<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, 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)
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
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 April 30, 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 April 30, 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 March 31, 1998 and December 31, 1997 . . . . . . . . . . . .1
Consolidated Statement of Earnings for the three
months ended March 31, 1998 and 1997. . . . . . . . . . . . . .2
Consolidated Statement of Cash Flows for the three
months ended March 31, 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 . . . . . . . . . . . . . . . . . . . . .15
<PAGE 3>
<TABLE>
IBM CREDIT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
<CAPTION>
At At
March 31, December 31,
1998 1997
_____________ ____________
<S> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . . . $ 633,756 $ 792,471
Marketable securities. . . . . . . . . . . 103,585 127,847
Net investment in capital leases . . . . . 4,873,929 4,931,292
Equipment on operating leases, net . . . . 3,527,624 3,583,641
Working capital financing receivables. . . 2,657,653 3,249,310
Loans receivable . . . . . . . . . . . . . 2,368,274 2,381,261
Factored IBM receivables . . . . . . . . . 774,180 824,031
Investments and other assets . . . . . . . 713,965 682,263
___________ ___________
Total Assets $15,652,966 $16,572,116
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Short-term debt. . . . . . . . . . . . . . $ 7,076,030 $ 7,452,668
Short-term debt, IBM . . . . . . . . . . . 838,440 1,139,113
Due to IBM and affiliates. . . . . . . . . 1,626,140 2,524,475
Interest and other accruals. . . . . . . . 352,880 423,243
Deferred income taxes. . . . . . . . . . . 917,608 887,180
Long-term debt . . . . . . . . . . . . . . 2,435,171 1,887,235
Long-term debt, IBM. . . . . . . . . . . . 687,058 589,253
___________ ___________
Total liabilities . . . . . . . . . . . 13,933,327 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. . . . . . . . . . . . . 1,262,228 1,211,538
___________ ___________
Total stockholder's equity. . . . . . . 1,719,639 1,668,949
___________ ___________
Total Liabilities and Stockholder's Equity $15,652,966 $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
FOR THE THREE MONTHS ENDED MARCH 31:
(Dollars in thousands)
<CAPTION>
1998 1997
________ ________
<S> <C> <C>
FINANCE AND OTHER INCOME:
Income from leases:
Capital leases . . . . . . . . $ 82,383 $ 77,335
Operating leases, net of
depreciation. . . . . . . . . 84,454 62,479
________ ________
166,837 139,814
Income from working capital
financing. . . . . . . . . . . . 66,180 57,724
Income from loans . . . . . . . . 49,816 39,763
Equipment sales . . . . . . . . . 109,829 86,655
Income from factored IBM
receivables. . . . . . . . . . . 15,338 -
Other income. . . . . . . . . . . 24,371 41,935
________ ________
Total finance and other
income. . . . . . . . . . . . 432,371 365,891
________ ________
COST AND EXPENSES:
Interest. . . . . . . . . . . . . 156,161 112,966
Cost of equipment sales . . . . . 94,534 75,350
Selling, general, and
administrative . . . . . . . . . 49,657 51,952
Provision for receivable losses . 7,119 (5,057)
________ ________
Total cost and expenses. . . . 307,471 235,211
________ ________
EARNINGS BEFORE INCOME TAXES: 124,900 130,680
Provision for income taxes. . . . . 49,210 51,497
________ ________
NET EARNINGS:. . . . . . . . . $ 75,690 $ 79,183
======== ========
<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) 1998 1997
<CAPTION> __________ _________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . $ 75,690 $ 79,183
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . 463,943 311,550
Provision for receivable losses. . . . . . . . 7,119 (5,057)
Increase in deferred income taxes. . . . . . . 30,428 42,132
Decrease in interest and other accruals . . . (70,363) (51,013)
Gross profit on equipment sales. . . . . . . . (15,295) (11,305)
Other items that provided (used) cash:
Proceeds from equipment sales. . . . . . . . 109,829 86,655
Decrease in amounts due IBM and affiliates . (898,335) (825,926)
Other, net . . . . . . . . . . . . . . . . . 3,388 948
__________ _________
Cash used in operating activities . . . . . . . . (293,596) (372,833)
__________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in capital leases . . . . . . . . . (563,059) (506,692)
Collection of capital leases, net of income
earned. . . . . . . . . . . . . . . . . . . . 570,078 356,004
Investment in equipment on operating leases. . (368,966) (392,133)
Investment in loans receivable . . . . . . . . (318,368) (280,206)
Collection of loans receivable, net of
income earned . . . . . . . . . . . . . . . . 333,856 214,090
Purchase of factored IBM receivables . . . . . (1,556,471) -
Collection of factored IBM receivables . . . . 1,606,322 -
Collection of working capital
financing receivables, net . . . . . . . . . 588,917 319,325
Purchases of marketable securities . . . . . . (29,000) (21,500)
Maturities of marketable securities. . . . . . 53,262 16,594
Other, net . . . . . . . . . . . . . . . . . . (126,330) 100,594
___________ _________
Cash provided by (used in) investing activities . 190,241 (193,924)
___________ __________
<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)
1998 1997
__________ _________
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . 900,106 590,957
Repayment of debt with original maturities
of one year or more . . . . . . . . . . . . . (105,962) (23,800)
(Repayment)issuance of debt with original
maturities within one year, net . . . . . . . (824,504) 107,829
Cash dividends paid to IBM . . . . . . . . . . (25,000) (50,000)
__________ _________
Cash (used in)provided by financing activities . (55,360) 624,986
__________ _________
Change in cash and cash equivalents . . . . . . . (158,715) 58,229
Cash and cash equivalents, January 1. . . . . . . 792,471 632,834
__________ _________
Cash and cash equivalents, March 31 . . . . . . . $ 633,756 $ 691,063
========== =========
<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 for 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 1.80 and 2.16 for the three
months ended March 31, 1998, and 1997, respectively.
