825,926) (313,730)
Other, net . . . . . . . . . . . . . . . . . 948 6,069
_________ _________
Cash (used in) provided by operating activities . (372,833) 18,156
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in capital leases . . . . . . . . . (506,692) (473,225)
Collection of capital leases, net of income
earned. . . . . . . . . . . . . . . . . . . . 356,004 409,706
Investment in equipment on operating leases. . (392,133) (324,374)
Investment in loans receivable . . . . . . . . (280,206) (285,346)
Collection of loans receivable, net of
interest earned . . . . . . . . . . . . . . . 214,090 260,451
Collection of working capital financing
receivables, net. . . . . . . . . . . . . . . 319,325 408,233
Purchases of marketable securities . . . . . . (21,500) (13,853)
Maturities of marketable securities. . . . . . 16,594 -
Other, net . . . . . . . . . . . . . . . . . . 100,594 128,885
_________ _________
Cash (used in) provided by investing activities . (193,924) 110,477
_________ _________
<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
FOR THE THREE MONTHS ENDED MARCH 31:
(Continued)
1997 1996
__________ __________
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . 590,957 90,000
Repayment of debt with original maturities
of one year or more . . . . . . . . . . . . . (23,800) (120,850)
Issuance (repayment) of debt with original
maturities within one year, net . . . . . . . 107,829 (108,016)
Cash dividends paid to IBM . . . . . . . . . . (50,000) (45,000)
__________ __________
Cash provided by (used in) financing activities . 624,986 (183,866)
__________ __________
Increase (decrease) in cash and cash equivalents. 58,229 (55,233)
Cash and cash equivalents, January 1. . . . . . . 632,834 336,839
__________ __________
Cash and cash equivalents, March 31 . . . . . . . $ 691,063 $ 281,606
========== ==========
Supplemental schedule of noncash investing and financing activities:
During the first quarter of 1996, the Company issued to IBM four shares
of capital stock, par value $1.00 per share, in exchange for assets
IBM transferred to the Company. The assets transferred had a net book
value of about $50,000 which approximated fair value, and a
deferred tax asset value of approximately $350,000. As a result,
stockholder's equity was increased by approximately $400,000.
<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-month periods are reflected in the
unaudited interim financial statements presented. These
adjustments are of a normal recurring nature.
RATIO OF EARNINGS TO FIXED CHARGES:
The ratio of earnings to fixed charges calculated in
accordance with applicable Securities and Exchange
Commission requirements was 2.16 and 2.15 for the three
months ended March 31, 1997, and 1996, respectively.
RELATED COMPANY TRANSACTIONS:
The Company provides equipment financing at market rates,
substantially through operating leases, to International
Business Machines Corporation (IBM) and affiliated companies
for both IBM and non-IBM products. The Company originated
$196.6 million and $133.8 million of such financings during
the three months ended March 31, 1997 and 1996,
respectively. At March 31, 1997, and December 31, 1996,
approximately $900.7 million and $828.0 million,
respectively, of such financings were included in the
Company's lease and loan portfolio. The operating lease
income, net of depreciation, earned from transactions with
IBM and affiliated companies, was approximately $22.1
million and $23.4 million in the first quarter of 1997 and
1996, respectively.
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<PAGE 8>
IBM CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net earnings for the three months ended March 31, 1997, were
$79.2 million, yielding an annualized return on average
equity of 22.1 percent. Net earnings for the three months
ended March 31, 1996, were $73.9 million.
FINANCING ORIGINATED
For the three months ended March 31, 1997, the Company
originated capital equipment financing for end users of
$1,323.4 million, a 7 percent increase from $1,233.4 million
for the same 1996 period. For the three months ended March
31, 1997, originations of working capital financing for
dealers and remarketers of information industry products
increased by 23 percent to $3,127.7 million, from $2,550.1
million for the same 1996 period.
The growth in capital equipment financing originated is
related to IBM's increase in placements of its products and
services in the United States and an increase in the
propensity for customers to finance their acquisitions with
the Company, during the first quarter 1997, compared with
the same period in 1996.
Capital equipment financings for end users included
purchases of $769.3 million of information handling systems
from IBM, consisting of $462.2 million for capital leases
and $307.1 million for operating leases. In addition,
capital equipment financings for end users included the
following: (1) financing originated for installment
receivables of $58.2 million; (2) financing for IBM software
and services of $225.6 million; (3) installment and lease
financing for state and local government customers of $101.7
million for the account of IBM; and (4) other financing of
$168.6 million for IBM equipment, as well as related non-IBM
equipment to meet IBM customers' total solution
requirements.
