<PAGE 1>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
____________
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
___ ___
As of July 31, 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 July 31, 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 June 30, 1997 and December 31, 1996 . . . . . . . . . . . .1
Consolidated Statement of Earnings for the three and six
months ended June 30, 1997 and 1996. . . . . . . . . . . . . .2
Consolidated Statement of Cash Flows for the six
months ended June 30, 1997 and 1996. . . . . . . . . . . . . .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
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<PAGE 3>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
<CAPTION>
At At
June 30, December 31,
1997 1996
___________ ____________
<S> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . . . $ 688,160 $ 632,834
Marketable securities. . . . . . . . . . . 158,998 159,348
Net investment in capital leases . . . . . 4,481,837 4,214,822
Equipment on operating leases, net . . . . 3,017,357 2,551,382
Working capital financing receivables. . . 2,982,707 2,898,688
Loans receivable . . . . . . . . . . . . . 2,056,407 1,846,947
Factored IBM receivables . . . . . . . . . 412,211 -
Investments and other assets . . . . . . . 589,804 642,118
___________ ___________
Total Assets $14,387,481 $12,946,139
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Short-term debt. . . . . . . . . . . . . . $ 7,407,431 $ 6,441,400
Short-term debt, IBM . . . . . . . . . . . 369,823 125,000
Due to IBM and affiliates. . . . . . . . . 1,738,715 2,288,968
Interest and other accruals. . . . . . . . 491,681 378,284
Deferred income taxes. . . . . . . . . . . 815,022 761,494
Long-term debt . . . . . . . . . . . . . . 1,620,216 1,515,937
Long-term debt, IBM. . . . . . . . . . . . 411,771 -
___________ ___________
Total liabilities . . . . . . . . . . . 12,854,659 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. . . . . . . . . . . . . 1,075,411 977,645
___________ ___________
Total stockholder's equity. . . . . . . 1,532,822 1,435,056
___________ ___________
Total Liabilities and Stockholder's Equity $14,387,481 $12,946,139
- -
=========== ===========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE 4>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
________ ________ ________ ________
<S> <C> <C> <C> <C>
FINANCE AND OTHER INCOME:
Income from leases:
Capital leases . . . . . . . .$ 69,189 $ 74,586 $146,524 $144,190
Operating leases, net of
depreciation. . . . . . . . . 74,423 60,700 136,902 106,081
________ ________ ________ ________
143,612 135,286 283,426 250,271
Income from working capital
financing. . . . . . . . . . . . 59,675 65,767 117,399 134,204
Income from loans . . . . . . . . 39,752 38,347 79,515 75,330
Equipment sales . . . . . . . . . 85,459 101,432 172,114 207,920
Income from factored IBM
receivables. . . . . . . . . . . 3,851 - 3,851 -
Other income. . . . . . . . . . . 30,761 27,282 72,696 74,568
_______ ________ ________ ________
Total finance and other
income. . . . . . . . . . . . 363,110 368,114 729,001 742,293
_______ ________ ________ ________
COST AND EXPENSES:
Interest. . . . . . . . . . . . . 126,824 106,931 239,790 213,211
Cost of equipment sales . . . . . 72,893 83,806 148,243 171,605
Selling, general, and
administrative . . . . . . . . . 51,243 46,165 103,195 91,026
Provision for receivable losses . 4,076 9,281 (981) 22,244
_______ ________ ________ ________
Total cost and expenses. . . . 255,036 246,183 490,247 498,086
_______ ________ ________ ________
EARNINGS BEFORE INCOME TAXES. . . . 108,074 121,931 238,754 244,207
Provision for income taxes. . . . . 39,491 47,856 90,988 96,204
_______ ________ ________ ________
NET EARNINGS. . . . . . . . . . . .$ 68,583 $ 74,075 $147,766 $148,003
======= ======== ======== ========
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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
SIX MONTHS ENDED JUNE 30:
(Dollars in thousands) 1997 1996
<CAPTION>
_________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . $ 147,766 $ 148,003
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . 668,184 468,022
Provision for receivable losses. . . . . . . . (981) 22,244
Increase in deferred income taxes. . . . . . . 53,528 16,585
Increase (decrease) in interest
and other accruals . . . . . . . . . . . . . 113,397 (38,121)