COMPREHENSIVE INCOME:
The Company implemented Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income,"
effective January 1, 1998. This standard requires that the
total change 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 month periods ending March 31, 1998 and 1997,
respectively, other than net earnings, there were no items
to report.
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 $213.1 million and $196.6 million of such
financings during the three months ended March 31, 1998 and
1997, respectively. At March 31, 1998, and December 31,
1997, approximately $1,283.5 million and $1,255.0 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 $32.9
million and $22.1 million in the first three months of 1998
and 1997, respectively.
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<PAGE 8>
RELATED COMPANY TRANSACTIONS (Continued)
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 first quarter of 1998, ICIFC and ICEFC acquired
IBM customer receivables having a nominal value of $1,578.2
million for approximately $1,556.5 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.
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<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 March 31, 1998, were
$75.7 million, yielding an annualized return on average
equity of 17.9 percent. Net earnings for the three months
ended March 31, 1997, were $79.2 million.
Effective 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 March 31, 1998, the Company
originated capital equipment financing for end users of
$1,346.1 million, a 2 percent increase from $1,323.4 million
for the same 1997 period. For the three months ended March
31, 1998, originations of working capital financing for
dealers and remarketers of information industry products
increased by 3 percent to $3,209.2 million, from $3,127.7
million for the same 1997 period.
The growth in capital equipment financing originated is
related to an increase in the propensity for customers to
finance their acquisitions with the Company, during the
first quarter of 1998, compared with the same period in
1997.
Capital equipment financings for end users included
purchases of $777.7 million of information handling systems
from IBM, consisting of $492.9 million for capital leases
and $284.8 million for operating leases. In addition,
capital equipment financings for end users included the
following: (1) financing originated for installment
receivables of $45.1 million; (2) financing for IBM software
and services of $273.3 million; (3) installment and lease
financing for state and local government customers of $57.1
million for the account of IBM; and (4) other financing of
$192.9 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.
The growth in working capital financing originations
reflects volume increases in IBM's personal system client
products for remarketers financed by the Company during the
quarter ended March 31, 1998. 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
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<PAGE 10>
FINANCING ORIGINATED (Continued)
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 and non-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 comprise 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 March
31, 1998, remarketing activities contributed $48.7 million
to pre-tax earnings, a decrease of 2 percent compared with
$49.9 million for the same 1997 period. Refer to Equipment
Sales in Management's Discussion and Analysis on page 11 for
additional details.
At March 31, 1998, the investment in remarketed equipment on
capital and operating leases totaled $262.4 million, an 8
percent decrease from the 1997 year-end investment of $285.5
million.
FINANCIAL CONDITION
ASSETS
Total assets decreased to $15.7 billion at March 31, 1998,
compared with $16.6 billion at December 31, 1997. This
decrease is primarily attributable to repayments of amounts
due to IBM and affiliates, during the first three months of
1998.
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, 1998, marketable securities
included investments in corporate debt securities of $74.6
million and other marketable securities of $29.0 million. At
December 31, 1997, marketable securities included
investments in U.S. federal agency debt securities of $32.8
million and corporate debt securities of $95.0 million.
