<PAGE>1
United States
Securities and Exchange Commission
Washington, D.C. 20549
______________________
Form 10-Q
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1995
OR
Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to _________________
______________________
MCDONNELL DOUGLAS FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2564584 0-10795
(State or other (I.R.S. Employer (Commission File No.)
jurisdiction of Identification No.)
Incorporation or
Organization)
4060 Lakewood Boulevard, 6th Floor - Long Beach, California 90808-1700
(Address of principal executive offices)
(310) 627-3000
(Registrant's telephone number, including area code)
______________________
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Common shares outstanding at May 15, 1995: 50,000 shares
Registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) to Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
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Table of Contents
Page
Part I Financial Information
Item 1. Financial Statements 3
Item 2. Management's Analysis of Results of Operations 9
Part II Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 13
- ---------------
* Omitted pursuant to General Instruction H (1)(a) and (b) to Form 10-Q.
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Part I
Item 1. Financial Statements
McDonnell Douglas Finance Corporation and Subsidiaries
Consolidated Balance Sheet
March 31, December 31,
(Dollars in millions, except stated value 1995 1994
and par value amounts)
ASSETS
Financing receivables:
Investment in finance leases $1,092.1 $ 1,090.3
Notes receivable 332.6 351.7
----------------------
1,424.7 1,442.0
Allowance for losses on financing
receivables (40.0) (40.7)
----------------------
Financing receivables, net 1,384.7 1,401.3
Cash and cash equivalents 23.7 13.1
Equipment under operating leases, net 451.7 374.3
Equipment held for sale or re-lease 23.9 12.1
Accounts with MDC and MDFS 35.5 44.9
Other assets 93.7 83.9
----------------------
$2,013.2 $ 1,929.6
======================
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term notes payable $ 177.7 $ 103.8
Accounts payable and accrued expenses 18.4 44.0
Other liabilities 89.5 92.5
Deferred income taxes 308.4 306.1
Long-term debt:
Senior 1,062.7 1,023.8
Subordinated 84.8 87.5
----------------------
1,741.5 1,657.7
----------------------
Commitments and contingencies - Note 3
Shareholder's equity:
Preferred stock - no par value; authorized
100,000 shares:
Series A; $5,000 stated value; authorized,
issued and outstanding 10,000 shares 50.0 50.0
Common stock - $100 par value; authorized
100,000 shares; issued and outstanding
50,000 shares 5.0 5.0
Capital in excess of par value 89.5 89.5
Income retained for growth 127.2 127.4
----------------------
271.7 271.9
----------------------
$2,013.2 $ 1,929.6
======================
See notes to consolidated financial statements.<PAGE>
<PAGE>4
McDonnell Douglas Finance Corporation and Subsidiaries
Consolidated Statement of Income and Income Retained for Growth
Three months ended
March 31,
(Dollars in millions) 1995 1994
OPERATING INCOME
Finance lease income $ 26.0 $ 25.3
Interest on notes receivable 8.4 7.6
Operating lease income, net of
depreciation expense 9.6 9.8
Net gain on disposal or re-lease of
assets 1.6 2.5
Other 1.3 2.8
------------------
46.9 48.0
------------------
EXPENSES
Interest expense 25.7 28.2
Provision for losses 2.7 1.8
Operating expenses 3.1 4.4
Other 0.9 0.4
------------------
32.4 34.8
------------------
Income before taxes on income 14.5 13.2
Provision for income taxes 4.8 5.0
------------------
Net income 9.7 8.2
Income retained for growth at beginning
of year 127.4 129.6
Dividends (9.9) (6.4)
------------------
Income retained for growth at end of
period $ 127.2 $131.4
==================
See notes to consolidated financial statements.
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McDonnell Douglas Finance Corporation and Subsidiaries
Consolidated Statement of Cash Flows
Three months ended
March 31,
(Dollars in millions) 1995 1994
OPERATING ACTIVITIES
Net income $ 9.7 $ 8.2
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense - equipment under 10.6 9.2
operating leases
Net gain on disposal or re-lease of assets (1.6) (2.5)
Provision for losses 2.7 1.8
Change in assets and liabilities:
Accounts with MDC and MDFS 9.4 31.3
Other assets (9.8) (12.3)
Accounts payable (26.5) (26.6)
Other liabilities (3.0) (4.0)
Deferred income taxes 2.3 4.2
Other, net 5.3 3.0
----------------
(0.9) 12.3
----------------
INVESTING ACTIVITIES
Net change in short-term notes and leases
receivable 34.9 (143.2)
Purchase of equipment for operating leases (85.0) (7.0)
Proceeds from disposition of equipment, notes and
leases receivable 6.0 19.5
Collection of notes and leases receivable 6.8 87.3
Acquisition of notes and leases receivable (45.4) (50.1)
----------------
(82.7) (93.5)
----------------
FINANCING ACTIVITIES
Net change in short-term borrowings 73.9 89.9
Debt having maturities more than 90 days:
Proceeds 117.0 56.2
Repayments (87.7) (104.0)
Payment of cash dividends (9.0) (5.5)
----------------
94.2 36.6
----------------
Increase (decrease) in cash and cash equivalents 10.6 (44.6)
Cash and cash equivalents at beginning of year 13.1 65.5
----------------
Cash and cash equivalents at end of period $23.7 $20.9
================
See notes to consolidated financial statements.