The Company's capital lease portfolio primarily includes
direct financing leases. Direct financing leases consist
principally of IBM information handling equipment with terms
generally from three to five years. Operating leases
consist principally of IBM information handling equipment
with terms generally from two to four years.
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<PAGE 9>
FINANCING ORIGINATED (Continued)
The growth in working capital financing originations
throughout the first three months of 1997 reflects volume
increases in both IBM's workstation products and non-IBM
products for remarketers financed by the Company, compared
with the same 1996 period. Working capital financing
receivables arise primarily from secured inventory and
accounts receivable financing for dealers and remarketers of
IBM and non-IBM products. Payment terms for inventory
secured financing generally range from 30 days to 45 days.
Payment terms for accounts receivable secured financing
generally range from 30 days to 90 days.
REMARKETING ACTIVITIES
In addition to originating new financing, the Company
remarkets used IBM equipment. This equipment is primarily
sourced from customers at the conclusion of lease
transactions and is typically remarketed in cooperation with
the IBM sales force. The equipment is generally leased or
sold to end users. These transactions may be with existing
lessees or, when equipment is returned, with new customers.
Remarketing activities are fully integrated in the Company's
financial statements. Remarketing activities are comprised
of income from follow-on capital and operating leases and
gross profit on equipment sales, net of write-downs in
residual values of certain leased equipment.
At March 31, 1997, the investment in remarketed equipment on
capital and operating leases totaled $293.0 million, a
decrease of 4 percent from the 1996 year-end investment of
$305.3 million. For the three months ended March 31, 1997,
remarketing activities contributed $49.9 million to pretax
earnings, an increase of 54 percent compared with $32.3
million for the same 1996 period. Refer to Equipment Sales
in Management's Discussion and Analysis on page 11 for
additional details.
ASSETS
Total assets decreased to $12.8 billion at March 31, 1997,
compared with $12.9 billion at December 31, 1996. This
decrease was primarily due to a decline in the average
working capital financing receivables outstanding during the
first quarter of 1997.
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 March 31, 1997, and December 31,
1996, marketable securities included investments in U.S.
- -
federal agency debt securities of $43.2 million and $34.2
million, respectively, and corporate debt securities of
$121.1 million and $125.1 million, respectively.
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<PAGE 10>
LIABILITIES AND STOCKHOLDER'S EQUITY
The assets of the business were financed with $8,757.7
million of debt at March 31, 1997. Total short-term and
long-term debt increased by approximately $675.4 million,
from $8,082.3 million at December 31, 1996. This increase
was the result of increases in medium-term notes of $163.9
million, long-term debt of $42.5 million and payable to IBM
of $660.3 million, offset by decreases in commercial paper
outstanding of $191.3 million. Included in short-term debt
at March 31, 1997, and December 31, 1996, was $125.0 million
payable to IBM at market terms and conditions, maturing on
November 1, 1997. Also included in short- term debt at
March 31, 1997, was $253.9 million of borrowings outstanding
under master loan agreements between the Company and IBM,
maturing on April 2, 1997. Included in long-term debt at
March 31, 1997 was $406.4 million payable to IBM at market
terms and conditions, maturing on August 21, 2000.
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 March 31, 1997, there was 2.3
billion in ECU available for the issuance of debt securities
under this authorization. The Company's decision to
continue to issue debt securities over the remaining
authorized period under this program is dependent on
prevailing market conditions and its need for such funding.
The Company has no firm commitments for the purchase of debt
securities that it may issue from the unused portion
available under this program.
At March 31, 1997, the Company had available $674.0 million
of a shelf registration with the Securities and Exchange
Commission (SEC) for the issuance of debt securities. On
April 30, 1997 the Company's registration of an additional
$3.5 billion of debt securities was filed with the SEC.
Currently, the Company has available a total of $4.0 billion
on its shelf with the SEC for the issuance of debt
securities. This shelf registration allows the Company
rapid access to domestic financial markets, and the Company
intends to continue to issue debt securities under this
shelf registration. The Company has no firm commitments for
the purchase of debt securities that it may issue from the
unused portion of this shelf registration.
The Company also has the option, as approved by the Board of
Directors on November 1, 1996, to sell, assign, pledge or
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transfer up to $3.0 billion of assets to third parties
through December 31, 1999. Included within this $3.0
billion authorization is $450.0 million of a separate shelf
registration for issuance of asset-backed securities, which
a subsidiary of the Company has available. The subsidiary's
decision to issue any asset-backed securities over the
remaining authorized period under this shelf registration is
dependent on prevailing market conditions and its need for
such funding.