LIABILITIES AND STOCKHOLDER'S EQUITY
The assets of the business were financed with $11,036.7
million of debt at March 31, 1998. Total short-term and
long-term debt decreased by approximately $31.6 million,
from $11,068.3 million at December 31, 1997. The decline was
the result of decreases in short-term notes of $376.6
million and short-term debt payable to IBM of $300.7
million, offset by
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<PAGE 11>
FINANCIAL CONDITION (Continued)
an increase in long-term debt payable of $547.9 million and
long-term debt payable to IBM of $97.8 million. Included in
the decrease in total debt, is short-term borrowings
associated accounts receivable purchases from selected IBM
subsidiaries during the first quarter of 1998. Included in
short-term debt at March 31, 1998, was $538.3 million
payable to IBM at market terms and conditions, maturing in
April 1998. Included in long-term debt at March 31, 1998,
were $368.7 million, $179.7 million, and $138.7 million
payable to IBM at market terms and conditions, maturing on
August 21, 2000, February 26, 2001, and November 26, 2001,
respectively.
At March 31, 1998, the Company had available $4.6 billion of
a shelf registration with the Securities and Exchange
Commission (SEC) for the issuance of debt securities. On
January 12, 1998, the Company's registration of an
additional $5.0 billion of debt securities was filed with
the SEC. Currently, the Company has avialable a total of
$4.3 billion on the shelf registration with the SEC for the
issuance of debt securities. This allows the Company rapid
access to domestic financial markets. 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 in an aggregate nominal amount of up to 4.0
billion in European Currency Units (ECU), or its equivalent
in any other currency. At March 31, 1998, there were 2.2
billion in ECU available for the issuance of debt securities
under this program. The Company may issue debt securities
over the next nine 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 the ability to use $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 issuance of any asset-backed securities
over the next nine 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. 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 $300.1 million and $600.2 million at March 31, 1998 and
December 31, 1997, respectively.
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<PAGE 12>
FINANCIAL CONDITION (Continued)
The Company and IBM have signed an additional master loan
agreement providing funding flexibility. This agreement
allows for long-term funding, made available at market terms
and conditions, upon the request of the Company. 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, working capital financings 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 $898.3 million to
$1,626.1 million at March 31, 1998, from $2,524.5 million at
December 31, 1997. This decline was primarily attributable
to a $761.0 million decrease in the amount payable for
capital equipment purchases during the first three months of
1998.
Total stockholder's equity at March 31, 1998, was $1,719.6
million, up $50.7 million from year-end 1997. The increase
in stockholder's equity reflects net earnings of $75.7
million for the first three months of 1998, offset by the
payment of $25.0 million in cash dividends to IBM during the
first quarter of 1998.
At March 31, 1998, the Company's debt to equity ratio was
6.4:1, compared with 6.6:1 at December 31, 1997.
TOTAL CASH PROVIDED BEFORE DIVIDENDS
Total cash used before dividends was $133.7 million for the
three months ended March 31, 1998, compared with total cash
provided before dividends of $108.2 million for the same
1997 period. Total cash used before before dividends
reflects $159.9 million of cash provided by investing an
financing activities before dividends, offset by $293.6
million of cash used in operating activities for the first
three months of 1998. For the three months ended March 31,
1997, total cash provided before dividends reflected $481.0
million of cash provided by investing and financing
activities before dividends, offset by $372.8 million of
cash used in operating activities. Cash and cash equivalents
at March 31, 1998, totaled $633.8 million, a decrease of
$158.7 million, compared with the balance at December 31,
1997.
RESULTS OF OPERATIONS
INCOME FROM LEASES
Income from leases increased 19 percent to $166.8 million
for the three months ended March 31, 1998, from $139.8
million for the same 1997 period. The growth in capital
equipment financings for end users during 1997
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<PAGE 13>
FINANCIAL CONDITION (Continued)
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 $41.3 million for the three months ended
March 31, 1998, relatively flat compared to the same 1997
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, that are considered to be other than
temporary, must be recognized currently. A review of the
Company's $1,119.1 million residual value portfolio at March
31, 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 $9.3 million reduction to income from
leases during the first quarter of 1998, compared with a
$2.4 million reduction to income from leases during the
first quarter of 1997.
INCOME FROM WORKING CAPITAL FINANCING
Income from working capital financing increased 15 percent
to $66.2 million for the three months ended March 31, 1998,
compared with the same 1997 period. This increase is
primarily the result of higher average working capital
financing receivable balances during the first quarter of
1998, compared with the same 1997 period.
INCOME FROM LOANS
Income from loans increased 25 percent to $49.8 million for
the three months ended March 31, 1998, compared with the
respective 1997 period. This increase resulted from higher
average asset balances, which in turn were primarily due to
an increase in financing originated for software and
services during 1997 and the first three months of 1998.