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McDonnell Douglas Finance Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation
McDonnell Douglas Finance Corporation (the "Company") is a wholly-owned
subsidiary of McDonnell Douglas Financial Services Corporation ("MDFS"), a
wholly-owned subsidiary of McDonnell Douglas Corporation ("MDC"). In the
opinion of management, the accompanying consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) which are
necessary to present fairly the consolidated balance sheet and the related
consolidated statements of income and income retained for growth and cash
flows for the interim periods presented. The statements should be read in
conjunction with the notes to the consolidated financial statements included
in the Company's Form 10-K for the year ended December 31, 1994.
Certain 1994 amounts have been reclassified to conform to the 1995
presentation.
Note 2 - Credit Agreements and Long-Term Debt
The provisions of various credit and debt agreements require the Company to
maintain a minimum net worth, restrict indebtedness, and limit cash dividends
and other distributions. Under the most restrictive provision, $51.7 million
of the Company's income retained for growth was available for dividends at
March 31, 1995.
Note 3 - Commitments and Contingencies
In 1994, certain debtors of the Company commenced actions against the Company
seeking damages in excess of $14.0 million based on various contractual and
tort claims arising out of financing and loan agreements. Concurrently, the
Company brought actions against the debtors to collect overdue amounts under
the loans provided by the Company. No response to discovery has taken place
in any of these actions. At this early stage of the legal proceedings it is
not possible to predict with any certainty the ultimate outcome of these
related legal proceedings. The Company intends to vigorously defend such
claims. Based on information currently available, the Company believes it has
meritorious defenses to all of the allegations of wrongdoing and that there
will be no material adverse effect on the Company's earnings, cash flow or
financial position.
At March 31, 1995 and December 31, 1994, the Company had unused credit lines
available to customers totaling $4.4 million and $3.1 million; and commitments
to provide leasing and other financing totaling $163.8 million and $94.4
million.
In conjunction with prior asset dispositions, at March 31, 1995, the Company
was subject to a maximum recourse of $51.7 million. Based on trends to date,
the Company's exposure to such loss is not expected to be significant.
The Company leases aircraft under capital leases which have been subleased to
others. At March 31, 1995, the Company had guaranteed the repayment of $8.8
million in capital lease obligations associated with a 50% partner.
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On March 31, 1995, MDC, the Company and the Company's largest customer signed
a term sheet agreement under which the Company is to be paid, over a 28-month
period, amounts due from this customer aggregating $29.1 million, which had
been deferred from October 1, 1994 through March 31, 1995. This customer is
current on its payments under this agreement, but no assurance can be given
that this customer will be able to perform its obligations thereunder. MDC
has increased by $11.5 million the aggregate amount of its guaranties of this
customer's obligations to the Company.
Item 2. Management's Analysis of Results of Operations
Net gain on disposal or re-lease of assets decreased $0.9 million (38.0%) from
the first quarter of 1994, primarily attributable to a 1994 sale of an
executive jet within the commercial equipment leasing portfolio.
Other income was $1.5 million (52.5%) lower than the first quarter of 1994,
attributable primarily to decreased short-term investment income.
Operating expenses decreased $1.3 million (29.7%) from the first quarter of
1994, attributable primarily to closing the offices of McDonnell Douglas
Capital Corporation, McDonnell Douglas Bank Limited and the Company's
receivable inventory financing group, and reductions in the Company's
personnel.
Part II
Item 1. Legal Proceedings
In 1994, certain debtors of the Company commenced actions against the Company
seeking damages in excess of $14.0 million based on various contractual and
tort claims arising out of financing and loan agreements. Concurrently, the
Company brought actions against the debtors to collect overdue amounts under
the loans provided by the Company. No response to discovery has taken place
in any of these actions. At this early stage of the legal proceedings it is
not possible to predict with any certainty the ultimate outcome of these
related legal proceedings. The Company intends to vigorously defend such
claims. Based on information currently available, the Company believes it has
meritorious defenses to all of the allegations of wrongdoing and that there
will be no material adverse effect on the Company's earnings, cash flow or
financial position.
Item 5. Other Information
Information on the Company's portfolio balances; new business volume; analysis
of allowance for losses on financing receivables and credit loss experience;
receivable writeoffs, net of recoveries by business unit; and commercial
aircraft financing are summarized below.