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<PAGE 11>
LIABILITIES AND STOCKHOLDER'S EQUITY (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.
The Company and IBM have also signed master loan agreements
providing additional funding flexibility to each other.
These agreements allow for short-term (up to 270-day)
funding, made available at market terms and conditions, upon
the request of either the Company or IBM. As previously
mentioned, the Company had borrowings outstanding under this
agreement of $253.9 million at March 31, 1997, and no
borrowings outstanding under this agreement at December 31,
1996.
These financing sources, along with the Company's internally
generated cash and medium-term note and commercial paper
programs, provide flexibility to the Company to grow its
lease and loan portfolio, to fund working capital
requirements and to service debt.
The Company uses agreements related to currencies and
interest rates to lower costs of funding its business, to
diversify sources of funding, or to manage interest rate and
currency exposures arising from mismatches between assets
and liabilities. The Company enters into such financial
instrument transactions 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 decreased by approximately $826.0 million to
$1,463.0 million at March 31, 1997, from $2,289.0 million at
December 31, 1996. This decline was primarily attributable
to a $833.3 million decrease in the amount payable for
capital equipment purchases, partially offset by a current
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income tax provision of $10.8 million for the first three
months of 1997.
Total stockholder's equity at March 31, 1997, was $1,464.2
million, up $29.2 million from year-end 1996. The increase
in stockholder's equity reflects net earnings of $79.2
million for the first three months of 1997, offset by the
payment of $50.0 million in cash dividends to IBM during the
first quarter of 1997.
At March 31, 1997, the Company's debt to equity ratio was
6.0:1, compared with 5.6:1 at December 31, 1996.
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<PAGE 12>
TOTAL CASH PROVIDED BEFORE DIVIDENDS
Total cash provided before dividends was $108.2 million for
the three months ended March 31, 1997, compared with total
cash used before dividends of $10.2 million for the same
1996 period. Total cash provided before dividends reflects
$481.0 million of cash provided by investing and financing
activities before dividends, offset by $372.8 million of
cash used in operating activities for the first three months
of 1997.
For the three months ended March 31, 1996, total cash used
before dividends reflected $28.4 million of cash used in
investing and financing activities before dividends, offset
by $18.2 million of cash provided by operating activities.
Cash and cash equivalents at March 31, 1997, totaled $691.0
million, an increase of $58.2 million, compared with the
balance at December 31, 1996.
INCOME FROM LEASES
Income from leases increased 22 percent to $139.8 million
for the three months ended March 31, 1997, from $115.0
million for the same 1996 period. The growth in capital
equipment financings for end users 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
increased 39 percent to $41.0 million for the three months
ended March 31, 1997, from $29.6 million for the same 1996
period.
On a periodic basis, the Company reassesses the future
residual values of its portfolio of leases. In accordance
with generally accepted accounting principles, anticipated
increases in specific future residual values may not be
recognized before realization and are thus a source of
potential future profits. Anticipated decreases in specific
future residual values, considered to be other than
temporary, must be recognized currently.
A review of the Company's $823.6 million residual value
portfolio at March 31, 1997, indicated that the overall
estimated future value of the portfolio continues to be
greater than the value currently recorded, which is the
lower of the Company's cost or net realizable value. To
recognize decreases in the expected future residual value of
specific leased equipment, the Company recorded a $2.4
million reduction to income from leases during the first
quarter of 1997, compared with a $16.0 million reduction to
income from leases during the first quarter of 1996.
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<PAGE 13>
INCOME FROM LOANS
Income from loans increased 8 percent to $39.8 million for
the three months ended March 31, 1997, compared with $37.0
million for the same 1996 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 1996 and the first quarter of 1997.
INCOME FROM WORKING CAPITAL FINANCING
Income from working capital financing decreased 16 percent
to $57.7 million for the three months ended March 31, 1997,
compared with $68.4 million for the same 1996 period. This
decrease was primarily due to a decline in the average
working capital financing receivables outstanding during the
1997 period, compared with the 1996 period. The
year-to-year decline in the average working capital
financing receivables outstanding is primarily due to an
increase in cash collected prior to normal payment terms and
the Company's management of concentration risk associated
with certain large dealers and remarketers of information
industry products. Refer to Provision for Receivable Losses
in Management's Discussion and Analysis on page 12 for
additional details.
EQUIPMENT SALES
Equipment sales amounted to $86.7 million for the three
months ended March 31, 1997, compared with $106.5 million
for the same 1996 period. 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 as sales. The revenue
associated with outright sales and sales-type leases is
included in equipment sales. Company-owned equipment may be
sold or released to existing lessees or, when equipment is
returned, to new users of that equipment.