Gross profit on equipment sales. . . . . . . . (23,871) (36,315)
Other items that provided (used) cash:
Proceeds from equipment sales. . . . . . . . 172,114 207,920
Decrease in amounts due IBM and affiliates . (550,253) (225,489)
Other, net . . . . . . . . . . . . . . . . . (4,018) 10,452
_________ _________
Cash provided by operating activities . . . . . . 575,866 573,301
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in capital leases . . . . . . . . . (1,027,985) (953,395)
Collection of capital leases, net of income
earned. . . . . . . . . . . . . . . . . . . . 774,856 730,421
Investment in equipment on operating leases. . (960,915) (703,178)
Investment in loans receivable . . . . . . . . (611,617) (507,998)
Collection of loans receivable, net of
interest earned . . . . . . . . . . . . . . . 469,682 405,865
Purchase of factored IBM receivables . . . . . (646,301) -
Collection of factored IBM receivables . . . . 234,090 -
Collection of working capital financing
receivables, net. . . . . . . . . . . . . . . (76,918) 330,263
Purchases of marketable securities . . . . . . (21,500) (13,853)
Maturities of marketable securities. . . . . . 21,850 -
Cash payment for lease portfolio acquired. . . (239,731) -
Other, net . . . . . . . . . . . . . . . . . . (112,324) 123,002
__________ _________
Cash used in investing activities . . . . . . . . (2,196,813) (588,873)
__________ _________
<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
SIX MONTHS ENDED JUNE 30:
(Continued)
1997 1996
__________ _________
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . 736,246 385,532
Repayment of debt with original maturities
of one year or more . . . . . . . . . . . . . (31,425) (415,605)
Issuance of debt with original maturities
within one year, net. . . . . . . . . . . . . 1,021,452 567,011
Cash dividends paid to IBM . . . . . . . . . . (50,000) (45,000)
__________ _________
Cash provided by financing activities . . . . . . 1,676,273 491,938
__________ _________
Increase in cash and cash equivalents . . . . . . 55,326 476,366
Cash and cash equivalents, January 1. . . . . . . 632,834 336,839
__________ _________
Cash and cash equivalents, June 30. . . . . . . . $ 688,160 $ 813,205
========== =========
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 quarter of 1997 was
financed by the Company, in part, through credits of
$16.8 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 six-month periods are
reflected in the unaudited interim financial statements
presented. These adjustments are of a normal recurring
nature.
RATIO OF EARNINGS TO FIXED CHARGES:
The ratio of earnings to fixed charges calculated in
accordance with applicable Securities and Exchange
Commission requirements was 2.01 and 2.14 for the six months
ended June 30, 1997, and 1996, respectively.
SIGNIFICANT ACCOUNTING POLICIES:
Translation of Non-U.S. Currency Amounts: The Company uses
the U.S dollar as its functional currency. Foreign
denominated assets and liabilities are translated to U.S.
dollars at quarter-end exchange rates. Income and expense
items are translated at average rates of exchange prevailing
during the quarter. Gains and losses that result from
transactions are included in the Company's Consolidated
Statement of Earnings.
RELATED COMPANY TRANSACTIONS:
EQUIPMENT LEASING:
__________________
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 that IBM uses internally
or in support of its managed operations environment. The
Company originated $508.9 million and $295.4 million of such
financings during the six months ended June 30, 1997 and
1996, respectively. At June 30, 1997, and December 31,
1996, approximately $1,062.1 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 $68.5
million and $54.0 million in the first half of 1997 and
1996, respectively.
- -
ACCOUNTS RECEIVABLE PURCHASES:
______________________________
In June 1997, IBM Credit International Factoring Corporation
(ICIFC) and IBM Credit EMEA Factoring Co., LTD. (ICEFC),
subsidiaries of the Company, entered into factoring
agreements with selected IBM subsidiaries. Under these
agreements, ICIFC and ICEFC will periodically
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<PAGE 8>
IBM CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ACCOUNTS RECEIVABLE PURCHASES (Continued)
__________________________________________
purchase, without recourse, all the rights, title and
interest to certain outstanding IBM customer receivables.