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<PAGE>8
Portfolio Balances
Portfolio balances for the Company's various business segments is summarized
as follows:
March 31, December 31,
(Dollars in millions) 1995 1994
MDC aircraft financing:
Finance leases $ 749.4 $ 748.2
Operating leases 258.5 197.8
Notes receivable 174.9 194.8
----------------------
1,182.8 1,140.8
----------------------
Other commercial aircraft financing:
Finance leases 124.0 125.2
Operating leases 50.0 43.1
Notes receivable 22.7 23.9
----------------------
196.7 192.2
----------------------
Commercial equipment leasing:
Finance leases 218.6 216.8
Operating leases 143.3 133.4
Notes receivable 23.6 18.5
Preferred and preference stock - 0.7
----------------------
385.5 369.4
----------------------
Non-core businesses:
Finance leases - -
Operating leases - -
Notes receivable 111.4 113.9
----------------------
111.4 113.9
----------------------
$ 1,876.4 $1,816.3
======================
New Business Volume
New business volume for the Company's various business segments are summarized
as follows:
Three months Year ended
ended March 31, December 31,
(Dollars in millions) 1995 1994
MDC aircraft financing $ 85.5 $ 110.0
Other commercial aircraft financing - 7.9
Commercial equipment leasing 37.6 84.1
Non-core businesses - -
-------------------------
$ 123.1 $ 202.0
=========================<PAGE>
<PAGE>9
Analysis of Allowance for Losses on Financing Receivables and Credit Loss
Experience
March 31, December 31,
(Dollars in millions) 1995 1994
Allowance for losses on financing receivables at
beginning of year $ 40.7 $ 35.6
Provision for losses 2.7 9.9
Write-offs, net of recoveries (3.4) (4.9)
Other - 0.1
---------------------
Allowance for losses on financing receivables at
end of period $ 40.0 $ 40.7
=====================
Allowance as percent of total portfolio 2.1% 2.2%
Net write-offs as percent of average portfolio 0.3% 0.3%
More than 90 days delinquent:
Amount of delinquent installments $ 4.1 $ 2.8
Total receivables due from delinquent obligors $ 42.2 $ 43.2
Total receivables due from delinquent obligors
as a percentage of total portfolio 2.3% 2.4%
Receivable Write-offs, Net of Recoveries by Business Unit
The following table summarizes the loss experience of each of the business
units:
Three months Year ended
ended March 31, December 31,
(Dollars in millions) 1995 1994
Commercial aircraft financing $ 1.6 $ (1.9)
Commercial equipment leasing 0.9 2.5
Non-core businesses 0.9 4.3
-------------------------
$ 3.4 $ 4.9
=========================
Commercial Aircraft Financing
On March 31, 1995, MDC, the Company and Trans World Airlines, Inc. ("TWA")
signed a term sheet agreement under which the Company is to be paid, over a
28-month period, amounts due from TWA aggregating $29.1 million, which have
been deferred from the period from October 1, 1994 thorough March 31, 1995.
TWA is current on its payments under this agreement, but no assurance can be
given that TWA will be able to perform its obligations thereunder. On account
of the increased amount owing from TWA to the Company caused by the foregoing
payment deferrals, MDC has increased by $11.5 million the aggregate amount of
its guaranties of TWA's obligations to the Company.
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Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 12 Computation of ratio of income to fixed charges.
Exhibit 27 Financial Data Schedule.
B.Reports on Form 8-K
None.
Signatures
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, its principal accounting officer, thereunto duly authorized.
McDonnell Douglas Finance Corporation
May 15, 1995 /s/ Thomas J. Lawlor, Jr.
__________________________________
Thomas J. Lawlor, Jr.
Senior Vice President and Chief Financial
Officer (Principal Financial Officer) and
Registrant's Authorized Officer
/s/ Stephen J. Barker
__________________________________
Stephen J. Barker
Controller (Principal
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 23,700
<SECURITIES> 0
<RECEIVABLES> 332,600
<ALLOWANCES> (40,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,013,200
<CURRENT-LIABILITIES> 0
<BONDS> 1,147,500
<COMMON> 5,000
0
50,000
<OTHER-SE> 127,200
<TOTAL-LIABILITY-AND-EQUITY> 2,013,200
<SALES> 0
<TOTAL-REVENUES> 46,900
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 900
<LOSS-PROVISION> 2,700
<INTEREST-EXPENSE> 25,700
<INCOME-PRETAX> 14,500
<INCOME-TAX> 4,800
<INCOME-CONTINUING> 9,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,700
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
McDonnell Douglas Finance Corporation and Subsidiaries EXHIBIT 12
Computation of Ratio of Income to Fixed Charges
Three months ended
March 31,
(Dollars in millions) 1995 1994
Income:
Income before taxes on income $ 14.5 $ 13.2
Fixed charges 26.6 29.1
---------------------
Income before taxes on income and fixed
charges $ 41.1 $ 42.3
=====================
Fixed charges:
Interest expense $ 25.7 $ 28.2
Preferred stock cash dividends 0.9 0.9
----------------------
$ 26.6 $ 29.1
======================
Ratio of income before taxes on income and
fixed charge to fixed charges 1.55 1.45
=======================