EQUIPMENT SALES
Equipment sales amounted to $109.8 million for the three
months ended March 31, 1998, compared with $86.7 million for
the same 1997 period. Contributing to this increase in
equipment sales is the growth of equipment remarketed as
sales, rather than as operating leases. 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, 1998 was $15.3 million, an increase of 35 percent,
compared with $11.3 million for the same 1997 period. The
gross profit margin for first quarter of 1998 increased to
13.9 percent, compared with 13.0 percent for the same
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<PAGE 14>
EQUIPMENT SALES (Continued)
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
changes in gross profit margin.
INCOME FROM FACTORED IBM RECEIVABLES:
Income from factored IBM receivables was $15.3 million for
the three months ended March 31, 1998. The Company did not
enter into any factoring transactions during the three
months ended March 31, 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 42 percent to $24.4 million for the
three months ended March 31, 1998, compared with $41.9
million for the same 1997 period. The overall decrease in
other income is primarily due to the sale of restricted
securities during the three months ended March 31, 1997,
which did not recur during the same 1998 period. The
decrease in other income is also attributable to a decline
in the fees for the servicing of IBM financing receivables
sold, resulting from a decrease in the securitized asset
portfolios during the three months ended March 31, 1998, as
compared to the same 1997 period.
INTEREST EXPENSE
As a result of the growth in capital equipment and working
capital financings originated and factoring of IBM customer
receivables, the Company has experienced an increase in the
average outstanding debt balance. This increase in the
average outstanding debt balance resulted in a 38 percent
growth in interest expense to $156.2 million for the three
months ended March 31, 1998, compared with the same 1997
period. The Company's year-to-date average cost of debt
through March 31, 1998, of 5.6 percent, is flat compared to
the same 1997 period.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses were $49.7
million for the three months ended March 31, 1998, compared
with $52.0 million for the same 1997 period. This decrease
is mainly due to reductions of the Company's resources
during 1997 and the first three months of 1998, resulting in
a decrease 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 and from time to time for capital equipment as
conditions
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<PAGE 15>
PROVISION FOR RECEIVABLE LOSSES (Continued)
warrant. The portfolio is diversified by geography,
industry, and individual unaffiliated customer.
The Company provides for working capital financing
receivable losses on the basis of actual collection
experience and estimated collectibility of the related
financing receivables. With the continued growth of the
Company's working capital financing business in 1997 and the
first three months of 1998, 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 March 31, 1998, and December 31, 1997,
approximately 66 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 1997 or the first three
months of 1998. 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 increased by $12.2
million for the quarter ended March 31, 1998, compared with
the same 1997 period. The increase in the provision for
receivable losses was the result of declines, during the
quarter ended March 31, 1997, 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.
INCOME TAXES
Income taxes decreased 4 percent to $49.2 million for the
three months ended March 31, 1998, from $51.5 million for
the same period in 1997. The decline in the provision for
income taxes is due to the decrease in pre-tax earnings for
the three months ended March 31, 1998.
RETURN ON AVERAGE EQUITY
The results for the first three months of 1998 yielded an
annualized return on average equity of 17.9 percent,
compared with 22.1 percent for the first three months of
1997.
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>
FORWARD LOOKING STATEMENTS
Except for the 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 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 customer; the Company's associated
collection and asset management efforts; the Company's
determination of residual values; currency fluctuations on
the associated debt 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.
-14-
<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 January 12, 1998, was filed with respect to the Company's
Registration Statement No. 333-42755 on Form S-3, relating to $5,000,000,000
aggregate principal amount of debt securities of the Registrant.
A Form 8-K dated January 20, 1998, was filed with respect to the Company's
financial results for the period ended December 31, 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: May 14, 1998 By: /s/ Kimberly A. Kispert
_________________ ___________________________
(Kimberly A. Kispert)
Vice President, Finance
and Chief Financial Officer
-15-
<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, 1998, 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 633,756
<SECURITIES> 103,585
<RECEIVABLES> 5,800,107
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,652,966
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 457,411
0
0
<OTHER-SE> 1,262,228
<TOTAL-LIABILITY-AND-EQUITY> 15,652,966
<SALES> 109,829
<TOTAL-REVENUES> 432,371
<CGS> 94,534
<TOTAL-COSTS> 94,534
<OTHER-EXPENSES> 49,657
<LOSS-PROVISION> 7,119
<INTEREST-EXPENSE> 156,161
<INCOME-PRETAX> 124,900
<INCOME-TAX> 49,210
<INCOME-CONTINUING> 75,690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,690
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