Gross profit on equipment sales for the three months ended
March 31, 1997, was $11.3 million, a decrease of 40 percent,
compared with $18.7 million for the same 1996 period. The
gross profit margin for the first quarter of 1997 decreased
to 13.0 percent, compared with 17.6 percent for the same
1996 period. The mix of products available for sale and
changing market conditions for certain used equipment during
the applicable periods are factors contributing to the
changes in gross profit margin.
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<PAGE 14>
OTHER INCOME
Other income decreased 11 percent to $41.9 million for the
three months ended March 31, 1997, compared with $47.3
million for the same 1996 period. This decrease is
primarily due to a $3.1 million pretax gain recognized upon
the sale of financing assets during the first quarter of
1996. Additionally, fees for the servicing of IBM financing
receivables securitized and sold decreased by $4.9 million
during the first quarter of 1997, compared with the same
1996 period. The decline is primarily due to an overall
decrease in the securitized assets portfolio during the
first quarter of 1997.
During the first quarter of 1997, a gain of $10.7 million
was recognized upon the sale of certain restricted
securities, as compared with a gain of $9.3 million
recognized during the first quarter of 1996.
INTEREST EXPENSE
As a result of an increase in the Company's average
outstanding debt balance, interest expense increased 6
percent to $113.0 million for the three months ended March
31, 1997, compared with $106.3 million for the same 1996
period. The Company's year-to-date average cost of debt
through March 31, 1997, decreased to 5.6 percent, from 5.7
percent for the same 1996 period.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses were $52.0
million for the three months ended March 31, 1997, compared
with $44.9 million for the same 1996 period. This increase
is mainly due to a planned growth in the Company's resources
during 1996 and the first quarter of 1997, resulting in an
increase in compensation related expenses.
PROVISION FOR RECEIVABLE LOSSES
The Company's portfolio of capital equipment leases and
loans is predominantly with investment grade customers. The
Company generally retains ownership or takes a security
interest in any underlying equipment financed. The 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
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Company's working capital financing business in 1996 and the
first quarter of 1997, 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.
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<PAGE 15>
PROVISION FOR RECEIVABLE LOSSES (Continued)
At March 31, 1997, and December 31, 1996, approximately 63
percent and 62 percent, respectively, of 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 or the first quarter of 1997. 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 provision for receivable losses decreased by $18.0
million for the quarter ended March 31, 1997, compared with
the same 1996 period. The decrease in the provision for
receivable losses was the result of declines in specific
reserves which were no longer necessary due to additional
collateral acquired for certain working capital financing
receivables. The Company continues to effectively manage
credit risk and contain losses.
NET EARNINGS
Net earnings increased 7 percent to $79.2 million for the
first quarter of 1997, compared with $73.9 million for the
first quarter of 1996. This increase was mainly due to the
growth in income from leases and loans. The year-to-year
income growth was the result of increased capital equipment
financings originated during 1995 and 1996. Also
contributing to the year-to-year rise in net earnings was
the decline in specific provisions for receivable losses no
longer required.
Offsetting these contributions to net earnings 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 results for the first three months of 1997 yielded an
annualized return on average equity of 22.1 percent,
compared with 24.4 percent for the first three months of
1996.
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.
-13-
- -
<PAGE 16>
Part II - Other Information
___________________________
Item 1. Legal Proceedings
__________________________
None material.
Item 6(b). Reports on Form 8-K
_______________________________
A Form 8-K dated January 21, 1997 was filed with respect to the
Company's financial results for the periods ended December 31, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
IBM CREDIT CORPORATION
______________________
(Registrant)
Date: May 14, 1997 By: /s/ Kimberly A. Kispert
____________ ___________________________
(Kimberly A. Kispert)
Vice President, Finance
and Chief Financial Officer
- -
-14-
<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 THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 691,063
<SECURITIES> 164,254
<RECEIVABLES> 4,506,103
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,815,840
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 457,411
0
0
<OTHER-SE> 1,006,828
<TOTAL-LIABILITY-AND-EQUITY> 12,815,840
<SALES> 86,655
<TOTAL-REVENUES> 365,891
<CGS> 75,350
<TOTAL-COSTS> 75,350
<OTHER-EXPENSES> 51,952
<LOSS-PROVISION> (5,057)
<INTEREST-EXPENSE> 112,966
<INCOME-PRETAX> 130,680
<INCOME-TAX> 51,497
<INCOME-CONTINUING> 79,183
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,183
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