During the second quarter of 1997, ICIFC and ICEFC acquired
IBM customer receivables having a nominal value of $664.9
million for approximately $646.3 million. The receivables
acquired are short-term in nature and are denominated in
non-U.S. currencies. The purchase was 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:
On May 29, 1997, the Company entered into an agreement to
purchase selected assets from the leasing portfolio of
General Electric Capital Technology Management Services
Corporation (GECTMSC), a subsidiary of General Electric
Capital Corporation (GECC). The purchase price of
approximately $256.5 million was primarily financed by the
Company 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.
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<PAGE 9>
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IBM CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net earnings for the three months ended June 30, 1997, were
$68.6 million. Net earnings for the six months ended June
30, 1997, were $147.8 million, yielding an annualized return
on average equity of 20.0 percent.
FINANCING ORIGINATED
For the three months ended June 30, 1997, the Company
originated capital equipment financing for end users of
$1,574.2 million, a 24 percent increase from $1,267.8
million for the same 1996 period. For the three months
ended June 30, 1997, originations of working capital
financing for dealers and remarketers of information
industry products increased by 17 percent to $3,665.0
million, from $3,137.5 million for the same 1996 period.
For the six months ended June 30, 1997, the Company
originated capital equipment financing for end users of
$2,897.6 million, a 16 percent increase from $2,501.2
million for the same 1996 period. For the six months ended
June 30, 1997, originations of working capital financing for
dealers and remarketers of information industry products
increased by 19 percent to $6,792.7 million, from $5,687.6
million for the same 1996 period.
The growth in capital equipment financing originations 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 half 1997, compared with the
same period in 1996.
Capital equipment financings for end users included
purchases of $1,641.1 million of information handling
systems from IBM, consisting of $901.8 million for capital
leases and $739.3 million for operating leases. In
addition, capital equipment financings for end users
included the following: (1) financing originated for
installment receivables of $109.8 million; (2) financing for
IBM software and services of $508.2 million; (3) installment
and lease financing for state and local government customers
of $155.3 million for the account of IBM; and (4) other
financing of $483.2 million for IBM equipment, as well as
related non-IBM equipment to meet IBM customers' total
solution requirements.
- -
The Company's capital lease portfolio primarily includes
direct financing leases. Direct financing leases consist
principally of IBM information handling equipment with terms
generally from three to five years. Operating leases
consist principally of IBM information handling equipment
with terms generally from two to four years.
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<PAGE 10>
FINANCING ORIGINATED (Continued)
The growth in working capital financing originations
throughout the first half of 1997 reflects volume increases
in 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 June 30, 1997, the investment in remarketed equipment on
capital and operating leases totaled $319.8 million, an
increase of 5 percent from the 1996 year-end investment of
$305.3 million. For the three months ended June 30, 1997,
remarketing activities contributed $49.8 million to pretax
earnings, a decrease of 10 percent compared with $55.4
million for the same 1996 period. For the six months ended
June 30, 1997, the remarketing activities contributed $99.7
million to pretax earnings, an increase of 14 percent
compared with $87.7 million for the same 1996 period. Refer
to Equipment Sales in Management's Discussion and Analysis
on page 12 for additional details.
ASSETS
Total assets increased to $14.4 billion at June 30, 1997,
compared with $12.9 billion at December 31, 1996. This
increase is primarily the result of a growth in end user and
working capital financings originated during the first half
of 1997. Also contributing to the increase in total assets
were the factored receivables acquired from IBM and the
lease portfolio purchased from GECTMSC.
- -
The carrying amount of marketable securities, as reported in
the Consolidated Statement of Financial Position,
approximates market value.
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ASSETS (Continued)
These marketable securities were available-for-sale. At
June 30, 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 $115.8 million and $125.1
million, respectively.
<PAGE 11>
LIABILITIES AND STOCKHOLDER'S EQUITY
The assets of the business were financed with $9,809.2
million of debt at June 30, 1997. Total short-term and
long-term debt increased by approximately $1,726.9 million,
from $8,082.3 million at December 31, 1996. This increase
was the result of increases in commercial paper outstanding
of $1,025.1 million, short-term debt payable to IBM of
$244.8 million, long-term debt of $104.3 million and payable
to IBM of $411.8 million, offset by a decrease in
medium-term notes of $59.1 million. Included in short-term
debt at June 30, 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 June 30, 1997, was $244.8 million payable to IBM at
market terms and conditions, maturing in July 1997.
Included in long-term debt at June 30, 1997 was $411.8
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 June 30, 1997, there was 1.5
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 June 30, 1997, the Company had available $3.8 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 also has the option, as approved by the Board of
Directors on November 1, 1996, to sell, assign, pledge or
transfer up to $3.0 billion of assets to third parties
through December 31, 1999. Included within this $3.0
billion authorization is $450.0 million of a separate shelf
registration for issuance of asset-backed securities, which
a subsidiary of the Company has available. The subsidiary's
decision to issue any asset-backed securities over the
remaining authorized period
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<PAGE 12>
LIABILITIES AND STOCKHOLDER'S EQUITY (Continued)
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. There were no
borrowings outstanding under this agreement at June 30,
1997, and 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 $550.3 million to
$1,738.7 million at June 30, 1997, from $2,289.0 million at
December 31, 1996. This decline was primarily attributable
- -
to a $550.7 million decrease in the amount payable for
capital equipment purchases during the first half of 1997.
Total stockholder's equity at June 30, 1997, was $1,532.8
million, up $97.8 million from year-end 1996. The increase
in stockholder's equity reflects net earnings of $147.8
million for the first six months of 1997, offset by the
payment of $50.0 million in cash dividends to IBM during the
first half of 1997.
At June 30, 1997, the Company's debt to equity ratio was
6.4:1, compared with 5.6:1 at December 31, 1996, and 6.2:1
at June 30, 1996.
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<PAGE 13>
TOTAL CASH PROVIDED BEFORE DIVIDENDS
Total cash provided before dividends was $105.3 million for
the six months ended June 30, 1997, compared with total cash
provided before dividends of $521.4 million for the same
1996 period. Total cash provided before dividends reflects
$470.5 million of cash used by investing and financing
activities before dividends, offset by $575.8 million of
cash provided by operating activities for the first half of
1997.
For the six months ended June 30, 1996, total cash provided
before dividends reflected $51.9 million of cash used in
investing and financing activities before dividends, offset
by $573.3 million of cash provided by operating activities.
Cash and cash equivalents at June 30, 1997, totaled $688.1
million, an increase of $55.3 million, compared with the
balance at December 31, 1996.
INCOME FROM LEASES
Income from leases increased 6 percent to $143.6 million for
the three months ended June 30, 1997, from $135.3 million
for the same 1996 period; for the six months ended June 30,
1997, income from leases increased 13 percent to $283.4
million, from $250.3 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 was $51.5 million and $92.5 million
for the three- and six-month periods ended June 30, 1997, an
increase of 29 percent and 33 percent, respectively, from
the comparable 1996 periods.
On a periodic basis, the Company reassesses the future
residual values of its portfolio of leases. In accordance
with generally accepted accounting principles, anticipated
increases in specific future residual values may not be
recognized before realization and are thus a source of
potential future profits. Anticipated decreases in specific
future residual values, considered to be other than
temporary, must be recognized currently.
A review of the Company's $877.4 million residual value
portfolio at June 30, 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 $14.3
million reduction to income from leases during the second
quarter of 1997, for a total of $16.7 million during the
- -
first half of 1997, compared with a $2.1 million reduction
to income from leases during the second quarter of 1996 for
a total of $18.1 million during the first six months of
1996.
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<PAGE 14>
INCOME FROM LOANS
Income from loans increased 4 percent to $39.8 million for
the three months ended June 30, 1997; for the first half of
1997, income from loans increased 6 percent to $79.5
million, compared with the respective 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 half of
1997.
INCOME FROM WORKING CAPITAL FINANCING
Income from working capital financing decreased 9 percent to
$59.7 million for the three months ended June 30, 1997,
compared with the same 1996 period; for the first half of
1997, income from working capital financing decreased 13
percent to $117.4 million compared with the respective 1996
period. This decrease was primarily due to declines in the
average working capital financing receivables outstanding
during the 1997 periods, compared with the 1996 periods.
The year-to-year decline in the average working capital
financing receivables outstanding was due to an increase in
cash collected prior to normal payment terms, resulting in a
decrease in the amount of dealer interest earned.
EQUIPMENT SALES
Equipment sales amounted to $85.5 million for the three
months ended June 30, 1997, compared with $101.4 million for
the same 1996 period; for the first six months of 1997,
equipment sales amounted to $172.1 million, compared with
$207.9 million for the comparable 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
June 30, 1997 was $12.6 million, a decrease of 28 percent,
compared with $17.6 million for the same 1996 period. For
the first half of 1997, the gross profit on equipment sales
decreased 34 percent to $23.9 million, compared with $36.3
million for the same 1996 period. The gross profit margin
for the second quarter of 1997 decreased to 14.7 percent,
compared with 17.4 percent for the same 1996 period; for the
first half of 1997, the gross profit margin decreased to
13.9 percent, compared with 17.5 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.
-12-
- -
<PAGE 15>
OTHER INCOME
Other income increased 13 percent to $30.8 million for the
three months ended June 30, 1997, compared with $27.3
million for the same 1996 period. This increase is
primarily due to an increase in interest income earned on
cash and cash equivalents, as well as an increase in fees
for managing IBM's state and local government installment
purchase and lease financing receivables portfolio. For the
first half of 1997, other income decreased 3 percent to
$72.7 million, compared with $74.6 million for the same 1996
period. This decrease is primarily due to a decline in the
fees for the servicing of IBM financing receivables
securitized and sold during the first half 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 half of 1997. Additionally, the Company
recognized a $10.7 million pretax gain upon the sale of
certain restricted securities in the first quarter of 1997,
as compared with a gain of $9.3 million recognized during
the first quarter of 1996.
INTEREST EXPENSE
As a result of the growth in end user and working capital
financings originated, the Company has experienced an
increase in the average outstanding debt balance. This
increase in the average outstanding debt savence resulted in
a 19 percent growth in interest expense to $126.8 million
for the three months ended June 30, 1997, and 12 percent to
$239.8 million for the first half of 1997, compared with the
same 1996 periods. The Company's year-to-date average cost
of debt through June 30, 1997 and 1996 was 5.7 percent.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses were $51.2
million for the three months ended June 30, 1997, an
increase of 11 percent compared with the same 1996 period.
For the first half of 1997, selling, general and
administrative expenses increased 13 percent to $103.2
million, from $91.0 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 half 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.
-13-
- -
<PAGE 16>
PROVISION FOR RECEIVABLE LOSSES (Continued)
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 1996 and the
first half 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.
At June 30, 1997, and December 31, 1996, approximately 65
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 half 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 to $4.1
million for the quarter ended June 30, 1997, compared with
$9.3 million for the same 1996 period. For the six months
ended June 30, 1997, the provision for receivable losses
decreased by $23.2 million, 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 decreased 7 percent to $68.6 million for the
second quarter of 1997, compared with $74.1 million for the
same 1996 period.
Net earnings for the six months ended June 30, 1997, were
$147.8 million, compared with $148.0 million for the same
1996 period.
The decrease in net earnings was impacted by a competitive
environment for end user financing. Also contributing to
the decline was additional interest expense due to an
increase in the Company's average outstanding debt balance
and an increase in selling, general and administrative
- -
expenses primarily attributable to planned growth in the
Company's resources.
-14-
- -
RETURN ON AVERAGE EQUITY
The results for the first half of 1997 yielded an annualized
return on average equity of 20.0 percent, compared with 23.8
percent for the first half 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.
-15-
- -
<PAGE 17>
Part II - Other Information
___________________________
Item 1. Legal Proceedings
__________________________
None material.
Item 6(b). Reports on Form 8-K
_______________________________
A Form 8-K dated April 23, 1997 was filed with respect to the
Company's financial results for the periods ended March 31, 1997.
A Form 8-K was filed on July 8, 1997 with respect to the Company's
shelf registration for the issuance of debt securities which became
effective on June 27, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
IBM CREDIT CORPORATION
______________________
(Registrant)
Date: August 13, 1997 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 THREE MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 688,160
<SECURITIES> 158,998
<RECEIVABLES> 5,039,114
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,387,481
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 457,411
0
0
<OTHER-SE> 1,075,411
<TOTAL-LIABILITY-AND-EQUITY> 14,387,481
<SALES> 172,114
<TOTAL-REVENUES> 729,001
<CGS> 148,243
<TOTAL-COSTS> 148,243
<OTHER-EXPENSES> 103,195
<LOSS-PROVISION> (981)
<INTEREST-EXPENSE> 239,790
<INCOME-PRETAX> 238,754
<INCOME-TAX> 90,988
<INCOME-CONTINUING> 147,766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,766
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
